Retirement roadmap: Think long term and focus on capital accumulation

ANIL THAKERSEE Executive: Marketing & Business Development, PPS Investments

There are several key enablers to help clients achieve their retirement goals, such as compounding returns, asset allocation, diversification and tax benefits, but one of the primary objectives when planning for retirement is capital accumulation. Successful planning for retirement is about capital accumulation through multiple economic and market cycles. These cycles have always been there and are likely to continue to be part of the investment landscape. However, if clients have time on their side, these cycles can present opportunities, particularly if they make regular contributions to their retirement savings.

When considering the traditional asset classes, equities have typically delivered the best real returns over the long term. This attractive real return does come with volatility over shorter periods and is, to some extent, the nature of this asset class. You will often see headlines detailing massive losses and double-digit drops in market returns during a crisis. However, it’s important to remind clients that the numbers they see in the news are not their portfolios. Clients will not have exposure to one specific share or company with a well-diversified portfolio, but have diversification across asset classes, asset managers, geographical locations, and even investment strategies. This means that, at any point in time, clients will have exposure to an element in their portfolio that, when optimally combined, could act in a complementary way. Therefore, the portfolio is better able to withstand fluctuating market conditions, creating smoother returns over the long run.

Strategy over tactics

When investing through a crisis, emotions play a big part in decisionmaking. Panic often leads to reactive decision-making, and this phenomenon seemed to play out in 2020. Data from the Association for Savings and Investment SA shows that some investors either lowered their exposure to or completely disinvested from equity during the Covid-19 period as news of negative economic growth dominated the narrative. It’s important to note that investors require exposure to growth assets, such as equity, during the accumulation phase to ensure they have enough capital at retirement. When clients make knee-jerk changes to their portfolio allocation based on short-term market events or news, it can have lasting consequences on their ability to reach retirement saving goals.

Retirement roadmap

Market volatility is a natural and inevitable part of investing, and those declines are often unpredictable, but history shows that the return profile eventually smooths out over time. Encourage clients to remain invested in a sensibly diversified portfolio and focus on the long term rather than responding to market events that may be shortlived. Doing this helps ensure they stay on track to achieve their retirement goals set out as part of their holistic retirement plan.

PPS Investments offers a range of funds across the risk spectrum to help you, as the financial adviser, construct a sensibly diversified portfolio that provides growth opportunities, while also providing downside protection to keep your client’s retirement portfolio on track during all investment cycles.

Disclaimer: The information, opinions and any communication from PPS Investments Group, whether written, oral or implied, are expressed in good faith and not intended as investment advice; neither does it constitute an offer or solicitation in any manner. Furthermore, all information provided is of a general nature with no regard to the specific investment objectives, financial situation or particular needs of any person. It is recommended that investors first obtain appropriate legal, tax, investment or other professional advice prior to acting upon such information.

PPS Investments Group is a subsidiary of Professional Provident Society Insurance Company Limited, a Licensed Insurer and Financial Services Provider. PPS Investments Group consists of the following authorised Financial Services Providers: PPS Investments (Pty) Ltd (“PPSI”), PPS Multi-Managers (Pty) Ltd (“PPSMM”) and PPS Investment Administrators (Pty) Ltd (“PPSIA”); and includes the following approved Management Company under the Collective Investment Schemes Control Act: PPS Management Company (RF) (Pty)Ltd (“PPS Manco”). Financial services may be provided by the representative(s) rendering financial services under supervision.www.pps. co.za/invest