New job? Perfect time to revisit your investment strategy

Once you have started a new job with a promising career path, your first salary should be the catalyst to make you think seriously about using and investing your money wisely. Putting together a financial plan with the help of an accredited financial advisor, or reviewing your existing plan, is an important step toward achieving your long term financial goals.

One goal that should always be part of your financial plan is to save enough for a comfortable retirement. It is hard to catch-up with savings when you started saving for retirement later than advised. Too many people delay investing for retirement for too long and are thus unable to retire comfortably, because they haven’t saved enough. 

Due to modern healthcare solutions and rapidly advancing medical research, coupled with healthy lifestyles, many people live well into their 80s or 90s, yet the official retirement age in South Africa is in the 60’s. Imagine how much you would need to save in order to have enough money to sustain yourself during your retirement years, if you live for another 30 years after you have retired. 

Investing is a journey and not a once-off event. You need to be prepared to stay the course for the long haul and be aware of the below considerations if you wish to achieve optimal savings to sustain your retirement years. 

The impact of starting early

Your investment outcome depends on how much you invest how long you remain invested and the growth that your investments generate. The more you save and the longer the duration, the greater the reward when your investment reaches maturity. 

By even having a five-year head start it can make a substantial difference to your investment in the long term. If you wished to retire at age 65, and started investing R500 per month from the age of 25 in a fund earning 10% per year, by the time you retire you would have accumulated R3 162 039.79. This is compared to the R1 898 319.03 you would have accumulated had you only started investing at the age of 30 instead. 

*Please note that this scenario does not take any costs into account as these differ from provider to provider. 

 (Click on image to enlarge)

This guideline may differ from fund to fund, and from person to person so it is advisable to speak to an accredited financial planner before making any investment decisions. 

Reinvesting interest earned, returns and dividends

To help your funds grow even more substantially over time, you have the option of reinvesting your interest earned, returns and dividends to benefit from the power of compounding over time. The longer you do this, the more your investments are able to grow exponentially. In this example, while you would have only invested an extra R30 000 during those five-years, due to the power of compounding interest, you would have earned an extra R1 263 720.76. 

Preserve the money you save

When you work for an employer, often you’re given the option to invest in their corporate pension or provident fund. When you do eventually start thinking of moving to your next job, try to resist the temptation to tap into your retirement savings. Instead, you could consider investing in a suitable preservation fund. Failure to preserve accumulated retirement savings means that you have to start saving from scratch – and that will mean you have less time to save. 

The journey is more than just the destination

Remember that it’s not only about your retirement plans. It’s also about all the goals along the way. Aside from general day-to-day expenses like petrol, insurance and groceries, you may choose to buy a house, a car, to travel extensively or to have children. Some people even opt to do it all simultaneously. It may be enough to trust that you will have enough disposable income to fund these expenses. However, for these short-term goals, it makes far more sense to give yourself a head start by putting some money aside in a shorter-term investment.