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Personal Wealth

Should I seek professional financial advice?

Financial planning is becoming increasingly complex and you’d be well advised to consult a financial planner.

Andrew Bradley

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Why do I need to consult a professional to help me with financial planning?

Changing lifestyle and family structures, increased product complexity and choice, as well as an ever-evolving savings and investment environment, all mean that more people are seeking access to financial advice, in order to make more informed and sound financial decisions.

The typical product-led approach tasks financial planners to sell various products to the market, and assumes that both the clients and the financial planners fully understand the full extent of how the products work and what they can and can’t do for them. Sadly with complexity this is often not the case. This means that an advice-led approach is critical.

While there are very seldom badly developed financial products, the challenge from an advice perspective is to ensure that the product being considered is appropriate for a specific individual’s needs.

Without having a fairly good understanding of the financial structures and complexities, you could land up with a financial product which is not appropriate for your specific needs, which in turn could result in a potentially disastrous situation for your finances.

Given that there are thousands of products currently available to individuals, each with a number of differences, it is a difficult, but critical task, to fully understand all the differences.

An advice-led approach is based on some of the leading thinking in behavioural finance which combines the disciplines of psychology and economics.

This results in financial planners first engaging with clients to ascertain and understand their needs and tasks the financial planner to ask the right questions and to deal with the relevant dynamics unique to the client.

This approach is effectively a decision-making framework that individuals go through to make a decision on their financial future. This includes assessing where they are now, where they want to be in the future and ultimately how they are going to get from one point to the other.

By using this framework, the financial planner is in a position to make the most appropriate recommendations relating to the individuals specific investment strategy and investment vehicle utilisation that will create the greatest likelihood of the client achieving their set objectives.

Andrew Bradley is the CEO of at Old Mutual Wealth, an advice-led, wealth management business. He is also a former CEO of Acsis Limited. Andrew has been at the forefront of a number of significant developments in the financial planning and investment arena over the past two decades. He has also served in various leadership capacities on the boards of the Association of Collective Investments, the South African Savings Institute, the Financial Planning Institute, the international Financial Planning Standards Board Council, the Young Presidents Organisation and the South African Rugby Players Association. He has co-authored three books, has hosted a weekly radio show for eight years and is regularly featured in the media on topics related to financial planning and investments.

Personal Wealth

I’m nearing 40 and I’m not sure if I’ve invested wisely. How can I tell?

I save what I can, but I don’t have a proper financial plan in place. When should I start focusing on this?

Wendy Foley

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I’m nearing 40 and I’m not sure if I’ve invested wisely. How can I tell? 

By the time people hit their 40s, three out of four people have saved something towards their retirement. They are hitting their peak earning years and they should be well on their way to reaching their long term savings goals.

Except that life gets in the way. A dilemma faced by those in their 40s is that they typically need to save for university tuition for their children, whilst also saving towards their retirement and perhaps even building a house as well.

Your 40s may seem like the ideal time to switch into overdrive but many 40 somethings are instead puttering along in first gear. They save what they can, do their best and figure that they’ll sort out their finances later, but not having a financial plan is actually the same as having a really bad plan.

Every financial plan should be specific to the individual’s needs and lifestyle requirements. You should look at your net income and set priorities for paying off debt and saving for your different needs.

The following areas should be considered:

  1. Have an emergency fund, such as a money market fund.
  2. Start saving towards your children’s educational expenses as soon as you can.
  3. Pay off your debt with your excess monthly income. As a guideline use 1/3rd to settle debt and 2/3rds towards your retirement.
  4. Maximise your company’s retirement fund contribution up to the allowable limit.
  5. Consider investing into a retirement annuity to maximise on reducing your taxable income.
  6. Do an insurance needs analysis for your family. For a healthy person in their 40s the cost of your life cover is not exorbitant.
  7. Check out your disability cover – a lot of companies will only pay up to 75% of your gross monthly income.
  8. Consider your household and car insurance needs.

As a general rule of thumb if you started saving in your 20s you can get away with saving approximately 12% of your take home pay. If you are in your 40s the general rule of thumb is that you need to increase your savings rate to about 20% of your net income.

It seems that too few people have taken the necessary steps to prepare themselves to be financially secure in retirement but it is important to realise that it is never too late to start.

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Personal Wealth

As a woman, should I be following a different investment strategy to my male counterparts?

Yes – women have special investment needs – find out what they are.

Jo-Anne Bailey

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As a woman, should I be following a different investment strategy to my male counterparts?

Let’s face it. Money matters. Managing your money wisely is a prerequisite for financial comfort.

The principles of investment planning—starting early, having a long-term plan and investing regularly are the same for men and women. So, why do women have special investment needs?

If you look at the life patterns of women, you’ll see that:

  • Women tend to live longer than men
  • Their careers are interrupted by family needs
  • More often than not, women prefer a conservative investment strategy.

Given inflation and the many responsibilities they have taken on, as well as the high aspirations they have, there is a compelling need for women to take charge of their financial planning.

Your financial picture

The three most important aspects of your personal financial picture are:

  • Your risk tolerance
  • Your time frame
  • Your personal circumstances

What is your risk tolerance?

