The hidden cost of trying to improve your retirement portfolio
Why constantly switching investments can leave retirees with less, not more.
By Wouter Fourie, CFP®
CEO, Ascor Independent Wealth Managers
Co-author of The Ultimate Guide to Retirement in South Africa (3rd Edition)
FPI Professional Practice of the Year 2025/2026
Not every underperforming investment needs to be replaced. Sometimes there's a good reason to make a change, but chasing whichever fund has done best recently isn't a strategy.
Imagine two investors who own the same funds, pay the same fees and experience the same markets. The funds publish exactly the same returns for both of them.
Yet one investor ends up earning considerably less.
How can that happen? Because the return of an investment and the return experienced by the investor are not always the same thing. What you earn can be changed by when you buy, when you sell and how much money you move at the wrong time.
The investment can outperform the investor
Morningstar’s 2026 Mind the Gap research looked at US mutual funds and exchange-traded funds over the ten years to 31 December 2025. The average dollar invested earned 8.7% a year, while the underlying funds earned 9.9%. That is a gap of about 1.2 percentage points a year.
This is US research, so we should not simply transplant the percentage onto South African retirees. But the behavioural lesson travels very well: a good investment return does not automatically produce a good investor return.
The gap is often created by the decisions made around the investment, especially the timing and size of purchases and sales.
How sensible investors get caught
The cycle usually starts innocently. Fund A has disappointed for two years. Fund B has performed brilliantly. You look at the performance table and ask the obvious question: Why am I still invested in Fund A?
So you switch. A year later, Fund C is outperforming Fund B and the same question returns. Before long, yesterday’s winner becomes today’s purchase and yesterday’s disappointment becomes today’s sale.
It feels like active portfolio management. Sometimes it is simply performance chasing.
Of course investments should sometimes be replaced. A fund manager can leave. An investment process can deteriorate. A mandate can change. Costs can become uncompetitive. The risk of the investment can change, or your own circumstances can change.
Those are legitimate reasons to review a holding. But ‘another fund has recently done better’ is not, on its own, an investment strategy.
In fact, a genuinely diversified portfolio will almost always contain something that disappoints you. Different investments are meant to behave differently. If everything in the portfolio is performing brilliantly at exactly the same time, I would start asking whether you are as diversified as you think.
Why retirement makes switching more dangerous
Retirement adds another layer of risk because you are not only moving money between investments. You are also withdrawing from the portfolio.
Suppose markets fall sharply. You sell growth assets and move to cash. Your monthly retirement income continues while you wait. Markets start recovering, but the economic news is still terrible, so you remain cautious. Eventually you feel confident enough to reinvest.
You may have sold low, continued drawing income while sitting in cash and then bought back at higher prices. The fund itself may eventually recover fully. Your capital may not.
The value of someone saying ‘no’
We often measure a financial planner’s value by the investments selected. That misses an important part of the job.
Morningstar’s behavioural research found that 73% of advisers in its sample used at least one behavioural-coaching technique during periods of volatility. Decision-making support, market education and reminders about long-term investing featured prominently.
Sometimes good advice is: ‘We need to change this investment.’ But sometimes equally valuable advice is: ‘We have reviewed it. Nothing fundamental has changed. Leave it alone.’
Before you switch, ask this
Ask yourself: What do I know today that makes the original investment case no longer valid?
If you have a clear answer, investigate further. If the answer is simply, ‘It hasn’t performed as well as something else recently’, be careful.
Retirees spend a great deal of time negotiating investment fees down by fractions of a percentage point. They should. Costs matter. But do not save 0.25% on fees and then lose far more through badly timed decisions.
The most expensive cost in your retirement portfolio may be one that never appears on your statement. It may be the cost of your own impatience.
At Ascor Independent Wealth Managers, recognised as South Africa’s FPI Professional Practice of the Year, we help clients build retirement plans that are designed for real-world uncertainty, not just calm-market assumptions. For more insight, visit www.ascor.co.za. Or email info@ascor.co.za. To learn more about the best-selling The Ultimate Guide to Retirement in South Africa, visit www.retirementplanning.co.za.
