In the past decade there has been a dramatic increase in the number of participants and competition in the fund management industry.
The private client arena offers a wide array of unit trusts, including SATRIX funds for investors to invest in, and while clients are not required to be involved in the decision-making, they might find the number of options bewildering. There are currently more than
1 000 unit trusts available locally and over 80 000 offshore.
A range of investment options
Individuals seeking more comprehensive service, including share portfolio management and financial services such as retirement planning, income tax compliance and the creation of trusts can select from a range of trust companies, private banks, stockbrokers, assurance companies and specialist fund management companies. If investors want to participate actively in the management of their share portfolio they might decide to use the services of a stockbroker specialising in private clients.
As individuals, investors must shop around for the company that has products, or will structure products, that meet their specific requirements. Intense competition in this market and large differences in fund performance, make the choice of an adviser an important decision for any investor. It is no longer sufficient to invest in funds without taking into consideration the volatility of a particular fund relative to another as standard deviation, which measures the upside and downside of a portfolio over a period of time. This measurement will prove far better when understanding the risks associated with individual investments. Selecting a top performer does not guarantee future success. Past performance is a guide and nothing more. Teams change regularly and you may find that the performance achieved was the work of a team that has subsequently moved elsewhere.
Factors that need to be considered when deciding on an adviser include:
- individual financial circumstances and income requirements
- the need for capital growth, particularly in view of inflation
- reporting requirements
- the amount of personal attention you want
- the price you are prepared to pay
- your appetite for risk
- your existing portfolio, including direct shares and unit trusts
Beware quarterly reporting
A further consideration is the culture of “quarterly reporting mania” that has developed in South Africa, in line with investment behaviour in Europe and America. This focuses on quarterly reporting and has its share of pitfalls, such as the risk of selecting a fund only on its short-term performance.
While performance is bound to fluctuate with market conditions, investors should not be overly concerned with quarterly performance. It should also be borne in mind that changing your investments frequently is expensive, and there is often the risk of changing just as the original investment starts to deliver a return. Another important point worth considering is the performance of the entire basket of investment – the performance as a whole, as opposed to the performance of the individual components. With the increasing sophistication of the investment medium and the vast number of products on offer, it is vital to ensure that you select a suitably qualified advisor who is familiar with the ever-changing investment environment.
Knowledge & skills
The introduction of regulations governing financial advisors and, in particular, the issues relating to the provision of appropriate advice, has resulted in new levels of expertise.
Advisors have to be more proactive in their assessment of investors’ requirements. This means more contact with the investor to ensure that the advice provided is still in line with the required risk and needs objectives of the individual.The advisor may have to charge clients more for the service and they would be well advised to pay this increased amount if the advice enhances the understanding between investor and advisor, and ensures that clients’ needs are met.
Finally, investors must never lose sight of their original objectives and, if they change, this must be communicated to the financial advisor so that, where applicable, the investment portfolio can be appropriately restructured. I always like to remind investors that if they are investing in anything to do with growth assets (equity, property and hedge funds), their time horizon must be at least seven to ten years and beyond.
The Comprehensive Beginner’s Guide To Investing (And Growing Your Personal Wealth)
Are you a first time investor? You may want to get some guidance before you know your way around the investment world. We’ve got you covered! Read on to learn more about the best types of investment options, strategies to grow wealth and the dangers and pitfalls to avoid in investing.
Why should I invest?
Keeping your life savings in your back pocket or under a mattress isn’t going to bring you the wealth you desire. “There are only two ways to make money in our modern world: By working, for yourself or someone else, and/or by having your assets work for you,” says trader, advisor, and author Alan Farley.
Investing means your money is working for you and gives you the opportunity to grow what you save or receive through inheritance. As an investor, you’ll generate money through interest on what you set aside or by purchasing assets that compound in value.
When is the best time to invest?
