Category: MARKET

So many things have changed in the last four decades, and yet so much has stayed the same. Financial planning has become an entire profession and is no longer just a bunch of salespeople selling insurance. It’s evolved into a profoundly nuanced practice, and those of us who are continually advancing our professional development are spending more time on understanding the integration of all aspects of life and well-being in our approach to financial planning.

But still, people are talking about retiring at 65 and asking how much money they will need. Forty years ago, the assumption was that at 55-65, you could comfortably retire if you had enough money to support yourself for another two decades.

Plans were made, and products were bought in order to see this happen, but forty years on, the landscape looks quite different to what was expected.

Yet still, people are talking about retiring at 65 and asking how much money they will need.

The Stanford Centre on Longevity recently stated that: “By the middle of this century, living to the age of 100 will become commonplace, continuing a remarkable trend that saw human life expectancies double between 1900 and 2000, increasing more in a single century than across all prior millennia of human evolution combined.”

And Aubrey de Grey, a British biomedical gerontologist living in the US, believes that the first person to live to 150 has already been born.

Wynand Gouws, the author of “Life to 100”, says that this continued increase in life expectancy is profound and should significantly impact how we think about life and retirement planning.

We can begin by reframing our thinking: instead of looking at retirement as our ‘last chapter’, we start to see that we could have two or three more chapters from 65 to 100. Gouws highlights that population ageing has been recognised as one of the four global demographic megatrends, next to population growth, international migration, and urbanisation, which will have a lasting impact on sustainable development.

As much as we’ve seen radical changes in recent history, we will most likely see even more change in the near future, which for many of us reading this, will see us entering our last few chapters of life. We don’t have to enter without a plan; we can celebrate our health and new opportunities, ensuring that we have an integrated financial plan.

As 22seven recently published on medium.com, “Always think twice before you buy something on credit or take out a loan.”

Here’s the thing to remember with credit – it’s just a nicer way of saying that you’re spending money you don’t have. In other words, you’re using someone else’s money to fund your current lifestyle. Credit is sold to us on the premise that it’s money we will have in the future, and often we do have the money in time and can pay it all back, but sometimes we don’t, and we just keep borrowing more. This is when we get stuck.

This continual servicing of debt becomes a hidden cost to our future self, and then the interest and account fees all start adding up, so we look for additional credit providers to help us. From banks to store credit, a recent US study showed that the average American debt (per U.S. adult) is $58,604 and 77% of households have at least some type of debt.

Whilst this will vary from region to region, country to country, it’s safe to assume that most people in today’s global economy have accepted credit to support their current living standard.

This is not necessarily wrong or right, but it’s something we have to talk about and know that we’re all in the same boat together. When we stifle conversations about money, we succumb to unhealthy thoughts and feelings about our financial situations that divide us rather than connect us.

So, before you take on any more credit, make sure you’ve given some thought to the following things:

1. Is my income enough to cover the full cost of this credit (not the items bought – credit will always cost more)
2. With inflation, will I still be able to pay for this credit comfortably?
3. If I had the cash available, would I still spend it on this (or these)
4. What are the extra costs, like card and account fees, interest, insurance etc

Credit has hidden financial costs, but it also has costs to our emotional, physical and mental wellbeing from the stress of creating too much debt. It’s hard to live without debt, but it’s not impossible to keep it to a manageable amount or reduce it entirely.

A balloon payment (also called a residual value) is quite simply an amount of money that is still due after you’ve finished paying your monthly instalments. The goal of structuring a loan with a balloon payment is to make it more affordable on your current cash flow, making it very attractive. 

They are ideal for both companies and private individuals who are facing a cash crunch in the short term but expect their liquidity to improve in the future. Essentially, a balloon payment allows you to make a lifestyle upgrade before your income can fully support it. There are many cases, then, where this approach can be highly beneficial; however, since the global economic crisis in ‘07 and ‘08, banks and borrowers have been a little more disinclined to simply blow up that balloon.

But, when you’re standing in that car lot, and a balloon option brings that nicer, fancier car within your monthly limit, it’s really hard to choose an option that won’t have a residual value in five, six or seven years. For this reason, many people are still driving around in cars that have a residual value looming.

Whilst we all hope our liquidity will improve within the next five years, it might actually decrease – especially with recent inflation increases. In some cases, we may lose our income altogether – making a balloon payment feel more like a noose than a pretty shiny thing, way off in the future.

If you’re sitting with a balloon payment, you should always have a plan to pay it off. Regardless of why you chose the structure, the sooner you can have a strategic approach to popping the balloon, or simply letting it go, the better.

