Saving a battle, despite unit trust data â€“ STANLIB
Trend is away from long-term wealth consolidation - man in street saving close to zero
Positive media coverage of unit trust industry growth is in danger of leading to a false sense of security on the savings front.
The warning comes from STANLIB, a wealth company well-placed to know. It is South Africaâ€™s largest unit trust company with over R260 billion of savings assets.
Dylan Evans, STANLIBâ€™s director of investment marketing, cautions that recent headlines showing a recent, modest improvement in unit trust inflows may create the false impression that we are serious about saving.
In fact, the average South African still saves less than 1% of disposable income.
Yet 2005 statistics show that total assets held by unit trust holders is up to R415 billion â€“ sixfold growth on the R71 billion held in unit trusts in 1998.
Dylan Evans notes: â€œOn a surface reading, you might assume that more and more unit trust savers are squirreling away more and more money for a rainy day. Itâ€™s just not so.â€
To obtain a clearer picture, says Evans, equity`s role as the bedrock of long-term saving has to be appreciated. Seen in this light, the statistics are worrying as they suggest a trend away from long-term wealth consolidation.
In 1998, notes Evans, there were more than 2 500 000 unit holder accounts. More than 2 225 000 of them fell into the general equity and specialist equity categories. In other words, 89% of unit holders were committed to long-term savings vehicles. Another 4% of accounts was invested in long-term balanced funds; 3% in fixed-interest funds and just 4% in money market funds.
Evans adds: â€œUnfortunately, since 1998 the number of unit holders investing for the long term has plummeted. By the end of last year, if we consider domestic funds, the number of unit holder accounts in equity funds had fallen to just 1 275 000; a decline of nearly one million or over 40%.â€
Unit holders lost to equities are not flooding into other long-term investments. Since 1998, the number of accounts held in managed funds has risen from 109 000 to just 136 000. The number of fixed-interest investment accounts has risen from 70 000 to 120 000, a marginal annualised increase.
The big winner has been money market funds.
Seven years ago, there were 105 000 money market accounts, 4% of the total. By 2005, there were 635 000, nearly 30% of the total. These accounts also represent a similar percentage of total assets.
Says Evans: â€œMoney market funds are useful and efficient, but no one could argue they are long-term investments. They are a substitute for call accounts.â€
He concludes that the collective investments industry has been â€œsteadily bleedingâ€ long-term savers. Other savings options are hurting, too.
Evans adds: â€œSince 1998, there has been no organic growth in the retirement fund industry. When assets are adjusted for market growth, the life industry has been treading water as well.
â€œThe man in the streetâ€™s savings ratio â€“ savings as a percentage of disposable income â€“ is close to zero.
â€œThe savings habit has been superseded by the spending habit; here the explosion in debt products is a key indicator.
â€œSpending is sweeter than saving. It will be a tough habit to kick. The savings industry should be under no illusion. Building a savings culture will be a battle.â€
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