CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2023/01/helena-lopes-e3OUQGT9bWU-unsplash-820x547.jpg" alt="Photo by Helena Lopes on Unsplash" class="wp-image-422276" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2023/01/helena-lopes-e3OUQGT9bWU-unsplash-820x547.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2023/01/helena-lopes-e3OUQGT9bWU-unsplash-300x200.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2023/01/helena-lopes-e3OUQGT9bWU-unsplash-135x90.jpg 135w, https://cms.cnbcafrica.com/wp-content/uploads/2023/01/helena-lopes-e3OUQGT9bWU-unsplash-768x512.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2023/01/helena-lopes-e3OUQGT9bWU-unsplash-1536x1024.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2023/01/helena-lopes-e3OUQGT9bWU-unsplash-scaled.jpg 2048w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">Photo by <a href="https://unsplash.com/@wildlittlethingsphoto?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Helena Lopes</a> on <a href="https://unsplash.com/photos/e3OUQGT9bWU?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></figcaption></figure>



Often we are bombarded by wisdom from our elders regarding the way to go about creating wealth, making financial success and creating financial freedom especially from those older than us. It is incredibly important to understand that the ways in which our financial world has changed over the last 30-50 years is drastically different to our current environment. 



Here are a few key changes to take into consideration when receiving solicited or unsolicited advice or opinion from those around you:



1.) “You need to save not invest” : This is perhaps one of the most harmful opinions to new age youth whereby they are encouraged to save their money in a bank and avoid investment markets such as equities and bonds. Especially post the Covid-19 pandemic we find ourselves in a high inflation environment, meaning the cost of goods are dramatically rising each year. “The issue with merely saving money in a bank account is the lack of interest you will earn on your money, most the time being below inflation meaning you are actually going backwards” says Pierre Van der Merwe, a financial advisor from Cape Town, South Africa. Over decades traditional investment markets such as equities ,property and bonds have performed at solid inflation beating returns. It is very important to put your money to work, and to ensure you are outperforming inflation.



2.) “Buy a home and pay off your mortgage as soon as possible” : This is another limiting belief that was far more popular in the 1980’s and 1990’s. Since then we have an array of investment options available to us, as well as lenient credit options, most of the time individuals do not take into consideration all the other costs of being a home owner. As the saying goes “do not put all your eggs in one basket” , trying to settle your mortgage is an admirable feat, but not always the smartest thing to do. You want to diversify your disposable income into other growth generating assets and investments which can outperform the interest rate you are paying on your home loan over the long run, examples can be stock exchanges which have performed at over 12% per annum since inception. It is important to take this into consideration.



3.) “Credit cards are bad” : Especially in recent years, your credit score has become an incredibly important aspect if you want to finance assets or take out a home loan. It shows you have the capability to pay back debt and this can effect how good of an interest rate you get. Besides the above, many credit cards now come with rewards which can actually work in your favour. The key however is to not fall into unnecessary bad debt, and to manage your credit card to have it support an improved credit score. 



4.) “You are too young to start investing” : This is a devastating limiting belief which was also popular decades ago. As technology and ease of access to financial education and investing has become available it is now possible to seek the expertise of a financial advisor or simply DIY investment platforms which provides access to stock markets and the like. The difference of starting investing at the age of 20 and the age of 30 is dramatic as the effect of compound interest is one of the most powerful elements in building long term wealth and financial success. Its of utmost importance to begin investing from as soon as you can afford to do so.



It is important to keep these basic tips in mind when receiving advice from your elders or peers.

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Changes in the approach to financial success over the past generation

<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="640" height="366" src="https://cms.cnbcafrica.com/wp-content/uploads/2022/10/d-koi-_zFVwcKZh10-unsplash-2.jpg" alt="" class="wp-image-420355" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2022/10/d-koi-_zFVwcKZh10-unsplash-2.jpg 640w, https://cms.cnbcafrica.com/wp-content/uploads/2022/10/d-koi-_zFVwcKZh10-unsplash-2-300x172.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2022/10/d-koi-_zFVwcKZh10-unsplash-2-157x90.jpg 157w" sizes="(max-width: 640px) 100vw, 640px" /><figcaption>Photo by&nbsp;<a href="https://unsplash.com/@dkoi?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">D koi</a>&nbsp;on&nbsp;<a href="https://unsplash.com/s/photos/recession?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></figcaption></figure>



This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life.&nbsp;CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



As a potential global economic recession looms what can you do to secure yourself in times of economic downturn?



Firstly lets begin with what an economic recession is and what the potential pitfalls are on this type of event. A recession occurs when there are two consecutive quarters of negative economic output. Generally economic recessions can last between two and eighteen months, whilst most average out at ten months. 



During a recession we generally see a term known as a ”bear market” , which is a market cycle where a market falls by more than 20%. Most investment markets decline frightening investors of investing and thus fleeing to safe-haven investment assets such as cash which is generally deemed incredibly safe. Often during recession interest rates rise to help combat inflation, this in turn provides a cash investor with a higher interest return on their money, this however effects those with debt in a negative way meaning debtors pay more interest to service their debt. 



The last significant recession was in 2008 which was caused by dramatic excess debt in the property market, while the 2001 recession was caused by an asset bubble in tech stocks. Therefore if we consider the past few years, an unexpected shock such as the COVID-19 pandemic, widespread enough to damage corporate profits and trigger job cuts, also can be responsible and this is the main reason for an upcoming economic recession in 2023.



When it comes to a recession and a bear market, it is vital to take a long term approach to your investments and to avoid being emotional when investments are down. Whilst there is never an exact moment to enter the market during these times, making use of cost-average investing via monthly deposits is key to make the most of these downturns in the market.



