Blog

September 23, 2019 Blog, Financial Advisory, Financial literacy, Investments, Lifestyle, Retirement

Goal setting

In the past two blog posts, we dealt with budgeting and risk-profiling – two very important initial steps to take when formulating a financial plan.

Goal setting is the third vital step. During this process, it’s important to figure out what you need and what you want and to prioritize the former over the latter.  Often, the lines are blurred, and clients need to be reminded of the difference.

‘I need that sports car’, a client told me once, some years ago. I had to smile at that statement. The truth is that we all go through this at some point in our lives – when the ‘nice-to-have’s’ become a ‘must-have’. 

My bucket-list is a mixed bag of wants and needs and I’ve been slowly working through it – figuring out what the important, urgent and nice-to-have items are and categorizing them accordingly. The second phase to this is working out the financial implication of each item. An example, I’d like to travel on the Rovos from Cape to Cairo before I die – this one is a clear want and something I can defer until I’ve sorted out some urgent and important matters in my life first. It is accordingly filed under ‘wants’ and the time-line is ‘long-term’. The last time I checked, it was going to cost me R500,000 and a whole month off to traverse the continent. ????

September 16, 2019 Blog, Financial Advisory, Financial literacy, Investments

Risk profiling

We’re spring cleaning our finances this month. Once your budgeting process is sorted, you need to consider getting profiled in terms of risk. A client’s risk profile is one of the first and most important things we try to understand during the financial planning process.

There are many methods and as many outcomes to risk profiling but the ultimate point of it is the following:

  • To try and understand how an investor feels about risk
  • To figure out how much risk an investor needs to take on in order to achieve their financial goals. This is a financial calculation that we do for clients.
  • To reliably predict how an investor is likely to behave under certain market conditions

A desired outcome of a risk profile is something that looks like this:

Source: Taylor and Francis

This graph depicts the various investor personality types and the negative behaviours they are likely to exhibit while invested in market. DALBAR, a global leader in investor behaviour studies, has found that investors consistently earn much less than market indices would suggest and it has everything to do with their emotions which lead to irrational behaviour.

Once we understand the emotions and the potential negative behaviour, we can then put together an investment portfolio that seeks to manage this, or even eliminate it altogether, by addressing the investor’s financial needs and concerns simultaneously.  Once behaviour is managed, there is a higher likelihood of an investor staying invested for longer. Overtime, this increases the investor’s likelihood of reaching their goals.

There are quite a few free tools available online that can help you understand your risk profile, however, you’d do well to consult a professional to talk you through the process and to help you interpret and understand your results.

September 9, 2019 Blog, Financial Advisory, Lifestyle, Retirement

Start anew

Most people would agree that spring is the best time of year. Temperatures are moderate, it rains, and the greenery starts growing back everywhere – nature’s own ‘restart button’. It’s my favourite time of the year and I know many people who feel the same way. Psychologically, it would be a lot easier for you to get started on spring cleaning your finances – if you feel good, are more energetic and inspired, it could be a lot easier for you to kick out some of the bad habits you’ve had and to start anew with some good ones.

One of the best and most important things to do is to get your budget right. As advisors, we stress the importance of budgeting to clients all the time, but this is the one task that people dread the most and take least seriously. It must be taken more seriously, be attended to more frequently and done more accurately. This spring, if you do nothing else but your budget, you’d be well on your way to success with your finances.

While budgeting, keep the following in mind:

  • Be honest with yourself
  • Try be as accurate as humanly possible. Track every cent
  • Print out a few consecutive bank statements. Go through each one and pick up trends in your spending.
  • Keep receipts of all your cash purchases and summarize your spending on a daily, weekly and monthly basis.

It is a tedious yet necessary process if you are to account for where your money goes and a good way to instil some good financial habits. Your budget is your mirror – a glimpse into who you are and what you value the most. If you prioritise yourself in the right way, it will be reflected in your spending pattern.

September 2, 2019 Blog, Financial Advisory, Lifestyle

Happy spring!

Winter is finally over and you can now go back to being the social butterflies you were born to be! But, before you bring out your bright coloured spring clothes and summer hats, be sure to watch how quickly you part with your hard-earned cash in this glorious weather. There are several research papers that show how weather has an impact on consumer spending habits and retailors are now using it to their advantage.

