Curmi & Partners

Are you saving enough for your future?

by David Curmi

An interesting phenomenon has been developing over recent years, and has perhaps accelerated these last 12 months, particularly with the onset of the Covid-19 pandemic. This has important considerations for savers who look to generate capital over the long term in order to retire comfortably at a later stage in life.

In fact, if you are looking to develop a savings plan for when you retire, you may need to think carefully about the type of returns that you will achieve.  This is a critical factor for estimating the capital you will end up with when you retire, and thus have significant implications on how much you think you need to save in order to achieve that capital sum.

Over recent years one of the most significant trends that we have seen in investment markets is the collapse in interest rates.  From yields of 7.5% to 8% in the late 90’s, today Maltese government bonds yield next to nothing, and in some cases give a negative yield.  This has had an impact on all types of investment assets, both historically and looking forward. 

The below chart gives a flavour of this.  Assuming a young person has put together a portfolio of mixed assets; in this case 50% in bonds and 50% in equities.  Other than the returns achieved immediately post the Global Financial Crisis, one can easily see that historic returns on a portfolio of this nature have continued to reduce over time.  Looking forward, this trend is expected to accelerate somewhat with future returns expected to be in the region of 2.9% on a portfolio of this type.  In practice, and over time, this can have a significant impact on your capital when you come to retire.  The maths is straightforward.  If you invested €100,000 in 2000 and achieved the return of 3.79% then after 25 years you would sit on a fairly decent pot of money worth €244,000.  If on the other hand you invested in 2021 and your returns were in fact in the region of 2.9% then your capital sum would “only” reach the level of €198,000, assuming that you are continuously reinvesting the income and dividends that you earn.


This begs some serious questions about the degree of planning that needs to be put into preparing for retirement.  Clearly the sum you save regularly is going to have a significant impact on your end result, as is the amount of time that you invest for.  Do not underestimate the importance and significance of compounding.  Additionally, regular saving allows you to achieve the concept of cost averaging.  There will be times when markets perform better or worse than others.  Saving constantly ensures that you hit both the bad times but also the good times.  If you invest a single lump sum only then are you leaving yourself open to luck. 

The onset of the pandemic has caused significant disruption in the market with central banks and governments having to provide significant support to financial markets.  These support mechanisms will at some point need to be withdrawn.  From a central bank perspective this will mean that the low level of interest rates we are seeing at the moment will need to be reversed at some point.  Whilst initially negative for the prices of bonds this will mean that in the longer term, bond yields should become more interesting.  On the other hand, the cost of the pandemic support provided by governments will need to be repaid, perhaps through tax hikes.  All of this is likely to create some interesting dynamics in the marketplace and in the long term begin to take us back to seeing higher returns on investment assets.  The real question is when!


The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to constitute any advice or recommendation with respect to such financial instruments. Curmi and Partners Ltd. is a member of the Malta Stock Exchange, and is licensed by the MFSA to conduct investment services business.