Diversifying happiness

The ancient philosopher Aristotle came up with a single word for what every person wants: ‘Eudaimonia’.
Eudaimonia means happiness but more than that it alludes to a sense of fulfillment.

Many people have viewed financial planning as the management of financial goals and resources. Typical conversations would include questions like: “How much will my assets grow, how can I get X amount by the time I am this age and what will my retirement look like?”

Whilst these have been helpful questions, we are learning that they are only part of a fuller conversation. There are different questions that are starting to emerge in our conversations that are focussing more on meaning and purpose. They are not as easy to answer (sometimes they don’t need answers just yet…) but they help us frame the bigger picture of how we’d like to use our wealth for a fulfilling life.

It’s not only our wealth strategies that need to be diversified for healthy growth but our happiness strategy too.

This Spring, we suggest these happiness diversification exercises.

Exercise your way to happiness

Now that it’s getting warmer outside, it’s time to get our bodies moving again. According to a recent research study, exercise makes people happier than money does. People who stay active are better equipped to deal with stress and have less days when they feel down or depressed.

That’s not too say that too much exercise isn’t a bad thing – it’s important to have a balance and not over-exercise. Either extreme can be detrimental to our experience of happiness, but a healthy balance is a powerful way to experience eudaimonia.

Prioritise experiences and people over possessions

Invest in making priceless memories in life. Instead of buying that luxury car you do not need, try saving up for a family holiday. Going out with friends or family to concerts, movies or picnics are just some of the happy experiences you can give yourself in life. Prioritise taking walks in nature, reading a book or playing a game with your kids.

Believe in something bigger than yourself

As we spend time with other people outside of a working relationship, it becomes easier to see and believe in something bigger than our own reality. It’s not about faith or religion, it’s about connectedness. If we want to find more ways to invest in our fulfilment we need to experience generosity to causes that are bigger than ourselves.

Fulfilment, happiness and productivity should grow when we contribute to others. It’s a healthy circle of sustainable growth that is not reliant on market performance or bank balances. Being willing to ask bigger questions and find deeper meaning to our wealth is where we can begin to experience eudaimonia.

When it comes to Wills, don’t wing it.

September celebrates National Wills Week, a reminder to us all about the importance and necessity to create a Last Will and Testament. According to recent statistics, only 30% of South Africans have a will – which means that we have to be talking about this a lot more!

We have seen countless movies and TV series detailing the hijinx that can occur without a will. Unfortunately, in the movies all people with wills are either rich or eccentric, leaving many of us with the impression that a formal Last Will and Testament isn’t really for ordinary people.

However, it’s an essential element of a robust portfolio.

If you have loved ones and/or any possessions to your name, or children who would need to be cared for – you would greatly benefit from a professionally drafted will.

The dangers of DIY

Some may feel that it’s cheaper to simply write up their own will and keep it as general as possible so that ‘everything is covered’. The reality is that it’s generally not expensive and having sweeping generalities only complicates matters.

Legal details and regulations change regularly regarding wills. Unless it’s your job, it can be hard to understand and keep up with the constant changes. Even a small detail in a will that’s incorrect or not in line with legislation can leave your loved ones paying extra legal fees and waiting months and even years to iron out the details – or worse, left without enough income to cover monthly expenses.

Vague wording like “I leave my cars to my sons” is typical of a DIY will, and may be disputed – turning into an expensive and lengthy legal battle. What if the one car is worth R80,000 and another is worth R300,000? What if someone arrives, claiming to be a son? Words like ‘descendants’, ‘my business’ or ‘personal items’ are also legally vague, pitfalls and loopholes are hard to spot if you’re not a trained lawyer.

Legal terminology like “bequest of the residue” are terms you may have never heard of and would certainly not put in your Last Will and Testament – all the more reason to hire a professional and save your family the additional heartache and stress later.

Are you selling your cows or just using the milk?

It has been a few months since the income solutions were launched and markets have been brutal. Investors in the new solutions may be worried, and panic when they receive a statement indicating that the investment’s market value has dropped. “How will I be able to sustain my income if my capital is losing value?” or, “Must my income be taken from my capital now that returns were negative?” These may be some of the questions keeping you up at night.

