1. The best investment decisions aren’t always the most comfortable

During the first two weeks of 2016, a few of the top investment vehicles were down between 8% and 10% – the worst start to a year ever. All three indices would eventually add to their losses after a modest rebound, hitting their lows for the year in mid-February. The US market then staged the biggest quarterly reversal since 1933… from these lows!

Here in SA, our All Share index had a similar start, and rose by 16% in just four months to reach its high for the year in June. But that’s only part of the story…

It was during those panic-stricken weeks that shares such as Imperial, Glencore, Anglos and FirstRand were on sale at levels which subsequently provided returns of between 30% and 300%. What was needed to make the right decision to invest in these shares at that point?

• A calm, unemotional, measured approach.
• Deep knowledge of the companies in question.
• A solid assessment of their long term value.
• Cash to invest, whether in a separate income portfolio or as part of the asset allocation of a multi asset or flexible fund.

2. Shares in good companies don’t need a good economy to show excellent returns

It would be fair to say that economic conditions have not been ideal for the likes of Imperial. Yet, an investment in this company at the low in January 2016 has produced a return of around 70% to the end of November 2016. This is because the market is often short-term oriented and frequently extrapolates current events and conditions into the future, creating extreme under- or overvaluation.

In other words, investors often fail to take a long-term view, and they overreact to short-term pressures. This creates opportunities, as is evident with Imperial.

3. Our institutions are holding up so far

By the skin of our teeth, some will say. But the fact is that the large South African institutions which served to help us retain credibility in the eyes of the world mostly worked for us in SA when it really counted.

We had a peaceful and fair election and our finance minister managed to hang on to his independence.

The Reserve Bank delivered on their inflation targeting mandate. While there are many instances of poor delivery and corruption, we learnt that our key institutions stood the test of 2016, which was no mean feat.

4. All countries have their issues, and major events will happen

Italy’s referendum led to the resignation of their prime minister. Brits voted in favour of leaving the EU, and Trump amused, horrified and surprised the world. We saw a failed military coup in Turkey. Oil hit a 12-year low, and gold had its best quarter in 30 years. Japanese bonds traded at a negative interest rate for the first time ever while Apple sales fell for the first time in almost 13 years. While investors around the world try to get their mind around these as they happen, we try to focus on seeing the bigger picture and taking a longer-term perspective, while doing most of the work from the bottom-up.

As always, hindsight can serve to make us forget how hard it was at the time to stay calm and make the right decision.

This is only possible if you have a solid framework to start with, be it around the way you research and assess shares, or the way your long-term investment strategy is crafted.

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Let’s look at some more of the behavioural traits of an astute investor:

1. They get pleasure out of saving, not spending
Buying things releases endorphins, resulting in a ‘shopper’s high’. This can be a tough behaviour to reprogram due to the satisfaction that is hardwired into your brain, but it is possible. Using retail therapy to cheer yourself up is not healthy for your bank balance.

2. They understand the power of passive income
Smart investors weigh up the risk versus return. Dividends can be a good source of passive income, so can rental income. If you’re an employee and your company is going to put you out to pasture at 60 – what are you going to do for the next 30 or 40 years? More importantly, how much money are you going to need to fund that?

3. They build their retirement savings from day one
In your 20s and 30s retirement seems so far into the future it is quite understandable that present financial pressures take precedence over retirement. You might feel that there is always time to catch up, and that might be true – but what if it isn’t? It is in those early working years that wealth habits become entrenched. Given time, investments compound and a small nest-egg can grow massively in 40 years.

Wealth is what is left after you have consumed your income. It takes a perseverant and prudent attitude to be a successful investor.

I’m here to help. Let’s look at securing your financial future.

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Diversification reduces risk, making the uncertain journey to your financial end-goal significantly smoother.

Investing is an art form, not a knee-jerk reaction. The best time to practice disciplined investing with a diversified portfolio is before diversification becomes a necessity.

Most investment professionals agree that although diversification is no guarantee against loss, it is a prudent strategy to adopt toward your long-range financial objectives.

Here are some insights into diversifying a portfolio:

Going global
Limiting yourself geographically will heighten the sensitivity of your portfolio to market swings that affect a certain country or region. Recent events have reminded us that even some of the world’s most elite country’s stability can be questioned from time to time. In building a robust long-term portfolio it is essential to have a good spread of currency and economic exposure.

Global investing comes into its own when there are several growth industries that would not be an investment option if only investing locally.

Tapping into industry sectors
In a similar way to geographic factors being restricting, only investing in gold or only investing in property also causes your risk to go up. To achieve superior diversification you would want to diversify across the board, not only different types of companies but also different types of industries – the less correlation between them, the better.

Being asset-class wise
Your asset allocation will be a major determinant of your future returns and the volatility along the way. Some tactical changes every now and then can be beneficial, but a strategic long-term allocation goes a long way while it is left to do its work.

The basic building blocks are equities, fixed income and cash, and you should aim for an optimum mix which will provide enough growth (equities in the long run) and enough stability and yield (cash and fixed income) to match your time horizon and needs.