“It is critical to consult with your financial advisor and to make calculated decisions to not only create wealth but also to protect your financial wellbeing, to avoid bad debt and to ensure you are adequately prepared for various elements that could worsen the effect of a recession on your personal financial situation” says Pierre Van der Merwe, a financial advisor from South Africa. 



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="820" height="320" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-1x.jpg" alt="" class="wp-image-396236" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-1x.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-1x-300x117.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-1x-768x300.jpg 768w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption><a href="https://pocketfin.co.za/courses/">https://pocketfin.co.za/courses/</a></figcaption></figure>

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Navigating a global recession

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49% of South Africans are deemed financially illiterate and approximately only 5% of South Africans will be able to retire comfortably. These facts are beyond frightening considering just how big of an impact personal finances play in shaping an individual and a countries future.



“I believe financial literacy needs to urgently be introduced into the high school syllabus” says PocketFin founder and Entrepreneur Pierre Van der Merwe.



In a rapid moving world currently fuelled by dramatic developments in technology and access to information, it has now become easier than ever to self educate oneself in an array of important topics and skills. Unfortunately however many only start to understand personal finance and topics such as debt management and investing in their late 20’s or 30’s, often once numerous financial mistakes have already been made which could shape just how well or poor one’s financial health is determined all the way in to retirement. 



”I have met with and proposed to the Department of Education that we urgently roll-out a financial literacy program both digital and print to learners age 16-18 as I believe the impact it could have on our youth can be monumental as they enter adulthood, this will ripple effect all the way into future generations” says Van der Merwe. 



South Africa has approximately 26 000 schools with 6000 of them being high schools educating an approximate 13 million learners. The Department of Basic Education have been allocated a budget of R29.6 billion for 2022. 



In a strenuous time socially, financially and economically worldwide post the Covid 19 pandemic, especially emerging countries such as South Africa face rising inflation and interest rates, staggering unemployment especially amongst the youth and high levels of debt. This furthermore impacts the number of entrepreneurs and small business in South Africa and proves that action needs to be taken to improve opportunities and education which can ultimately lead to an increase in GDP, amongst other important figures for South Africa.



“Until something can be done to up skill our youth and sensitise high school learners to the topic of personal finance, I strongly encourage South Africans to spend just five minutes a day to learn about financial literacy” says Van der Merwe, who is on a personal mission to teach the youth about even the most simple of topics such as opening and managing a bank account, understanding debt and student loans and saving and investing. 



<figure class="wp-block-image size-large is-resized"><img decoding="async" loading="lazy" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-820x320.jpg" alt="PocketFin - Financial School of Real Life" class="wp-image-396243" width="539" height="210" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-820x320.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-300x117.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-768x300.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-1536x599.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x.jpg 1640w" sizes="(max-width: 539px) 100vw, 539px" /><figcaption><a href="https://pocketfin.co.za/" target="_blank" rel="noreferrer noopener">https://pocketfin.co.za/</a></figcaption></figure>

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Why Financial Literacy needs to start at a grass roots level

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life. CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



<figure class="wp-block-image size-large is-resized"><img decoding="async" loading="lazy" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/08/hakan-nural-yzrH-RZwios-unsplash-820x763.jpg" alt="" class="wp-image-411594" width="617" height="574" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/08/hakan-nural-yzrH-RZwios-unsplash-820x763.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/08/hakan-nural-yzrH-RZwios-unsplash-300x279.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/08/hakan-nural-yzrH-RZwios-unsplash-97x90.jpg 97w, https://cms.cnbcafrica.com/wp-content/uploads/2021/08/hakan-nural-yzrH-RZwios-unsplash-768x714.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/08/hakan-nural-yzrH-RZwios-unsplash-1536x1428.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/08/hakan-nural-yzrH-RZwios-unsplash-scaled.jpg 2048w" sizes="(max-width: 617px) 100vw, 617px" /><figcaption>Photo by <a href="https://unsplash.com/@hakannural?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Hakan Nural</a> on <a href="https://unsplash.com/s/photos/vaccine?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></figcaption></figure>



There is no doubt that the Covid-19 pandemic has turned the world upside down in many ways, and in particular in a personal financial aspect. Whether you have lost your income, taken pay cuts, lost dependants, it is sure an erratic time in our lives.



As the worldwide vaccine rollout is in motion and countries desperately try curb any significant spikes in infections, how can you use what has happened through this pandemic to better your personal finances and relationship with money?



Let&#8217;s discuss some of the potential habits that you have practiced and what you should keep going forward:



Cutting expenses



During the past two years, you probably reduced most normal and/or luxury expenses. If you learned to handle cooking at home, making your own coffee or finding more efficient and cost effective ways to live, would you rather start paying someone else again or keep doing it yourself to save money? You could keep running out in nature instead of reinstating your gym membership, entertain at home instead of dining out, or ask to work from home instead of commuting again and spending money on transport and fuel.



Contributing to an emergency fund:



Even if your income wasn&#8217;t affected, the pandemic revealed the importance of maintaining an emergency fund. You should build up and maintain an emergency fund that can cover a minimum of three to six months of your living costs/bills and if you are self employed the bare minimum should be six months.



Getting rid of debt:



High interest debt such as short term loans, credit cards and store accounts can chew away at your wealth significantly in the short and medium term. It is of utmost importance to understand what interest rate your debt costs and make adequate plans to rid the highest interest debt first. If your debt is spanned across multiple providers consider speaking to a debt counselor where they can consolidate your debt into a single payment.



Habits to forget



While some habits could have helped you, we believe these habits should be forgotten about as soon as possible as we move forward in the post-pandemic world.&nbsp;



Being to cautious



There are far too many investors being extremely conservative and leaving their money in low-bearing interest accounts which often perform under inflation such as most typical money markets or fixed deposits. Especially as a young adult with decades of time to spend in the investment markets, you want to be investing in asset classes and products that can aim to beat any cash or fixed income investments, especially over the long run. It is important to also be well diversified to build a sustainable financial future.



