7 in­vest­ing tips to make life GOOD!

These great sav­ings and in­vest­ment point­ers will have you play­ing the money game like a pro in no time.

Fairlady - - MONEY, HONEY! - By Magda Wierzy­cka

LES­SON 1 Don’t rely on any­one else to take re­spon­si­bil­ity for saving on your be­half

Many women rely on the men in their lives to take care of their fi­nances. And yet, when you look at the di­vorce statis­tics, it’s clear that’s un­wise.

Even if your mar­riage goes the dis­tance, there’s some­thing else to con­sider: women live longer than men, and of­ten part­ner with men older than them­selves. So many women are wid­owed when they still have many years of good life ahead. Don’t al­low your lack of ex­pe­ri­ence to make you vul­ner­a­ble. You need to em­power your­self to look af­ter your­self – be­cause you can al­ways rely on life to throw you a curve­ball or two.

LES­SON 2 Arm your­self with knowl­edge be­fore you do any­thing else

The first step to fi­nan­cial in­de­pen­dence is to learn how to bud­get prop­erly. Take a look at how much you earn, or if you share your life with some­one, how much the fam­ily earns ev­ery month. Fig­ure out how much you spend on non-ne­go­tiables such as hous­ing, ed­u­ca­tion, trans­port, health­care, in­sur­ances and food. Then look at the ‘nice-to-haves’, such as en­ter­tain­ment and hol­i­days. You’ll need all the house­hold’s ac­tive bank ac­count state­ments for this in­for­ma­tion. Cap­ture these in a spread­sheet for at least three months to start un­der­stand­ing the pat­terns.

Once you have a grasp of how you spend, and where and how much you could po­ten­tially cut back, it’s time to think about saving. Google terms that would usu­ally make you do an eye­roll, such as eq­ui­ties, bonds, tax-free sav­ings, re­tire­ment an­nu­ities, liv­ing an­nu­ities, unit trusts etc – as hard as it sounds, the fi­nan­cial ser­vices in­dus­try has a very lim­ited lex­i­con. Buy a book on in­vest­ing, or take an on­line per­sonal fi­nance course. Hire an in­de­pen­dent fi­nan­cial ad­vi­sor (IFA) on an hourly ba­sis to take you through the ba­sics. En­gage your part­ner in con­ver­sa­tions about fi­nance and in­vest­ing. Things will get sim­pler very quickly.

The goal of all this is to fig­ure out how much you need to save ev­ery month to be able to re­tire com­fort­ably at the age of 65. Your IFA will be use­ful for this, or you can use free dig­i­tal fi­nan­cial plan­ning tools such as Sygnia’s Robo-ad­vi­sor (www.sygnia.co.za/roboad­vi­sor/ sygnia-roboad­vi­sor).

LES­SON 3 We are all go­ing to live longer than our par­ents

Many of the new tech­nolo­gies be­ing de­vel­oped are to find ways to fight dis­ease and pro­long life. Stem cells, genome map­ping, DNA splic­ing and other ex­per­i­men­tal treat­ments, sup­ported by the greater pro­cess­ing power un­leashed by ar­ti­fi­cial in­tel­li­gence and ma­chine learn­ing, are al­ready lead­ing to great suc­cesses in di­ag­nos­tic medicine and in quicker and more ef­fec­tive treat­ment of con­di­tions such as can­cer, car­diac dis­eases, paral­y­sis, blind­ness and many oth­ers. At the ex­treme, dis­eases as we know them to­day could be erad­i­cated within the next 20 years.

Now, imag­ine a life­span that is 30% longer; in­stead of an av­er­age life expectancy of 78, you could eas­ily live to 100 and be­yond. We need to start re­think­ing 65 as be­ing the stan­dard re­tire­ment age. On one hand, peo­ple will need to work longer to be able to sup­port them­selves fi­nan­cially for longer. On the other hand, im­prove­ments in health­care and cog­ni­tive rea­son­ing mean that these peo­ple are more than ca­pa­ble and will­ing to do so. Sec­ond ca­reers af­ter the age of 65 will be­come more com­mon. But at the very least, you need to start saving more to­day, as your wealth on re­tire­ment will have to last a great deal longer.

LES­SON 4 Fees are the en­emy of sav­ings

There are three fac­tors that de­ter­mine how much your sav­ings will grow: • the amounts you reg­u­larly save • the re­turns you earn, and • the time pe­riod over which you save You can im­prove the first by bud­get­ing care­fully and pri­ori­tis­ing saving.

You can con­trol the sec­ond by choos­ing sen­si­ble in­vest­ment strate­gies and by be­ing care­ful about how much you pay away in fees.

And you can make a dif­fer­ence in the third by start­ing to save as early in life as pos­si­ble.

