Avoiding risk could be the riskiest move of all
By Katlego Mokagane, Investment Consultant
The primary goal of retirement savings is simple: to ensure individuals can maintain an acceptable standard of living considering their lifestyle needs after they stop working. According to the Financial Sector Conduct Authority’s Q3 2024 Newsletter, less than 10% of South Africans can retire comfortably. To improve this statistic requires different investment strategies depending on where a member is in their retirement journey.
Starting young
Members in the accumulation phase could consider allocating their savings into an aggressive savings portfolio. This means taking on more investment risk to benefit from long-term market growth. On the other hand, members nearing retirement could consider investing in a pre-retirement solution that matches their post-retirement annuity option. Fund members should consult a certified financial planner when it comes to retirement planning or financial decisions.
Many retirement funds offer members a choice of investment portfolios. According to the PwC Retirement Funds Survey, over 80% of members typically invest in the default investment strategy. Still, the remaining 20% who make active choices matter, and their behaviour offers important insights.
In a recent analysis completed for one of our retirement fund clients, we were surprised to discover that 50% of the value of retirement savings for young members (aged 27 to 38) who had made their own investment choices was allocated to money market portfolios, with the rest spread across moderately aggressive and aggressive options. In the current environment of market volatility, high inflation, geopolitical tensions and policy uncertainty it is understandable that members seek stability. But that feeling of comfort comes at a cost.
Insufficient savings
By avoiding short-term volatility, these members are exposing themselves to the long-term risk of not saving enough for retirement. This could mean having to work longer than planned or becoming financially dependent on others later in life.
Figure 1.1
Figure 1.1 illustrates how a R100 000 fund credit in March 2000 has grown over time up to August 2025, being fully invested in an aggressive portfolio versus cash. Although the cash investment journey was stable, it only grew to R662 000 compared to a proxy of an aggressive portfolio, which grew to R2 300 000. Member education and trustee involvement are useful in correcting this mistake.
Members need to understand the implications of their investment choices. Through clear communication and ongoing engagement, they should be reminded that time in the market is more powerful than trying to time the market. Market downturns during the accumulation phase present opportunities to buy in at lower prices and benefit from future growth.
Figure 1.2 shows the JSE ALSI from 2002 to 2024. Despite major events like the dotcom crash, the Global Financial Crisis and the Covid-19 market shock, the index has trended upward over time, reaching 100 000 points in 2025. The lesson here is that markets recover, rewarding those who stay invested for the long-term.
Figure 1.2
Educating fund members
Trustees play their part by analysing member data, identifying trends and intervening where necessary. If members are misaligned with their investment horizon, they should be encouraged to consult financial advisers. Consultants, too, must lead the charge in educating members and helping them make informed decisions that align with their long-term goals.
In short, avoiding risk might feel safe, but in the context of retirement savings, it can be the riskiest move of all.
12 November 2025
Read the article from FAnews Magazine-Online November 2025 edition