“We have had a few years where economic growth has been poor and salary increases have been low. People are actually getting poorer after inflation,” he says.
“Officially, inflation is running at 5% or less, but almost every one of us has an inflation rate that is much higher.”
He points to school fees, which are “anywhere between 8% and 15% higher”, medical aid is up by 8-10%, and prices of water and electricity also seem to be growing at double digit rates.
“We have less disposable income and less money to save. But it is critical that we save even when we are being squeezed.”
“What we can do that is easy and painless and incredibly rewarding is get better value for our savings.”
There are a few simple steps you can take to get financially fit.
1: Take charge
“Nobody cares more about your money than you do,” Nathan says. “Brokers, financial advisors and fund managers are usually incentivised to make money for themselves. They will be thinking about their own finances, their profits, their shareholders.”
Remember that you are your number one priority, not theirs!
Luckily, becoming financially fit is easier than ever, because information is freely and widely available.
“This intelligence is on the internet. Because of Google we now have the truth at our fingertips,” says Nathan. “Go online and you can hear from renowned experts, such as Warren Buffett and Nobel economics prize winners. They all say the same thing.”
And what they’re saying is simple: pay low fees, track an index, and invest for growth.
2: Pay lower fees
In 2018, undertake to save half a percent or one percent in fees.
“Fees come off the total return of your investment and reduce your long-term wealth,” Nathan says. “The compounded impact of paying higher fees is dramatic.”
Reducing your fees by just a percent gives your long-term savings outcome a tremendous boost. Over 40 years, each 1% that you save in fees can increase the final value of your investment by 30%.
And it’s not difficult to do. Find out what you’re currently paying, shop around, and see where you can get a better deal.
Moving to a less expensive fund or asset manager is a change you make once but benefit from forever.
The reality is that most people can actually save 2% in fees quite easily, maybe even more. The industry charges an average of 3% in fees, although some companies charge 4% or 5%. 10X always charges less than 1% before VAT.
Additionally, when it comes to high fees, you rarely get what you pay for, as more expensive funds mostly perform worse.
Which brings us to the next tip.
3: Invest in an index tracking fund
Broadly speaking, there are two approaches to investing: active management and index tracking (or passive management).
Actively managed funds cost more, partly because they have expensive research teams that help them “actively” choose which stocks to buy and sell and when. Index tracking funds, on the other hand, do just that: they “passively” track an index by buying all the stocks in it, and then sticking with those stocks, thus matching the performance of the market.
With active fund management, Nathan says, the research shows that you are paying a premium for worse returns: despite all the research they do, 80% of active funds underperform the index.
“Don’t pay a premium for worse returns; rather secure a discount for better returns,” says Nathan. “You benefit doubly.”
More and more investors are discovering that it is in their best interests to invest in index funds and achieve the market return at a much lower cost.
“I think people are getting the message. If you look at the biggest trend globally in investment management, it is this enormous rejection of active management in favour of index funds.”
But, are all index funds created equal? No.
4: Invest for growth
Find out and understand what kind of portfolio your money is invested in.
The experts – the likes of Warren Buffet and the Nobel Laureates alluded to above – “all say the same thing,” Nathan says. “To get the best value for your savings you should be investing for growth, which is owning blue chip companies (equities) over long periods through economic cycles.”
He says don’t own just a few shares for a year or two, but rather own a broadly diversified basket of shares over 10, 20, 30 years.
“You will be amazed at the long-term wealth creation,” he says, adding that the way to do that is through a low-cost index fund.
10X portfolios are all well-diversified and aim to maximise your returns for as long as possible. Most of our clients are invested in our High Equity portfolio, which delivers superior returns over the long-term. Only as you get closer to retirement (five years or less) do we automatically shift the balance of the portfolio to protect your investment.
5: Be boring
Investing shouldn’t be exciting. It should be like watching grass grow.
And the tips above reflect the same, single investment strategy that 10X has adhered to since it was founded 10 years ago.
“There are very few investment companies that can say we told our clients 10 years ago that this is the best way to invest your money, this is the best portfolio, and 10 years later we are saying the same thing,” Nathan says.
He adds that other companies have many, many funds. Every year one fund fares better because some theme favours that fund. Then that fund gets marketed, and people are chopping and changing between funds constantly.
“As a long-term investor you want to know that your investment is based on a long-term philosophy that is aligned with your long-term interests, not a philosophy that changes … first it’s this style, then it’s another strategy – it could be ‘value’, it could be ‘momentum’, ‘multi-manager’, ‘quantitative’, ‘smart beta’ … all of which is nonsense, just marketing terms to confuse people.
“You don’t want to be in a company that tells you different things from one year to the next, that says switch into this fund or we are launching this great new technology-driven fund or resource-driven fund or whatever-it-might-be new fund.
“Being asked to switch your money all the time means they are telling you that what they told you before didn’t work. So they are now trying something new. They are speculating with your money, they are not investing your money for your long-term benefit.”
In short: find yourself a good thing and stick to it
Losing weight or exercising more might be good New Year’s resolutions, but getting financially fit will most likely be a lot easier.
Nathan says that you might feel the deprivation of chocolate or the pain of a gym class, but the “opposite is true with investing”. Once you have found out how to get the best value for your money you can forget about it, he says. Once you take charge of your savings, you have less stress.
And your money will be in good company. People all over the world have taken charge of their long-term savings and transferred trillions of savings out of expensive actively managed products into index funds because they have seen that the returns of the former are below the market and they are paying very high fees.
So, in 2018, empower yourself; do some reading and research. Then, choose a low-cost, high-growth index fund and stay the course.