Before losing any sleep on the matter, it is important to remember why you chose the strategy in the first place. Also remember that the purpose of the income strategies is just that – producing a sustainable, predictable income stream for life. A simple way to describe the strategy is comparing it to a dairy farm. Although the value of the cows on the farm change from day to day, it doesn’t affect the milk it produces and at the end of the day, even if the milk is used, you still have the cows. The same happens in the income strategy. The property, shares and bonds that produce the income may change in value on a day to day basis, but this does not affect the income it generates.

Consider the below example of a real client who invested in one of the solutions in early June. Bear in mind that the distributions (interest from bonds, rental income from properties, dividends from equities) of the underlying funds pay out quarterly. This may mean that if you invest just after distributions were paid, you may have to sell units initially to cover the first withdrawals. However, once distributions are received, this should bring the units back into balance over time.

Mr A is 52 years old. He received an inheritance and although he only plans to retire at age 65, he needs an income from the investment until then. His ideal would be to only use the distributions generated by the investment (i.e. the milk) without having to draw the capital (sell the cows), as the capital also forms part of his retirement provision.

Let us look at his experience over the last few months up until the 12th of September.

Below is a summary of Mr A’s investment account. The initial values displayed are the number of units (i.e. cows) bought with the capital. The distributions will be paid on the number of units held, and not the market value of those units. (The litres of milk are determined by the number of cows and not the current market value of the cow.) Although there is a slight decrease in the unit balance, it must be remembered that the period illustrated is very short. Over time it is expected that the capital and income will increase and therefore one should not be worried about the slight drawdown in units.

Another way to look at the solution is to view distributions received from the funds as if it is paid into a bank account. The quarterly distributions from the 6th of June till the 12th of September were enough to cover the income withdrawal over the same time period.

Take the dread out of disease cover

A lot of people misunderstand the term ‘dread disease cover’… and with that name, it’s enough to take the smile out of anyone’s day. But dread disease or CI (critical illness) insurance is a powerful tool to ensure that health emergencies don’t trip up your financial dreams or weigh heavily on your family.

Dread Disease Cover vs Disability Cover

Sometimes called CI cover, dread disease cover is different to disability cover, which protects you and your finances after an accident temporarily or permanently leaves you unable to work. In a similar way, dread disease cover is there for when a health setback floors you temporarily or for a longer period of time. From strokes or heart attacks to serious illnesses like cancer, this cover helps you focus on your recovery without having the added stress of loss of income each month just when your medical and associated expenses are skyrocketing.

Dread disease cover isn’t about dying… it’s about surviving

When the average person thinks of cancer, a tumour or a stroke, they imagine the worst. And no one likes thinking about it… it will never happen to us anyway, right?

But in reality, these things are more common than we realise and are not a death sentence – far from it.

“Statistics confirm there is a high likelihood of contracting a major illness such as heart disease or cancer. And thanks to advances in medical technology, people are more likely to survive these illnesses than ever before,” Old Mutual’s Ferdi Booysen says in insurance publication FA News.

Get peace – get well

Research shows that one of the single biggest impediments to recovery in any illness (barring chronic mental illness) is stress. Research also shows that finances are one of the biggest things that people are concerned about when ill – a vicious and ironic circle.

And they’re not wrong. There are lots of little unforeseen expenses surrounding illness and hospitalisation. Even if you have an amazing medical aid in place, there will be things the medical aid doesn’t cover. And what about other things you may need, like therapy for you and your spouse after the trauma of a stroke?
With dread disease cover, it’s easier to relax and focus on recuperation knowing that everything is in place. In fact, most CI cover pays out a lump sum so that you can decide what’s important for your recovery journey.

But don’t just survive – thrive

Falling seriously ill or having a health episode is never pleasant, but it is a fact of life – and it needn’t be the end of it. In fact, it can be the start of a whole new one.

Those who have experienced these things with the support of insurance and the ability to focus on themselves rather than being forced to work when physically unable, often describe their journeys as powerful wake-up calls that helped them re-prioritise and improve their lives, relationships and trajectory.

So don’t just pretend it won’t happen to you and don’t just survive – thrive.