In warmer weather, consumers apparently tend to spend more in general and are willing to spend more on specific items after being exposed to sunlight. This extract from Kyle Murray’s ‘Retailing and consumer services’ journal explains it more clearly.

“We find that sunlight influences mood (negative affect), which subsequently affects consumption. The third study manipulates(artificial)sunlight in a laboratory setting. The results of this study confirm that negative affect can mediate the effect of sunlight on consumer spending decisions. Specifically, we find that participants exposed to artificial sunlight are willing to pay significantly more for a variety of products than participants exposed to regular lighting only, and that this effect is mediated by negative effect”.

So be careful out there under the warm African sun (or the artificial bright lighting in stores) as it may result in you spending more money than you ordinarily would.

August 26, 2019 Blog, Financial Advisory, Financial literacy, Retirement

Women and risk

Women are accumulating less funds in their lifetime and many are retiring financially insecure, as compared to their male counterparts. A major contributor to this is low levels of financial literacy which has a negative impact risk perception. Risk perception refers to how an individual makes a personal judgement about the likelihood of a negative outcome.

This extract from The Influence of financial literacy and risk perception on investment on choice of investment by Aren et al, confirms this link. ‘In this research, we investigate variables which are affecting investment preferences of individual investors. Personality trait is not an important variable, but on the other hand our evidence shows that level of financial literacy and risk perception are important. Besides, risk perception is also affected by financial literacy and gender… ‘. An exaggerated and ill-informed perception of risk leads to poor investment choices with negative long-term effects.

The latest S&P Global Financial literacy survey found that 35% of the male population surveyed is financially literate compared to 30% of the female sample. Women’s lack of financial knowledge is an impediment to their financial success. If we really want to have an impact on the financial lives of women, one of the first and most important steps to be taken would be in the direction of financial literacy.

August 19, 2019 Blog, Financial Advisory, Lifestyle, Retirement

Longevity advantage in women

Humans are living longer than ever before. Globally, even though there may be some differences in longevity statistics between countries, women are living longer than men, and this has been the trend since the 20th century.

This report by Our World in Data states the following: ‘Males tend to have more fat surrounding the organs whereas women tend to have more fat sitting directly under the skin. This difference is determined both by oestrogen and the presence of the second X chromosome in females; and it matters for longevity because fat surrounding the organs predicts cardiovascular disease´.

The same report suggests that women tend to live longer than men because ‘women are more robust than men during illness ‘. In other words, women are stronger, more resilient and have the ability to recover a lot sooner from illness than men do. Quite a fascinating conclusion.

In South Africa, Stats SA reported that women live approximately six years longer than men with a life expectancy of 67.3 years compared to 61.1 years for males. This longevity advantage that women have poses a challenge regarding their financial security in retirement and must be accounted for accordingly.

And just out of interest, this is what the World Health Organization think of human age:

August 12, 2019 Blog, Financial Advisory, Investments, Lifestyle, Retirement

Financial implication of relationships on women

Women do not accumulate sufficient funds in their retirement as men do and one of the factors affecting this is relationships.

Motherhood

If a woman chooses to have children during her lifetime, this has been seen to negatively impact the growth of future earnings. We already know about the gender pay gap but what is even more worrying are the findings in a study conducted by Joya Misra, Professor of Sociology & Public Policy, University of Massachusetts Amhers with the assistance of two economist.  In this study, they found that not only was there a gender pay gap, but that there was a further disparity between incomes of women with and women without children, despite their education and experience levels. This is the motherhood wage gap.

Single parenthood

The Investments and Wealth Institute released a report titled ‘Women and Retirement Security’ where they found that 80% of single parent families in the United States were headed. In South Africa, 61.7% of births registered last year were missing the father’s details. It could then possibly be that most of those women would be raising their children alone. This naturally has major financial implications.

Women are more likely to be caregivers.

The same report from the Investment and Wealth Institute found that women are more likely than men to be caregivers and less likely to have a family caregiver themselves. This affects wealth accumulation over time.

With this information at hand, it becomes imperative for women to prioritize their finances long before, and during, the effects of motherhood and the various other stages of their relationships. If women were able to anticipate these life stages well in advance and to plan for them effectively, we just may tip the scales in their favour regarding their finances.

August 5, 2019 Blog, Financial Advisory, Retirement

Women’s month

I always have mixed feelings about celebrating Women’s Month in South Africa. We’ve made great strides but also seem to be falling behind on too many important issues.

