Tough economic conditions will make it harder to save

SOUTH Africans still don’t save enough, and the economic climate will only make it harder to save, says Old Mutual Investment Group economic strategist Rian le Roux.

At a briefing this week on the results of the 2018 Old Mutual Savings and Investment Monitor, Le Roux says people often make their worst investment decisions when emotions are running high. “Look at the money that was taken offshore in December 2001 and January 2016, and the rate at which investors sold out of equities in 1998 and 2009, when the chips were down,” he says.

“Beware of fear and greed when it comes to saving, as both can cost you a chunk of your capital.”

He says South Africa’s economic growth remains weak, which is cementing many of the country’s economic and social problems.

“In the absence of higher actual and potential economic growth, it is going to be extremely hard to consolidate the fiscal situation, with weak tax revenue growth amid heavy spending pressure. This will entrench weak investment and growth in the country, as savings will remain depressed. Ultimately, this will sustain our bad unemployment situation, and the dependency of people on family and government will rise.

“Sustained slow growth also poses the risk of losing our last investmentgrade rating, falling deeper into junk territory, potentially triggering a rand slump. South Africa could, in such an outcome, increasingly fall off global investors’ radar screens, rather than attracting higher levels of investment needed for faster growth, more jobs, more savings and more investment.”

Meanwhile, the gloomy situation will make it harder to save, says Le Roux. “Saving depends on the ability to save, which depends on more jobs being created. It all comes back to reviving confidence and growth.

“Added to this mix is that the government is delving even deeper into people’s pockets by taking significantly more tax, which could increase even further unless faster growth, and hence tax revenue growth, eases the pressure on the fiscus.”

Even if things do eventually get better, Le Roux says you will have to save much more. “Investment returns will be lower for the foreseeable future and longevity continues to present an issue for savings levels.”

When it comes to how much savings you need to retire, Le Roux says that estimates differ widely, but it’s probably more than you think.

“Only three factors will determine how to get to the magic number: how long you save for, how much you save, and your investment return. It is important to remember that how much you save is the only one of the three factors under your control.”