Over time overgrown plants and dead wood will accumulate in your garden, and if ignored can kill off everything around it. It doesn’t matter how carefully things were planned at the start unless that plan is revisited and maintained, you can end up with a weed filled jungle that is almost impossible to get back into shape. Spring cleaning is not about throwing everything out, it’s about pruning, splitting, composting so that it will look better in the future. So… Using this botanical analogy, what can you do about your wealth portfolio?
Pruning: This is the cutting back of plants so that you get a better flush in the next year. Just like you should prune roses and fruit trees every year, so should your wealth portfolio be examined and trimmed every year to maximise its potential. Wealth is what is left when you have consumed your income – the simple Wealth Equation. The Consumption side of the Wealth Equation is where you need to prune. Use your banking software or a free app like 22seven to see where you need to prune. Everyone is going to be different so it is difficult for me to say what is important or not. If you’re not sure, list all your expenses for a month then put a priority rating of 1 to 5 next to them, the order that you’d drop them if you absolutely had to, with 1 being the most important. Put everything there including your mortgage, car payment, medical aid. Some people would rather eat baked beans for a month than drop their DSTV subscription for example.
Pinching out. This is the mini-pruning of shoots so that the plant will bush out and produce many more flowers or fruit – increasing your ‘harvest’. Fuchsias are an excellent example of this. Pinching out effectively delays the flowering or fruiting of the plant – delayed gratification for the greater good. Take a topiary for example, getting a pleasing shape depends on knowing what you want it to eventually look like (an objective), and having the patience to keep controlling it until you get there. If you want to increase your harvest you need to have as many points of diversity as possible, so that if one branch dies, the other branches can pick up the slack. All portfolios should have an objective : What are you going to use the investment for and when? This timeline will dictate how you should treat the investment, and how important it is to preserve the capital. Probably the biggest capital accumulation you’re going to need to make is for your retirement, but how big this pot needs to be will depend on what you want your retirement to look like (in present value terms). This calculation is far too important to ‘wing it’, get professional help.
Compost and Fertilise: Over the year plants deplete nutrients out of the soil to produce leaves, flowers and fruit, if you want them to keep on producing you need to compost and fertilise. Your wealth portfolio is no different. You can compost it ‘organically’ with interest and dividends that are ploughed back into the portfolio – or inorganically by adding to the portfolio with new, man-made (you-made) contributions. Most of you probably already contribute to some sort of investment every month, but what do you do with your bonuses? Why not commit to putting 50% of that bonus into investment. You could also do this with other little windfalls like Insure cash payments or other loyalty program paybacks. The free app Stash# will also make it easy for you to get that money out of your pocket before it burns a hole.