Share specifics and credit partners
When it comes to equities, a minimum number of instruments and a maximum percentage per instrument will help to diversify away from share-specific risk. In the same vein, within the fixed income and cash portion there should be a spread of banks and instruments.
If you only own a handful of stocks, or are exposed to very few counter-parties, this will increase your risks.

There is strong evidence that you can only reduce your risk to a certain point beyond which there is no further benefit from diversification. Over-diversifying your portfolio is not a great strategy – if you diversify too much, you might not lose much, but there won’t be much to gain either. After all, you have to be willing to break a couple of eggs before making an omelette.

Want some more investment insights? Let’s get in touch and chat about it!

Source: fin24

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Luckily, most people are choosing to retire later in life.

If you have left investing in your retirement until later in life, there may be a risk in investing too conservatively (not enough exposure to growth assets like shares and listed property) as your investments need to continue to outperform inflation in retirement. Alternatively, you may be tempted to invest in very risky investment schemes. It is really important to construct portfolios which have clearly set out objectives that will be able to meet the targeted return before and after retirement.

How much income do you need per month? Will you need to buy a new car or fund a holiday? You need to know exactly what your retirement goals and dreams are. This will give you an accurate indication of how your assets have to be invested to cover these expenses. You need to be comfortable and knowledgeable about your retirement. You should know exactly how much money you can safely draw to enjoy your retirement without eroding your capital base.

One of the most important things to try and achieve by the time you retire is to be free of debt. You don’t want to be in the position where you have to settle a mortgage or other debt with retirement capital.

Just because you are retired it doesn’t mean you should stop working. Instead, you should re-focus your sights on a pursuit of happiness. People often still make money during retirement. With a lifetime of experience behind you it wouldn’t make sense to not stay busy. View this as the time you have been waiting for to do something you have always wanted to do, but felt like you never had the time to do. Who know, it may turn out to be a successful business venture.

If you need some help working out a retirement plan or would like to revise your current plan give me a call and we can work something out.

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Some forty year-olds are in their first marriage with kids, others are in their second or third… with kids. Some have never been married and have no inclination of doing so. These situations place people in very different landscapes, but they all have one thing in common – over forty years of life behind them.

It poses a unique opportunity to view the ‘hike up the mountain’ from a higher perspective than before, and with the goal of retiring even closer in sight than it was in your twenties and early thirties. It’s healthy to pause and reflect, but it’s crucial to then keep on moving forward!

Forty-year olds need to prioritise staying on top of their finances as this is often a time of higher rising costs – regardless of your life choices.

Here are four quick things to consider!

Managing money and investments in your forties

There are often various significant demands on your time during your forties from building your career and family, which means that many investors in this age demographic don’t set up a proper financial plan or neglect to review the plans they already have in place.

If your employer is not contributing to a pension or provident fund for you, it is critical to save for your own retirement and to utilise the tax deductions allowed by SARS in full to build up tax-efficient, inflation-beating long-term investment savings over your working life.

Risk cover should be a priority

In your forties your biggest risk is that you will lose your ability to continue to generate an income. If you don’t belong to a group life scheme through your employer’s retirement fund, it is really important to ensure that you own a personal risk income protection policy to provide adequate cover for your needs.

If you cannot generate an income it also means that you can’t save and invest. If you are unable to work and earn regular income due to an accident, illness or disability event it could turn out much more expensive than to untimely pass away. It is therefore important to ensure that you have adequate cover, including disability and dread disease cover, and to review it as you earn a bigger salary over time as your lifestyle expenses will also increase.

You should also ensure that appropriate medical (health care) and short-term insurance cover is in place and is sufficient for your specific needs.

Tertiary Education Saving

One of the most popular options for this savings goal is the National Treasury’s “new” tax-free savings account (TFSA). Individuals (including minors) are allowed to invest up to R30 000 a year (up to a lifetime limit of R500 000 per person) in a TFSA that can grow tax-free.

It is also more flexible than approved retirement funds as it is fully accessible before 55 and not limited to the Pension Funds Act’s Regulation 28 asset-allocation rules. However, this TFSA is not a replacement for a good investment-linked retirement fund vehicle.

These TFSAs are excellent long-term savings vehicles and investors have access to the money prior to retirement. The longer the investment time frame, the better. It will take roughly 16 years to reach the lifetime capital contribution limit in these accounts.

Play catch up with your RA

Some forty-year olds may only be beginning to save for their retirement. There are strategies to accelerate your savings plan – but you need to meet with a qualified financial planner.

An appointment with a qualified financial advisor for a wealth planning diagnosis is similar to visiting your medical doctor for a regular health check-up.

If your health state has never been checked to see if you are at risk for cancer or other serious diseases, you would never know if you have a reason to intervene and adapt your behaviour. This is also the case with financial planning. If you haven’t done any retirement planning needs analysis and if you do not have an appropriate strategy in place it is important to see a professional financial advisor to assist you in drafting an integrated lifestage plan and to assist you to implement it according to your priorities and goals.

