South Africans are scrambling to overcome short-term financial challenges at the cost of their long-term investments, says Paul Nixon, head of behavioural finance at Momentum Investments.
An unpredictable turbulent economic landscape amid rising living costs and high unemployment levels has shifted behaviour in retirement investments, he said. “There was certainly no shortage of uncertainty over the past two years, and sadly many investors with living annuity products suffered losses.”
According to Momentum Investments’ latest Sci-Fi report, 2021 saw increased engagement between investors and their portfolios, and was driven by panic, causing many investors to lose money by switching their investments midway.
In the study, Momentum investigated the investor behaviour of those in its retirement income option programme or living annuity product. It found that retirement investors performed more than double the volume of switches in 2021, amounting to over 50,000 switches.
While this was down by 6% from the record levels experienced in 2020, Nixon said it remains alarmingly high. He noted that 50,000 plus switches in the retirement investment landscape resulted in nearly half a billion rands in value destroyed in 2020 and 2021.
“We have to acknowledge that market events that have cascaded across the globe since the onset of the pandemic have caused havoc with investors’ retirement savings. Investors panicked and opted to try and stem losses by reacting at the moment.”
Nixon added that continual unpredictable economic ‘bumps’ pose a significant concern for the future economic outlook of South Africa.
“Right now, we not only have lost value on retirement fund returns but there is also a two-pot system in the works which will allow many people to access their investments before retirement.”
Nixon said market turbulence coupled with the rising cost of living would make it difficult for investors to balance their short-term income needs with longer-term growth needs to protect against the corrosive effects of inflation.
“Investors are furiously engaging with financial markets, so the growth or decline of retirement savings will directly impact their standard of living when the time to retire comes – which is going to be significantly more costly if things continue the way they are.2
With less value in our retirement funds due to switching, and more investors potentially dipping into their investments before retirement, Nixon warned that it would be the country that shoulders the burden of those who can no longer afford to retire.
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