Financial Worry

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Worry – paying for an outcome now that may never happen.

In uncertain times, like now, it is very natural to worry about the future, specifically to worry about your future financial security. Worrying is highly stressful and pretty useless, but one of the best ways to counter it is through action and knowledge.

One of the most useful things you can do is to understand what you can control and what you can’t. You can’t control the economy, interest rates, exchange rates and political climate. Sure, you can chafe against it, write letters, sign petitions or protest, but the bulk of your energy should be focussed toward things you can do to protect your wealth and your lifestyle.

Knowledge is power, I am not saying you need to know everything, but there is a certain amount of knowledge you need have so that you aren’t ‘unconsciously incompetent’ – when you don’t know what you don’t know. That is the most dangerous place to be. We all know that being unaware of a law is not going to save you when you get to court, and when it comes to wealth it is just as important. You don’t want to get 5 years out from retirement and realise that you’re going to have to keep on working into your 70s and 80s. Never abdicate the full responsibility for your wealth to anyone – not a spouse, financial institution, broker or advisor.

Always invest in yourself, not just by saving and investing what you earn, but in your knowledge and skills too. To have longevity in the economy, whether you work for yourself or someone else, you need to build the brand “You”. Don’t be sucked into by superficial things though – expensive clothes, cars and houses only impress the shallow and wanna-bes – and why do you care what they think?

Know your limitations. Even if you’re a knowledge accumulating machine, there is going to come a time where you are going to need help – or go the whole hog and become that professional. There is always going to be a medical condition that needs a specialist, a legal situation that needs a lawyer or a sabotaging behaviour that needs a coach/shrink. Sure, knowing the basics is a huge help and can save you a lot of money, but it is not a weakness to seek help, it is just smart. When it comes to managing your wealth, the days of ‘free’ advice from your broker is dying fast. Just like you can get accounting help that varies from a bookkeeper to a CA, the same applies to the management of your wealth, the Chartered Accountant equivalent in Financial Advisory being a ‘CFP®” (Certified Financial Planner)- a professional, internationally recognised designation.

While we cannot control the economy or politics, we can control most of our personal wealth and earnings potential – even in the most trying times. Being a Chicken Little (“Oh! Oh! The sky is falling on my head, I must go and see the King”) is negative, destructive and unhelpful. It might make you feel better to pull others into your perception of drama, but there are more useful ways to divert that energy. Quite frankly, if you have a Chicken Little contaminating your inner circle, sideline them, especially at times like these where there is so much uncertainty. Now is not the time to make knee-jerk decisions like selling all your investments or emigrating. You need to ‘keep your head when those about you are losing theirs,’ (with apologies to Rudyard Kipling).

When markets are flourishing, jobs are plentiful and plenty of opportunities exist for you to add to your wealth, looking after your wealth is relatively simple. Wealth is what is left after you have consumed your income (the Wealth Equation). When economies turn, and there is no doubt ours has been turning for a while now, then the ‘Income’ part of the Wealth equation is under pressure. Inflation puts upward pressure on the consumption and the wealth that falls out is not just reduced, but grows more slowly. In good times, wealth grows with very little intervention from you, which lets you focus on increasing the income and (more importantly) reigning in the euphoria and moderating your consumption. In harder times, you have to focus on all three aspects of the wealth equation to preserve your wealth.

When you’re cutting costs, a logical place to start is in your wealth portfolio. Let’s face it, doing that is way easier than cancelling the DSTv contract or taking a ‘side-gig’ to boost your income. The trick is to be smart about it and not throw the baby out with the bathwater. Unearthing all the fees, and determining which can be cut without impacting your wealth is not easy and you are going to need a professional to help you. When times are tough and markets are slowing, trying to balance the various asset classes and investments is going to be stressful and should cause you to worry. When your business is in trouble, you don’t bring in a bookkeeper, you bring in a professional, why should your wealth be any different?

As I said at the beginning of this article, knowledge is wealth, so what do you need to know so you can make sure your chosen wealth professional is looking after you properly? Here are some pointers:

  • We all know you shouldn’t put all your eggs in one basket, but how many baskets should you have and how should they be structured – that is the expertise you need. We professionals, call it ‘asset allocation’, and amateurs can get their fingers burned. You need to know the asset allocation and projections of each of your ‘baskets’ of investments, and get at least annual feedback on this, and whether it should be changed.
  • Have your long/medium and short term goals, dreams and objectives been considered in structuring your portfolio?
  • What assumptions are being made when structuring a portfolio? Inflation, marginal and average tax, age, time frames, standard deviations, regulatory changes, longevity, returns and yields, volatility all need to be considered.
  • Have all the fees on all your investments been disclosed to you? Total fees, including your financial advisor fees, should really be below 2%, over that there is probably room to change platforms, funds or asset classes. Financial advisors typically charge fees on investments on a sliding scale, usually starting at around 1%, going down to about .25% when the values get over R25m.
  • Has your personal tax scenario been taken into consideration when structuring your investments?
  • Have you been given a choice of platforms? Are insurance platforms being recommended? (Beware of early termination penalties!) I prefer LISP platforms.
  • Do you have online access to all your investments or at least 3monthly detailed statements?

 

Action: Focus in on what you have control over, and partner with professionals on the rest. You are in complete control of your income and consumption, get that balance right and find a trusted advisor to help ease the worry on your wealth.

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Author Dawn Ridler ©

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