Start today. When it comes to investing, the magic of compounding is best achieved when you realise that time is of the essence. “Compounding makes your money work for you by earning returns today on the returns you earned yesterday,” explains Thandi Ngwane, Head of Strategic Markets at Allan Gray.
“If you start early and save consistently over long periods, less of your total amount saved will be from your contributions and more from growth.”
The earlier you begin contributing to your wealth, the more significant these deposits will be later, as your money has much longer to grow. You’ll also be able to contribute less as retirement age approaches.
But what happens if you didn’t save and invest right from when you received your first salary in your teens or twenties?
What can I do if I am only starting to invest in my 30s?
More than half of us only start saving at age 28, instead of when we start working, according to Discovery Invest. And many more adults only consider investing in their 30s, with a large number starting only when they hit 40.
Catching up on the compounded returns you could’ve accrued over the last five, 10 or 15 years becomes much more difficult with the added expenses of a typical 30-something-year-old. Major life events such as buying a home, getting married, having children and starting to save for their education can be expensive when you’re also investing in your future.
So, how do you overcome these major life events while still investing for the future? According America’s Millennial Money Expert, Robert Farrington: “The goal is financial balance. You can do both – save for the present and save for the future. But it requires a little more thought and effort.”
- Determine your investment choices based on your personal goals and risk tolerance
- The best way to build wealth in your thirties is still through saving, so select a portfolio allocation that matches your risk appetite
- Maintain a diversified portfolio of low cost ETFs.
What can I do if I am only starting to invest in my 40s?
If you’re 40 and over, your main financial focus should getting out of any debt you may still have. “Becoming debt-free and then you should focus on taking your savings to the next level,” says Schalk Louw, portfolio manager at PSG Wealth.
He advises you put any additional income – salary increases and bonuses – towards higher pension fund contributions, savings or paying off your debt. “While my preference for long-term savings will always be a share portfolio, those who find its risks too high, can always consider a savings account,” says Louw.
What should you start investing in?
So, now that you’ve established that you’re ready to invest, you should be considering your options. First, let’s look at the basic investments to start with:
1. Investment accounts
If you’re looking to save towards long-term financial goals, this is the type of account you should consider opening.
This investment can be used, for example, to supplement your pension or other income upon retirement, an investment account is an ideal way to maintain a good standard of living. An investment account is designed to set aside assets like stocks and bonds as income during retirement, to save money for your child’s education, or to put down a deposit for your first home.
Buying shares or equities gives you ownership of a certain percentage of a company. As a shareholder, you’re paid dividends – a portion of the companies’ profits. Shares are a risky, but beneficial form of investment. On the one hand, a decline in share price reduces the value of your investment, while the benefit of dividends is that they attract less tax compared to the other sources of investment returns.
Shares may take a significant amount of time before yielding dividends, but for long-term success, when your dividends pay out, they can be used either as income or as a reinvestment into your share portfolio.
“The combination of dividends and the growth in capital market value of your shares over time is the total return for your investment,” according to Discovery Invest. “It therefore gives you the best chance of beating inflation.”
Some of the pitfalls of equity investment, says Craig Hutchison, CEO Engel & Völkers Southern Africa, include:
- Share prices for a company can fall dramatically
- If the company goes broke, you are the last in line to be paid, so you may not get your money back
- The value of your shares will go up and down from month-to-month and the dividend may vary.
Reduce your risk by investing in various sectors and shares.
3. Unit trusts
If you’re seeking an investment that provides you with easy and affordable access to financial markets, unit trusts are an option. Not only is this a smart way to save, while beating inflation, but a unit trust offers you exposure to a range of assets, explains Hutchison.
“Your money is combined with the money of other investors who have similar investment goals,” explains Ngwane. “Our investment managers use the pool of money to buy underlying investments to build a portfolio that is then split into equal portions called ‘units’. Units are allocated to you according to the amount of money you invest and the price of the units on the day you buy them.”
