Financial Fallacies: Capital Growth is the Crux

JD (Koos) du Toit 

One of the common financial fallacies that keep ordinary salary-earning South Africans from building a financially-independent retirement is that 'capital growth is the crux' of investment success. And it is this financial fallacy that drives investors to try to achieve the impossible: accumulating enough capital during their remaining working lives to secure a comfortable retirement.

In reality, to secure enough capital for a reasonably comfortable retirement, you need to start saving at least 14% of your earnings every month from the age of 25, earn at least 5% above inflation on your investments every year, and never withdraw any funds until retirement. Given the soaring costs of living and the poor investment returns predicted by experts for the foreseeable future, saving 14% of earnings and earning 5% above inflation on investments are all but impossible for most. Furthermore, very few people started saving at age 25 and even fewer never withdrew any funds.

Even for the handful of South Africans who manage to follow all these rules, it may not be enough. This is because South Africans face another significant challenge: outliving their retirement funds. For each year you live longer than expected, you will need to have accumulated another 5% of your capital. And if you live for another ten years beyond the average life expectancy, you will need to accumulate 1.5 times more cash by retirement than the amount projected for the average life expectancy.

Fortunately, there is a simpler and more effective way of securing a comfortable retirement: investing in consistent, reliable income streams that will sustain you financially, not only in retirement - regardless how long you may live - but also well before and well after. Certainly one of the simplest ways to achieve this is to invest in income-generating assets, such as buy-to-let property.

In fact, income-generating property is the asset of choice of the world's wealthiest people, because it is an asset that produces a consistent, reliable income stream for as long as the property is held. It also delivers further benefits, such as offering a built-in hedge against inflation and capital growth over time as an added bonus.

"A small portfolio of buy-to-let properties in well-chosen areas with solid rental demand, and which are maintained properly over time, will keep generating an income in the form of rentals month after month, year after year, for as long as the properties are owned. In fact, if a property is acquired in the right structure, such as a trust, a well-chosen rental property can continue to generate a never-ending income for an investor's family beyond the investor's lifetime," comments Dr Koos du Toit, CEO of P3 Investment Group. "This passive monthly rental income also keeps pace with inflation, year after year, as the rental increases in line with inflation or the percentage stipulated in the lease agreement, offering a built-in hedge against the ravages of inflation."

In addition to securing an inflation-linked passive income stream for retirement and beyond, a portfolio of buy-to-let properties will also deliver steady capital growth over time, as an added bonus.

"This means by retirement, the buy-to-let property investor will not only have a consistent, reliable income stream, but also a significant nest egg of equity that has built up in the portfolio over the years, which can be accessed by refinancing a property, to pay for children's university fees, to start a business or even to take a well-deserved holiday."

Building a small but highly profitable portfolio of well-chosen and well-maintained properties is simpler and more affordable than most investors believe. "You do not need prior knowledge or qualifications, you do not need a lump sum investment or even substantial monthly contributions, nor do you need much time or effort to invest in buy-to-let property, if you follow a tried-and-tested system, with built-in risk management strategies," concludes Dr du Toit. "Don’t let the financial fallacy that 'capital growth is the crux' prevent you from building real wealth in 2015. Simply discover how buy-to-let property investment allows investors, even ordinary, salary-earning investors, to build a consistent, reliable income stream for a financially-independent retirement, and as an added bonus, to generate a nest egg of equity, even with limited monthly investments and limited time."