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.

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.

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.

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.

Education around the basics of wealth creation and preservation is like a good, solid diet packed with healthy food staples, it can help you enjoy healthy finances for years and create a strong foundation for building your future.

Bonds are a healthy part of any portfolio or ‘diet’, and most people think they understand them. Today, we want to talk about an aspect of investing in bonds most people misunderstand or simply don’t know about – interest rate risk.

In today’s highly uncertain market, bonds remain an attractive option. Not subject to having the sudden market-related dips (or spokes) that equities do, it’s a lower risk option for preserving or growing your money in most environments.

Sounds great, right? Potentially.

Most bonds pay a fixed rate of interest over a defined period of time.

What many investors don’t understand about bonds is that the rate is set according to prevailing market interest rates at the time of issuing the bond, but the market interest rates that occur afterwards during the period of the bond may not be even remotely similar to the ‘weather conditions’ when you first took out the bond.

What this means for your money is that, should interest rates rise, your bond’s value will lessen. Should interest rates fall, the reverse will happen – your bond is now worth more. Because this is directly related to inflation (interest rates rising are usually due to CPI itself rising above what’s been predicted for it), a good way to understand this is inflation. If inflation increases, even though you have the same notes and coins in your wallet, that money is effectively worth less. If inflation decreases, slowly your money will be worth more in relation to the rest of the market (price of eggs etc.). It is not the notes or rands themselves that have changed if the inflation rises, it’s the market.

This is interest rate risk, and it’s a vital element which affects how much return you’ll get once a bond matures.

It is seldom that we truly know what is going to happen to the market in the next two to three years with absolute certainty, but in the case of interest rate risk, it seems that we do. South Africa will be hiking rates for the foreseeable future, as announced at the end of last year when the Reserve Bank’s Monetary Policy Committee (MPC) said it would raise the repurchase rate quite significantly to 6.75% per year as of November 2018.

What does this mean for our bonds? Well, if you look at the above in SA in isolation, it means that a bond’s value will lessen if interest rates rise (which they have) and will continue to do so if interest rates continue to climb (which it looks like they will).

A word of warning – any investment in any form should be underpinned by knowledge. Choosing to put money into a bond of any kind is no exception. Taking interest rate risk by investing in a certain bond without knowing every aspect inside and out is like getting onto a horse and expecting to ride it when you don’t know how a horse moves.

However, if you only ever invest in things you already understand, where will that leave you? Your money may grow, but your own horizons and understanding won’t.

Consider this a call to adventure – not to invest in bonds necessarily, but rather for us to chat about things you don’t fully understand, perhaps interest rate risk being one thing, and start an exciting new chapter in your financial awareness and confidence!

For those who tell you not to worry so much and just invest in anything, no need to do much research, you need only say one word: Steinhoff.

Steinhoff has been called the largest corporate scandal in SA history, but what many people don’t know is it’s fall was also the largest failure ever on the JSE. The collapse promoted months of headlines, in which South Africans read, shaken, about the demise of the brand which had been every investor’s darling. It wasn’t just the death of a retail titan, it was the death of the concept of ‘too big too sink’ corporates.

In a world post-Steinhoff, all previous bets about how investment works are off. If everyone – and it was pretty much everyone, high and low – was wrong about Jooste and his African champion, couldn’t we be wrong about everything else? It’s not comfortable stuff to ponder, but actually there are valuable lessons in the Steinhoff fallout for investors willing to look.

Lesson 1 – Recommendation is no match for your own research

Many of the most knowledgeable and powerful men and women on the SA investment scene were overweight on Steinhoff. Some, like Christo Wiese and insurance champions Johan van Zyl and Len Konar, were even members of Steinhoff’s board and had decades of investor experience on their sides. This shows the importance of checking out financials for yourself, corporate governance frameworks and growth patterns and projections. If something seems too good to be true, with meteoric out-of-the-ordinary growth from nowhere, then it probably is.

Lesson 2 – Look at management, not results

The common thing to do when considering an investment option is to look at results as a predictor of future dividends, but growth can be misleading. This is especially true of a depressed economic period like the one we’ve had for a while, in which good companies can suffer in their results due to the market, while bad ones’ shortcomings can be masked. Instead, look at the corporate governance of the board and how transparent the company is for a feel. Steinhoff, for example had amazing figures on paper, but their complex two-tier management structure was, in hindsight, a sign of deliberately complicating matters to hide the truth.

Lesson 3 – Not everyone will be a Steinhoff

The reason Steinhoff made the news is that it’s the exception rather than the rule. Although there have been a few corporate governance lapses though none as severe as Steinhoff, it doesn’t mean that our corporate governances metrics themselves are broken. On the contrary, South African governance law and the JSE itself have been proven to be quite robust in the crucible that was Steinhoff. The internationally respected Frankfurt Sock Exchange (FSE) took just as hard a hit as the JSE, after all. The chances are very low that you will invest in an unsound company of the Steinhoff ilk – especially after the scandal meant corporates undergoing extra scrutiny.

And if you’re worried about existing investments of yours? Let’s chat, revisit our due diligence, and remember – Steinhoff happened once, but that doesn’t mean it’ll happen again.

Load shedding has cost all of us over the past few weeks, but do you know exactly how much?

Neither did we, until we did a little digging.

Cost to the economy at large

According to Chris Yelland, load shedding costs SA approximately R1 billion per stage, per day. Those Stage Four blackouts… they cost about R4 billion for each 24 hour period. That’s more than the national police service receives every year from government.

Investec’s Annabel Bishop says it’s even more dire than that – she estimates that it could have cost the country R2.4 trillion by the end of 2019’s first quarter, which is half of SA’s GDP, according to The South African.

Cost to business

Load shedding this year has been nothing short of brutal for business owners, with many struggling or even failing to keep their doors open in the tidal wave of load shedding-related costs and losses.

Among the chief things plaguing businesses are cost of business interruption, operating hours and the profit with them being lost, perishable stock damaged or expired and damage to electrical outputs when power surges and dips occur. Another newer trend is the rise of ‘load shedding burglaries’, in which criminals watch the schedule and hit workplaces during hours when security measures like electric fences are likely to be offline.

This obviously creates a negative feedback loop for both economy and enterprise. The less South Africa produces across various sectors, the less money is made and the more the rand weakens. The more the rand weakens, the harder it is to turn a profit as a local business and enough local business closing affects the rand further.

The hardest hit are undoubtedly the SMEs. The last time load shedding rolled around, SMEs voted load shedding the number one risk to small businesses in the 2015 SME survey. We can see why – numerous businesses have had to close down or scale back on operations due to loadshedding. They are the least likely to have generators and adequate insurance cover and the most dependent on the customers and vital profits likely to leave when the lights go out.

Cost to you as an individual

Because it affects the rand, long term savings vehicles like your investment portfolio or retirement fund is also almost definitely affected by load shedding – and for those very near retirement that can be a bitter pill to swallow indeed.
Food and steel-related products may also become more expensive, as manufacturers and farmers are feeling the pinch just like every other industry and may be forced t ratchet their prices up accordingly.

Large companies facing crippling increases in the cost of doing business may also roll out mass retrenchment if load shedding is not put to rights.

Remember, despite any short-term problems in the market like load shedding and its effects, it is still not wise to make financial decisions which may affect your portfolio based on impulse and emotion and without the advice of a trained financial advisor.