Category: Blog

There’s a rare object known as a tuit. It’s a special gift to keep for yourself, but also has great value for your friends and family. Tuits, especially round ones, will generally have a note or inscription along the following lines:

This is a Round Tuit. 

Guard it with your life!

Tuits are hard to come by, especially the round ones.

It will help you become a much more efficient worker.

For years you’ve heard people say

“I’ll do that when I get a round tuit.”

So now that you have one, 

you can accomplish all those things you put aside,

until you got a Round Tuit.

It’s easy to put off important decisions until tomorrow. When there’s too much to think about, we’d rather do it ‘when we have more time’; we’ll take care of it when we get around to it. The problem is that all too often we never get around to it until it’s too late.

Taking out the extra insurance before we have that accident, fixing the leak before it rains, finishing a presentation before the deadline… we all have our stories of occasions where we were confident that we’d get around to it – but didn’t.

Dread disease cover is one such conversation that is never easy to have and is often put off until we get around to it; partly because it’s not nice to talk about or spend money on, and partly because it’s fairly complex.

Sometimes called CI cover, dread disease cover is different to disability cover, which protects you and your finances after an accident temporarily or permanently leaves you unable to work. 

In a similar way, dread disease cover is there for when a health setback floors you temporarily or for a longer period of time. From strokes or heart attacks to serious illnesses like cancer, this cover helps you focus on your recovery without having the added stress of loss of income each month just when your medical and associated expenses are skyrocketing.

When the average person thinks of cancer, a tumour or a stroke, they imagine the worst. And no one likes thinking about it… it will never happen to us anyway, right?

But in reality, these things are more common than we realise and are not a death sentence – far from it.

“Statistics confirm there is a high likelihood of contracting a major illness such as heart disease or cancer. And thanks to advances in medical technology, people are more likely to survive these illnesses than ever before,” Old Mutual’s Ferdi Booysen says in insurance publication FA News.

Research shows that one of the single biggest impediments to recovery in any illness (barring chronic mental illness) is stress. Research also shows that finances are one of the biggest things that people are concerned about when ill – a vicious and ironic circle.

And they’re not wrong. There are lots of little unforeseen expenses surrounding illness and hospitalisation. Even if you have an amazing medical aid in place, there will be things the medical aid doesn’t cover. And what about other things you may need, like therapy for you and your spouse after the trauma of a stroke?

With dread disease cover, it’s easier to relax and focus on recuperation knowing that everything is in place. In fact, most CI cover pays out a lump sum so that you can decide what’s important for your recovery journey.

Falling seriously ill or having a health episode is never pleasant, but it is a fact of life – and it needn’t be the end of it. In fact, it can be the start of a whole new one.

Those who have experienced these things with the support of insurance and the ability to focus on themselves rather than being forced to work when physically unable, often describe their journeys as powerful wake-up calls that helped them “get around to it” and improve their lives.

For many years we’ve been having better conversations about retirement. It’s no longer a matter of finding a job, staying in it for 40 years, and then retiring for fifteen years under the assumption that the company pension scheme will finance that entire period for us. 

It simply doesn’t work that way anymore.

Finding a job can take considerably longer; the chances of us staying in one position for more than ten years, saving early (and long) enough and the span of our retirement years have all changed and created new challenges for how we plan our lives and our money.

In a recent article by Dinash Pillay, National Business Development Manager at Glacier, he also highlighted the impact of global lockdowns that have forced thousands of businesses to close or downscale. This has led to an increase in employees, who are a few years away from retirement, being offered early retirement without the usual penalties for cashing in prematurely.

As the article says, this may be an attractive option if you are an employee in your mid-50s. 

However, before you grab the opportunity, make sure you have a robust plan in place. In this blog, we look at the first part of Pillay’s commentary; the next blog post will have a handy to-do list to help with the decision-making process around early retirement.

Retirement needs a plan.

Most people don’t think about their retirement before they are already in it.  Planning is of paramount importance, and financial planning is central to the big decision that you’re facing. 

Here are some questions to answer long before you exit your workplace for good:

• Have I saved enough during my working years? 
• Is my employee retirement fund the only retirement savings that I have accumulated?
• What monthly income will my retirement savings provide after I retire?  
• Who depends on my income now?
• Who will depend on me financially into the future?
• Is the home I own fully paid for?
• Am I debt-free?
• I’m healthy now, but what if I get ill or develop a chronic illness or I’m disabled – what do I do then?
• At work, I have purpose, focus and tasks that fill my day. Will I have a new purpose as a retiree?

