Category: MARKET

Holidays should be a time of restoration and relaxation. But for savvy investors, who are seldom able to switch off or turn down the volume on their analytical brain activity, it can be a time of stress and panic. Whether you’re entering your annual time of leave or it’s a sneaky mid-year break, if you’re understandably nervous about your financial plan, fear not. 

While no portfolio is fireproof to completely uncontrollable events like black swans and major unforeseen global macroeconomic events, there is a lot you can do to limit your exposure to market-affecting shenanigans on the home front.

Don’t make any sudden moves. When it comes to investing, always remember: any change costs something, and it is also expensive when everyone else pulls the same move (like investing offshore). Try not to suddenly pull huge lump sums out of equities and into a different class without it being in line with your long-term strategy.

Switching things up in your portfolio is sometimes necessary, but we must do it with a comprehensive strategy, not a panicked whim before you go on leave. When nearing the end of an investment term, it could be an excellent time to change your weighting in various classes and the diversification of your portfolio. Feeling scared watching the news is not.

Don’t get involved in something you don’t know well. December is often the time for year-end bonuses. Feeling jolly, you may think: “Heck, why not try out Crypto?” 

Unless you’ve studied the market history, inner workings and headlines surrounding your options for more than a year, maybe give it a little more thought. (Many tried this back in 2017 when Bitcoin was trending and either lost all that irreplaceable, untraceable investment in a hacker’s spree or waited until December 2018 to find out it was worth 80 per cent less.)

Lastly – manage your emotions. We’ve shared many blogs on this, as it doesn’t only crop up when we’re heading offline for a break. Our feelings need to be felt, experienced and expressed, but they are not our whole truth and should not govern the direction of our financial plan.

Ultimately, investing always works best when you have a trusted, second opinion on any significant choice you make. Either knuckle down and focus on the people around you and let your money work for you, or let’s get in touch and have a comforting cup of coffee to bolster your portfolio.

In the previous blog, we looked at how we can help our children with their retirement, or financial independence, as many in our profession are starting to frame it. But the reality is, as the sandwich generation, we can’t only be thinking about our own and our kids’ financial futures; we also need to be thinking about our parents’ financial futures.

Living at a time when fewer and fewer people can afford to live without working for their monthly income, we need to accept that we may need to help our parents with their expenses and living costs when they can no longer earn an income.

The good news is that it’s not just about shelling out more cash from our pockets; rather, it’s about building a collaborative and conversation-driven process to establish a healthier financial future for all involved.

The Real Simple lifestyle website offered several ways to start engaging with your parents on a journey of planning and providing for their senior years.

1. Talk to your parents about their money (but skip the blame game)
2. Get other family members on board.
3. Dig into financial details and get started on a budget.
4. Can you encourage them to consider phased retirement?
5. Look for new sources of income.

If you were lucky enough to have parents who were able to provide well for you, discovering that they haven’t saved for their golden years may be really tough to find out – but it’s better to find out now rather than later.

The fact is, what’s done is done. But it’s never too late to put a plan in place that allows you to find a way to help your parents without putting your own financial future at risk. When we bottle up our problems, they will make us sick and stifle any chance of growth or healing. If we are open to talking about tough subjects, we might find that our parents will also find it easier to open up.

In the first above, avoiding blaming or making anyone feel bad is crucial. It’s good to talk about how we’re feeling, and it’s okay if there are some negative emotions, but we have to be willing to move past those and focus on what will result in a positive outcome for all of us.

We spend most of our time having conversations with people who are 40+ about saving for retirement. However, the language and expectations are slowly starting to shift in a powerful and exciting direction.

Instead of only talking about retirement, we’re starting to use words like financial independence. And rather than focusing on traditional milestones, like 65+ years, we’re starting to look at shifting timelines based on goals and lifestyle plans that are based on purpose and meaning, not contracts and “having enough”.

Many of our chats are opening up the opportunity to discuss things like work-optional lives where we can look at taking a few years off, then working again, then taking a break again. Or, changing the pace of work and redefining what a valuable life looks like, meaning that we don’t have to stop working when we have a set amount saved or have reached a certain age.

Inevitably, these dialogues also allow the space to help our children with their own financial independence. When we’ve passed the 40-year-old mark, we realise the difference that 20 years makes on a lump sum investment. We can see that a small amount now can make a huge difference later, for our children.

Depending on where you or your kids live – you may be able to set up a tax-free saving account, and doing this will have multiple benefits for your children. The first benefit is the tax-free money your child will have access to. But, even if it’s not tax-free, another benefit is the early financial education they will receive, knowing that you’re putting away money for a long-term event horizon. They will see the investment steps and the results. 

And, they will benefit from the kickstart as they will be able to start their working life with money in their financial independence, or retirement account. Because they already have a good start, it is more likely that they will continue to invest.

Many countries offer tax-free savings accounts; whether you’re looking at a Roth IRA, an ISA, TFSA or something else – you can start a bolster fund for your kids that will gain immense value over 30 to 60 years, no matter where you or they live.

In a recent podcast on the Allan Gray Podcast with Dan Brocklemank, head of Orbis UK, he reflected on how humans are NOT designed to be good investors. Our natural instincts very often pull us in the exact opposite direction to what we need to be doing in order to be good at investing.

Our natural habits and instincts protect us in the present; they’re not good at protecting us for the future and seeing the bigger picture.

It’s partially why Warren Buffet once said that the most important quality for an investor is temperament, not intellect. It’s not always what we know in the here and now, but how we behave when we see others in a state of panic.

Throughout history, there have been bubbles in the markets that have incited irrational investor behaviour; everyone can see them happening, and yet they all buy, driving up the prices, even when the market value is radically out of sync.

It almost feels trite to repeat the saying that it’s all about time in the markets, not timing the markets, but it’s an old investment truth that still rings soundly, even in the current global environment.

Long-term investors have always had to make sense of a barrage of information, from market movements and geopolitical news to economic developments and personal finance trends.

With the digital age giving rise to a new culture of near-limitless access to information, this is now even more challenging.

If you’re looking to build and sustain a long-term wealth strategy, it’s helpful to have a long-term relationship with a financial planner who is willing to work closely with you to help you create and stick to your financial goals.

This is because, despite all our investing history and available technology, forecasters are still so bad at predicting what will happen tomorrow and why we still believe that the best way to build wealth is by adopting a long-term approach. Working with someone you know and trust, who can talk you out of a hole or off a ledge, is going to become paramount to growing a strong, robust investment portfolio.

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.