AVOID THE ‘NEW DIET’ APPROACH TO INVESTING

Saving is a tricky financial discipline to master. Most people agree that it’s wise to save, but are unsure as how best to do it. They try one way, take a break, then try another. It’s similar to the way many people try to eat healthily. Again, we all agree to the benefits of healthy eating, but few can stick to the right diet for a period long enough to produce significant results.

Just as different diets work for different people, we cannot view investments as a cookie-cut, one-solution-fits-all models. And, just as with dieting, creative and tailored solutions often work best! As a financial advisor, it’s my job to be your financial dietician!

TAX YEAR END - RA BOOST!

With the tax year drawing to a close at the end of February, it is worth looking into the advantages of making a supplementary contribution into your retirement annuity (RA). The National Treasury estimates that only 10% of South Africans are able to maintain the same standard of living after retirement. Here are some good reasons to give your RA a boost before the tax year end.

5 TIPS FOR INVESTING

It is never too early or late to start an investment portfolio. If you already have a portfolio it doesn’t hurt to gain some extra insight, whether you choose to acknowledge the advice or not… at least arm yourself with it!

INVESTING IN ETF'S FOR KIDS

If you are interested in investing for your children’s future education, a good way to achieve this is with exchange-traded funds (ETF). It is best advised to have a balanced portfolio spread over multiple asset classes so as to reduce volatility and enhance performance potential. You should consider the following points when setting up education accounts for your children:

THE TOP 3 REASONS THAT SOUTH AFRICANS SAVE

FNB recently did a study of the top reasons why South Africans choose to save their money in a culture with a penchant to spend, spend, spend. The results of the study show three main outcomes for which people save, prioritized differently depending on the income bracket of the person.

The three main reasons for saving up funds are retirement, education and emergencies. 

REVISING YOUR RETIREMENT ANNUITY

Retirement annuities form a staple for many people’s financial saving diet. Seeing that it is such an important investment it would be wise to not let it stagnate and lose. The fees charged on RA's have undergone significant change over the past years, if you have been investing into your RA for more than five years, and have not yet reviewed it, then now would be a good time to re-assess your RA portfolio.

WHAT KIND OF INVESTOR ARE YOU?

Recently I’ve shared several articles on investments, and then I came across this gem from Discovery! It digs a little deeper into understanding your own, personal, risk profile and how that pertains to your investment choices and behaviour. Remember, this is a snapshot typical behaviour types; before making any investment choices, let’s chat first! 

Identifying and understanding your risk profile will help guide us to the types of investment funds that suit your specific financial goals.

What type of investor are you?

When choosing your investment approach, it is important to consider your risk profile, which indicates how much investment risk you are willing to take to achieve the investment returns you are aiming for.

HOW LONG MUST I INVEST FOR?

How long is a piece of string? Well, the answer is actually simple: as long as you need it to be.

If you have to cut a piece of string, you’ll start with what you need it for. You measure your need and then you cut the string. You don’t work the other way around, otherwise you will waste the string. The same is true for your investment needs.

LIMBO WITH THE LINGO

Whether you’re casting your line off the end of a pier or buckling your seatbelt, we all deal with risk and return. Somehow, when it comes to emerging markets, nominal vs real, risk-adjustments, multi-asset portfolios, protection strategies and bull vs bear markets we panic amidst an onslaught of lingo that overwhelms us.

Basically, when it comes to investments, it helps to bring things back to casting your line off the pier or buckling up, because we’re in for a bumpy ride.

HOW ARE THE MARKETS LOOKING?

Fluctuations in the markets are one of their defining characteristics.  Various factors contribute to the vicissitudes of investor behaviour, both locally and globally, and many of these are psychological factors that are strongly influenced by perceptions – and an interest rate hike will surely shake the boat. 

It’s always good to know how your investment portfolio is constructed and variety is important to encourage an overall positive return.  When local markets are up, global markets might be down and vice versa.

Here’s a little bit of what’s been happening in the past six weeks.

HOW TO BUILD A STRONG INVESTMENT PORTFOLIO (III)

Hindsight is 20:20; we can always view what we’ve done with a comprehensive view than before we did it. Whilst you can’t change the decisions that you’ve made, you can change the decisions that you’re going to make in the future.

When building an investment portfolio, the third key consideration that you must bear in mind is: review.

Look back at the investment choices that you’ve made and decide if they are worth repeating or if they require some adjustment.

If you really want to maximise your financial potential regularly reviewing your investment portfolio will most certainly increase your dividends.

HOW TO BUILD A STRONG INVESTMENT PORTFOLIO (II)

THE LARGER THE GAIN, THE LARGER THE RISK

For those in the southern parts of South Africa, there are rainy days ahead. Easter normally signposts the temperature drop and increased saturation in the air. Rain begins to fall, animals slow down and all too often our waistlines begin to explore the other side of the belt buckle…

Rainy days are ahead. We’ve heard it plenty of times, but are you prepared? Not for the cold, but for the financial rainy days when you need to pull on extra resources to cover costs and make ends meet.  It's easy to avoid thinking about the rain when the sun is shining.  But the rainy days will come.

Last week when we spoke about building investment portfolios, we spoke on investment portfolio knowledge. Today I want to talk about the second key consideration when planning your investment opportunities: risk.

