Investing, like every other aspect of life, requires a degree of dedication and stamina. Accumulating enough capital to ensure a "rich and resplendent" retirement is not easy - just as losing weight or stopping smoking is not accomplished without hard work and commitment.
To be successful, the younger you begin the better the result will be. The most important starting point is that you cannot expect your pension to be sufficient to support the lifestyle to which you plan to become accustomed. You should make additional provision in a disciplined and methodical way.
There are many alternatives that can be used to house the savings: ranging from the most conservative money market or savings account, through to the range of endowment policies and retirement annuities, property, unit trusts, and then the direct share portfolio route.
Saving needs to become part of your lifestyle and the savings must be ring-fenced and left to achieve their objective. Do not allow yourself to be tempted to dip into them when you fancy a new kitchen or get yourself into a financial difficulty.
If you are a member of a pension or provident fund and are contributing 10 to 15 percent of your salary, you probably need to be saving an additional amount that equates to a total of 20 percent of your gross income (including your pension or provident fund contribution). The amount that you can afford will clearly depend on your circumstances - the only certainty is that you cannot afford to do nothing.
As a rough rule of thumb, you need to save up a capital sum equal to at least 12 times your retiring salary to achieve your objective of a comfortable retirement filled with leisure and pleasure.
One rule that should never be broken is that when you change your employment, never encash your pension; always transfer it to a preservation fund or the pension plan of your new employer.
As saving should become a way of life, you should also use it as an opportunity for education and turn it into a "fun" activity. There is no need to feel intimidated by the investment process or claim not to understand the principles. You are not lifting the lid of "Pandora's box" - most things about investing boil down to good old fashioned common sense. There are many interesting and well written magazine and newspaper articles and internet sites that provide all that you need to know and more. Failing this, your investment adviser can be pressed for more information.
As far as shares are concerned, it can easily be turned into a pleasurable experience without having to take the "Warren Buffett missals" as your bed-time reading. Building up a portfolio is great fun and potentially a wonderful educational experience. As you purchase shares in companies, it affords the ideal opportunity to learn what the company does, how it makes its money, what it pays its executives, how it contributes to the improvement of society and, most of all, why it will assist you to retire in comfort.
Investing in shares has certainly changed over the years, but the principle and outcome are still the same. Seasoned investors will recall that up until the heady days of the 1969 boom and subsequent crash, you only had to pay for shares you purchased when they were delivered to you by the broker. Depending on the level of efficiency of the brokers' back office, it could take longer than a year! When the crash took place and volumes dropped, brokers found that once they got their affairs in order and were in a position to deliver scrip to clients, it was jolly hard work getting in the cash - now that the shares were worth so much less than they cost.
Today it is very different. Deals are settled electronically five days after the trade took place, and the cash must be in the client's account on the second day after the trade to meet with the legal requirements. This, fortunately, makes it very difficult to break another cardinal rule: only invest money that you can afford - never your bread money.
As you are investing for the long term, the timing is not the important criterion and should not be a deal breaker. You are not going to make all your purchases at the lowest price - that is the reality of the market and you will just have to live with that fact. It is far more important that you are in fact saving.
However, it is sensible to be aware of the market dynamics and to target your share purchases at the best valued part of the market. This, again, is not rocket science. In times of increasing interest rates you would probably be well advised to go easy on consumer stocks that provide lots of credit, while in the heat of a commodity bull run you would want to focus on the shares that benefit from that cycle.
Always keep focused on the objective - to retire rich and resplendent - and review your objectives every few years to see that you are still on track.
- David Sylvester is the chairman of the Shareholders' Association, telephone (021) 686 7567.