Some people choose to trade-in their car every few years and work in the residual amount on their next finance plan through the trade-in. This is a helpful way to do it if you work towards taking a standard loan (without a balloon) on your next finance option, or if you start saving for a deposit.

If you’re working on that savings option, you might decide to use it to pay off your residual amount instead of trading in your car, which is also a helpful way to pop that balloon. If you find yourself with that increased liquidity, then you can use it to pay back the lifestyle upgrade sooner by increasing your monthly instalments.

At the end of the day, our financial products are becoming more complex in order to suit a wider variety of financial needs, but this makes it harder to know if we’re doing what’s best for our personal situation. If you need to review any recent or future financial choices, please feel free to get in touch!

Typically, inflation and interest rates are in an “inverse” relationship: When rates are low, inflation tends to rise. And when rates are high, inflation tends to fall.

Moneyweb recently wrote “increasing the cost of credit will reduce the demand for it and therefore slow down the pace of ‘new money’ entering the economy via credit channels. This slowdown of funds entering the economy via credit channels will slow down the inflation rate as less money chases the same amount of goods.”

But, despite the logical and logarithmic reasons, hikes in interest rates in the country are a bitter pill for many who already have financial burdens. The grassroots reality is that whilst a higher interest rate may ensure a better return on our hard-earned investments, inflation can have an opposite devastating impact on one’s savings and investments.

This is because inflation is not just about the increased cost of fuel, utilities, bread and milk; it is the rate at which your money depreciates over time as the cost of living increases. The immediate impact of inflation is what we feel everytime we tap our card or phone at the check out, the delayed effect is felt when our long-term investments are no longer sufficient to support our lifestyles.

Three time-honoured strategies to help with the long-term impact of inflation and increased interest rates are dollar-cost averaging, taking a long-term approach and diversification (including alternatives that are not market-linked).

Cedrick Pila, regional manager at Allan Gray, recently said that if you want to achieve real capital growth that takes inflation into account then consider different alternatives rather than just putting your money in the bank.

However we look at this, we need to fundamentally look at our behaviours and make changes where needed. In the immediate environment, we need to look at how we are earning and spending our money. For many of us, we can’t simply keep things as they are; we either need to cut back on spending, or generate additional income.

For the future, we need to work closely with our trusted financial adviser in order to tweak and adjust our diversified investment portfolio according to our personal needs and event horizons. 

Inflation and interest rates will always affect the value of our money, we cannot afford to close our eyes and hope for the best. If you’d like to connect and chat some more about this, please feel free to reach out and let’s set up a meeting.

At the end of any retirement planning conversation, we should always end with how our plan is unique to our own situations. But at the beginning, during the exploratory stage, it’s helpful to have some basic guidelines for where we can begin, or how we can craft our own benchmarks.

In the same way that a baby may start to walk anywhere between 8 and 18 months, we all start saving and investing at different stages in life. For an 8-month-old, 18 months is more than double their age. So someone could start planning for retirement at 20, whilst others may only just be getting there at 45 – and that’s okay.

What’s important is that you start as soon as you realise that you need to prepare for life after work!

In a recent article on IOL, they spoke about two common rules of thumb:

The Rule of 120 is a calculation that uses your age to determine the supposedly appropriate asset allocation for your investments: The formula suggests subtracting your age from 120 to discover the percentage of equities you should hold. For many, this may make sense, given that the older you get, the lower your capacity to take on risk.

Then there is the 4% Rule. Since the mid-90s, this has been applied universally as a rule of thumb to determine the appropriate drawdown rate and asset allocation for retirees. It suggests that if you withdraw 4% of your capital in the first year of retirement and only adjust for inflation each year thereafter – and provided that you maintain a minimum 50% allocation to equities – the risk of outliving your retirement savings over a 30-year period is substantially reduced.

But this can feel very technical and detached for many who are unfamiliar with the financial lingo. Also – a notable flaw of rules of thumb is that they cannot account for everyone’s unique circumstances. This is why it’s the starting point, not the ending point. Sometimes, we don’t even bring them up at all.

Ideally, we want to spark and sustain conversations that build awareness that life is changing and these changes affect and impact our financial wellbeing. Traditionally, we’ve been told that retirement is a stage of life that will happen around our 60s and that it will be accompanied by a slowing down and cutting back of work and responsibilities. But this is no longer the case, and certainly won’t be the case in the decades to come. 

Whilst we still need to invest and plan, by changing our motivations and dreams of what life can look like in 10, 20 or 40 years is proving to be considerably more helpful for our mental health, our financial behaviours and our investment portfolios.

Here’s the thing about financial planning: we don’t plan out of fear; we plan so that we can extend our peace of mind. This is why wills form such a key role in our planning. However, engaging in this process can be clumsy, confusing, and a little hairy, and as Ricky Gervais once said, where there’s a will – there’s a relative!

