As a new investor looking to achieve financial security, how often should I review my financial plan, and what are the main pitfalls to avoid so that I don’t lose momentum or miss opportunities? Patrick Duggan, Wealth Manager, PSG Wealth, Melrose Arch
It’s important to distinguish between reviewing your financial plan and simply checking the performance of your investments. Unless there has been a significant change in your circumstances (e.g., death/divorce/children/retirement/emigration) a good rule of thumb is to review your financial plan once/twice a year to affirm that it is still ‘fit for purpose’. I think this is well illustrated using the analogy of baking a cake.
You need to carefully select all the ingredients, mix them together, and put the cake in the oven. But if you keep opening the oven door every few minutes to check on the cake’s progress, you will disrupt the baking process, causing the cake to potentially fall flat or not cook evenly.
Similarly, constantly checking your investment portfolio over short time frames can disrupt the natural process of the market and lead to emotional reactions based on temporary fluctuations. This can trigger loss aversion, where the pain of losing money feels stronger than the pleasure of gaining the same amount.
It is best to leave your investments to grow over a longer period. This way, you allow the market to naturally rise and fall without reacting to every short-term dip, helping you avoid an emotional rollercoaster and make more rational investment decisions in the long run.
Pitfalls to avoid so that you don’t lose momentum or miss opportunities
Create a plan that you can stick to through all markets: This will keep you from trying to predict what the market will do next.
Rand cost average: Invest periodically, either monthly or bi-weekly, depending on when you receive your salary. When the markets are down, you buy more shares of the funds you invest in. When the markets are higher, you buy lower amounts of shares. This will keep you honest and avoid making emotional short-term decisions.
Automate: Technology makes it simpler to stay consistent with your investment accounts. For example, your corporate retirement vehicle can automatically deduct from your salary every time you get paid. You can also automate your savings to your voluntary investments, e.g., a tax-free savings account on a periodic basis. By automating these savings and investment decisions, you take the emotion and hassle out of your hands.
I am interested in investing however, I have minimal knowledge on what to lookout for. What are the three core things that are crucial when deciding what type of investment strategy to go with? Jac De Wet, Wealth Manager, PSG Wealth, Somerset West
The appropriate investment strategy depends on many things, but it can be simplified into three core considerations. Firstly, your investment goal – how much do you need, and by when or how often? Secondly, your risk appetite – understanding the volatility of the market and the impact of withdrawing the funds prematurely? Thirdly, your time horizon – for how long can you commit your money to the strategy? As a beginner, these factors will guide your decisions and help you build a solid financial foundation.
Your first goal as an investor should be building your safety net. This is the backbone of your entire portfolio and the foundation of your wealth. Aim to accumulate two to three months’ worth of living expenses in a liquid, conservative investment such as a high-yield savings account or a Collective Investment Scheme (CIS) consisting of one or more income funds. These options provide stability, low risk, and easy access to your money in case of emergencies, ensuring you’re prepared for unexpected setbacks while starting your investment journey.
After this safety net is in place, you can focus on your long-term goals, such as retirement or your dependents’ future needs, like university funds. A longer time horizon allows more exposure to aggressive investments such as stocks or equity-focused funds, which offer higher potential returns but come with greater volatility. Since these funds should remain untouched to maximise growth, carefully assess the amount you invest to avoid needing premature withdrawals, which could disrupt your strategy and incur losses.
With your safety net and long-term investments established, surplus cash can be directed toward more risky and experimental investments. Using a financial adviser will offer tailored guidance to help you achieve your financial goals with confidence.
I’ve recently inherited R150 000 and I’m looking to invest it for the long-term benefit of my children. As a 30-year-old with no immediate plans to use this money, I’d like to explore investment options that can help grow my wealth over time. What investment products would you recommend for achieving my goals? Chrisley Botha, Wealth Adviser, PSG Wealth, Paarl Cecilia Square Stockbroking
We need to consider two important factors when investing this inheritance: achieving long-term, tax-efficient growth and incorporating smart estate planning.
Firstly, it’s important to note that inheritance forms part of your estate unless you take deliberate steps to structure it otherwise. If left in a bank account or voluntary investment account, it will be included in your estate and could be subject to estate duty and executor’s fees upon your death. However, by using the right investment vehicle, such as an endowment policy, you can reduce this exposure and streamline how the funds are transferred to your children.