Spending unnecessarily 



Stuck at home in lockdown could have spurred an online shopping habit, spending money on potentially unnecessary items for your home or just typically spending money on lifestyle items you do not need. As we move forward it is critical to acknowledge that you need to curb these habits and start rebuilding your financial future. Many people have opted to use the excuse of financial pressure during the pandemic to stop contributing to investments and their pension fund, but somehow they have still spent that money elsewhere. It is important that you take a hard look at where you are financially and where you want to be. As always, in financial or investment planning it is about having time in the market, continuing regular contributions into a diverse range of asset classes and investments. 



<figure class="wp-block-image size-large"><a href="https://pocketfin.co.za/"><img decoding="async" loading="lazy" width="820" height="320" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-820x320.jpg" alt="PocketFin - Financial School of Real Life" class="wp-image-396243" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-820x320.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-300x117.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-768x300.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x-1536x599.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/01/CNBC-Pocketfin-Sign-Up-2x.jpg 1640w" sizes="(max-width: 820px) 100vw, 820px" /></a></figure>

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Financial lessons from Covid-19

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life. CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



Especially over recent years, the topic of investment fees has become a very popular one, especially with investment markets having severely underperformed over the last decade, its made investors search for ways to nitpick their statements and returns.



Investors are becoming increasingly aware of the (catastrophic) effect that high investment fees can have on their retirement lump sum.



But this knowledge leads to the next important question: How do we best compare investment fees across products? We believe it is important to understand all those complicated tables when comparing your investment proposals.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/06/mayofi-cQqcUw1lylA-unsplash-820x547.jpg" alt="" class="wp-image-407289" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/06/mayofi-cQqcUw1lylA-unsplash-820x547.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/06/mayofi-cQqcUw1lylA-unsplash-300x200.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/06/mayofi-cQqcUw1lylA-unsplash-120x80.jpg 120w, https://cms.cnbcafrica.com/wp-content/uploads/2021/06/mayofi-cQqcUw1lylA-unsplash-768x512.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/06/mayofi-cQqcUw1lylA-unsplash-1536x1024.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/06/mayofi-cQqcUw1lylA-unsplash-scaled.jpg 2048w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption>Photo by <a href="https://unsplash.com/@mayofi?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">MayoFi</a> on <a href="https://unsplash.com/s/photos/investment?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></figcaption></figure>



Effective Annual Cost (EAC) 



This been introduced by ASISA ( The Association for Savings and Investment South Africa) to regulate the disclosure of investment and product costs across the industry. 



This number is meant to represent the total cost per year that you are paying away to fees (so it should catch all admin fees, platform fees, product fees, adviser fees, and total investment charges). The EAC is the most accurate measurement to see the true overall cost of an investment and is what most companies now display on quotes.



The EAC allows an investor to compare charges across suppliers, at a product level, and shows the effect of a client exiting an investment over specific periods, If you’re setting up an investment product and need to understand how much the total product fee is, ask for the EAC.



Make the EAC your new best friend when comparing investment products.&nbsp;



Remember, if you are getting a return of 4% more than inflation and your fees are taking 4% away each year, you are actually not getting anywhere and just spinning your wheels. An EAC of more than 2.5% is probably starting to get expensive.



EAC Calculation Principles



EAC comprises of 4 components namely:



<ol><li>Investment Management charge (IMC)</li><li>Advice Charges</li><li>Administrative Charges</li><li>Other Charges.</li></ol>



Mandatory disclosure periods in years are 1 year, 3 years, 5 years and Term to Maturity (for retirement products) or 10 years when no term is applicable.



All charges are inclusive of VAT and will be rounded off (at launch it was prescribed to 1 decimal place currently being used).



Calculation Methodology for Each Component



1. Investment Management charge (IMC)



IMC includes all charges for the underlying investment – The Total Investment Charge (TIC) of a fund is utilized, where a TIC is unavailable a best estimate is used. IMC will utilize a simplified approach and is equal to the sum of the weighted average TICs.



2.Advice Charges



Advise will include Initial and ongoing charges, a simplified or a RIY calculation will be used as prescribed below.



3. Administration Charge



Administration charge component includes all charges that an investor incurs relating to the administration of a Financial Product.&nbsp;



4. Other Charges



Other charges include the impact of termination charges, penalties or loyalty bonus payments that are reasonably foreseen if the investor terminates his or her contract, but not limited to these.



It is important when selecting investments that you are aware of all the possible costs, this ranges from the fund charges, advice charges, administration charges etc. At the end of the day, we all want the best possible return on our investments, especially over the long run where even an additional one or two percent compounded over decades can make a dramatic effect on your retirement lump sum.



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Why you should pay attention to Investment Fee’s

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life.&nbsp;CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="820" height="548" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/05/E287F995-2904-41AC-844B-E50DD678AF1E-820x548.jpeg" alt="" class="wp-image-404010" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/05/E287F995-2904-41AC-844B-E50DD678AF1E-820x548.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/05/E287F995-2904-41AC-844B-E50DD678AF1E-300x200.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/05/E287F995-2904-41AC-844B-E50DD678AF1E-768x513.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/05/E287F995-2904-41AC-844B-E50DD678AF1E-1536x1026.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/05/E287F995-2904-41AC-844B-E50DD678AF1E-scaled.jpeg 2048w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption>Photo by&nbsp;<a href="https://unsplash.com/@silverhousehd?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">André François McKenzie</a>&nbsp;on&nbsp;<a href="https://unsplash.com/?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></figcaption></figure>







Since the dramatic return and spike of the cryptocurrency market and the impressive traction its gained over the past few years, many individuals, and even institutions are eager to know just how this form of “digital money” works and would it be advisable or applicable to attain as part of your wealth creation plan, ultimately forming yet another aspect in your financial plan.