In performing the financial needs analysis to identify shortfalls concerning specific areas of importance an independent financial advisor worth his/her salt can add considerable value with sound guidance and by offering appropriate alternative solutions.

Are you in your forties? Do you have friends who would benefit from this article? Please feel free to share it with them – or get in touch through my contact page!

Several points for this article were taken from: source

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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!

A recent popular theme of conversation has been the Tim Noakes diet. For some people it is a radical solution that works wonders, while others see no change at all. If you want to lose weight you need to monitor your food intake, exercise daily and tailor your lifestyle.

The same goes for investments; you need to monitor your income, invest wisely and live the lifestyle that will grant you the financial independance that you desire. If you can turn your determination into habit, you will almost certainly become wealthy!

When it comes to someone that is super fit and exercises every day, it is not the specific exercise that they do but the fact that they are staying active. The same goes for savings. It isn’t about the specific investment that may be lucrative, it is about ‘exercising’ your frugality and making wise decisions for future success.

If you are committed to being financially independent you should steer clear of all debt, rent a small apartment (or share living space) for as long as possible and keep driving that small car that is light on petrol until it gives up the ghost.

Next, there is a large selection of investments to choose from, you can start small with an indexed unit trust that invests in shares. Then, the hard part, putting away between 20-30% of your salary. There will always be excuses that you give yourself as to why you shouldn’t save, but you need to keep your eyes on the prize if you want this plan to work. Remember that there is no magic formula for success, it takes years of dedication to become financially independent. These examples are not specific to any person, but reveal general attitudes to money management.

If you want to make a change the will reap significant results – let’s chat!

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Boost your tax return
When submitting your income tax return you can claim back a portion of the total contribution you made towards your RA without affecting the value of your investment.  This amount can be as high as 40% of all your contributions, whether made monthly or as single premiums during the tax year. If you choose to invest money that you are able to reclaim then you are able to add to your retirement savings without any additional outlay.

Benefit from further tax advantages
RA’s offer a more than welcome tax break from the get-go. This is because returns generated within RA’s are not subject to Income Tax, Capital Gains Tax or Dividend Withholding Tax.

Structured, yet flexible, investing
A regular debit order into a unit trust based RA will get you into the habit of saving every month. However, these investments still offer you the freedom to change or cease your monthly contributions without incurring penalties should your personal circumstances change unexpectedly.

You can invest the greater of the following amounts each year to an RA tax-free:

• 15% of your ‘non-retirement funding’ income (variable income like bonuses and commission); or
• R3 500 less your allowable pension fund contributions; or
• R1 750

If your RA contributions for the current tax year are not going to return the maximum tax deductible amount by the end of the tax year, then it is definitely worth considering making an additional installment towards your RA. Need more financial advice? Let’s get in touch!

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Here are five investment tips to help you stay on top of your expenditures.

• Follow investors on social media
  There is a huge accumulation of knowledge being distributed via social media platforms. Assess the people you follow according to their track record, discretion is imperative.

• Don’t just think about tax savings
  Don’t let your investment decisions be governed solely by tax savings. Consider it a factor, but think of the other aspects too.

• Keep it simple
  Straight forward investments are more likely to provide you with sustainable returns, avoid complicated assets.

• Don’t speculate
  Speculating on the social psychology of the market is risky business. Discerning value over passing trends is more likely to succeed.

• Strategy and discipline
  Invest with your head, not your heart. Don’t let your feelings undermine the execution of your strategy, discipline yourself to stick to your plan.

Your investment decisions should not be made without very careful consideration. As Ben Franklin said “Beware of expenses. A small leak will sink a great ship.” Don’t forget that your investments are simply a vehicle to preserve and provide for that which is really important.

Looking for some more advice? Let’s get in touch! (or follow me on Facebook)

Source: Fin24

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THIRD-PARTY ACCOUNTS
Set up separate third-party accounts for each child. You will have control over the investment until your child reaches a majority age of 18 or more, when control of the investment will be turned over to them. As the investment will have always been in their name, the transfer will not trigger transaction or taxation fees.

The use of an “investment platform” should be considered. These platforms allow for multi-ETF investments where charges are “bulked” rather than being charged per investment, this can save a great deal.

CREATE A DEBIT ORDER PROFILE
Debit orders, at any regular intervals required by you. This keeps you in control and saves you having to make larger, irregular payments and saves have to work through a broker once the plan is in place.

REINVESTMENT OPTIONS
Reinvestment of dividends are a key ingredient to growing capital over time and can be done automatically on investment platforms. At the start, and periodically through the investment period, check out how these reinvestments are going.

DIRECT INVESTMENTS
Investing directly into ETF’s for third-party investments (or unit trusts if you can find any giving similar performance and low costs over long periods of time), is usually superior to using insurance products or endowments often sold as education policies. These are costly, make it difficult to access capital and often give poor residual returns.

There are many vehicles to use for creating an education investment portfolio on your own behalf, if you’d like help with this and some more explanations around the terminology, then let’s get together soon!

Source: Fin24

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