It’s important to remember that the basic principle around investing is that the longer we can stay in the market, the more time our money has to grow from the benefits of compounding interest. For most retirement investment plans, the most growth happens in the final few years. Often, but not always, it’s wiser to try and push back your first date of drawing down on your retirement savings.

Everyone is different and it’s best to check with your personal financial adviser when considering these profound life changes. Take a look at the next blog for the checklist of five to-dos before taking early retirement.

Source article

If someone is selling something, their primary goal is most often to convince you to buy what they’re selling. If you follow financial accounts on social media, your timeline is likely crowded with people touting the next big winning investment.

As we look back on market history, there is an obvious attraction to finding the big winner – the tiny tech stock that turns into the next Amazon or the virtual coin that makes overnight millionaires.

Winning is ingrained into our psyche. It’s coded into our core ideologies from formative schooling and is reinforced through our induction into adulthood and the working world. 

The class that raises the most money gets free burgers on Friday, the kid with the highest grades earns the scholarship, the student with the best performance wins the grant, and the employee with the best ratings secures the promotion.

But what if, instead of chasing the big win, we invested our money with the goal of simply not losing? It’s a powerful mental trick that doesn’t seem to ‘come naturally’.

Chances are, you’ll come out ahead, says behavioural finance expert Brian Portnoy, founder of Shaping Wealth and author of “The Geometry of Wealth.” 

He says that “Adopting inverted thinking — facing problems from the opposite point of view — is such a powerful mental trick. The world becomes a brighter and cleaner place once you get used to it.”

Here’s what he means.

Win by avoiding big mistakes. Portnoy’s perspective on investing has been around, in one form or another, for decades. In a recent Twitter thread on the topic, he cited investment consultant Charley Ellis’ 1975 research paper “The Loser’s Game,” in which Ellis argued that winning at investing was akin to winning at tennis.

There are two ways to win with a racket, Ellis wrote. If you’re a pro, you hit high-speed, well-placed shots to defeat your opponent. But for amateur players, the vast majority of points are won and lost when an opposing player makes an error. Amateurs can triumph merely by keeping the ball in play and making fewer mistakes than their opponent.

When we see someone selling “the next big sure-investment win” – we mustn’t get taken in. 

“That’s sample bias at work,” says Portnoy. “We see the winners because they’re on the cover of magazines, but there are many more losers out there. We don’t see them, but they’re there.”

If we’re honest with ourselves, “we’re amateurs at most of the games we play,” Portnoy says. “Trying not to lose is often the most prudent thing to do.”

Great thinkers, icons, and innovators think forward and backwards. They consider the opposite side of things. Occasionally, they drive their brain in reverse. This way of thinking can reveal compelling opportunities for innovation and lies at the heart of inverted thinking. It’s a powerful mental trick that can help us master the markets by seeking to stay invested for the long term rather than trying to time a winner and potentially lose everything.

Source article

The fastest way to lose half of your money is not a stock market crash but a divorce, separation or a poor business decision (so it’s a good idea to make sure you’re on the same page with your partner when it comes to joint finances.)

Many have felt disheartened by the stock market in recent times, especially with the historic GameStop trading fiasco. It’s easy to feel confused and assume the market is rigged against the smaller investors.

However, the small-time investor could have a ton of advantages over the pros. They don’t need to pay attention to short-term performance or benchmarks or made-up risk-adjusted return metrics. They can play the long game and not worry about all the stuff professional investors are forced to obsess over.

In Ben Carlson’s book, Everything You Need To Know About Saving For Retirement, he talks about how the stock market works. This is an edited extract from chapter eight.

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After getting engaged my wife and I began having some deeper philosophical conversations about how we would run our joint finances. We were in our mid-to-late 20s at the time so I informed her I would like to put the majority of our retirement savings into the stock market.

My wife, like most normal people, did not know much about the stock market except for what she heard on the news or saw on TV and in the movies. She did not give much thought to investing in stocks. So when I told her we would be saving the bulk of our retirement money in stocks (especially when we were younger) she was initially concerned.

What follows is more or less what I told her (and despite going through this exercise she still agreed to marry me if you can believe it).

The stock market is the only place where anyone can invest in human ingenuity. It is a bet on the future being better than today. Stocks can be thought of as a way to ride the coattails of intelligent people and businesses as they continue to innovate and grow. Short of owning your own business, buying shares in the stock market is the simplest way to own a slice of the business world.

The greatest part about owning shares in the stock market is you can earn money by doing nothing more than holding onto them. When companies pay out dividends to shareholders, you get cold hard cash sent to your brokerage or retirement account which you can choose to either reinvest or spend as you please.

Many people compare the stock market to a casino but in a casino the odds are stacked against you. The longer you play in a casino, the greater the odds you’ll walk away a loser because the house wins based on pure probability. It’s just the opposite in the stock market.

