Certainly Warren Buffet, an investor par excellence, has been beating the drum of Passive Funds with elevated vociferousness recently. In South Africa, most commentators hedge their bets with a paucity of actual statistics to back their case. A recent article by Patrick Cairns does just that as he nails his mast to the Passive Funds wall.
Main picture: It is your money and your future that is being invested in. Fund Managers will always steer investors towards Active Funds for self-serving reasons: their commission
Note: I have used the term Passive Funds to denote Index Funds throughout
I was reminded of this maxim last night whilst listening to Xolani Gwala’s show on 702 Talk Radio. The topic under discussion was the collapse of the MMM Global Investment in most countries in which it operated. Despite this, the South African operation remained open. It was at this juncture that I recalled the adage regarding fools and their money. Incredulously a female listener disputed the fact that the SA operation would collapse like their foreign counterparts. Xolani was unsuccessful in attempting to convince the caller that if all the operations used the same modus operandi – that is acted as a Ponzi Scheme – then the local operation was bound to collapse as well.
Main picture: Uncle Charlies. The rest of the pictures are in the same vein ie South Africa of the 1970s and 1980s.
For most of us in full time employment, the major source of pension income will be derived from one’s Employer’s Pension Fund. Together with some additional investments in one’s personal capacity this would previously have been sufficient to derive an adequate pension. This assumption is no longer valid for a number of reasons.
The genesis of this disconnect was the introduction of Defined Contribution Pension Funds some 20 years ago. Previously most employees contributed to what was known as a Defined Benefit Pension Fund. In terms of this arrangement, the retiree would be paid a pension calculated on the basis of 2% per every year employed times by the average salary over one’s last x years of employment. For most employees, this would equate to approximately 70% of their final salary. Combined with their private savings, this would ensure a pension of at least 80 to 90%, a fairly comfortable retirement without having to agonise over one’s financial situation.