Whilst cryptocurrencies are unregulated and highly volatile, for those that believe there is a future for this digital asset, many are confused by terms such as “block chains” , “tokenomics” and “crypto exchanges and wallets”. As with most complex financial markets it can be a challenge to become educated and make informed



Coming up with an investment plan for a cryptocurrency investment plan isn’t as complicated as you may think or as it has been made out to be.



In reality, the risk factors and investment attitude of a crypto investment plan remains very much the same across traditional asset classes such as stocks, property etc. The universal premise is that you need operating procedures to keep your investments in check and on track, if not you risk falling into the trap of emotion as we have previously mentioned in the CNBC Africa / PocketFin financial education hub.&nbsp;



So all your friends are telling you about the hottest new cryptocurrency, or how they have made exceptional returns with even the more stable of currencies such as Bitcoin or Ethereum and you want a piece of the pie. 



What do you do?



1.Allocate funds



Start by allocating a certain percentage of your investable savings to this asset class. DO NOT PUT ALL OF YOUR MONEY INTO CRYPTO CURRENCIES just as all of your money shouldn’t be in stocks or property as diversification is absolutely essential in any wealth creation plan .&nbsp;



If you choose to invest 100% of your savings in cryptos, then you need to understand the risk attached to it and its highly inadvisable. Cryptocurrencies are widely regarded as speculative and volatile investments; prices can change dramatically by the minute, which can lead to massive returns or devastating losses. Just this week saw Bitcoin , the largest cryptocurrency tumble by 18% in a matter of hours.



While it depends on who you ask, it’s generally recommended that speculative investments should not exceed between 7.5%-10% of your wealth creation portfolio (depending on your risk preferences and investment goals).&nbsp;



So, for example, if you had R100 000 to invest, a rule of thumb could be that you allocate R7500 into cryptocurrencies based on the 7.5% percentage.



2.Research 



Much like investing in mutual funds, stocks, property and bonds, it is absolutely crucial to take time to research and evaluate various potential coins you may want to invest in. To get a general feel of what’s out there, start by scanning cryptocurrency exchanges like Binance which list the majority of audited cryptocurrencies, which you can organize by price, price changes, market capitalization, and so on.



Cryptocurrencies typically serve a purpose , they function to solve problems. For example the 7th largest cryptocurrency by market cap XRP (Ripple) is primarily focused at financial institutions with their incredibly fast transaction speeds and low fee’s. What this means is that the first aspect of a coin you should understand is the problem(s) it solves. Most coins have websites that detail their purpose and function, so start there.&nbsp;



Now comes the tricky part. Currencies aren’t like companies , they don’t have underlying assets and operations that you can evaluate. On top of that, cryptocurrencies aren’t regulated like publicly traded companies, so there isn’t a uniform standard for reporting or disclosures, and this has led to a vast amount of “Rugpulls” especially in the more underground cryptocurrencies. A ”Rugpull” is a malicious event in the cryptocurrency and unregulated penny stock industry where a crypto or company developers abandon a project and run away with investors&#8217; funds.&nbsp;



However, many coin developers share whitepapers to help people understand their coin’s underlying technology. These are usually complicated, long documents which explains the tech behind the specific project. That said, if the team behind the cryptocurrency is proactive, and public facing, this can instill public trust within the project and its solutions.&nbsp;



Focus on the key aspects of a cryptocurrency that you can research, including:



Leadership: The developers and management team (which isn’t always public information)



Metrics: Supply, market cap, and volume (The total amount of coins in circulation, the market cap being how much is the total supply of coins worth, and the volume, being the amount that is currently being traded (bought and sold)



Support: Community and social media followings (Eg Twitter, Reddit, Telegram groups etc)



3.Set a time frame, a stop loss and a goal:



Ask yourself questions such as the following:



-What’s your goal for these investments? (e.g. fund a trip, build wealth, etc.)



-How long are you willing to hold? (1 year, 3 years, 10 years?)



-When, if ever, do you need these funds? (Immediately? Never?)



-How much do you want to make from your investments? (10%?100%?1000%?)



-How receptive are you to volatility? (For example, if you lost 50% of the value, how would that affect you?)



As the cryptocurrency market is unregulated, there is no legal “financial advice” that can be held responsible. It is therefore of the utmost importance that as you explore the exciting and fascinating world of cryptocurrencies you stay true to yourself and your objectives.



This article is of personal opinion and does not constitute personal financial advice. Do not invest what you cannot afford to lose.







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Cryptocurrency as part of a wealth creation plan

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life.&nbsp;CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



“Deciding which car insurance policy is right for you is all about looking at your budget, your lifestyle, the amount of cash you have easy access to, the value of your car and your tolerance for risk” says Sumarie Greybe, co-founder at Naked the AI-driven car and home insurance platform.



<figure class="wp-block-image size-large is-resized"><img decoding="async" loading="lazy" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/05/0B94EA5D-2CF2-4BF3-B6CD-93D21AA090D9-820x493.jpeg" alt="" class="wp-image-403134" width="505" height="304" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/05/0B94EA5D-2CF2-4BF3-B6CD-93D21AA090D9-820x493.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/05/0B94EA5D-2CF2-4BF3-B6CD-93D21AA090D9-300x180.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/05/0B94EA5D-2CF2-4BF3-B6CD-93D21AA090D9-768x462.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/05/0B94EA5D-2CF2-4BF3-B6CD-93D21AA090D9-1536x924.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/05/0B94EA5D-2CF2-4BF3-B6CD-93D21AA090D9-scaled.jpeg 2048w" sizes="(max-width: 505px) 100vw, 505px" /></figure>



Broadly speaking, there are five major categories of car insurance available in South Africa&nbsp;—&nbsp;third-party only, comprehensive, comprehensive with CoverPause, partial and third-party, fire and theft.&nbsp;



Let’s look at the sort of circumstances and driver each of them is best suited to. 