Five awesome things about women investors

It’s Women’s Month, and we’ve been thinking lately about all the ways in which women are wonderful in matters of money.

Women as investors don’t get praised often enough – there’s been an unfortunate stereotype in the past that keeps finances in ‘man territory’. Today, we’d like to honour the ladies in our stock markets and on our shareholders’ boards and count the ways in which they rock and the things male investors can learn from them.

They consistently outperform on returns by being faithful

A Financial Times article cited two studies a couple of months ago. It had this to say:
“Warwick Business School conducted a study of 2,800 UK men and women investing with Barclays’ Smart Investor, tracking their performance over three years. Not only did the women that were examined outperform the FTSE 100 over the time period, they also achieved better returns. The men in Warwick’s study managed an average annual return 0.14 per cent higher than the FTSE 100, but women outperformed the benchmark by 1.94 per cent, beating men by 1.8 percentage points. A separate study by Hargreaves Lansdown also found women investors returning on average 0.81 per cent more than men over a three-year period.”

The reason for this, according to spokesperson for insurer Liberty Daphne Rampersad in an article this month, is that women tend to stick with investments, “getting higher returns over the long term, while many male clients choose to switch when markets go south”.

Those that do go against the grain

Despite these impressive results, the woman investor is certainly the minority. The same FT article cited earlier stated that “55 percent of women said they had never held an investment, compared to 37 percent of men. Just 21 per cent of women said they held a current investment, compared to 35 percent of men” in the UK, famously less sexist than South Africa.

Many reasons have been attributed to this, from a dearth in financial advisers to older generation South African men teaching their sons about investing but not their daughters.

Also, where are the women’s role models? Despite giants of the industry being female – JSE CEO Nicky Newton-King comes to mind – there are no articles on Warren Buffett-type female investors, here or abroad. That makes the women who do invest that much more impressive.

They stick with what they know – and that’s a good thing

“Men tend to favour new, untested shares, whereas women will stick with tried-and-trusted, recognisable names”, says HSBC private bank in an article on its website. Unsurprisingly, this also often results in women getting more tried-and-trusted, recognisable results than male investors, thanks to their tendency to stick with a ‘sure thing’.

… Despite ‘bucketing prejudice’

That being said, women are often stereotyped unfavourably by asset managers and their portfolio managers in general. This is thanks to the notion of ‘risk profiles’ – somewhat outdated now in developed markets yet still used widely in South Africa. Due to women being seen as more ‘risk averse’ than men, they will be given investment options with lower returns because, well, higher risk means higher potential returns.

This is how it often goes. A woman will go in/phone in to set up a new investment. The manager, often male, will give her a risk profile assessment rather than ask her what her goals are and what assets she would prefer. Instead of saying ‘if you want X returns, you can only get that with equities, although you stand to lose more there too’, he will more often ask ‘how much are you comfortable with losing per annum?’ This is called shortfall-based rather than goals-based. Most women, baffled, will reply that obviously they would like to lose as little as possible. Thus, women are consistently given scores of less risk appetite than men, due to both the phrasing of the questions and the way they are automatically bucketed for being female. Research has shown that less women invest in equities is the reason given – but it has been socially acceptable for women to invest for less time than men, and women are given equities by default less often.

It is a tiring, unknown prejudice which shows women’s greater returns and their involvement in equities at all as even more impressive.

And they get impressive financial gains despite more obstacles than men

Apart from all their obstacles from within the financial landscape, there are numerous other things standing in the way of financial success for women. Women are given higher insurance premiums and less life cover than men consistently, despite being labelled ‘more risk averse’ than men, and receive on average 28 percent less for salaries than men doing the same job in South Africa.

More than 60 percent of South Africa’s households are run by single mothers paying for everything, according to Statistics South Africa, while less than four percent are run similarly by single men.

Higher returns and better staying power despite more obstacles and often less money to work with? To paraphrase the 1955 Women’s March anthem, a woman investor is solid as a rock. You go, girls.

Mind the gap within

What you think you can do and what you can do are not the same thing. What would you try with your finances if you couldn’t fail?

When it comes to the things we want in life, most of them are inextricably linked with our finances.