We need to talk about wills and estate planning so that we can remove the stigmas that stifle our engagement with drafting our will. 

As Mvuzo Notyesi, president of the Law Society of South Africa, says, “If you are a parent, a breadwinner, a homeowner and generally want to ensure that your affairs are in order, it is important that you have a valid will drafted by an attorney.”

Global panic in early-to-mid 2020 us all to think about these documents, and requests for them to be drawn up or updated were aplenty. The risk of creating these documents under duress is that we can make mistakes, sometimes in what they cover and other times in their legitimacy when official procedures are overlooked (or not available as in hard lockdown). Being ready and willing when you’re in a time of clearer, lucid thinking is a much better approach.

Drafting a will on your own or by using a web-sourced template can sometimes be sufficient, but these will not be applicable if you are residing outside of your country or origin, if you have young children, if you have assets in different countries, if you are part of a blended family, or if you are likely to inherit money yourself. These are just a few of the factors that would not be covered by a DIY basic will.

We can connect you with qualified professionals who can establish your needs and offer professional advice on any problems that may arise, before forming your estate plan and drafting your will. You need to have access to the necessary legal knowledge and professionals with the experience to ensure that your will not only complies with your wishes, but is also valid and meets the requirements of the law.

Vague wording like “I leave my cars to my sons” is typical of a DIY will, and may be disputed –  turning into an expensive and lengthy legal battle. What if the one car is worth R80,000 and another is worth R300,000?  What if someone arrives, claiming to be a son? Words like ‘descendants’, ‘my business’ or ‘personal items’ are also legally vague; pitfalls and loopholes are hard to spot if you’re not a trained lawyer.

Legal terminology like “bequest of the residue” are terms you may have never heard of and would certainly not put in your Last Will and Testament – all the more reason to hire a professional and save your family the additional heartache and stress later.

No one likes to plan for a time when we might not have enough money to make ends meet. Often, when we plan or make financial decisions, we assume that our future self will have enough money to pay for the decisions we make today. Sometimes this turns out to be accurate, but sometimes it doesn’t.

And, if the economy slumps and we have a cost-of-living crisis, the pressure on our finances can be debilitating.

Before we look at how to cruise through a cost-of-living crisis, it’s helpful to remember this…

It doesn’t matter how much money you have, what savings you have or how frugal you can be; inflation affects everyone. Every. One.

The first thing we need to do in a situation like this is to acknowledge that we’re not alone. We are pressured to make certain purchases and live a particular lifestyle because we think everyone else is managing and coping fine. But, truth be told, most of us have to make serious adjustments to our budgets and financial decisions when times are tight. If you feel you can no longer afford your bills, there’s a good chance that you’re not alone.

This is helpful when we need to look at other strategies to reduce spending or realign our finances to weather the stormy volatility of increased living costs. Everyone needs to think differently in order to spend and live differently under a strained economy.

The upside to this is that necessity breeds innovation. We learn to make do with what we have. But, it’s not just about making ends meet. In hard times, people unite in extraordinary ways to support and encourage each other. Relationships are forged, communities are strengthened, and our stories are coloured with wonderful, unexpected experiences.

Downgrading a home, moving in with others, selling a car or changing schools are hard things to do, but they can create memories that we will cherish forever. And, it all comes down to our attitude.

This is how we cruise through a crisis; by adopting the right mindset.

Sure, we can scrutinise spending, scale back on expenses, renegotiate debt repayments and look for savings, but ultimately, it’s how we allow challenges and changes to grow us and make us better people. You’re not alone. Let’s chat.

We often think of things like stocks, bonds, mutual funds, annuities and assets as investments. But, investments are a broad area. According to Investopedia, an investment involves putting capital to use today to increase its value over time. An investment requires putting capital to work, in the form of time, money, effort, etc., in hopes of a more significant payoff in the future than what was initially put in.

With the increased use of technology to communicate and distribute value, the world of investing has grown to include many more opportunities than existed a few short decades ago. What we know now, and what we can do now, is leagues ahead. Just consider how Airbnb and Uber turned empty homes and idle cars into sources of income.

One of the more recent trends in alternative investing has been in the fashion industry, with people finding ways to create an income from their second-hand clothes. A decade ago, you would have struggled to offload second-hand clothing, let alone get paid for it, and emptying your closet meant a trip to a charity shop.

In a recent article in the Economist, we read that:

“Once Airbnb and Uber had propelled the idea of a sharing economy into the mainstream, firms turning used clothing into an asset class were not far behind. As with accommodation and transport, not just resale but rental was revolutionised. By Rotation and Rotaro act like sharing-economy apps for wardrobes. Now, whether people are reselling knick-knacks, lending out old clothes, renting a spare room or picking up passengers in their spare time, they are making better use of their assets than before.”