1. Third-party only cover: Your car is old and has a low book value 



If you have an old car with a low book value—say, less than R30,000—it is often not worth your while to get a comprehensive insurance policy. In this instance, it often makes sense to get a third-party only policy, which will have far lower premiums. Such a policy provides cover for damage your car causes to the property of others (a car, a house, or even state property like the traffic light) in an accident where you were legally liable. However, you will not be covered for the theft of your car, or if it is damaged in an accident. 



You should not drive your car without a&nbsp;third-party&nbsp;policy at the very least. Without cover, another driver or their insurance provider&nbsp;can sue you for the damage your car caused if you were at fault in an accident. You could even find yourself paying off the repairs on someone’s BMW for years.



TIP:&nbsp;Make sure you have enough&nbsp;third-party&nbsp;cover. The standard level of cover is R5 million, which should keep you covered even if you are in a collision with multiple luxury SUVs. Also, try to save some of your own cash in an emergency fund that you can use to pay for repairs or use as a deposit for another car if something happens to your own vehicle.&nbsp;



2.&nbsp;Comprehensive&nbsp;cover:&nbsp;You need the highest level of protection for your car



Most people can’t afford to simply purchase a new car if something happens to their old one, at least not without borrowing money or dipping into their savings. If losing your car would represent a significant financial setback, you will want to look at&nbsp;comprehensive insurance. Comprehensive insurance covers you for the loss –&nbsp;or damage to –&nbsp;your own car as well as for third party liability.



If you financed the vehicle purchase, the bank will typically insist you get comprehensive cover. No lender wants a situation where you are not making your car repayments, yet it can’t repossess the vehicle because it was stolen or written off. Comprehensive policies usually have an excess &#8211; an amount you must pay towards repair or replacement of the car when you claim after it is stolen or damaged.&nbsp;&nbsp;



TIP: Reduce your uncertainty by choosing an excess level that fits your budget (budget for two accidents per year), and check that your provider does not have &#8220;additional excess&#8221; penalties (extra amounts you have to pay in instances like driving at night, or having an accident in the first couple of months).



3.&nbsp;Comprehensive with CoverPause:&nbsp;Your car stands still for days at a time



Not every car gets driven every day. Perhaps you use public transport during the week and only drive your own car over the weekend. Or maybe your family uses only one of its two cars on the weekend, has a car stored at the holiday home or leaves one car at home when embarking on the annual holiday. If so, look at a&nbsp;comprehensive, policy with CoverPause&nbsp;(only available from Naked).&nbsp;



This policy lets you use a mobile app to &#8220;pause&#8221; the accident portion of your cover (and pay less) for the days that you are not driving it. You remain covered for theft, weather related damage&nbsp;or unforeseen events such as someone pushing an airport trolley into your car. You&nbsp;have to&nbsp;switch on your full cover before you start driving again.



TIP: The saving only kicks in if the car is paused for longer than a full calendar day. If you won&#8217;t be driving on the weekend, press &#8220;pause&#8221; late on Friday evening, and only press &#8220;resume&#8221; on Monday morning to qualify for two full days of savings.



4. Partial cover: You want to take on more risk yourself and save on your premiums 



If you have cash on hand to pay for a big portion of the repairs to your car in the event of an accident, you can choose a&nbsp;partial cover policy. Such a policy allows you to reduce the premium by only covering a certain percentage of the damage. In effect, you are choosing to make your excess a percentage (for example, 10%) of the value of the repair, rather than making it a fixed sum like R5,000 or R10,000. Most finance providers will not allow you to&nbsp;cover your car for less than 90% of the cost of repairs or replacement.



TIP: Beware of going too low. For example, if you choose a 50% policy, you won’t get much back for a smaller claim (only R10,000 for a R20,000), yet be on the hook for big shortfall on a larger claim (on a R200,000 claim, you will have to pay R100,000 yourself).



5. Third-party, fire and theft cover:You can’t afford comprehensive, but want to protect yourself against these specific events



Imagine you’re driving a 10-year old car worth R45,000. You rely on the car and would struggle to replace it if was stolen. Yet comprehensive cover is too&nbsp;expensive,&nbsp;and you don’t mind too much it collects another dent or scratch. Then a&nbsp;third-party, fire and theft&nbsp;policy could make sense for you. It gives you third party cover, plus cover for theft and fire. You are taking the chance that you will not write off your car in an accident, but this is a lower-risk event than theft.&nbsp;



TIP: For cars that are parked for long periods, it may be better to buy comprehensive cover that offers a pause option when it’s not in use. If your car is low value and you are mostly worried about the R5 million risk of liability, it may be better to buy third party-only cover and build a small emergency fund to help with repairs or replacement of your own car.&nbsp;



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Deciding on the right car insurance for your needs

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life.&nbsp;CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



Non-fungible tokens, or NFTs, are the latest cryptocurrency phenomenon to go mainstream. And after Christie&#8217;s auction house sold the first-ever NFT artwork being a collage of images by digital artist Beeple for a whopping $69.3 million NFTs have immediately captured the world&#8217;s attention.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="766" height="800" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/04/79588122-0CD0-4D08-8A35-BB08A47171FD-766x800.jpeg" alt="" class="wp-image-401467" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/04/79588122-0CD0-4D08-8A35-BB08A47171FD-766x800.jpeg 766w, https://cms.cnbcafrica.com/wp-content/uploads/2021/04/79588122-0CD0-4D08-8A35-BB08A47171FD-287x300.jpeg 287w, https://cms.cnbcafrica.com/wp-content/uploads/2021/04/79588122-0CD0-4D08-8A35-BB08A47171FD-768x802.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/04/79588122-0CD0-4D08-8A35-BB08A47171FD.jpeg 1340w" sizes="(max-width: 766px) 100vw, 766px" /><figcaption>Source : Christies</figcaption></figure>



What are NFTs?



