Article by listed financial planner - Vivian Atud
A reader maybe wondering what is this all about. While there is an equitable distribution of time to all of us, when it comes to investing—different people put in different times to manage their assets and this time adds up like any other costs. Just as we calculate all other costs of investment— it is necessary to calculate how much time we put in. Like all other factors of production, when it comes to time spent on managing your money, there is a point of diminishing returns. All smart investors will seek to minimise the time spent on their investments and maximise benefits.
One would expect all professionals and workers to agree that their time is worth lots of money. The question is how much? Some, such as consultants might charge a day’s rate. Othersmay look at the option of dividing their paycheck based on their time at work just to gauge their hourly rate. However, that would be different from your personal time.
Does what you do with your personal time after work matter? Absolutely, imagine viewing your time as you would any other investing fee—expense ratios, fund management fees, trading charges, intermediary costs, etc.—those hours similarly would have an impact on your returns.
You may agree with me that the time you spend managing your money is some sort of a maintenance fee. Likewise all other investing costs— you ideally receive a benefit, for example: getting better information, expertise. However, it’s important to be clear: your time is an expense, like the others, and shouldn’t be ignored when you’re calculating your overall returns.
The reality is that, it’s hard to measure, in large part because most people view time as a part of the upfront cost of investing. Also, time isn’t really a direct expense, like a measurable 1% fee. But although time spent is a hidden fee, it’s a tangible loss, because as everyone’s financial life grows more complex, it takes more time to monitor and manage every task.
Your time could be allocated as follows:
o Gathering information about funds, companies, markets, and trends (i.e. reading the news, watching TV) and discussing the information, with friends, colleagues, advisors, your spouse/partner
o Analyzing companies and funds in an excel sheet, checking an asset allocation, managing it dynamically
o Planning (anticipating, worrying, weighing various priorities and outcomes)
Imagine you spend just one hour a week on all these tasks, combined. The truth is you spend more time planning or reading the news during some weeks when compared to others, but let’s say the direct time-spend on your money is 52 hours a year. If you’re earning R300,000 per year, that’s about R150 an hour, assuming a 40-hour work week—which adds up about R7,800 worth of your time, per year. If you have R100, 000 in assets, that’s a 7.8% cost.
This takes us closer to both the value of your time, and how you value your time. One may argue that itis worth it to spend time on your money—this makes you feel in control, feel safe, and to be informed. But if you could cut a 1% expense ratio in half, you’d gladly go for it. Imagine what it would feel like, if you were to cut your yearly time-spend in half?
Like any factor of production- there is a point of diminishing returns, when it comes to the time you invest in managing your money. Secondly, there is increasing evidence suggesting that most long-term investors stand to gain the less time they invest: typically, more time = more attention, which increases the likelihood of emotional reactions and biases that can drag down returns. If this does not excite you, let us look at another side to this.
There is a personal upside: If you could gain some time, say, an extra hour or two a week—a free afternoon (or two) per month—what would that be worth to you? You can fill in the gap for yourself.
At Sunburst Africa, time spent on investing is reduced by technology and you still get a fully diversified portfolio of various asset classes, optimised to provide investors best possible returns for both retirement planning and wealth growth. Join our investment community and see how we can help grow your wealth and save you time.