We are literally moving from old bags to new riches. Living in a time where we can be so profoundly connected to how we create and experience value is exciting.

We don’t have to simply invest in a long-term savings account; we can become fully immersed in the grassroots investing of our money. The boredom of covid-19 lockdowns may have boosted resale by giving people time to clear their wardrobes and browse second-hand fashion online. According to estimates from GlobalData, last year saw over 33m new buyers and 36m new sellers of old garb.

The very thought that an item might be rented out or resold in the future changes how we approach buying it in the first place. From Meta (Facebook) groups and Telegram channels to apps and blockchain platforms that allow us to exchange value like never before, the future of finance and our economies are colourful and dynamic. Anything can happen.

When the purse strings are pulled tight, it’s challenging to look at your statement and see monthly amounts deducted for insurance payments. Whether the risk policies are for health care, income protection or the protection of assets, seeing them come off your account can be painful.

As a result, many of us cut these policies quickly to create immediate relief to our finances because it feels like one of the few things we can control. But if we do this out of panic, and not strategic intent, we may very likely regret the decision.

If we miss a payment or cancel a contribution, our policy will be in danger of lapsing. Different companies and countries have various rulings on the timelines for this, but the general guideline is that if you stop paying, you will lose your cover within 30 days. A lapsed policy could mean more than just the loss of cover; it could also be linked to other integrated products in your portfolio.

We all know that life can become complicated and uncomfortable without notice. We can lose a job tomorrow, or receive a dread-disease diagnosis next week; we’re not in control of what will happen. But, we are only in control of how we will respond to life taking a turn for the worse. 

This is where we can become powerful and push through the tough times to emerge stronger and better than we were before. Here are a few strategic decisions that can help you make healthy decisions and avoid lapsed policies.

If your finances have become constrained, it’s possible that a reshuffle or reduction of your policies could be beneficial. Rather than cancelling them without a second thought, you can look to reduce costs or change options. This is where, together, we can help you make powerful choices to keep some cover in place and identify critical areas of focus.

It’s also essential to remember that cancelling a product now may mean that you will no longer be eligible for it again in the future. Many legacy products in the financial sector cannot be reinstated after they have been cancelled or lapsed. Make sure you know what you’re letting go of – especially if it’s linked to a rewards programme.

Another beneficial strategy is to engage (sometimes through your financial planner) with the product provider and ask for a payment plan or a payment holiday. Communication is immensely valuable in a crisis, and it’s often the hardest thing to do when we’re feeling overwhelmed and vulnerable. 

Before you lose out, reach out. Let’s touch base and see what the best steps forward will be to keep you in the most beneficial position possible.

Whilst it’s good to have someone on your team (your financial adviser) who knows what’s happening in the markets, it’s not always helpful to relay all that information to you and have you make decisions about it. We can’t control the markets, but we can control our conversations about money.

That’s why it’s not always helpful to ask what is happening in the markets; it’s more beneficial to ask what problems we can work on in our own lives, that we can choose to influence or overcome.

Because these will always, always, affect our money.

In some of the most recent financial planning conversations, we’re trying to focus on some of the most common emotional, behavioural and financial problems we can help our clients solve.

EMOTIONAL PROBLEMS

1. Anxiety
2. Fear
3. Uncertainty

It is empowering to talk about and plan for what could or might happen, it’s not always pleasant (because it’s so filled with anxiety!), but it’s necessary. Through this, we can deal with and confront what is happening at any given point and become comfortable with uncertainty, helping you paint a more understandable and accessible future.

BEHAVIOURAL PROBLEMS

1. Risk Management
2. Control
3. Confidence

We live in an era that is pleading with us to be kinder to ourselves, and it’s a wonderful space in which to be present. It’s not about ignoring pain or problems, but it could be about planning to be less wrong tomorrow. We can reduce the big blow-ups and mistakes and let the boring be beautiful! This helps us gain a better sense of control and restores confidence in bucket loads.

FINANCIAL PROBLEMS

1. Do we have enough?
2. Paying too much tax
3. Giving

This first question here is one that often needs as much reframing as the one in the title of this blog! Our challenge is to deal with the intersection of enough vs more and align money and time with what’s most important to us. This then helps us with some of the more practical concerns, like minimising tax and finding a way to make our money expand, and not reduce, our legacy. It’s powerful to be able to give with a warm heart, not a cold hand.

If you want to explore these questions more, and change how you engage with your money and how it affects your quality of life, let’s chat!