To save or not to save

So often we meet clients who tell us that they cannot afford to save because ‘school fees are really expensive’ and ‘looking after family members is derailing their savings goal’….and the list of reasons is endless. If we are really honest, life has changed dramatically in the past year and a bit. Things are not as black and white as they have been, and we cannot continue living as if death and financial insecurity is not a part of our lives.

Many of us are experiencing anxiety and real fear about our immediate and long term wellbeing and we cannot brush that aside. If this is you, know that you’re not alone in all of this. And your fear and stress are justified.

While we are trying to keep our heads above water, we need to consider a few things. In the event that we make it through the next week or year or decade, what will our financial situation look like? In the event that we make it to retirement, will we be able to sustain ourselves on what we have saved over the years? Current statistics suggest that we won’t as only approximately 6% of retirees in our country are financially secure. The rest are either forced to continue working or are dependent on family or the state for their survival. While our mortality may be in question, our survival is also very likely and we must try our best to plan effectively for it, if it happens.

So what can we do today to try and better our situations, given the mess the world is in right now?

Here are a few pointers that may help:

  1. The first and really important step is to acknowledge your feelings. It’s ok to be feel the way you do. Be gentle with yourself because this is really a difficult time we’re in
  2. Be honest about your spending habits. Many people think they know how they spend but don’t really. When we work with clients, we almost always find money they had no idea they had, simply because they don’t really keep track of every cent they spend. If you do anything in the next few weeks regarding your finances, understand where your money goes – ALL of it. You’d be surprised at what you discover during that process
  3. TALK. Talk to your spouse, your children, your extended family members that you support – talk to them about money. Talk about what you have, what is possible and what is not. A lot of anxiety and financial strain can be alleviated through honest conversations. Try it

Once you’ve done all the above, you may discover that it is possible to start your savings/investment journey. Even if it’s with very little money. But the important thing is that you actually start. With time, and we see this often with clients, you gain momentum and are encouraged by the balance you build up which then gives you the desire and willpower to continue to accumulate more. Remember that there are two important ingredients of wealth accumulation and that is starting early and consistency. Both are in your control.

Be well.

Financial advice in a crisis

The past year was dreadful, to say the least. What has made it even more difficult is that it was collective as the whole world suffered immensely in many ways in the past year. Amy Underwood, a Behavioural Economist, spoke at a recent webinar about trauma and how we, as humans deal with it. She mentioned that, generally, we tend to go through it at different times, allowing us to call on our network of friends and family for support and comfort. What made the events of 2020 even more difficult for all of us to contend with is that we were all experiencing the trauma simultaneously, which meant little to no external support was received.

With the loss of financial security for many, the importance of financial advisors’ work was in the spotlight. It has become clear for many that keeping good financial habits and having a good financial back-up plan is vital, particularly in times of turmoil.

The financial planning industry, in general, has come a long way from a product focus to behaviour management. Talking numbers and drafting a financial plan is only half of the solution and possibly the easiest part of the journey. The hardest part of financial advice is understanding clients’ emotions in all phases of their financial journey, and particularly in times of distress so that the right kind of advice and intervention can be provided to clients that will help them navigate their way through the peaks and troughs with perspective and confidence. That is why, from the initial meeting with clients, they get to understand that no matter how great the financial plan is, life happens and there will be the temptation to veer off course. Emotions must be understood and addressed to avoid making mistakes that will be regretted in the future.

his article was featured in the Financial Planning Institute of Southern Africa’s website. To read the rest of it, please follow this link – https://www.fpistaff.co.za/FPI/News/Financial_advice_in_a_crisis.aspx

Women, do something for yourself for a change

Women are known to think more of and do more for others than themselves, in the process sacrificing their careers, money and general wellbeing.

In this women’s month, think about this: There is a very high likelihood that you, as a woman, will have to parent alone, will not save enough money to cater for your needs and will ultimately die poor and alone.

Study upon study shows the odds are stacked against women.

According to an article published four years ago by the UN’s Food and Agriculture Organisation, women “reinvest” up to 90% of their earnings in their households – that’s money spent on food, health care, school and income-generating activities to help break the cycle of intergenerational poverty.

In a research paper titled “Women and Retirement Security”, Nevenka Vrdoljak and Anna Rappaport make these important findings for women to note: You live longer, accumulate less money over the years, are more likely to be a single parent, are likely to spend your final years alone, and are 80% more likely to be impoverished from age 65 and above.

This article is published in Business Live. Please follow the link below to read the rest of the article.

https://www.businesslive.co.za/bt/money/2020-08-09-gugu-sidaki-women-do-something-for-yourself-for-a-change/

Keep those you support in the loop on your finances

South Africans are more than familiar with the joys and the strain of having to look after extended family. Stretching the rand further than what is considered humanly possible is a lot of people’s lived experiences. This is commendable and something that should be celebrated, if only it didn’t come at such a big cost.

With impending job losses and an extended lockdown, the strain is going to be more pronounced. We’re all under pressure to keep afloat, and having to extend ourselves even further to look after members of the extended family may just be some people’s undoing.

It will take tough decisions to survive the next few months. Will it still be possible to help those you care about without jeopardising your own financial wellbeing?

