Chrisley Botha, Wealth Adviser at PSG Wealth, Paarl
There’s a lot of talk about long-term investing, and not making short-term decisions. But when the market dips and I check my balances, it’s very difficult to stay focused on my personal financial goals and avoid the temptation of comparing my portfolio performance to market trends or my friends’ investments. Any advice?
Staying focused on long-term financial goals during market volatility can indeed be challenging. Here are some strategies to help you maintain your perspective and resist the temptation of making impulsive decisions:
- Reaffirm your financial goals: Remind yourself of your long-term objectives. Whether it’s retirement, buying a home, or funding your child’s education, keeping your goals in mind can help you stay the course. Write them down and revisit them regularly to reinforce their importance.
- Understand market cycles: Market fluctuations are normal. Historically, markets have shown resilience and growth over time despite periodic downturns. Educating yourself about these cycles can help reduce anxiety during dips.
- Diversify your portfolio: A well-diversified portfolio can mitigate risks and provide more stable returns over the long run. Diversification means spreading your investments across various asset classes to reduce the impact of a poor performance in any single area.
- Avoid frequent monitoring: Constantly checking your investments can lead to unnecessary stress and rash decisions. Instead, schedule regular reviews, such as quarterly or annually, to assess your portfolio’s performance.
- Stay informed, not obsessed: It’s good to stay informed about market trends but avoid obsessing over daily market movements. Focus on the bigger picture and the long-term trends that affect your investments.
- Comparisons are counterproductive: Everyone's financial situation and risk tolerance are different. Comparing your portfolio to your friends' can lead to envy and poor decision-making. Trust your own strategy and stick to it.
- Consult a financial adviser: If market dips cause significant anxiety, consider working with a financial adviser. They can provide professional guidance, help you stay focused on your goals, and make adjustments to your portfolio if needed.
Remember, successful investing is a marathon, not a sprint. Patience, discipline, and a clear understanding of your financial goals will serve you well in the long run.
Tunin Roy, Wealth Adviser at PSG Wealth, Cape Town.
How can I assess the trade-off between allocating funds towards a vehicle purchase versus directing those funds into investment vehicles with the potential for long-term growth?
These are two very different options: choosing the vehicle is pure consumption (although you are purchasing something which might contribute to your ability to earn income) and you will receive a depreciating asset in return for your money, and the other is investment for the long-term which will grow and provide returns in future.
You should start by thinking about WHY you might buy a vehicle – will it add to your earning potential? Are there cheaper, alternative means of transport such as public transport or lift clubs? Then look at the additional costs of buying a car – insurance, fuel, maintenance and repairs, depreciation (the fall in value of the vehicle over time) and possibly the costs of finance. Can you afford these? How would you respond to a change in interest rates or employment status?
Then consider the potential returns on an investment – these can range from 7.5% right now for the lowest risk cash investment to a total return of SA inflation plus 5% to 6% per annum for a more aggressive solution. Which investment you choose would depend on your circumstances and the time horizon for your investment.
Calculate the potential growth of an investment compared to the costs of a vehicle purchase. Use compound interest calculators to project future value of the investment. A financial adviser can help you with this.
You should ensure that you have an emergency fund in place before making an investment if it is not readily accessible or liquid. If you have debt, you should also think about whether paying down your debt would achieve better returns than either. Consider what your long-term goals are and make sure that your decision aligns with these.
Talk to a financial adviser to provide personalised advice based on your specific situation.
Dulcie Weyks, Wealth Adviser at PSG Wealth, Waterkloof.
Our single-income household is barely getting by and facing difficulties managing expenses. But we know that having an emergency fund is important. How can we start one given the limited funds remaining each month?
Starting an emergency fund on a tight budget is indeed challenging, but it's not impossible. Here are some practical steps you can take to build an emergency fund, even with limited funds:
Set a small, achievable goal
Begin with a small target, such as saving R500 or R1 000, and gradually increase it over time as your financial situation improves.
Cut non-essential expenses
Examine your monthly budget to identify areas where you can reduce or eliminate non-essential expenses. This might include dining out less, cancelling unused subscriptions, or switching to more cost-effective services. Redirect these savings into your emergency fund.
Create a dedicated savings deduction
Even if it’s a small amount, set up an automatic transfer from your transaction account to a dedicated savings account each month. This ensures that a portion of your income goes directly into your emergency fund without you having to manually transfer it. Start small and be consistent. Even if you can only afford to save as little as R50 to R100 each month, it's better than nothing. Every contribution adds up over time, helping you build a financial safety net.
Earn extra income
Look for opportunities to increase your income, such as taking on a part-time job or selling unused items. Any extra income you generate can be put towards your emergency fund.
Use windfalls wisely
Allocate any unexpected income such as bonuses, tax refunds, or gifts directly to your emergency fund. These occasional boosts can significantly accelerate your savings.
Track and adjust your goals
Be prepared to adjust your savings goals and strategies as needed. Life circumstances and financial situations can change, so it's important to remain flexible and adaptable.
By following these steps and staying committed to your savings plan, you can gradually build an emergency fund that provides peace of mind. Once you’ve saved up a reasonable sum, speak to a qualified financial adviser to assist with appropriate inflation-beating investment options.
Tanya Joubert, Wealth Manager at PSG Pretoria-Oos / Pretoria East.
Given my unplanned pregnancy at 37 and the late start in financial planning for my future child's university fund, what are the most effective strategies for rapidly building this fund while balancing competing financial priorities such as retirement planning and debt repayment?
Congratulations!
Balancing saving for your child's education, planning for retirement, and managing debt requires careful consideration of your circumstances and financial goals.
Given the current high interest rates, prioritise paying off debt with the highest interest rates first, while making minimum payments on other debts. Consider strategies such as debt consolidation or refinancing to lower interest rates and accelerating repayment. Once the most expensive debt is paid off, focus on retirement and education provision.
Quantify your goals. Estimate what you expect your income requirement to be after retirement and how much will be sufficient for university, taking into consideration the local and offshore tertiary options available. Once you have identified your goals, you can start working towards achieving them. You will also be able to measure your progress over time.
Establish a dedicated investment account specifically for your child’s education fund. Automate contributions to this account to ensure consistency and select an investment vehicle that offers flexibility and access to underlying asset classes that are aligned with maximising growth over the investment term. Having exposure to growth assets can be volatile in the short term but is appropriate for maximum wealth creation over the long term. Ensure this exposure is diversified both locally and offshore.
Aim to strike a balance between saving for your child's education and contributing to your retirement accounts. Take advantage of the tax benefits associated with making contributions to a pension, provident, or retirement annuity fund. Tax-free savings accounts complement retirement funds very well by often offering flexibility as well as access to higher offshore and/or equity exposure, which are limited within retirement funds.
Consulting with a financial adviser can provide personalised guidance tailored to your specific situation and help you navigate these competing priorities effectively.
PERSONAL FINANCE