Right let me premise this with the fact
that I am the mother to two young boys aged 4 and 7, and the concept of the
“Marshmallow Test” is stress tested often in our house!

 Exhibit A: 

Ollie – ‘Mom if I make my bed today can I
have R2?’

Mom – “Yes sure Ollie, but how about you
make your bed for 5 days in a row. I will give you the R10 you earned, plus a
bonus! So R15 in total you little legend, I know you can do it!’


What am I rambling on about, most of you
are probably asking?  Let’s dive in.

The first “Marshmallow Test” was
a study conducted by Walter Mischel and Ebbesen at Stanford University in 1970.
The purpose of the original study was to understand when the control of delayed
gratification develops in children. The children aged 3 to 5 were given a
choice, eat one marshmallow now, or wait a period of time and receive more
treats at the end. Some sticky fingers couldn’t help themselves and succumbed,
others licked a little around the edges, and a few made it to the very
rewarding end. The outcome of the experiment was simple “Choosing to have
something now might feel good but making the effort to have discipline and
manage your impulses can result in bigger or better rewards in the future. Over
time, delaying gratification will improve your self-control and ultimately help
you achieve your long-term goals faster.”

 Do you have an idea of where I am going
with this?

 If I gave you the choice of receiving R1
million today in your bank account, no strings attached, OR 1 cent that doubled
in value every day for one month, what choice would you make? Be honest here,
most people would smash the marshmallow (all R1 million) of it straight away.
Imagine the debt that could be settled, the new clothes you could buy, the
holiday you could plan, the school fees you could squash! What realistically
could 1 cent, doubling each day, for only 30 days really amount to? Well, the
answer is quite staggering… over R5.3 million!



















R1 310,72

R2 621,44

R5 242,88

R10 485,76

R20 971,52

R41 943,04

R83 886,08

R167 772,16

R335 544,32

R671 088,64

R1 342 177,28

R2 684 354,56

R5 368 709,12

 We all know the theory behind compounding –
the 8th Wonder of the World – your investment grows by not only the initial
capital you invest, but also by the interest and dividends you reinvest
throughout your investment time horizon. The relationship changes from linear
to exponential. As much as we like seeing our investments increase each year,
what we also need to keep an eye on is the fees we pay. As these too
unfortunately can compound, eating away at your marshmallow! Fees are always
difficult to monitor, as transparency – although improving in our industry -is
sorely lacking across the board. Just as we want those Rands and Cents to
accumulate, so too do the fees you pay to the underlying fund manager, the
administrator and your adviser. Make sure each fee is warranted and has a
unique value proposition.

 Recently, a new client had previously been
enticed by the promises of increasing his living annuity income by a booster
from the company he was invested with. We worked out very simply, by back
testing the actual return of the fund he had been invested in, versus the
Internal Rate of Return stated on his statement, that he had unknowingly paid
the company triple the value of the additional ‘booster’ he had received in
just over a year, in undisclosed fees. Shocking!

It doesn’t help when Trump and Argentina
and the usual political and economic madness continues, and investors get
called back to the marshmallow plate and feel like they should be doing
something. Question yourself deeply, has anything changed? Do you need access
to your capital sooner, do you need to increase your income? If not, leave your
investments alone and allow the compounding to continue. At Harbour, as
Discretionary Fund Managers, we can make investment decisions on your behalf in
line with the mandate you signed with us, and the investment goals we set
together. We do make small tweaks (tactical changes) along the way where
necessary, but these are always made after a thorough discussion, debate and
in-depth analysis at our investment Committee Meetings. Following this process,
we aim to steer clear from making emotional decisions, as these unfortunately
often don’t result in desired outcomes.

 The key to our role as Advisors is
providing our clients with continuous education and an emotional sounding board
regarding the benefits of forgoing one marshmallow now, for plenty in the

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