NFT’s basically transform digital works of art and other collectibles into one-of-a-kind, verifiable assets that are easy to trade on the blockchain.



Although that may be far from simple for the regular layman to understand, the payoff has been huge for many artists, musicians, influencers and the like, with investors spending top dollar to own NFT versions of digital images.&nbsp;NFT’s were introduced by crypto millionaires and billionaires as a way to diversify their crypto holdings.



Non-fungible tokens are pieces of digital content linked to the blockchain, the digital database cryptocurrencies such as bitcoin and ethereum are hosted on. Unlike NFTs, those assets are fungible, meaning they can be replaced or exchanged with another identical one of the same value, much like a regular R100 note.



NFTs, on the other hand, are unique and not able to be duplicated. Think of rare cards or coins or a limited-edition pair of shoes: NFTs create scarcity among otherwise infinitely available assets and there&#8217;s even a certificate of authenticity to prove it. NFTs are typically used to buy and sell digital artwork and can take the form of GIFs, tweets, virtual trading cards, images of physical objects, video game skins, virtual real estate, sound clips and more.



How to buy NFTs



Essentially, any digital image can be purchased as an NFT. But there are a few things to consider when buying one, especially if you&#8217;re new to this exciting world of NFT. You&#8217;ll need to decide what marketplace to buy from, what type of digital wallet is required to store it and what kind of cryptocurrency you&#8217;ll need to complete the sale.



The most popular marketplace is Opensea and Nifty Gateway.&nbsp;



A big concern regarding the NFT industry is the potential of high fees. Most marketplaces charge what’s called a &#8220;gas&#8221; fee, which is the energy required to complete the transaction on the blockchain. Other fees can include the costs for converting currency into ethereum (the currency most commonly used to buy NFTs) and closing expenses.



How to sell NFTs



NFTs are also sold on marketplaces and the process of transacting can vary from platform to platform. You would ideally upload your content to a marketplace such as the two mentioned above and then follow the instructions to turn it into an NFT. You&#8217;ll be able to include specifics such as a description of the work and suggested pricing.&nbsp;



Most NFTs are purchased using the ethereum or other ERC-20 tokens.



How to make an NFT



Anyone can create an NFT. All that&#8217;s needed is a digital wallet, a small purchase of ethereum and a connection to an NFT marketplace where you&#8217;ll be able to upload and turn the content into an NFT or crypto art.&nbsp;



In conclusion, although we have seen progress and more clarity within the NFT space, there is still a way to go before this novel application of blockchain technology reaches mass adoption. The technology has definitely come a long way since its inception in 2012, but it will undoubtedly take some more time before it is proven that NFTs are more than just an ultra-niche sector for early adopters to play in and could potentially carry the gains of its predecessor crypto tokens.



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79588122-0CD0-4D08-8A35-BB08A47171FD

Understanding NFT’s

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life.&nbsp;CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



Did you know that the word “Financial Education” is most searched for on Google in South Africa, then Ghana and then Nepal? (Google insights)



As the era of technology continues to evolve and advance, we have seen a worldwide uptake in access to information, many calling it an era of hyper information with more and more people around the world gaining access to the web via smartphone’s, tablets and computers.







<div class="wp-block-image is-style-default"><figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="820" height="651" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/04/F4CD4703-E062-4193-82BD-D514807CC7C2-820x651.jpeg" alt="" class="wp-image-401111" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/04/F4CD4703-E062-4193-82BD-D514807CC7C2-820x651.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/04/F4CD4703-E062-4193-82BD-D514807CC7C2-300x238.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/04/F4CD4703-E062-4193-82BD-D514807CC7C2-768x609.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/04/F4CD4703-E062-4193-82BD-D514807CC7C2.jpeg 1210w" sizes="(max-width: 820px) 100vw, 820px" /></figure></div>







We have even seen celebrities calling out for financial inclusion and education with the likes of media sensation Nandi Madida stating : &#8220;Financial education is true freedom and democracy for the every day person. It is important that people feel empowered by understanding their finances”







“There is no doubt that we are in urgent need of intervention to empower the youth of tomorrow” Says Pierre Van der Merwe, CEO of PocketFin,, The Financial School of Real Life, an education company with a vision for a worldwide financial literacy revolution ultimately driving it into the education syllabus.







“Whilst there are both pro’s and con’s to this information and tech era, it has been a massive aid in what we believe is a financial literacy revolution, possibly even an education revolution.” says Waseem Abrahams, Head of Strategy at PocketFin.







Why is a financial literacy revolution important?



 If we zoom in to the South African landscape, only 51% of South African’s are deemed financially literate, and over 10 million South African’s are considered to be in bad debt. The number of people who are ‘not economically active’ is around 43% – so not far off half of adults. Drill into the details further and you will see that most young adults are not gainfully employed. Youth unemployment is ‘staggering’ at just over 74%.&nbsp;







The key basics in financial literacy and what we have seen offers most value to the general population are the following topics:



Wealth Creation : Investing , Retirement planning, Property purchasing etc



Banking and Debt : Different bank accounts and loan options, interest rates etc



Wealth Protection : Understanding insurance, understanding estate planning and budgeting.