The Na­tional Trea­sury, in a 2013 paper ti­tled Charges in South African Re­tire­ment Funds, puts it best in this sim­ple ex­am­ple: ‘A reg­u­lar saver who re­duces the charges in his re­tire­ment ac­count from 2.5% of as­sets each year to 0.5% of as­sets would re­ceive a ben­e­fit 60% greater at re­tire­ment af­ter 40 years, all else be­ing equal.’ In other words, in­stead of

‘Imag­ine a life­span that is 30% longer; in­stead of an av­er­age life expectancy of 78, you could eas­ily live to 100 and be­yond. We need to start re­think­ing 65 as be­ing the stan­dard re­tire­ment age.’

re­tir­ing with, say, R1 million, you’ll re­tire with R1.6 million.

Scru­ti­nise all fees care­fully, par­tic­u­larly the more ob­scure per­for­mance fees charged by as­set man­agers. In­vest­ments are not like fash­ion; with in­vest­ments, the cheaper the better.

LES­SON 5 Save for life’s mile­stone events; it makes saving eas­ier

Saving re­quires bud­get­ing, cost­cut­ting and dis­ci­pline. It feels eas­ier if you have shorter-term saving goals, such as the birth of a child, a ca­reer break, an ed­u­ca­tion fund or a hol­i­day. In this case the best prod­uct to use is a tax-free sav­ings ac­count. You can save up to R33000 per an­num in a tax-free sav­ings ac­count: all your re­turns are tax-free. Save in ‘pock­ets’, with spe­cific ob­jec­tives at­tached to each pocket. Do not ever be tempted to touch the money for any other pur­pose.

LES­SON 6 Har­ness new tech­nolo­gies

Many peo­ple be­lieve in­vest­ing is ex­pen­sive, and it is, but tech­nol­ogy is rapidly re­duc­ing those costs. We’ve talked about free apps, but tech­nol­ogy is also dis­rupt­ing the field of fi­nan­cial ad­vice. Start­ing in the US, spread­ing to Europe and now in South Africa, robo-ad­vi­sors are be­com­ing in­creas­ingly pop­u­lar.

Robo-ad­vi­sors are in­ter­net-based fi­nan­cial plan­ning tools that are pow­ered by com­plex fi­nan­cial mod­els. By tak­ing into ac­count rel­e­vant in­for­ma­tion about you, these mod­els can project how much money you will need to re­tire, what your short­fall is and how you need to in­vest to max­imise the prob­a­bil­ity of re­tir­ing com­fort­ably. Al­though all robo-ad­vi­sors guide you to­wards an in­vest­ment prod­uct or strat­egy, they can also be used free to guide your think­ing. If you then need a hu­man ad­vi­sor, at least you en­ter into that re­la­tion­ship with knowl­edge.

Tech­nol­ogy has also dra­mat­i­cally re­duced the cost of man­ag­ing money. In­dex-track­ing funds have taken the US by storm; renowned in­vestor War­ren Buf­fett has re­peat­edly rec­om­mended them. These funds do not re­quire port­fo­lio man­agers who com­mand mul­ti­mil­lion-rand bonuses, but are man­aged by statis­ti­cians aided by fi­nan­cial mod­els. This means you can buy in­vest­ment prod­ucts such as a unit trust track­ing the MSCI World In­dex or the FTSE/JSE All Share In­dex for as lit­tle as 0.40% per an­num, com­pared to the 1.2% you would typ­i­cally pay for an ac­tively man­aged fund. That is a mas­sive saving, es­pe­cially when com­pounded over many years.

Clever use of tech­nol­ogy is also mak­ing ad­min­is­tra­tion more cost­ef­fec­tive. This means that sav­ings prod­ucts such as re­tire­ment an­nu­ities and liv­ing an­nu­ities can now be of­fered free.

LES­SON 7 Phys­i­cal as­sets are not an in­vest­ment

As much as you en­joy that new paint­ing or car, know that most likely they are con­sump­tion items. It takes a very keen eye, good re­search and a hefty dose of luck to make money out of art. It is al­most im­pos­si­ble to make money out of a car pur­chase, though there are some ex­cep­tions.

Buy­ing a prop­erty is an im­por­tant mile­stone. More im­por­tantly, al­though it is not the best in­vest­ment you will make, it does force you to save. It is also one of the very few as­sets banks will fi­nance.

In­vest­ments and sav­ings can be a fun jour­ney, but only if you arm your­self with knowl­edge and plan well ahead. Fol­low these sim­ple rules and you will be fine.

‘In­dex-track­ing funds do not re­quire port­fo­lio man­agers who com­mand mul­ti­mil­lion-rand bonuses, but are man­aged by statis­ti­cians aided by fi­nan­cial mod­els.’

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