Take control of investment results

A focus on performance places too much emphasis on something that is out of your control: what the market will do next month, or next year. Ultimately, how markets perform over the short term is not as important as time itself when it comes to investment results.

Indeed, as our research shows, despite the various challenges of the past three decades – the fraught transition to democracy, the global financial crisis, etc. – even someone who invested at the worst time of the month, every month, for the past thirty years, would have achieved 88% of the returns of an investor who managed to invest at the perfect time of the month, every month.

Rather than focus on what you cannot control, investors should focus on what they can control:

  • Fees: the higher the fees you pay, the more your investment returns will be eroded.
  • Time: the sooner you start earning investment returns, the sooner those returns start compounding.
  • Taxes: tax-efficient investment vehicles help to preserve your returns. For instance, with tax-free savings accounts (or TFSA’s), you enjoy tax-free growth on your investment. In the case of retirement annuities (or RA’s), the contributions to your RA are tax-deductible, and you enjoy tax-free growth on your investment until you retire, at which time you have the option of accessing up to a third of your investment tax-free.

While it is important to make educated decisions regarding the fees and taxes associated with an investment product, time is the one factor that lies entirely in your hands.

The value of time

The graph shows the difference between two investors who both start their careers at age 20:

  • Investor One invests R500 every month between the ages of 20 and 30 before he stops.
  • Investor Two only starts investing at age 30, and he invests R500 every month until he retires at age 60.
Article for bidvest. blog
Source: Cannon Asset Managers, 2019

Investor One invests R60 000 over a 10-year period, whereas Investor Two invests R180 000 over a 30-year period.

While both receive the same annualised 10% return on their investment (for the purposes of this example, in Cannon Asset Manager’s Balanced Growth RA Bundle), because Investor One started 10 years earlier than Investor Two, his investment has grown nearly twice that of Investor Two.

Which investor are you?

Disclaimer: This is an example, used only for illustrative purposes. The example assumes: the investors invest the full allocation in an investment product earning an investment return of 10% per annum after all fees and costs, which is based on the historical returns produced by the Cannon Asset Managers Balanced Portfolio, over 30 years; and that the investment is held until retirement age. This document has been prepared for information purposes only and is not an offer or solicitation of an offer to buy or sell the product. While every care has been taken in preparing this document, no representation, warranty or undertaking, express or implied, is given and no responsibility or liability is accepted by Cannon Asset Managers as to the accuracy or completeness of the information or representations in this document. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Nothing in this document should be construed as any form of financial advice. Cannon Asset Managers will not be liable for any claims, liability, damages - whether direct or indirect, actual or consequential, loss, penalty, expense or cost of any nature, which you may incur should you enter into any proposed transaction/s or act on any information set out in this document. Please note that the information in this document may not be reproduced in whole or in part for any purpose without the express consent of Cannon Asset Managers. All information in this document is subject to change after publication without notice. Some transactions described in this document may give rise to substantial risk and may not be suitable for all investors. Please contact Cannon Asset Managers before acting on any information in this document, as Cannon Asset Managers makes no representation or warranty about the suitability of a product for a particular client or circumstance. You should take particular care to consider the implications of entering into any transaction including tax implications. A financial needs analysis should be performed to assess the appropriateness of the product, to your particular needs. Past performance is not an indicator of future performance.

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