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As 2016 comes to an end, it’s time for reflection. It may be the job you’re currently in, a relationship or money management. Independent financial expert Candice Paine targets the money side of things and reflects on a somewhat turbulent year, which has seen returns on most asset classes disappointing.
But despite all this, she says we should reflect on the things that are within our control, and draws up a list with nine of them. – Stuart Lowman
By Candice Paine*
Markets do what they do. They always have and always will. The reason we invest in them is to grow capital and as a result wealth. However, it isn’t always a comfortable relationship and the less you know the more disconcerting it becomes.
Most asset classes have disappointed in 2016 which is going to leave investors wondering whether they should be switching, firing their advisor, disinvesting or listening to their neighbour’s hot stock tip.
Don’t do any of the above. Focus on the only things you can control when you’re a long-term investor.
Time
Commit to a time frame upfront and do not change it. Stock market investing (as opposed to trading or speculating) is at a very minimum a 5 year game. The stock market will deliver, but only over time. Why is this? In the short term, share prices are subject to volatility as a result of news flow, trading activity and short term economic data.
This is what causes the daily gyrations you see if you are watching share prices in real time. Over the long term, the real value of the company will emerge as everyone involved in running or working for that company is incentivised to make that share price go up. This takes time.
Asset allocation
This goes hand in glove with TIME. How your portfolio is constructed and particularly the risk you can bear very much depends on the time you have. Short time frames (6 – 18 months) mean you are better off staying in cash. Anything longer requires careful thought around the asset classes you’d like to invest in for a given outcome.
To illustrate, if you are 32 and saving for retirement, you have all the time in the world so construct an aggressive portfolio. If you are 63 and drawing an income from your portfolio, you need to have a smoother performance journey and so you’d be looking for a more cautious portfolio. There is an asset allocation to suit every goal and need. Understand what you need.
Fees
This goes without saying, keep them low. The less you pay, the more performance you get to keep.
The amount you invest
Yes, you do have control over this. If wealth is what you’re after commit to the marathon and invest as much as you can. It needn’t be in a share portfolio. Paying off your mortgage earlier is also an investment. The point is have a goal, have a plan and stick to it.
Advice
Don’t shy away from getting advice. Life it too complex to be an expert in everything so outsource the gaps. A good advisor will in fact keep you honest to every point in this article which really is half the battle won in wealth creation. The market needs to do the rest.
Tax
Minimise it. Use your tax free savings account. It may seem a trifling annual amount to some and an inordinately long time (16.8 years) to see any value, but at the margin every tax cent saved is in your pocket. Why wouldn’t you?
Maximise your retirement annuity contributions and save on the tax. Look at endowments for their tax benefits. These products have improved tremendously and are enormously helpful in tax planning. Consider high yield equity products if the risk profile matches yours. There are many ways to skin the cat. They all require thought and a time commitment, but worth it if you work it properly.
Have a plan
Yes, it sounds trite, but it’s true. Plan your money. You plan most other things so why not your finances. This goes beyond a simple budget. Have short, long and medium term goals. Understand what retirement will look like. Even if you’re slavishly contributing to your employer’s pension fund understand how far this is going to get you when you’re 73.
Saving/investing isn’t just randomly allocating some money to a unit trust you heard about at a braai and hoping for the best. It involves applying your mind to what you want and how you are going to get there. Spend the time planning. This too is an investment.
Avoid the noise
Do listen to it if you are trying to educate yourself and understand the intricacies of finance. Do not do a single google search or listen to the radio after 6pm if you are looking for a hot tip or guidance on what to do next.
Popular media is full of opinion. Opinions are interesting and varied, they’re often partisan and inflammatory and they certainly are not meant to be taken as advice. “Doing what everyone else is doing” is also not advice or a plan.
So listen and read (widely) if you are genuinely interested, but know that emotions are a strong force for good and for evil and do not let them (and the noise) sway you from the 7 points above – which are absolutely within your control.
In extreme cases you may want to consult a coach who can point out when you are knee-jerking instead of being thoughtful in your decision making process (perhaps a 10th point here is to control yourself).
Just start
If you had started something two weeks ago, you would be two weeks into it/better at it/along your path. Need I say more?
- Candice Paine is an independent financial advisor and an asset management consultant.
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