In the financial planning space, it has become very clear that more work needs to be done to assist women with making better financial decisions. There are many issues to be highlighted but we’ll be addressing just four of them this women’s month.

The most obvious one of them all is income. A recent PWC report found that women are consistently paid less than their male counterparts across all industries in this country. There is not a single industry where women out-earn men. Lower education levels in women used to be cited as one of the main drivers but more data is proving this argument to be false.  

The World Economic Forum’s Global Gender Gap Report benchmarks 149 countries on their progress towards gender parity and the drivers of it. The Education Attainment Gap (Percentage of the population aged 15 and over with the ability to both read and write and make simple arithmetic calculations) globally is now at an average of 5%.  According to this report, ‘Thirty-six countries have now achieved full parity and another 49 countries have closed at least 99% of the gap in education. Even the worst performer (Chad) is more than halfway to parity (57%), while the second- and third-worst performers (Guinea and Congo) have bridged two thirds of the gap.’

A snapshot of South Africa’s current gender parity:

  • There are more women than men who are enrolled at tertiary institutions
  • There are more female professional and technical workers than there are men
  • Labour force participation is almost at parity and men occupy most of the senior positions

The gaps in education between genders is almost closed. In many instances, women are becoming more educated than men, yet are still being paid less. South Africa, ranked 19th overall, is said to have made some progress on the Political Empowerment sub index but has seen a decline in wage equality. (Wage equality between women and men for similar work). This speaks to an unwillingness for gender pay gap redress. That is why financial planning, for women in particular, is so crucial if we are to have any hopes of living and retiring securely.

July 29, 2019 Blog, Lifestyle

Sleep and wellness

I’m generally a light sleeper and get woken by the slightest sounds and movements around me. Being a mom to young children has compounded this effect and often renders me sleep deprived for weeks on end. On a good night, I get about an hour’s worth of deep sleep and approximately 5 hours of light sleep which I track on my fitness device.  It’s unhealthy and I’ve been feeling its effects over the past few months. Interestingly, I’ve also found a lot of material in the last little while about the dangers of, not only sleep deprivation, but the lack of quality sleep.

It is said that it’s not necessarily the quantity of sleep you get but the quality that matters. That being said, The National Sleep Foundation recommendations for appropriate sleep durations for specific age groups are:

  • New-borns (0-3 months):  14-17 hours each day
  • Infants (4-11 months):  12-15 hours
  • Toddlers (1-2 years):  11-14 hours
  • Pre-schoolers (3-5):  10-13 hours
  • School age children (6-13):  9-11 hours
  • Teenagers (14-17):  8-10 hours
  • Younger adults (18-25):  7-9 hours
  • Adults (26-64):  7-9 hours
  • Older adults (65+):  7-8 hours

Many health practioners agree that, sleep deprivation can be linked to many disorders such as compromised immune system, weight gain, higher risk of cardiovascular disease and type 2 diabetes which have become far too common globally.  Millennials are said to be the most sleep deprived generation and technology and stress are largely to blame for this. It is the incessant need to be plugged in and in-the-know, working too hard and being financially stretched that is taking away from sleep time.

Thrive Global, a wellbeing platform was founded by Ariana Huffington, and has an entire department dedicated to sleep advice. This was founded on the back of her collapse from sleep deprivation and burnout in 2007. Since then, she has been a self-confessed ‘sleep evangelist’ and is dedicated to spreading the word around the benefits of getting good sleep. It’s worth taking the time to read through.

July 22, 2019 Blog, Retirement

Joie de vivre

Are you happy? Do you possess feelings of great pleasure? This is joy.

Apparently, the amount of joy one feels improves with age. A study conducted by Comfort Keepers, a senior care specialist company in California, found that people above the age of 60 years possessed the most amounts of joy. Many of the individuals surveyed cited the following as their sources of joy and happiness, in order of priority:

  • Family
  • Love
  • Music
  • Wife
  • Food
  • Friends
  • Children
  • Dog
  • Grandchildren

Robin Seaton Jefferson summarized these findings in her contribution to Forbes magazine three weeks ago in her article titled Good News, America. Survey Says We Get More Joyful As We Age. I urge you to read it and to read the joyful activity results per state, by Comfort Keepers.

It just may help you refocus your energies onto more important things in life.