Hutchison notes the following disadvantages you should be aware of before investing in unit trusts:
- There are costs over and above those you’d pay if you were investing directly
- Unit trusts may not be as liquid as some other investments
- Reliance on managers to select the best appropriate funds.
How can you continue to grow your portfolio?
More complicated investment options
Investing in the JSE
When buying shares, there are three crucial considerations to be made: Which company’s shares to buy, the number of shares you want and how much you’re willing to pay for them.
The next step is an online, in-person, or telephonic discussion with your broker who’ll then forward your request to the JSE. Thereafter, your bid joins other requests to buy or sell shares on a central order book.
Finally, should the price you’re offering match with a seller at the same price, the JSE will ensure the transaction takes place, making you the new owner of the shares you requested.
Be aware of the risks
You could lose everything if you invest in one share and that company goes bankrupt. “You can diversify by buying into many different shares. An easy way to do this is to invest in something like an exchange-traded fund (ETF),” suggest experts from the JSE. “An ETF is essentially a basket of shares. You buy the basket and get anywhere from 10 to 600 different shares in that basket, reducing the amount you would lose if one company were to go bankrupt.”
Online share trading
As a potential first-time online investor, you may begin your journey by surfing a number of online share trading websites either those offered by all the major banks, or other providers.
“The biggest investment you make at this stage is in time,” says Brett Duncan, head of Standard Bank Online Share Trading. “You need to spend at least seven hours a week educating yourself – either studying newspapers or financial magazines, or tracking your portfolio.”
Be aware of the risks
According to PSG Online, no one should trade shares unless they have instituted risk control measures such as putting ‘stop loss’ controls in place. Share trading requires a high appetite for risk, time to watch the markets and an expert knowledge of the markets and trading process.
Darren Cohen, head of marketing at PSG Wealth, explains: “Making an informed financial decision is key to mitigating risk where one has considered the options that would best suit their personal needs. It‘s for this reason that client education is imperative to PSG Online’s mission of creating wealth for our clients.”
This type of investment affords you two options, says Maarten Ackerman, chief economist and advisory partner at Citadel: You can either take money out of the country by converting it into hard currency and investing it overseas, or you can choose a rand-denominated investment via a South African unit trust.
Should you select the second option, your money is consigned in a rand-denominated asset-swap fund, and the unit trust uses that money to invest offshore. When the money is eventually repatriated, it will be paid out in rands.
“Politically risk-averse investors will prefer to make use of direct offshore investing, as with this option the investor never has to repatriate or convert their investment back to rands,” says Magnus de Wet, director of Vista Wealth Management. “With a weakening rand, direct offshore investing would be the preferred investment approach.”
Be aware of the risks
Investing in any type of commodity involves potential loss. Two of the measures you can take to reduce risk are:
- Investing in low risk commodities, for example, a fixed deposit with an offshore bank
- Diversifying your offshore investment portfolio adequately to balance out high risk offshore investments with more conservative, secure investments?
As a newbie to investing you be risk averse, so high-performance offshore investments, although brimming with the promise of very high returns, are not recommended until you know your way around turnovers and returns.
How to make money investing
Contrary to popular belief, you don’t need (a lot of) money to make money. Wealth isn’t a prerequisite for investing. You can take advantage of investing over time, if you start sooner rather than later. While this means you’ll have to wait a little longer before quitting your job in favour of early retirement and living off your dividends, the long-term rewards are lucrative.
Remember these crucial pieces of advice before making your investment decisions:
- Diversify your portfolio, so you never have all of your money invested in one account, venture or business. The best way you can manage risk is by not putting all your eggs in one basket
- “Be careful who you trust with your money, make sure you invest your money with a reliable and established company with a solid history and reputation, do your research and do not be afraid to ask questions,” advises Craig Hutchison, CEO Engel & Völkers Southern Africa
- You can achieve a great deal by simply investing or saving portion of your salary every month
- Know the difference between investing and saving. “Saving is storing your money, while investing is growing your money,” he says. “One of the significant differences between the wealthy and not-so-wealthy is that wealthy individuals earn interest while everyone else pays interest.”