With no immediate need for accessibility, you’re well-positioned to consider an endowment. This is a long-term investment product (minimum five years) that offers tax efficiency if you are paying tax at a higher tax rate — the life company pays tax on your behalf at 30% on income and 12% on capital gains. The funds become available to access after five years, which aligns well with your long-term intentions.
From an estate planning perspective, an endowment allows you to nominate beneficiaries directly on the policy. This means the proceeds can be paid out to your children without going through your estate, avoiding delays and unnecessary costs.
This combination of tax efficiency and estate planning benefits makes an endowment a compelling option for your long-term goals. However, a financial adviser will be able to look at your personal circumstances more in-depth and advise on the best solution for your unique needs.
I’ve recently received R500 000 of my inheritance and I’m eager to make the most of this windfall. As someone with limited financial knowledge, I’d appreciate guidance on how to budget and invest a portion of the money. How do I decide what portion of the money I should set aside for short-term goals like a home deposit and long-term goals such as retirement? Shreekanth Sing, Wealth Manager, PSG Wealth, Sandton Grayston Drive
R500 000 is a significant amount which, with careful planning, can be used wisely to support your goals, be it short-, medium or long-term goals. Well done for seeking advice.
An example of a framework you can use that may assist you making your decision:
Assess your unique financial situation and goals and invest your inheritance into suitable investments and structures based on your needs and goals.
- Short-term goals might include a home deposit, an emergency fund, or paying off debt. Your emergency fund should be invested in an account that’s accessible immediately and in a low money market type fund. Debt with the highest interest rate should be prioritised and paid off first. Your deposit for a house can also be invested in a structure that provides good returns and that’s accessible at short notice, without putting the capital at risk.
- Medium and long-term goals often include retirement or building wealth. This can be allocated to a diversified portfolio which will include growth assets like shares, local and offshore. This will provide you with greater returns, which beat inflation, and you invest benefits from the rewards that come from taking more risks. Suitable investment structures would be a retirement annuity or a tax-free investment plan. These have notable tax benefits, which will benefit you.
Regularly investing monthly via debit order will help you over the long term. This will ensure you continue to save for your needs, benefitting from discipline and the eighth wonder of the world, compound interest.
A financial adviser can help tailor this plan specifically to your situation, help you understand the tax implications, and select appropriate products. Review your plan and investments yearly with your adviser and adjust allocations as your goals or circumstances change.
I’m currently in the process of looking for a new apartment to rent. There are a few options available to me, some of which are furnished, unfurnished or semi-furnished. I’d like to find out the insurance implications for each type of rental – can you help? Ryno de Kock, Head: Distribution at PSG Insure
All the best with your move! Yes, there are a few different insurance elements you’ll need to be aware of when it comes to renting a new apartment.
Unfurnished rentals: A major misconception is that a landlord’s policy will cover your possessions as a tenant. It won’t. This means you will need your own contents insurance to protect items like electronics and kitchen appliances. For example, if a geyser bursts and damages your TV, you can only claim if you’re properly insured. The landlord’s policy will likely only cover structural damage.
Semi-furnished rentals: Semi-furnished homes may include essentials such as a fridge, washing machine, or a dining room set. In these cases, landlords either take out contents’ insurance in addition to the standard building cover or include the contents as part of the rental agreement.
Most property owners will include these items as part of the rental agreement, where each item is documented with its replacement value. This will normally shift the responsibility of insuring these items onto you as the tenant. This means you can be held liable for these items when the rental agreement ends. You will also remain responsible for covering your own belongings that you bring into the property.
Furnished rentals
For fully furnished properties, landlords will often opt for a comprehensive contents policy. From bed linen to TVs, most of their items will be insured at their current replacement value. Even if the property you’re moving into is fully furnished – you should still cover any valuables you bring in as the tenant. A computer, camera, or designer coffee machine won’t be included in the landlord’s policy and may require separate listing under contents or all-risk cover.
Before you sign a lease, it is essential to understand the specific risks you face and tailor your cover accordingly. One of our experienced advisers can help you navigate exclusions, avoid underinsurance, and ensure that your policy truly fits your property setup.
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