The High Cost of DIY Investing
Many diligent savers reach retirement only to realize their “savings” could have been significantly larger. Here are the two most common mistakes made when bypassing professional advice.
Mistake 1: Fixating on Costs, Ignoring Growth
Many investors focus so heavily on avoiding a 0.5% advisor fee that they miss the “Alpha” (outperformance) a professional provides. Over a lifetime, an underperformance of just 1% due to poor market timing or missed opportunities can slash your final retirement capital by hundreds of thousands of Rand.
The Math of 1%:
Saving 0.5% in fees is a “guaranteed” win today, but losing 1.5% in potential market growth due to a lack of savvy is a net loss of 1% every single year. Compounded over 30 years, that “saving” becomes a massive deficit.
Mistake 2: Poor Investment Structuring
A unit trust is a great tool, but held in your own name, it is exposed to the full weight of taxes and estate costs. A CFP® professional looks at the wrapper around the investment to maximize efficiency.
| Feature | Retirement Annuity (RA) | Endowment Policy |
|---|---|---|
| Tax Benefit | Contributions are tax-deductible (up to 27.5%). | Taxed within the policy at favorable rates (30% tax / 12% CGT). |
| Growth Tax | No CGT, Interest, or Dividend tax within the fund. | Often lower than individual marginal rates for high earners. |
| Estate Impact | Exempt from Estate Duty (20%) and Executor Fees (4%). | Nominated beneficiaries save the 4% Executor Fees. |
The Power of the RA Wrapper
If you invest R100,000 at a 45% marginal tax rate, the tax man effectively pays for R45,000 of that investment through your refund. By choosing a unit trust directly, you walk away from that immediate 45% “return” on your money.
Don’t Leave Your Wealth to Chance
A few minor tweaks to where your unit trusts are held can result in a significantly healthier portfolio when you finally cross the finish line.
Kenny Meiring, CFP®
Succession Financial Planning