Buying the dream home for your new family requires money. The time to spend precious quiet moments with those you love requires finances, too, to keep and maintain life’s endless demands and bills as you smell the roses for a minute, a week or a well-earned holiday. The peace-of-mind that allows you to weather life’s storms requires integrated financial management.

Research and experience are clear: reward follows risk; fortune favours the bold. The more you ‘do’ with your money over various asset classes, the harder it works for you. And we all want our money to do that.

And yet, a curious thing happens in the minds of most people when they contemplate the words ‘financial management’ and ‘financial advice’. They picture someone older, wealthier, probably in a suit, probably with a spread of complex assets in various locations. Maybe something cleverly tax-evading in the Cayman Islands. ‘It’s alright for them,’ people say, picturing this person, but not for me.

What is interesting about this suited, older individual? They almost never actually exist. It is a stereotype we make up in our own minds. And that stereotypes excludes us.

If you have never met with a financial adviser, or never traded in the stock market, or never invested in equities or offshore, why not? Is it because, secretly, you equate those things with someone who is wiser in years, has more money to throw around and more financial acumen? Does this person even exist? What if you knew that most of the people who invest in equities, stocks and offshore products… are people just like you?

There is only one difference between people who do and people who don’t: somewhere, somehow, they received permission to try, so they tried. Trying closes the gap.

When the sky didn’t fall if they failed, they would try again. Well, today – here’s your permission slip to try!

However, here’s the caveat: Trying something new with your finances should happen within the scope of your lifestyle financial plan.

In finances you can fail, and fail badly. An imprudent financial decision has wrecked people’s finances, their futures, marriages and hopes.

That is why the importance of a financial adviser/coach/partner cannot be overstated.

Reward follows risk and fortune favours the bold. So, we need to be able to take risks and be bold if we want to see our financial resources grow to meet our lifestyle goals.

A good financial adviser will never push you towards the latest, hottest thing at the risk of your livelihood. A trusted financial adviser is the opposite of the gambling spirit which takes so many life savings away. Risks that are worth taking and opportunities that are worth trying will always have the potential to push you forward, not destroy your future entirely.

It’s worth a try…

The seven habits of cyber secure people

It’s not for nothing that cyber crime and hacking was considered 2019’s number one “major risk” by the world’s largest insurer, Allianz, in their latest Risk Barometer Survey. These days, it’s not if the security of your electronic identity and assets will be tried by a criminal, it’s when.

While no one is completely guaranteed safe from a cyber attack, these seven habits will mean that you’ll be a harder target than someone else and so, by default, cyber secure.

1. Cyber secure people never use free WiFi
South African speaker and social media legal expert named Emma Sadleir has a wonderful saying: ‘when something is free, you are the product.’ Don’t ever use a network that you don’t need a password to log onto, or even one that’s free. Hackers often either set up their own (very legimate-seeming) hotspots or sit in an existing one waiting for prey.

2. Cyber secure people use two-bit encryption
The more encryption you can use, the better. People who are secure online use systems where they will be told of logging on to banking and all banking steps via email or SMS and get One Time PINS (OTPs) for everything. OTPs make use of two-bit encryption and if you don’t have the code, you can’t complete the transaction. This sort of security is far harder for a hacker to hack and so, usually, they won’t go near a bank account with two-bit encryption.

3. Cyber secure people never, ever, ever give someone else their login details
There is a chilling tale of a savvy business woman who was called by her ‘bank’. They had her ID number, they had her card number. They just needed her PIN, please. They even had a call-back mechanism which directed her to her bank’s authentic call centre. She almost fell for it. Here’s the thing – no bank will ever, ever ever EVER ask you to type in your PIN, say your PIN or write your PIN down. The same goes for your username and password. It doesn’t matter if you’re in the bank itself. Never write down, say or otherwise disclose those three things.

4. Passwords are never easily guessable with the cyber secure
Anything that could be guessed at by someone who isn’t your spouse or mother isn’t safe for a password or PIN, including your birthday, anniversary, year you were born, address or ‘1234’. That goes for your security questions that the bank asks you too. Don’t just put your high school or first job – someone could stalk you on Facebook and find that out. In fact, criminals use this trick all the time.