- “The way that the prosperous continue to build their wealth isn’t really a secret – they spend less than they earn, save the difference, and let the potential of compound interest make their riches grow,” says Hutchison.
“Financial wellbeing is a long-term commitment, but with the right guidance, discipline and savvy decision-making, you may achieve your goal sooner than you think. It is never too late to start investing in your financial well-being,” he concludes.
Investing In Wealth-Generating Assets
With returns of between 10% and 16%*, impact investing offers more than just the chance to do good.
Through a combination of innovation and technology, investors are finally in a position to own a stake in lucrative farming operations without high cost barriers, while at the same time having a positive impact on the environment.
Global trends, local applicability
There has been a recent trend towards socially conscious investing, known as impact investing, which has gained significant traction in first-world markets. Younger investors in particular want their money to do good in the world, but still expect a good return on their investment.
This trend, combined with the desire of many entrepreneurs to own a viable side-hustle, provided the impetus behind the creation of Impact Farming by Fedgroup.
Impact Farming differs from conventional impact investments in a number of ways. Other impact investment products usually consist of portfolios that offer access to shares in companies that meet certain social and environmental criteria. South Africa’s leading independent financial services provider, Fedgroup, in contrast, believes that investing directly in ventures is a smarter alternative.
The perfect side-hustle
That’s because investing in shares and funds can be unnecessarily complex and often diminishes returns through hidden costs. In addition, barriers to entry can be prohibitive. Fedgroup has therefore leveraged the ubiquitous nature of mobile to deliver a fast, lucrative way for investors to directly own assets in high-yield farming ventures. It’s the perfect side-hustle, without the hassle.
Fedgroup’s Impact Farming investment platform offers investors access to a growing network of local crowd-funded farming ventures that generate solid profits to deliver competitive returns. From as little as R300, investors can own assets across three different ventures, blueberry, sustainable honey and urban solar farms.
Investors buy assets at one of Fedgroup’s approved sites, forming a venture network that is managed by farming experts.
Tax benefits and passive incomes
Investors get paid in regular cycles for the yields their assets produce once they are harvested and sold to Fedgroup’s contracted customers. This money can then be enjoyed as passive income or reinvested to benefit from compounded growth. Impact Farming assets also qualify for a tax benefit associated with renewable energy and sustainable farming.
Not only does this model significantly lower the barriers to entry inherent in traditional fund investing, but it also allows socially conscious investors to make a big impact with their money, regardless of the amount invested.
And there’s also less risk compared to various traditional investments thanks to the innovative approach. Extensive due diligence is performed on every product line to ensure its viability before it is brought to market. The company then carefully vets and selects Impact Farming ventures for both the financial impact they have on investor wealth creation, and the positive impact they have on the world.
Fedgroup also built market-tested financial models that were deliberately designed to be conservative when forecasting returns. However, as the profits from investor assets are pooled, so too are the yields, which mitigates the risk of individual assets underperforming. And with service level agreements in place with providers, Fedgroup ensures that assets continue to perform in line with projections, unlike the unpredictable nature of company shares.
The assets are also insured, the cost of which is included in the purchase price. Therefore, if an investor’s asset is ever destroyed in a natural disaster, Fedgroup replaces it. This asset class also runs counter to market cycles and therefore offers diversification that is virtually unmatched.
Fedgroup’s Impact Farming platform offers a unique wealth creation tool for a new breed of investor.
* The projected returns of between 10% and 16% per year are the asset owner’s internal rate of return (IRR). This is the rate of return after the initial purchase price has been subtracted, and which also takes into account the time value of money. For instance, a R4 000 beehive is projected to produce a total income in excess of R9 000 over its 10-year term, which represents an average return of 23% per year. If the IRR calculation is applied, it provides the projected IRR of 15% p.a.
