Like all the best advice, this little gem, from a former colleague, Shadeon Hansen, is simple and flexible enough to be applied to many aspects in life.
It springs to mind again as the year draws to a close and a number of friends and family members consider job changes (voluntary or otherwise). The ‘bounty’ I hope they will preserve here is their retirement savings.
They could of course just make lemonade; they could even drink it all in one sitting. That would be such a pity, though, since the alternative to that sugar rush would be many years of life with added zest.
My own experience refers. I left a job in late 1996. I was young and carefree and the last thing on my mind was saving for retirement. I took the R38,029 that was sitting in the company retirement fund and … well … made some lemonade … and drank it all.
I am now on the other side of 50, well just, and really thinking good and hard about what I can do to add zest to my retirement years.
Just for interest’s sake, or perhaps because I wanted to beat myself up that day, I asked one of the investment team at 10X Investments to crunch the numbers on this little pot of savings, and tell me what might have been had I preserved it.
The table here shows the results of what I could have had saved today if I had preserved it in a high equity fund from then until now. There are two possible outcomes here: total before fees, with a 10X fee applied, and what it might look like after the average industry fee had been applied.
If I had put my R38,029 into a retirement product and paid fees equivalent to 10X’s I would have R455,085 today, which could certainly add some zest to my pension years or, better still, allowed me to retire younger. This outcome is based on the actual market return between 1997 and 2017 that would have been earned by a high equity portfolio.
Not sufficiently chastened by the knowledge that my foolish, young self had robbed me of more than R400,000 in compound growth (even if you write off the R38,029 that I spent), I continued to dig for detail of the full damage my lemonade-drinking days had done to my Golden Years.
I put today’s value of my R38,029 (ie R455,085) into 10X Investment’s preservation calculator. If I had left the R38,029 I had originally set aside for retirement to grow it would have been worth R987,000 by the time I get to retirement age. This calculation is based on the long-term historical return of a high equity portfolio in South Africa.
Yup that’s right, nearly a million rand blown on “lemonade” when I was in my mid-twenties.
If only I had known Shadeon – the wise former colleague, who also doubles as a chef and a pastor – then and listened carefully to his advice:
“Please do not listen to anyone who tells you that ‘if life hands you lemons, make lemonade’, even if it is your parents or your spouse.
“Do not listen to them. Should life hand you lemons, rather make preserved lemons.
"Lemonade is only good for drinking. Preserved lemons are rich in antioxidants, the flesh is delicious chopped up into sauces and stews, the rind can also be chopped up and stirred into savoury rice.”
This is what I am planning to tell people I know who are changing jobs, especially those in their early twenties who have time on their side if they preserve what they have.
Or, perhaps more prosaically, I could just send them to 10X Investment’s preservation calculator so that they could insert their own numbers and see for themselves what the magic of compound growth would do to their apparently small pots of money if they resisted the temptation to blow it all on lemonade and the like.