5. Cyber secure people have varying, different passwords
This one, many of us are guilty of. Not many of us have unsecure passwords like our birth dates, 1234 or the word ‘password’ anymore. We have one strong and hard-to-guess one with upper and lowercase letters, numbers and symbols in it – but only one. It’s so much easier to just remember one password, isn’t it? But cyber criminals know that too, and so they know that they just need to get your details off one not-so-secure site and then it’s open sesame for everything else. So, use different passwords – completely different.

6. Cyber secure people are wary of personal info on groups
Those not-too-safe sites we just mentioned? Well, few are as unsafe as groups on WhatsApp, Facebook and Telegram. Especially not those really large ones where you don’t know each individual on there very well. We don’t care if it’s the church group or the over 70 year-olds’ group – don’t send any personal info including bank details and your address. You never know who is part of the group and looking for information.

7. … Or Gmail
This may come as a shock, but some cyber experts consider Gmail accounts easily hacked and not too safe. The extreme popularity of them might be one reason but, just to be safe, do not send sensitive information over Gmail if you can help it.

Remember, we can’t be 100% secure online as new hacking techniques are being unceasingly developed – but we can be mindful of our online security. If you are ever in doubt, update your passwords.

Is your portfolio overly concentrated?

A well-balanced, diversified portfolio is a joy for all seasons, giving something no matter what various markets or asset classes are doing. An overly concentrated portfolio is the opposite, a ticking time bomb volatile to fluctuations in macroeconomics and other influencers of the share price.

It’s a worry many South African investors don’t know about, yet some of them are probably in danger of just that.

Here are three red-flags that you could be in danger of an overly concentrated portfolio.

When you’re not equal with your equities

Equities has been the favoured asset in South Africa for some time now, thanks to its higher growth next to a gruelling property slump and unforgiving bond conditions. But equities, just like every other asset class, has its bad days, or rather years. In fact, just a few months ago, Moneyweb came out with an article proclaiming that local cash has outperformed local equities for a solid five consecutive years now.

When local isn’t lekker

Then there’s the fact that you might be investing in equities in what you think is a spread-risk, diversified way, but all of it’s in South African companies.

Allan Gray has this to say about the matter:

“South Africa has a relatively small equities market with a handful of dominant shares, spread across a few sectors, which are available to invest in. This presents a significant risk for investors: a highly concentrated portfolio.

“When compared to global markets, the Johannesburg Stock Exchange (JSE) is relatively small, comprising less than 1% of the total global investing universe. It is also highly concentrated, with the top 10 shares on the FTSE/JSE All Share Index (ALSI) making up between 50% and 60% of the index. In contrast, the top 10 shares in one of the world’s major indices, the S&P 500, make up just over 20% of the index. Most of the ALSI’s concentration comes from one share: technology giant Naspers, which makes up 20% of the index.”

Now, if that’s not putting your eggs in one basket, we don’t know what is. And for those who think to themselves: ‘well Naspers is a great bet, so are the others, so what’s wrong with investing in fewer but better market champions?’

We have one word for you: Steinhoff.

No one, apart from a very few smart people in Sygnia and Melville Douglas, ever saw the writing on the wall. Steinhoff was too big to fail, it was getting such great gains, it was even called that exact word: ‘champion.’ And when it did fail, it took hundreds of thousands of peoples’ hard-earned money with it.

When you’re overweight

No, we’re not talking about your body mass index here. Being overweight in a certain company, like Naspers for example, or even in something that seems a ‘safe bet’ like cash as an asset class. Being overweight in any one thing can jeopardise your wealth creation. A simple example: many people comb over their investment portfolio diligently, checking unit trust gains against the market and diversifying extensively, but when it comes to the retirement annuity their company has invested them into, they never check the weighting at all.

So, how do you do it right?

“Because of that consideration, I normally have a minimum of 10 investments in the portfolio and limit portfolio at risk (PaR) — defined as position size multiplied by the downside to the worst-case intrinsic value estimate — on any one investment to 5 percent at cost and 10 percent at market,” says Gary Mishuris on the CFA Institute website.

It’s a simple, moderate way to do it, but something that’s out of reach for the average investor trying to work it out on their cellphone calculator. This is where a professional financial adviser can help you quickly and easily. No centration required.