Your ‘risk tolerance’ is basically your comfort with an investment option. The risk spectrum ranges from ‘safe’, with little risk of loss or volatility (like a money market fund), to very ‘risky’, volatile investments (some equity funds or sector funds).

You need to determine your own comfort zone. For example, if you don’t like to be awake all night wondering about your investment, you can invest in moderate risk funds managed by professional fund managers.

Also, you need to keep in mind inflation and taxes. With the so-called safe but low return investments, you can actually end up worse-off when these two are taken into account.

 Your time frame

When we talk about an investment’s time frame, we mean the time between when you make the initial investment and when you’ll need the money.

If you start an investment with the goal of paying university tuition for a two-year-old child, you’ll need the money starting in about 16 years. If that child is 15, you’ll need the money starting in about three years.

Every investment has its own time frame depending on your goal and life stage. And the time frame can change as the goal approaches.

Knowing where you are in life stage will determine what type of investment strategy you should use.

Your Net Worth

At a minimum, your financial picture should show you how your assets stack up against your liabilities. In other words, if you had to pay off everything you owe right now, how much would be left over?

  •  Your assets. Make a list of everything you own that has monetary value. Beside each item, write what it’s worth in cash. The list should include investment assets like stocks, bonds, CDs and mutual funds. It should also include property such as your home or other real estate, vehicles, jewelry, art and antiques. Add the amounts in the list to determine the total value of your assets.
  • Your liabilities. A list of liabilities will include all your debts and the amount owed for each one. The bond on a home is the largest liability for many people. Other debts include credit card balances, unpaid bills and car loans. When the list is complete, add those numbers to get a rand amount for your total liabilities.
  • Your net worth. Subtract your liabilities from your assets and the resulting amount is your net worth. Ideally, your net worth will be a positive number, but it’s possible to have a negative net worth if liabilities exceed assets. This figure is the basis for your financial picture and will help you determine how much you need to invest to meet your financial goals.

How much am I worth?

Do a proper review of your assets and liabilities, which will help you in arriving at your financial worth (or net worth).

Selecting Your Asset Mix

Asset allocation means dedicating certain percentages of your holdings to broad asset categories like stocks, bonds, real estate and cash as a way to achieve your financial goals while managing risk.

This strategy can work because different categories behave differently. Stocks, for instance, offer potential for both growth and income, while bonds typically offer stability and income. The benefits of different categories can be combined into a portfolio with a level of risk you find acceptable.

What allocation is right for you?

Asset allocation helps investors balance the returns they want with an acceptable level of risk. Your asset allocation should be based on your investment goals, time frame, and risk tolerance.

In retirement, you might want to emphasize bonds and cash for income and stability. But don’t overlook stocks, because you need to keep up with inflation.

If you won’t need your money for 25 years, a financial advisor might recommend an asset allocation of 100% stocks. That wouldn’t mean investing in only one stock. You’d still want your portfolio to be diversified across a variety of stocks.

Preparing for emergencies

When considering your asset mix, don’t forget to set aside money for emergencies. Life is full of situations such as serious illness, job loss, and divorce for which it’s hard to plan. So, it’s wise to put aside cash reserves for the unexpected. Aim to build an emergency reserve which can sustain you for three to six months.

Help with selecting your asset mix

Before investing, one needs to understand the various investment options thoroughly. If you think you do not have time or expertise to manage your money, leave it to professional fund managers like mutual funds.

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Personal Wealth

At what age should I start planning for my financial future?

It’s never too early to get a good grasp of financial matters.

Colin Long

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I’m a teenager, is it too early for me to start planning for my financial future?

There are a number of reasons why teenagers should start taking control of their financial future, firstly, it does not matter whether you are working with the best financial planner in the galaxy, at the end of the day nobody looks after your money better than you do.

Working with a good financial planner can add a lot of value but becoming financially successful starts with you.

Start saving as soon as possible

According to Prof Aubrey de Grey, if you are under the age of 50 now, you could live to be 1 000 years old.

Consider the fact that by achieving just a 1% higher rate of return on your investments over forty years compared to your neighbour, you can increase your income by as much as eight additional years in retirement.

It is thus essential that young people start saving as early as possible and become financially fit at a much younger age because goodness knows, they are going to need it.

Educate yourself

Teenagers can engage in a number of activities to increase their financial knowledge. There are personal finance journals which they can subscribe to and most Saturday newspapers carry a personal finance section. Reading the business section of newspapers and financial magazines provide for a macro overview of the economy and how it affects the consumer and business.

There are financial planning and investment clubs that individuals can engage in or they can start their own club. A plethora of personal finance books are available in the market and one need only Google the top 10 rated personal finance books to come up with some beneficial literature to read.

Your relationship with money

Increasing one’s knowledge is however just the start to becoming financially successful. One of the biggest challenges for any individual to overcome in relation to money, no matter their age is more to do with psychology than financial knowledge.

The ability to control one’s emotions when making financial decisions will add more to your bottom line than anything you will ever read.

In the world of money and finance there is no shortage of information, the challenge is filtering out the garbage, retaining information that will add value and developing a dogged determination not to let emotions such as greed and fear control your financial decisions.

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