It is important , no matter how astute you may be to set time aside to enhance your understanding on financial literacy, financial products and to consider this aspect of your life as important as your physical and emotional wellbeing.&nbsp;







By making use of the CNBC / PocketFin financial education hub it provides you the opportunity to do just that, become better with your money and ultimately pave a more successful financial future.&nbsp;



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The financial literacy revolution, Nandi Madida leans in

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life. CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/03/ulises-baga-oRYOOjvPq8E-unsplash-820x547.jpg" alt="" class="wp-image-400550" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/03/ulises-baga-oRYOOjvPq8E-unsplash-820x547.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/ulises-baga-oRYOOjvPq8E-unsplash-300x200.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/ulises-baga-oRYOOjvPq8E-unsplash-768x512.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/ulises-baga-oRYOOjvPq8E-unsplash-1536x1024.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/ulises-baga-oRYOOjvPq8E-unsplash-scaled.jpg 2048w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption>Photo by <a href="https://unsplash.com/@ulisesbaga?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Ulises Baga</a> on <a href="https://unsplash.com/s/photos/insurance?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></figcaption></figure>



The protection of your wealth is often the more morbid pillar of financial planning to talk about, but as part of a proper financial plan it is absolutely critical that we take it seriously. 



The protection of your wealth ultimately looks at 3 categories which are all potential issues in your life:



 1) Life insurance &#8211; Life insurance or otherwise known as risk cover comprises of various different types of insurance benefits which are there to protect you from the following types of issues : Passing away unexpectedly , becoming temporarily or permanently disabled and then losing your ability to earn an income, being diagnosed with a critical illness such as heart disease or cancer , being retrenched , and business assurance.



 The following definition easily explains how a life insurance policy would work:



 A life insurance policy is a contract with an insurance company. In exchange for premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured&#8217;s death.



 It is important to write down your very own personal balance sheet before deciding on how much insurance you need, get a blank piece of paper and write down your assets and your liabilities and then approach a financial advisor for advice on how much insurance you should have.



 2) Hospital expenses &#8211; Medical expenses are not to be overlooked! Especially in the private healthcare sector it has become incredibly expensive to undergo treatment or emergency procedures. If you are looking to be covered in the private healthcare networks, you would need an adequate hospital plan or medical aid. It is important to understand the benefits that you have and how much your premium increases are each year, these are all factors that will also affect your budget. If you do not understand your hospital plan or medical aid get in touch with your provider and make sure they explain to you what is covered and not. It is also important to ensure that you have top up cover, otherwise known as gap cover, which would cover the gap in regards to any shortfalls that your hospital plan might not cover (YES, this is a real thing!)



 3) Will/Last testament &#8211; Having a will is arguably one of the most important things you can do for yourself and your family. Not only can a will legally protect your spouse, children, and assets, it can also spell out exactly how you would like things handled after you have passed on. Contact your bank, financial advisor or lawyer to draft a will. As we conclude our overview on the protection of your wealth, I urge you to consider why insurance is important, if you spend R1000 to insure your car, but do not want to insure your life for half the price, it&#8217;s important that you look at your values and dependents of those around you.



 Being protected financially is our first and foremost priority before we go create wealth and invest, there is no point we invest and buy assets but if something happens we are forced to liquidate those in order to pay for our lack of cover. Remember that something can occur and you might not have anyone to look after you, and even if you do, it&#8217;s important to consider how the financial burden might affect them with them having to now look after you.



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The protection of your wealth – the cornerstone of a proper financial plan

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life. CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



The emotional investor



Investing in any aggressive market such as the stock market is often influenced by your personal emotions and short-term market movements. The concept of the “emotional investor” can affect all of us and can be deadly to our investment strategy.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/03/justin-snyder-photo-UAgULx1bLb4-unsplash-820x547.jpg" alt="" class="wp-image-399924" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/03/justin-snyder-photo-UAgULx1bLb4-unsplash-820x547.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/justin-snyder-photo-UAgULx1bLb4-unsplash-300x200.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/justin-snyder-photo-UAgULx1bLb4-unsplash-768x512.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/justin-snyder-photo-UAgULx1bLb4-unsplash-1536x1024.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/justin-snyder-photo-UAgULx1bLb4-unsplash-scaled.jpg 2048w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption>Photo by <a href="https://unsplash.com/@justinsnyderphoto?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Justin Snyder Photo</a> on <a>Unsplash</a></figcaption></figure>



If you are caught in a dilemma whether to further invest in a deteriorating stock in which you have lost, say, 40% over the short to medium term, so that you can average out your investments or put your money in a promising company that could reap you rich dividends or dramatic capital gain, which would you choose? This event affects most of us and often blocks us from making rational investment decisions. Often, investors choose the former to cover up losses in their portfolio or just hold on to the investment in the hope that it will bounce back at some point. Investors tend to behave in this way because the pain of loss far exceeds the pleasure from gains. It’s this emotion of “loss aversion” that many investors succumb to when making investment decisions. Often, not understanding one’s emotions when investing in any volatile market leads to big financial losses for investors.



There has been a lot of research that has gone into how emotions affect investment decisions of individuals. Emotions are shaped by many influences in our lives and our upbringing, including basic things like how we react to money or how our parents reacted to money, these habits were ingrained in us from a young age. Emotions also determine how we react to different situations. Especially in a time of exorbitant returns through the likes of the tech stocks rally in 2020, or the explosion of the crypto currency market, we have become used to experiencing or at least hearing about dramatic returns in a very short space of time.



Think prudently about your emotions



If you had done very well on a particular stock or investment before, it does not mean that you will automatically do well on it again. Each investment calls for fresh understanding of the investment type,market conditions and the circumstances that will allow you to do well.



