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Just my 2c.I agree 100% on the longer term. I am just saying that if I take my R600 as well as the R400 from SARS and invest it but at the end of the year it is worth only R900 then I do not get a GUARANTEED 40% return... (only 30% which is still not bad
I fear not many If I may.....
It is used as a benchmark DJK, there is no direct correlation. If CPI were 20% and you achieved a return of 12% this would not be of much use to you. Likewise if CPI were 2% and you achieved 10% you should be fairly chuffed. Now it makes sense therefore to rather state a return relative to CPI (ie real return) rather than throwing about wild figures like 20% and failing to mention that CPI was running qt 19.5% at the same time.
I think you will find it also has to do with being once bitten, twice shy. Investment houses are not willing to make outrageous promises when it comes to returns. Promise 5% in excess of CPI, achieve 10% in excess and everyone is happy. Promise 10% in excess and achieve 5% and you are sitting in front of the pension funds adjudicator!
Out of interest, besides those unemployed or below the tax threshhold who else should not be making use of an RA?
Out of interest you will find that even Bruce Cameron, editor of personal finance, who loves taking swipes at the long term industry states that every individual should be taking advantage of the tax breaks RAs offer. Not that his view should carry any more weight than anyone else's...
). Even if one doesn't invest directly, there are numerous other products with similar benefits, but over a much shorter term. Some of these might be more applicable than a RA for many people. EDIT : I wonder how many people actually read through entire posts like this one of mine and yours above!
The relationship is usually specified as follows: The required return (note required and not expected) on an equity investment is the risk free return + expected inflation + an equity risk premium. The risk free return is simply the redemption yield available on conventional government bonds, which should be risk free (ie, the government will not default on a bond). Expected inflation can be approximated by determining the difference between the redemption yield on a conventional bond and that of a inflation linked bond (such as the R189, R197 or R198). The equity risk premium is that extra return required by an investor in order to compensate for the risk of an equity investment (ie, volatility, default, liquidity, marketability, etc). When working with real yields (already taking expected inflation into account), the important factor is the equity risk premium. It could be argued that expecting an equity risk premium in excess of 5% over the long term is unrealistic.
I would like to know how you would manage that. Consistently having a real return in excess of 5% over the long term is pretty impressive IMO. I would like to see any evidence to the contrary.
That's my point. If you want returns in excess of the risk free yields, you're going to have to take risks, which means investing in equities. All I'm saying is that is imprudent to expect real returns of 5% p.a. over the long term.
I agree with this and I think it reinforces my first point above. It's people who expect the extra return from equities and don't attach any risk to it that frustrates me.
OK, it's definitely not an appropriate investment if you're concerned about liquidity. You should only put money into an RA if you know that you can do without it for quite a long period of time. I do think that it is an excellent investment when you are trying to save specifically for retirement and you have the cash available to do so. eg. In 2006 an average balanced portfolio would have returned about 35%. Take into account the minimum 18% tax deduction and you had a return of about 59%! If you're in a higher tax bracket this would have been even better.
I don't think I can sell a raft to drowning man.
Obviously equity has the best long term returns. My argument is simply that it's silly to expect in excess of 5% real return in the long term.
Ha.
I'm not an advisor and so any of my statements should certainly not be taken as any kind of indication of what to do with your money. ) by a number of asset managers when compared to money market returns. And yes the period of time used may be unfair as we have been in a bull run but this has been tempered by the arrival of the bears in 2008, and you can see the balanced portfolios are still well up!
