First off, some results:
You’ll notice that Naspers has had a splendid two weeks…
And you may also notice that almost nothing has changed since last week. It’s the second week of June – not exactly a hot time for new data releases.
I gave it some thought over the last week, and I realised that I’ve been breaking a cardinal rule: I’m taking a once-off investment, and hoping that I caught it at the right time. Which is naughty – because it sort of leaves the whole thing open to chance. More so than it should.
In the real world, I don’t think that anyone should invest for themselves in this way. The whole point of “investment” is to develop the habit. You want to do it regularly, in small drips, and in a way that doesn’t lower your quality of life. After all, you could die this afternoon. And if you did, it would be a great pity if you missed out on the awesome life experiences and the joy of fine-dining because you were busy scrooging in the hope that at some future point, you would have enough money to do those things in liberal abundance. There is a balance that can be struck – and in my experience, the quiet and gradual accumulation of a nest egg makes the current awesome experiences (and fine-dining) much more fun, because as time racks up, they come with less guilt. And if you can do that, then your saving process is already starting to pay off dividends in peace of mind.
So I went back and assumed that all my investors had made the decision to save R1,000 a month, in addition to their initial R3,500. For the ease of my calculations, I assumed that they initiated a debit order on the last Wednesday of each month – except for the Art Enthusiast, who would almost certainly be too disinterested in finding out what a debit order is. So I’ve left him to continue spending his R1,000 on art supplies. And it’s not that art can’t be an investment – I’m just not convinced that you can legitimately do it on R1,000 per month.
So assuming that they had done so, here’s how things would look:
Some things to point out:
- The most powerful element of this strategy is the saving process. If you compare these portfolios to the initial investments, the bulk of the portfolio “growth” has come from the act of saving. And the differential between the portfolios is almost negligible compared with the effect of the habit.
- Over time, the lower initial fees of the equity ETFs (the Satrix and the db x-trackers) make for a strong performance relative to the actively-managed Unit Trust.
- FNB Share Builder will eat your returns – because the fees are just so high relative to the initial investment. But over time, this should be offset by the size of the investment. Sort of.
- Confession: I do have to check my calculation of the Nedbank initial transaction fees. According to their fund fact sheet, they charge you an initial 3% financial planning fee. My suspicion is that they charge that on every new “investment” (ie. on every debit order) – in which case, your investment would constantly be playing catch-up. But I may have that wrong (it may just be 3% on your first investment with the Unit Trust, but I doubt it…).
So to all those who decided to take the leap into Satrix, feel vindicated (for the moment).
Until next week.
PS: this is a shout-out to Lynsey, who likes this series of posts. The next Union Bar cocktail is on me.