THE COMPOUNDING IMPACT OF BETTER FUND SELECTION OVER TIME.
You’ve worked hard, saved diligently, and invested consistently. But what if the
difference between a comfortable retirement and a compromised one isn’t how much
you save — but where you invest?
Fund selection is one of the most overlooked, yet most powerful levers in financial
planning. While most people spend time thinking about how much they are investing,
they often neglect what they are invested in. The result? Missed opportunities, excess
risk, and underwhelming returns.
This article dives into how thoughtful fund selection can elevate your financial plan —
and how poor fund choices can quietly undermine your goals over time.
Understanding Fund Selection in a Retirement Context
Whether you are invested in a Retirement Annuity (RA), Living Annuity, Tax-Free
Savings Account, or a discretionary investment, your underlying funds determine your
actual investment performance.
Choosing the right funds within your product wrapper is critical because:
Fund performance drives long-term returns
Fund risk profiles influence how much volatility you experience
Fund fees impact your net returns
Strategic allocation across funds reduces concentration risk
In essence, your product (RA, TFSA, etc.) is the vehicle — but your fund selection is the
engine.
The Hidden Opportunity Cost of Poor Fund Selection
Just like high fees can erode your portfolio, poor-performing funds or overly conservative
allocations can significantly reduce your wealth over time.
Let’s look at two investors who each contribute R3,000 per month into their retirement
annuity over 20 years:
Conservative Fund (7% p.a.): R1,562,780
Balanced Fund (9% p.a.): R2,003,661
Growth-Oriented Fund (11% p.a.): R2,596,914
The difference between Conservative (7%) and Growth-Oriented (11%) funds?
R1,034,134 — just by selecting higher-performing funds over time.
Common Fund Selection Mistakes
- Set-and-forget investing
- Overconservatism
- Lack of diversification
- Chasing past performance
Why Fund Performance Matters (Even More Than Fees)
While costs are important, net performance after fees is what ultimately matters. A fund
that delivers strong, consistent, risk-adjusted returns — even with slightly higher fees —
may still leave you better off than a low-cost underperformer.
Here’s a quick comparison:
Fund A (Passive): Return: 6% p.a., Fee: 0.4%, Net Return: 5.6%
Fund B (Active): Return: 8% p.a., Fee: 1.2%, Net Return: 6.8%
Key Metrics to Consider When Selecting Funds
- Historical returns
- Volatility and drawdown history
- Consistency of outperformance
- Fund manager track record
- Asset allocation
- Fees
The Risk of Sticking with Outdated Funds
Older products often have legacy fund ranges that haven’t kept up with evolving
investment opportunities.
Your retirement portfolio may be stuck in: - Underperforming or overly cautious funds
- Expensive actively managed funds
- Inflexible models
How to Make Smarter Fund Choices
- Start with your goals
- Match risk to time horizon
- Diversify intentionally
- Benchmark regularly
- Review annually
Don’t Let Inertia Cost You Your Retirement
Just like fees, poor fund selection has a compounding cost. But unlike fees, you have full
control over which funds you choose.
Reviewing and optimising your portfolio today can dramatically improve your future
wealth.
What You Can Do Right Now
Check your current fund allocation
Request a fund performance report
Speak to a financial advisor
Use a fund comparison tool
Final Thoughts
Fund selection is not a one-time decision. It’s an ongoing strategy.
By reviewing your funds regularly and aligning them with your objectives, risk appetite,
and time horizon, you give your financial plan the best possible chance of success. Even
a 1% improvement in returns can translate into hundreds of thousands — or even
millions — more at retirement.
Your product is just the wrapper. The real growth happens inside. Choose wisely.
