Peace-of-Mind Financial Planning

Peace-of-Mind Financial Planning


Let me begin with a few preliminary cautions: Investors wanting to create wealth are often unable to differentiate between ‘peace-of-mind’ solutions and creative investment strategies. A further stumbling block arises when investors attempt to achieve high rates of growth, yet have a simultaneous need for income. These two quite different situations have to be dealt with separately to find an investment strategy that will fit your needs.

Income protection

Peace-of-mind solutions should encompass the following three criteria:

1. Death too soon

Are there two breadwinners in your family? Do both provide cash for the protection of the family, and is there sufficient liquidity to pay off debts?

2. Living death

You need to provide income and/or capital for the possibility of temporary or permanent disability, as well as dreaded disease. Are you adequately covered for all major hospital expenses?

3. Death too late

Using today’s income needs and projecting to retirement, have you made calculations to understand the capital that will be available at retirement and the income this will provide each month, taking inflation into account?

If your planning has been adequate, the chances are that you will be able to maintain a reasonable standard of living. This will provide the solution to achieving financial peace of mind. Secondly, once this strategic foundation has been laid, all your future financial investment plans need to be made with the objective of creating wealth.

To achieve this, you will need to consider other possible investment avenues. Experience has proven that the investment of surplus funds, together with the risks you are prepared to take, will achieve the second objective.

Wealth creation

I am not suggesting investing in risky and adventurous schemes, but rather investing for the long term; anything from five to ten years, directly into the equities market (shares) and/or property investments. This is where real wealth and fortunes have been made.

There is ample evidence available to show that a well-chosen portfolio of shares over a long period of time will turn out to be a greater wealth creator than many traditional insurance or investment products.

I will be honest, most endeavours over the past ten to 15 years to find new products that not only give tax-efficient income but also provide capital growth have failed dismally. Thus, in terms of an investment strategy, where you are looking for income and growth you need to split your capital into two separate investment strategies.

The first part is to provide income in line with that which could be generated from this part of the capital. It must be borne in mind, however, that the income portion will be reduced because of inflation. One therefore needs to have a strategy in place to increase this income to absorb the negative effects of inflation.

The second part, the remaining capital, should be invested for a period of seven to ten years. There are a number of products available in which the remaining capital could be invested to provide for capital growth.  These opportunities relate to both local and international investments.

Steer in the right direction

In conclusion, my recommendation is that once a solid foundation has been established to provide you with peace of mind, you should assess your options carefully. Always ask yourself whether you are investing for capital growth, or whether you need income.

By doing this, you will be covering both of the entities I have suggested you should consider in your overall plan. The answer to all these questions will help to steer you in the right direction for the future.

Bryan Hirsch
BRYAN HIRSCH has been in the financial services industry for 47 years and is a director of Bryan Hirsch Colley & Associates. He has written two books, the first Bryan Hirsch’s Guide to Personal Finance and more recently, Steps to Financial Freedom. Bryan has written for many of South Africa’s top financial and business publications, has been a weekly guest on Radio SAFM for 18 years, and has his own weekly TV show You & Your Money on Summit TV.