Important than the return you get

When saving for retirement, there are three big factors that have an impact on the final outcome: how much you save, what return you get on your investments, and how long that growth has to compound.

Many investors tend to focus mainly on the second of those. They spend a lot of time worrying about how their portfolio and its underlying funds are performing.

This can become such an obsession for some that it may even cause them to make the mistake of chasing performance and trying to pick the best funds year after year. They move their money between funds regularly trying to capture the best returns.

The major problem with this thinking is that performance is the one factor that an investor actually cannot control. Of course you can make sound decisions about which funds you use and therefore give yourself the best chance of seeing good returns, but nobody can predict the markets.

No investor, or financial advisor or fund manager for that matter, can make any decision that they will be certain will guarantee them an extra 1% return over the next year (unless it is switching from one bank deposit to another). There is simply no way of knowing what markets will do.

That is why investors should rather spend more time considering the factors that they really can control.

The first of those is how soon you start. There are thousands of articles all over the internet explaining why it is so important to begin investing for your retirement as early as possible, because the more time you have the greater the power of compounding becomes.

A simple example makes this clear. Assuming an annual growth rate of 10%, an investor who saves R1 000 every month from the age of 20, would have accumulated more than two and a half times as much money by the age of 65 as someone who saves the same R1 000 every month but only starts at age 30.