Embrace the opportunity that is savings and investment month

A few practical tips to help you save more

It can be challenging to make the necessary adjustments if you are currently saving less than 15% of your salary for your years in retirement. However, delaying saving until you have ‘enough’ money is sure to end in failure. You are far more likely to succeed if you prioritise investing and allocate money to your long-term goals before you find yourself tempted to spend on less pressing needs that life will throw your way.

The key is to make a start as soon as possible, and to continue to build on that once you have a firm foundation in place. Here are a few guidelines to get you started:

• Start saving as soon as possible – even if you can only make small contributions, and gradually increase what you save each year (Rome wasn’t built in a day).
• Adjust the amounts you save annually in line with inflation.
• Keep a record of all the money you spend and compare this to your budget each month – there are a number of apps that can help you keep track of your spending if hoarding receipts is not your thing. This will help you to point out where you need to make adjustments to your spending habits.
• Don’t try and ‘keep up with the Joneses’. For example, keep your cell phone for a year or two longer, drive your car for a few more years, and limit the amount you spend on the fanciest branded items (such as clothing).
• Always preserve your retirement savings when you change jobs (don’t withdraw your retirement savings when you move jobs!).

Over time, these small adjustments and sacrifices you make will gradually and consistently add up. The table below illustrates the exponential gain achieved when saving is extended over a long period. It shows that, if the period of saving is increased to 15 years, you could end up with almost double the amount that you set aside – compound interest is the 8th wonder of the world indeed!

Assumption: Returns are compounded at 8% per annum.

Factors to consider when reviewing your savings plan

Lifestyles and circumstances change over time, so you should revisit your products and investments on a regular basis to ensure they are still meeting your savings needs. Two important considerations when revisiting your savings are described below.

Product type
Saving for retirement is crucial. This can be done via your employer’s retirement fund arrangement, perhaps enhanced by a retirement annuity (RA). If you run your own business, you won’t have an employer scheme, and an RA (such as the PSG Wealth Retirement Annuity) will therefore be ideal. Also, a tax-free savings account (such as the PSG Wealth Tax Free Investment Plan) can be a valuable and flexible addition to your retirement income.

Underlying investments in the product
There are a number of choices when it comes to the underlying investments you select. For example, there are unit trusts (more detail provided in the next section) and share portfolios. The key factors to consider in this context are:

• Investment time horizon: For example, if you are saving for retirement that is still many years away, it is sensible to invest in assets with a higher risk-reward profile (for example, equities). This will provide you with exposure to investments that are expected to provide returns in excess of inflation.
• Costs: Compare the costs of different product providers and funds to make sure that you are investing in an arrangement with reasonable costs. For this purpose, use the effective annual cost (EAC) benchmark to compare the costs across product providers. The EAC is a handy ‘cost summary’ including costs associated with investment management, advice and administration. Weigh the costs up against the value you get – for example, the quality of advice and the service you get from the administrator.

Selecting the right funds

At PSG Wealth, we are committed to providing a robust product and service offering that helps you to save effectively. In relation to fund investment, we provide two core solutions:

1. A comprehensive range of fund of funds (FoF)/multi-managed arrangement, available exclusively via a PSG Wealth adviser.
2. A smaller, more focused range of FoF arrangement, tailored for the direct investor and created by using the PSG Asset Management single-managed funds as underlying assets.

Both these sets of solutions aim to provide consistent performance while ensuring you meet your savings goals across the life-cycle savings spectrum.

The benefits of our PSG Multi-Management Funds are as follows:

• Diversification across asset classes, underlying securities and investment managers.
• Reduced risk because of diversification: funds of funds are less exposed to manager-specific risk, as the different investment managers will outperform at different times.
• Dedicated asset allocation experts that make underlying fund choices and determine how best to combine these in an ever-expanding investment universe.
• Access to a wider investment universe, as you can get access to shares, property, bonds and money market instruments within a single investment.
• Robust governance and processes undertaken by the multi-manager, including research, selection, risk management and due diligence.
• Ongoing monitoring and adaptation of the portfolio to ensure optimal returns at reduced risk levels.

The table below provides some insight on the PSG Wealth funds.

At PSG Wealth, we are committed to providing a robust product and service offering that helps you to save effectively. This means offering a comprehensive product suite; access to market-leading investments, technology and tools to help you implement your plan; and access to advice when you need it. Contact a PSG Wealth financial adviser to assist you on your savings journey.