This article is published in Business Live. Please follow the link below to read the rest of the article. https://www.businesslive.co.za/bt/money/2020-05-10-gugu-sidaki-keep-those-you-support-in-loop-on-your-finances/

Investing in happiness

The beginning of a new year is a time for reflection, planning and new beginnings for many. Many personal finance writers have been giving extensive and very valuable tips regarding budgeting, saving and investing to kick-start the year. These are important lessons to learn and not having money is devastating on many levels. It is, however, equally important to note that money cannot give you all the happiness you require.

Jonathan Clements, an acclaimed personal finance columnist and author wrote an article in the Wall Street Journal titled ‘Nine Tips for Investing in Happiness’. This article was published in 2006 yet remains very relevant today. Interestingly, none of the tips he provides involve accumulating more money, budgeting or investing. These are the three that stand out the most:

Keep your commute as short as possible

According to this study, How commuting affects subjective wellbeing by B Clark, K Chatterjee, A Martin, A Davis, there is a negative correlation between a long commute and overall wellbeing. Not only that, the mode of transport used, and the conditions experienced during the journey exacerbate the issue. The study also found that those who walk or cycle to work were happier and more satisfied with their lives compared to those who used public transport to commute.

Using this metric alone in the South African context, it would be safe to assume that the bulk of the population are experiencing lower levels of subjective well-being, given how far they must commute in often very difficult conditions. [Spatial apartheid or the segregation of the population along racial lines is still a massive reality in post-apartheid South Africa].

Enjoy a good meal

According to StatSA’s Living Conditions Survey results released in April 2019, approximately half (49,2%) of the adult population surveyed recently were living below the upper-bound poverty line. That means almost half of the population is preoccupied with survival as opposed to enjoying the little pleasures of life that so many of us take for granted daily.

Volunteer

Life tends to get the better of us and we often believe we have far less money and stuff than we need. Oftentimes, that cannot be farther from the truth. Volunteering your time is one way to keep you grateful and makes you feel good, physically. A few studies have proven that giving helps to release endorphins giving you a mild high. This, in turn, reduces your stress levels.

Being able to reduce your daily commute, enjoy a luxurious meal occasionally and to give (whether it is of your time or possessions) means you already possess a few things that have been proven to contribute to overall well-being and happiness. When considering your investment portfolio and changes that need to be made it, consider adding ‘happiness’ as an asset class this year. Write down all the things that make your heart sing, that bring you joy, that make you HAPPY. Make it a daily practice to actively increase your allocation to these things at all times. Do this often, particularly during times of financial difficulty, and your preoccupation will become more about the things you have as opposed to those you don’t.

Happy new year!

The effect of your emotions

“DALBAR’s Quantitative Analysis of Investor Behaviour Study (“QAIB”) has been analysing investor returns since 1994 and has consistently found that the average investor earns much less than market indices would suggest. “

This has everything to do with emotions – investors, with the best of intentions are their own worst enemies when it comes to managing money. they get excited when the markets are positive, greed kicks in and there is an expectation that markets will continue to rise – that’s when many investors want to get into the markets. When markets retreat, as is the nature of the markets, pessimism kicks in and the expectation is that the free-fall will continue. Fear gets the better of investors and they lock in losses by selling their investments.

This is the effect – the returns investors make are significantly lower than what the market generates

How do you solve for this? Understand your risk profile. Secondly, get into the right asset allocation which seeks to manage your emotions. Once you’ve managed your emotions, there’s a higher chance of you staying invested. This, ultimately increases your chances of reaching your financial goals over the long term.

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. ????

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.

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.

My biggest financial mistake was an investment property

I know so many people who romanticize the idea of having an investment property. It’s always a sure bet – buy a second property, fix it up and watch the money roll in. In theory, this is a great idea and I know so many people who’ve been so successful at this.

I used to hold this view until a few years ago. I bought, what I thought, was a great investment property in a well-kept complex in a great suburb in northern Johannesburg almost a decade ago. I’d done my homework and the property ticked all the boxes. There was no way I wouldn’t get tenants and realize great capital growth over time. Not so fast. To say that this was my biggest financial mistake would be an understatement. This investment was a nightmare in so many ways. The biggest headache of them all had to be the tenants. And, I always managed to get single, middle-aged career women with children (and pets -lots of them) in this property. They never paid their rent on time and left my property in the worst state when they eventually vacated. I was also very strained financially as I had underestimated the cost of maintaining the properties (especially when it wasn’t let out). I eventually sold it and didn’t make any money from it.

Knowing what I know now, I wouldn’t do it again. Ever. But for those looking to do so, here’s what I learned:

  • When choosing an investment property, rather go for the smaller properties in high demand areas. The data (and experience) shows that bachelor and 1 bedroomed properties yield the best returns for a number of reasons – my property was a 3 bedroomed townhouse
  • Be prepared for months without rental and plan for them accordingly. I was overly optimistic and didn’t do this and I experienced some of the worst financial times of my life because of it
  • Don’t bank on property agents to chase delinquent tenants – this was such an upsetting realisation for me. I’d been paying an agent for almost two years when I got the call from him asking me if I knew that my tenant had vacated my property. This was a month after the fact and rent was due. Needless to say, the agent referred me to their terms and conditions and…I’m sure you know how that story ended. Even when I tried to manage the tenants myself, the results were the same.

In hindsight, I wish I had invested all that money in listed property or the stock market in general – no maintenance costs, no pesky tenants and no regrets (given how well the markets were doing at the time!).