Investing is like running the Comrades

Feel free to reach out to PSG Wealth adviser Dawie Klopper CFP ® directly.

To run the Comrades, you can’t simply pitch for the race and think you’re ready to run. For starters, you should already have entered for the race about eight months in advance. Likewise, you need to realise early on that you need to make provision for retirement. But then the process of creating wealth for retirement starts, just like starting a training program for the Comrades. You need to realise upfront that this process will require a lot of discipline – it involves planning, training, devising a strategy and setting goals.

Just an aside: Before you start this process, you first need to have an idea of the instruments or tools you’re going to use. You need to know something about running shoes, otherwise you may end up with the wrong shoes resulting in injury, with your race being something of the past even before the crack of dawn. In terms of investing and using the right tools, you need to know that the number of asset classes you can invest in is limited to money market instruments, bonds (including inflation-linked bonds, treasuries and corporate bonds), equities and listed property. All these asset classes are also available offshore. Just like you need to know that specific running shoes are meant to complement or correct a particular running style, you need to know that each of the above asset classes has delivered a particular return above inflation over the last 60 years. Money market instruments on average outperformed inflation by 1% while bonds delivered slightly better outperformance. Property and equities beat inflation by 5.75% and 7% respectively.

When it comes to discipline, you need to know that the Comrades requires regular training, while you need to save or invest on a regular basis to provide for retirement. However, you need to plan your training, knowing which preparatory races you are going to do and what your weekly training program should look like. Similarly, you need to know which asset class(es) you are going to employ to accumulate retirement savings. If you know equities are the top performing asset class, even while the expected long-term return is associated with volatility, then you need to make this asset class work for you. In running terms, you know that you will need to complete one or two ultra marathons in preparation for the Comrades, even if you know it sometimes involves some suffering. If you are prepared to stomach the volatility (suffering), though, you know that eventually you will be better prepared for retirement (for the actual 88 km race) than would otherwise be the case. With prepared I mean you will have accumulated enough capital, enabling you to draw a sufficient income from your investment to meet your needs.

You need to have a strategy. In running terms, it means you know your desired race time. In investment terms, it means you know how much capital you need to accumulate to ensure a meaningful retirement. Your desired race time should be realistic. By the same token, your capital goal should be within reach. Then there are other goals you need to set. In running terms, these include, for example, the number of preparatory races you want to complete and the distance you want to cover in your training program per week. In terms of retirement provision, you need to set goals like the capital levels you want to reach within five or ten years of retirement, and which asset classes or products you want to invest in to realise those goals. Prior to the Comrades race, you need to decide where to stay and make transport arrangements. Similarly, prior to retirement you need to decide which financial adviser to partner with in retirement.

When you have come this far, you should be ready to run the Comrades with peace of mind. Likewise, you should be ready to retire. Nevertheless, just like your first Comrades, your retirement is a time of vast uncertainty, also requiring proper planning and preparation. I will elaborate on this next time.