When we look back on it, life seems to happen along a nice, neat timeline, but we all know it is never that simple. “Life” happens along the way, sometimes pushing us forward — in our career, relationships, health and wealth — but sometimes setting us back years. Nothing ever stays the same, and if you try and make it — something else will unravel.
This is why wealth is an ecosystem; it is buffeted on all sides by variables that may or may not be in our control, and we all must build some resilience, pick up the pennies left on the floor and soldier on. Part of building that resilience is anticipating what is coming down the pipe — standing on the shoulders of giants to help you with that.
In every ecosystem, some things are more resilient than others (cockroaches, for example) — and that’s usually because they hustle and persevere until they come right, fatten up again, find a spouse, and fill the world with more pests.
The one thing that is always true about the timeline we live in is that we get old, less able to fend for ourselves, and have less energy to persevere or hustle.
Unfortunately, that is also the time when there is no more room for mistakes. Mistakes that you make later in life have much harsher consequences.
I always thought it would become easier in time to prioritise where I distribute my wealth, but I never accounted for the aspects of “life” that invariably throw a spanner in the works.
Expecting someone in their 20s or 30s to realistically look 35 years into the future toward a ‘retirement’, especially if you have a mortgage or children, which seem to suck every last cent out of your income every month, is a big ask.
This is why one needs to show a bit of grace to those who have been raiding their savings pots over the last few weeks.
Even if you can’t invest in yourself, outside of the mandatory “pension” at work — invest in your knowledge of how things work. Upskilling yourself and building an interest in markets, economics, and investment takes time but will really pay dividends.
Cherry-pick the parts that interest you, but steer clear of the clickbait and scaremongers. Because the information can’t always be trusted, I have been writing a (free) weekly newsletter for over eight years — trying to put complicated economic and financial ideas into everyday language (you can just drop me an email if you want to get on it).
You can pick up economic news “by osmosis” by having Bloomberg in the background as your “white noise”. Podcasts are another great source of easily digestible learning.
One day, though, you’ll have to wake up to the fact that you might actually live into your 60s, 70s, or beyond — ideally, that is, by your early to mid-40s. From age 50 onward is what we planners usually call “the accumulation years” (saving up every spare penny for a comfy retirement).
Twenty years ago, this was when children were educated and financially self-sufficient, mortgages were paid off, and there was more disposable income to invest.
That is no longer the case. For decades now, the trend has been toward marrying and having children later — in your 30s.
Divorce rates skyrocketed from 1970 to 1980 and have stayed there since (US figures), but the number of women who have chosen to stay single and not marry has also doubled over the same period. Blended families and their added financial and emotional impact have become the norm.
Divorce is often the single most devastating impact on an individual’s wealth and, unlike death, cannot be insured against — just planned for. My single piece of advice?
Every saving or investment should be shared 50-50. Irrespective of what you earn and if (or perhaps, especially if) one of you stays home.
Everyone needs to keep the plates spinning in the air.
Whatever your circumstances, no matter how old you are, there is always time to try and set a better course. (Better, but not necessarily easier; it may require some hard sacrifices like working longer and living off less, for example. )
One of the most often-asked questions I get is where do I start?
I suppose the most conventional answer is one step at a time — but what if I told you that perhaps you need to throw all the plates up in the air — and slowly learn to keep them there as you quietly make them bigger and heavier?
It’s like growing an orchard; you must keep watering, pruning and weeding until it is ready to harvest. If all you can afford is to grow that orchard from table scraps (a thoroughly enjoyable hobby, funnily enough), then that is what you do.
The biggest tip I can give you is to keep your wealth as flexible as possible — all your life. These are the various plates you should consider spinning:
Pensions, provident funds and retirement annuities are by their very nature inflexible, and the two-pot system has made them even less so (don’t be fooled by the savings bucket) — but everything else should be much more flexible.
Remember that you could be forced to hand over half of this to your spouse in a divorce. This is the last place to add extra investment — and then only at the maximum tax-deduction level. Remember that although this pot of investment is estate duty-free, the excess premiums that roll over from year to year, waiting to be “mopped up”, are not.
Emergency funds are an absolute must. Some newer banks make this very easy with low fees and high interest rates. Yes, that’s where I keep my emergency fund.
Tax-free savings accounts (TFSAs) are also a no-brainer and flexible. If you want to save for a child’s education, a TFSA in their name is a way better option than those old-fashioned and expensive endowment policies that some brokers will still try and flog you.
Flexible investments: You can structure these in myriad ways, but be aware of fees and keep to LISPs rather than insurance companies. Steer clear of upfront fees and keep the fund fees below 1,25 percent.
(All of these should be clearly disclosed to you in a quote). Using exchange-traded funds is often a good place to start in the equity market — and you can do it yourself or at a very low cost with something like EasyEquities.
Offshore investments: Contrary to popular opinion, these are not the be-all and end-all of investments but certainly are a valuable part of your wealth ecosystem – there are just ideas and sectors offshore to invest in that we don’t have here in RSA – AI for one. These can form part of your flexible investments, using feeder funds, for example, but true offshore exposure using your forex allowance should be your goal (but it will require a critical mass).
Don’t ignore mitigating the risks to your wealth. Even if it’s at the most basic level, medical aid is a no-brainer. If your company doesn’t have group benefits, you need to protect your ability to earn income — at the very least in the long term, if not in the short term too. Both of these risks can decimate decades of carefully constructed investments and savings.
One last bit of advice: Partner with an independent financial advisor as early as possible. Their biggest value early on in your journey is not so much how much ‘extra’ they can make on your investments (markets do most of that job) but on what they can save you in every other aspect of your wealth journey.
Ironically, because fees are regulated, a newbie broker and a seasoned financial planner will cost you the same in fees — but the more experienced advisors pick and choose the clients they want to work with, usually based on the amount of investable investments they have. It’s hard and unfair but a fact of life.
If you’re a relative newbie yourself, partner with a new advisor who is passionate about the business and grow together. Many older and more seasoned advisors like myself often mentor and partner with youngsters — giving you the best of both worlds (if you can find them). — Moneyweb