HOW TO BUILD A STRONG INVESTMENT PORTFOLIO (I)

BASIC INSTINCTS

Every winter we begin to see a profusion of pallid tree-dwelling rodents, squirreling away nuts and seeds for the cold season. This is a lovely illustration of wise investments for the future: simple, natural and too true to life.

The reason for this can be put down to instinct, but ask yourself – what about the first family of squirrels, how could they have known of the three-month scarcity of food? I think it’s fair to speculate that instinct is borne from experience. Think about changing gears when you’re driving – it happens so naturally, so instinctively.

Investing our money, however, is not a natural instinct.

Perhaps it’s because we never have enough to save, and then when we do, the concept is so foreign to us that we don’t know what’s best.

DOES THE STRENGTH OF THE RAND AFFECT MY INVESTMENTS?

My last article highlighted six main factors that affect the strength of the rand. It’s been really well read and seems to be quite a frequently asked question. Further effects of the exchange rate fluctuations are felt in offshore investments.

Today I’d like to take a look at the considerations that a change in currency makes on offshore investment portfolio considerations.

In the same article from Discovery’s website, they looked at three investment portfolio scenarios that would be directly affected by a stronger or weaker rand.

Planning to invest offshore

If you are planning to invest offshore, you ideally want to exchange your money when the rand is strong because it means that you can purchase more units in a fund offshore. However, it’s important to remember that you cannot time currencies. Market timing and currency timing is never recommended for investors. You can, however, use rand strength as an indicator if you are already considering an offshore investment.

REVIEWING YOUR POLICY (2)

A WISE CHOICE NOW PAYS OFF LATER

In my previous article I looked at the old-school approach to risk assurance policies and highlighted some areas of concern that the latest policies are trying to avoid.

The reason for this is because most life cover premiums are higher than necessary because you are sold an indiscriminate lump sum of assurance to cover many different needs with different values at different times of your life. Not only is this costing you too much, it is also probably inappropriate for your needs.

BrightRock, a comparatively new kid on the risk life assurance block, has made this claim.

It says that, as a result of the traditional “lump-sum” structure, your cover becomes increasingly unaffordable, resulting in your reducing or cancelling it in later years. Having paid from day one for the cover, you then sacrifice it at the very time you need it most.

The BrightRock claim follows the publication last year of research undertaken by True South Actuaries & Consultants, on behalf of BrightRock, which showed that many people who bought seemingly “cheap” life assurance when they were younger faced losing their cover as their premiums escalated above the inflation rate and became increasing unaffordable. So, if you missed last week’s article, just click on the older posts link below, otherwise, read on for some more information on the kind of features you should be looking out for in your policies.

WHAT TO LOOK FOR

The overview principle is that a wisely chosen policy is one that can adapt with your needs.

Each component of cover within your risk assurance policy should exactly match the behaviour and trajectory of each specific financial need you want to protect, Schalk Malan, executive director at BrightRock, says.

REVIEWING YOUR POLICY (1)

ARE YOU PAYING TOO MUCH?

You could save as much as 30% of the premiums you pay on risk life assurance – against early death, for example – by, in effect, changing your policy from one paying out a single large lump sum and priced for the maximum term, such as “whole of life”, to one covering each of your financial needs with a precisely matched duration of cover.

BrightRock, a comparatively new kid on the risk life assurance block, has made this claim.

It says that, as a result of the traditional “lump-sum” structure, your cover becomes increasingly unaffordable, resulting in your reducing or cancelling it in later years. Having paid from day one for the cover, you then sacrifice it at the very time you need it most.

And when you reach the stage where your cover becomes unaffordable, you may not be able to obtain more affordable cover, because you may have developed a health condition that makes you either uninsurable or that necessitates exclusions and/or premium loadings on your policy.

The BrightRock claim follows the publication last year of research undertaken by True South Actuaries & Consultants, on behalf of BrightRock, which showed that many people who bought seemingly “cheap” life assurance when they were younger faced losing their cover as their premiums escalated above the inflation rate and became increasing unaffordable.

WHAT TO AVOID

Schalk Malan, executive director at BrightRock, says there is a triple whammy for policyholders in the way most risk assurance premiums are calculated. The three big drawbacks are:

1. Low initial premiums: To attract new business in an increasingly competitive market, life assurance companies offer seemingly cheap premiums when you are young and unlikely to claim. But as you grow older and become more likely to claim, your premiums escalate rapidly.

PETROL PRICE RELIEF IN MAY

Whilst there are many factors that influence the market, the petrol price is one major indicator of the way things are, and the order of things to come.  The weaker the rand, the higher the price: the higher the unit price (per litre) the more goods and services cost to collect and deliver, which means an increase cost of all products and services. 

However, every few months we have been receiving a reprieve in the pump figures.  As all the local news channels have been reporting, "Consumers are likely to breathe a sigh of relief, albeit temporarily, as the domestic petrol price is set to decrease next week."

 "The implication for the man on the street is that despite a temporary reprieve from a decline in fuel prices, a weaker rand compromises the spending power of the consumer."

The first Wednesday in May will be the first petrol price drop after three consecutive increases totalling around R1.30 for a litre of 95 (prices differ from the coast to inland).  In January this year, the price decreased by 15c a litre to R11.86, but has since risen to the region of R13.20/l.