The longer your time horizon, historically, the better your odds are at seeing positive outcomes. Now these positive outcomes don’t guarantee a specific rate of return, even over longer time frames. If the stock market were consistent in the returns it spits out, there would be no risk.

If there were no risk, there would be no wonderful long term returns. And because there is risk involved when owning stocks, your returns can vary widely depending on when you invest in the stock market.

It has been possible to lose money over decade-long periods in the past. Even 20 to 30 year results can see a big spread between the best and worst outcomes. However, it is worth noting that even the worst annual returns over 30 years in the history of the U.S. stock market would have produced a total return of more than 850%. This is the beauty of compounding. The worst 30 year return for the S&P 500 gave you more than 8x your initial investment.

$10,000 dollars invested in the S&P 500 in the year:

• 2010 would be worth $37,600 by September 2020
• 2000 would be worth $34,200 by September 2020
• 1990 would be worth $182,300 by September 2020
• 1980 would be worth $918,500 by September 2020
• 1970 would be worth $1,623,500 by September 2020
• 1960 would be worth $3,445,000 by September 2020

I’m ignoring the effects of fees, taxes, trading costs, etc. here but the point remains that over the long haul, the stock market is unrivaled when it comes to growing money. And the longer you’re in it the better your chances of compounding.

Having said all of that, there is an unfortunate side-effect of this long term compounding machine. Stocks can rip your heart out over the short term. If there is an ironclad rule in the world of investing, it’s that risk and reward are always and forever attached at the hip. You can’t expect to earn outsized gains if you don’t expose yourself to the possibility of outsized losses. The reason that stocks earn higher returns than bonds or cash over time is because there will be periods of excruciating losses.

The stock market is fueled by differences in opinions, goals, time horizons and personalities over the short term and fundamentals over the long term. At times this means stocks overshoot to the upside and go higher than fundamentals would dictate. Other times stocks overshoot to the downside and go lower than fundamentals would dictate. The biggest reason for this is because people can lose their minds when they come together as a group. As long as markets are made up of human decisions it will always be like this. Think about how crazy fans can get when their team wins, loses or gets screwed over by the refs. These same emotions are at work when money is involved.

How you feel about investing in the stock market should have more to do with your place in the investor’s lifecycle than your feelings about volatility.

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Remember, the stock market isn’t the only way to invest money, but it helps us with portfolio diversification, a well-practised strategy for protecting our future wealth.

One of the challenges of financial planning is its complexity. Not only is it mathematically layered, but it’s also fraught with bias and emotional influence. For most of us, we only scratch the surface of about seven areas of financial planning and allow experts to make recommendations and decisions that will hopefully create a better financial position for us in the future.

When it comes to investing (just one area in about seven), there are loads of biases that can either help or hinder the protection and growth of our assets. This makes asset management and investment planning a constantly evolving landscape and requires several types of niche specialists.

Anchoring is a cognitive bias that often comes into play when we are trying to establish the value of something.

This doesn’t only apply to investing – it applies to commodities and services across the board. Every day, we rely on the anchoring bias to help us form a perception of value, from standing in the fresh foods aisle to standing in a second-hand car lot or calling around to find a plumber to fix a leak.

“People make estimates by starting from an initial value that is adjusted to yield the final answer,” explained Amos Tversky and Daniel Kahneman in a 1974 paper. “The initial value, or starting point, may be suggested by the formulation of the problem, or it may be the result of a partial computation. In either case, adjustments are typically insufficient. That is, different starting points yield different estimates, which are biased toward the initial values.”

This means that we tend to rely too heavily on the very first piece of information we learn, which can seriously impact the decision we end up making. And, living in a world where we have far more access to information than ever before, complicates our decision-making exponentially.

So – can we avoid it? Well, according to Investopedia, not entirely. Here are some ideas they offer to manage our anchoring bias.

Studies have shown that some factors can mitigate anchoring. Still, it is difficult to avoid altogether, even when we are aware of the bias and deliberately try to avoid it. In experimental studies, telling people about anchoring, cautioning them that it can bias their judgment, and even offering them monetary incentives to avoid anchoring can reduce, but not eliminate, the effect of anchoring.

If you are selling something or negotiating a salary, you can start with a higher price than you expect to get as it will set an anchor that will tend to pull the final price up. If you are buying something or a hiring manager, you would instead start with a lowball level to induce the anchoring effect lower.

Ultimately, if we can’t avoid anchoring, we should at least try to use it to our advantage. In financial planning, we have a process called due diligence. This helps us obtain as much relevant information as possible to a specific decision to help us create a close-to-accurate anchor.