Running on empty – is it time to fill up your tank?

Are you the type of person who

puts in a little petrol here, a little petrol there, or
enough to last you the week based on calculations you’ve done of what you need, or
are you someone who fills your tank up every time you visit the garage?

The petrol price has become a touchy topic, with all the gruelling petrol price hikes South Africans have endured, but actually your petrol tank philosophy can reveal a lot about the kind of life you lead.

Whilst filling up your tank of petrol has physical costs and constraints, filling up your life thank can cost considerably less than your monthly fuel-spend.

Which mindset are you?

There is a concept called the ‘poverty mindset’ which was pioneered some years back. People who are afraid of spending money to the point of being illogical, are often suffering from it – and don’t know it. This mindset causes us to operate from pay-cheque to pay-cheque and constantly feel like we don’t have enough money, time or energy.

It often means that we’re constantly chasing ‘the next big thing’ and not spending enough time enjoying who and what we have in life right now. We have the perception that because we’re so busy, our lives are full – but in reality, our lives are constantly running on empty.

The first step in filling up your life tank is to have a desire to change your mindset.

A plan to change

A desire to change is a powerful step in a joy-filled future, but without a plan to see that change come into fruition, the desire will wane and you will continue to run around on empty. To overcome the inertia of this mindset, you need to create a plan. A plan to think about yourself differently, to be actively mindful and change behaviours (and spending patterns) in your life that are causing you to miss out on the joy of the present.

A partner to change

Of all the activities in life, change needs the most fuel and can be the most difficult. Think about it – how stiff are your muscles after doing a workout you’re used to? And if you do a completely different exercise, even if it’s less lengthy or strenuous? How tired and stiff are you afterward?

This is where coaches prove their value – when you feel like quitting, they motivate you to continue through the change process. When you reach a plateau, they help you identify, plan for and achieve the next level. With your financial journey (and it’s intrinsically linked to your life…), having a financial adviser that you trust is the best partner to change.

Life is too short to run on empty.

Three reasons why you need an emergency fund

There are always bills to pay and money needed for something or another, and few things seem as boring and unnecessary than an emergency fund. While you can enjoy the rewards of spending on, say, a good winter coat, or can see the benefits of saving for something like university for the kids, emergency funds are, by nature, never seen.

Which is why most South Africans don’t have them – and open themselves and their loved ones up to serious hardship and, ultimately, spending a lot more money.

Here’s why you need an emergency fund:

To keep your life goals on track

Most people operate in a space of barely having ‘enough’ or not quite ever having ‘enough’. Granted, we can have a discussion around what ‘enough’ really looks like, but for most of us, the former sentence is the reality.

This means that we can’t afford a major tragedy – even more so if we’re not insured for it – and still keep financing life as if nothing has happened.

An emergency fund can help you avoid having an unforeseen emergency (or multiple emergencies) derail your life. Many of these unforeseen circumstances involve medical or health issues, which are expensive. An emergency fund of three-to-six months of income works well in conjunction with risk cover.

To reduce the impact on your dependents

If you provide an income or lifestyle for others in your family, having an emergency that cripples your finances will impact them too.

This could impact living standards, educational opportunities and their access to care should they need it. Knowing this creates increased stress and extends the time of recovery from an accident or traumatic event. If you’re able to reduce financial stress you can have more energy available for the other healing and recovery that is needed, for you and those who depend on you.

To keep yourself away from truly bad debt

People panic when they have unforeseen urgent circumstances and no safety net cash for them. If they can’t rely on their kids or the problem is bigger than that, debt becomes the only way out of the immediate problem.

Under this pressure, we can get into all kinds of jams. Loan sharks, paying off nothing but interest for decades and surety clauses which mean things like having to give up your house are all real things that happen to real people. Don’t be one of those people.

Misfortunes in life happen, they’re a guarantee – just like the good things in life are. We plan and set aside money for positives like getting married, advancing careers or having children, but we don’t realise that by failing to plan for the unfortunate surprises too, we put those very good things at risk.

If you need help with this, then let’s get in touch – because you never know when your emergency will be.

Category Archives: Blog