Smart money tips from your first payslip to the last

From your first pay cheque to your final pension payout, how you invest matters. In a world where markets zigzag thanks to everything from global pandemics to political curveballs, there’s one thing that never changes: the basics.

Two seasoned investment houses, Ninety One and Ashburton Investments, offer guidance that works, whether you’re fresh into your new job or winding down your career. Their advice? Tune out the noise and zero in on what you can control.

Start early, stay steady

Albert Botha, head of fixed income at Ashburton, puts it plainly: most of your success comes from showing up early, saving often, and letting time do its thing. Regular contributions, even small ones, can grow into something meaningful thanks to compound interest. “Live for today,” says his colleague Steven Amey, the head of intermediated distribution, “but don’t forget to plan for tomorrow.”

Part of this strategy involves knowing why you’re investing and having a clear financial goal. Are you saving for retirement, a home, a new venture, or your children’s education? Knowing your “why” helps define your risk tolerance and investment time horizon.

Diversify – and think beyond your backyard

Putting everything into one market, especially just South Africa, is risky business. The JSE and other domestic assets are a tiny piece of the global puzzle, and broadening your portfolio to include international investments can offer a cushion when local markets hit turbulence.

A diversified portfolio also spreads risk across different asset classes – such as equities, bonds, property, cash and alternative assets such as private equity and hedge funds. This helps to broaden your investments so that a poor performance in a particular asset class can be offset by another.

The experts advise that you consider balanced exposure to global equities or funds tailored to international markets to help you weather fluctuations that can affect South African investors. Offshore investing offers access to broader opportunities and can act as a hedge against local currency and market risks.

Know what you’ve got

Ashburton’s head of credit, Santhuri Thaver, says that understanding your investments is one of the smartest things you can do. Knowing how your fund works, what it’s exposed to, and why it performs the way it does is essential to staying calm when markets are not.

“One of the best financial investments is education,” she says. Empower yourself by knowing a range of financial terminology and tactics that can help you weigh up your options for better personal financial management.

This is especially important for retirees, where regular drawdowns can compound losses if assets are sold at the bottom of the market.

Don’t panic when markets wobble

Generating returns that outpace inflation is key to maintaining a sustainable income in retirement, but doing so inevitably involves taking on some level of risk, says Ninety One product specialist Marc Lindley. In times of market turmoil, such as Donald Trump’s recent “Liberation Day” shock, or previous jolts like Covid and the global financial crisis, it’s common for investors to respond with panic and shift their portfolios into cash.

While this reaction is understandable, it can end up cementing losses and undermining long-term financial security, especially when regular withdrawals and the effects of inflation are taken into account.

History has shown that markets often bounce back quicker than expected, and stepping out too early can mean missing the recovery altogether.

Retirees in living annuities face an extra challenge during these times. Their requirement for income forces them to make regular withdrawals, even at times when the capital value of their investment has been reduced significantly. They must find the right balance: protecting capital while staying invested enough to maintain both purchasing power and a reliable income stream.

Ninety One ran the numbers on a R5m living annuity invested just before the 2008 crash. The best results came from doing … nothing.

Using real-world data, Ninety One simulated five scenarios, including switches to cash during the 2008 crash or Covid. The difference is stark:

1. Staying invested throughout delivered the best outcome, with a final portfolio value of nearly R10m and a 6.04% drawdown.
2. Switching to cash permanently left just R1.7m at the end, with an unsustainable 17.5% income draw in 2022, essentially rendering the retiree’s portfolio unable to meet income needs.
3. Trying to time the market resulted in over 50% less capital than if the investor had simply stayed put. This would have resulted in an end value of only R4.8m with an income draw of 12.28% of the capital value.
4. If the client held their nerve during the global financial crisis and remained invested in the fund, but switched to cash for a year during Covid before switching back into the fund, it would have resulted in a value of R8.6m, leaving the client with 13% less capital than if they had remained invested throughout. The final income draw increases to 6.88%.
5. The final scenario, in which the client held their nerve during the global financial crisis but then switched into cash during Covid and remained there, resulted in a value of R7.3m (>25% lower than remaining invested) and a dramatic increase in the income draw to 8.2%. 

The lesson? Switching to cash during panic not only locks in losses but also risks missing the recovery.

Invest for your future self

Whether retirement feels miles away or just around the corner, the key is having a plan and sticking to it. As Ashburton’s global multi-asset investment strategist Jarred Sullivan says, your future self will be glad you delayed immediate gratification in favour of building your long-term financial future.

This version corrects the gender of Santhuri Thaver in the 9th paragraph and the title of Jarred Sullivan in the final paragraph.