What Is Genuine Wealth?
Genuine wealth accounts for what we value most and allows us to objectively assess our real assets (our strengths) and opportunities for developing our real wealth potential.
So often we toss certain common words around – like the words ‘genuine’ and ‘wealth’ – as if we fully understand what they mean. But, do we actually and fully understand the original, deeper meaning of these significant words? Maybe it would be wise and worthy to explore for just a moment what the two words ‘genuine’ and ‘wealth’ might have originally meant or at least could mean to us today. The word ‘genuine’ comes from the Latin word ‘genuinus’ which means ‘innate’ (true, actual or sincere). And the word ‘wealth’ comes from the Old English words ‘weal’ (well-being or whole-being) and ‘th’ (condition), which taken together means ‘the condition of well-being or wholeness’.
Of course, when the two terms are combined, ‘genuine wealth’ could now be perceived as relative, and as having widely different applications. Originally, genuine wealth signified real or sincere well-being and was applied to eternal spiritual as well as temporal material welfare. Later wealth was used in the sense of large material possessions, or of what seemed large to those who had little. It has been stated, ‘without ambition, without aspirations, life is not worth living’. The noblest of all ambitions is liberation or freedom from physical or social bondage, slavery and constraint and this independence demands genuine wealth or the empowerment of all areas and aspects of our lives.
Genuine wealth is a vital force, one of the greatest of forces for the enfoldment of culture and the birthing of liberty. Genuine wealth dominates everywhere, exercising its forceful influence on both spirit (the liberated or inspired mind) and physical resources, or matter. In the genuine wealth of the world is the accumulated power of civilisation. Genuine wealth is the measure of human progress and possibility. Where there are no storehouses of genuine wealth, there can be no storehouses of fulfillment, nor inspired beings or great knowledge. And where there is no learning, there can be no individual or social progress. The existence of culture, whether it is part of a nation, or now a global society, begins with the creation of genuine wealth, i.e. individual and even cultural wholeness.
Genuine wealth represents the people, places, things, ideas, actions and events that make life worthwhile or valuable. It is the experience of a life worth living and one that is aligned with our true, highest and most meaningful values and/or principles; not only as individuals, but also collectively as families, communities, cities, states, nations and someday worlds. It is the actual condition of our collective well-being (spiritually, mentally, vocationally, financially, socially and physically) that make up true and genuine wealth.
Genuine wealth is measured and assessed by the conditions of all things that make life collectively valuable and meaningful and it implies total or whole life wealth. Many people are accustomed to looking at wealth strictly in financial terms or earthly property and physical possessions and yes, this too is also essential for individual and social development and progress, but genuine wealth is much more than that and we know it intuitively. It can include inspiring ideas or causes, intellectual properties, business ventures and assets, financial investments, family relations and possessions, social influences and causes and physical talents or even beauty.
Conventional economics and business indicators of prosperity like GDP (gross domestic product), stock market indices and other economic indicators are important and certainly contribute to one facet of wealth, but they all make up only a part of what could be properly defined as genuine wealth.
Genuine wealth involves real value, which represents the diversity of words that make our lives admirable and merited and truly worth living. Where we spend our money discloses our true values and what we hold to be important. Genuine wealth represents all the things that make our lives meaningful, that resonate with our truest nature and more holistic being centred within our hearts. Genuine wealth is an accounting of life; like a window onto our souls, or a mirror image of our genuine selves. Genuine wealth emerges when we are being in touch with our highest core values, our complete life assets and our full awareness and potential. Genuine wealth includes all assets that contribute to our complete and balanced state of living and being. Genuine wealth accounts for what we value most and allows us to objectively assess our real assets (our strengths) and opportunities for developing our real wealth potential.
For more information on Dr John Demartini visit www.drdemartini.com
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