The most lethal and common trap investors can fall into when they are driven by emotions is when they try to recover a loss that has occured. At such times, it is popular for some investors to commit a larger sum of money to recover his or her loss in the investment. In doing so, they fail to recognise that their risk capital and exposure to the market has increased. Instead of taking this approach, think carefully about what the potential of this investment could be far down the line, if it is still a worthwhile investment rather consider doing a monthly contribution to bring down your average purchasing price (this is known as cost-average investing)



Understand investments today are not as easy as it was in the past



Recently, people find it difficult to understand markets, if we look at the current state of the global stock exchanges whereby most have hit an all time high, it does not correlate to the state of both micro or macro economics globally due to the Covid-19 pandemic.



It’s said that markets are efficient. But behavioural economists believe that markets are not efficient in the short run. It’s exactly in these times that people don’t make rational decisions. When these days a liquidator is selling stocks at any price, can you imagine the potential you have when you invest today? Right now, everyone wants to avoid a loss while it may be the time to buy, this has become the norm.



Having your emotions telling you to sell at a loss



If I sell an investment after the market falls, I make a loss, a real monetary loss. So, my actions have produced a loss for me. But other shareholders, by merely holding the same shares, too, see their values plummet. It’s when you don’t do anything and yet there’s a reaction, then you get confused. This is when greed and fear overcome us. Right now, everyone wants to avoid a loss, which is known as “loss aversion” in behavioural finance. This is the time to buy. The famous Warren Buffet said “be fearful when others are greedy and be greedy when others are fearful” , and this is an incredible philosophy which has made Mr Buffet one of the wealthiest people in the world.



Think carefully



Instead of pulling the trigger on any investment that comes across the news or is the talk of the town due to its massive return, first take a step back and do your research, determine if the willingness to buy this particular investment is an emotionally based decision, or a carefully thought out decision.The key to wealth building is to balance your investment decisions with your objectives and the circumstances of the market. Remember that the ultimate advice for a successful financial plan is diversification, therefore even if you had made an emotional investment and it failed, there are other investments to help balance your wealth and your investment portfolio returns.



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The trap of emotion in investing

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life.&nbsp;CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/03/scott-graham-OQMZwNd3ThU-unsplash-820x547.jpg" alt="" class="wp-image-399298" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/03/scott-graham-OQMZwNd3ThU-unsplash-820x547.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/scott-graham-OQMZwNd3ThU-unsplash-300x200.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/scott-graham-OQMZwNd3ThU-unsplash-768x513.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/scott-graham-OQMZwNd3ThU-unsplash-1536x1025.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/scott-graham-OQMZwNd3ThU-unsplash-scaled.jpg 2048w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption>Photo by&nbsp;<a href="https://unsplash.com/@homajob?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Scott Graham</a>&nbsp;on&nbsp;<a>Unsplash</a></figcaption></figure>



Life is scary.&nbsp;Just by stepping out the door you are&nbsp;invitingeveryday risks to your health and possessions.&nbsp;These risks can&nbsp;often turn into life events such as car accidents, health issues and theft. &nbsp;Let us&nbsp;zone in on the car accident. Hopefully not, but should you suffer an accident, are you financially capable of repairing your car, the third party’s vehicle and damage caused to public property or&nbsp;a&nbsp;private residential.&nbsp;For most South Africans, the honest answer to that question&nbsp;is no.&nbsp;Therefore,&nbsp;non-life insurance, also known as&nbsp;short term&nbsp;insurance,&nbsp;is crucial.&nbsp;



According to&nbsp;<a href="https://www.lifeinsurance.org/blog/what-is-non-life-insurance">lifeinsurance.org</a>, “Non-life insurance is any type of insurance other than life insurance. While life insurance is broken down into permanent and term life policies, non-life insurance includes many types of other insurance policies. Non-life insurance may cover people, property or legal liabilities.”&nbsp;Non-life insurance is also sometimes referred to as short term insurance because these policies&nbsp;are&nbsp;usually&nbsp;taken out during a period of necessity.&nbsp;This type of insurance&nbsp;is primarily aimed at protecting your assets, your person, business or travels aboard.&nbsp;Some examples of non-life insurance are vehicle insurance, household&nbsp;and content&nbsp;insurance, medical&nbsp;aid&nbsp;and travel insurance. 



Let’s unpack some of the different types of short term insurance:



Vehicle insurance&nbsp;covers the costs if your car is&nbsp;either&nbsp;stolen or in an accident.&nbsp;Not only does this type of insurance coverthe costs of replacing or repairing your vehicle,&nbsp;but it&nbsp;can also cover&nbsp;financial costs incurred by your passengers, other&nbsp;drivers&nbsp;and their vehicles. The latter is known as 3rd&nbsp;party insurance. Some people only have&nbsp;3rd&nbsp;party&nbsp;insurance.&nbsp;There are many reasons for this, but a couple of&nbsp;reasons&nbsp;may be that that the vehicle is too old or&nbsp;in&nbsp;too much of a bad shape for the owner to worry about loss or damage to it&nbsp;or,&nbsp;affordability of comprehensive cover.&nbsp;We recommend always taking up comprehensive vehicle insurance and&nbsp;this is why.&nbsp;Imagine&nbsp;you have&nbsp;just rolled out of the showroom with your new baby and bang!&nbsp;That&nbsp;is&nbsp;it,&nbsp;written off. Now,&nbsp;if this&nbsp;were&nbsp;a new vehicle that is being financed, you would have been forced to take up&nbsp;vehicle insurance. Due to the current Macro economic climate&nbsp;and according to the National Association of Automobile Manufacturers of South Africa,&nbsp;in June 2020&nbsp;new vehicle sales were 30.7% down when compared with June last year.&nbsp;At&nbsp;the same&nbsp;time,&nbsp;the South African used car market&nbsp;performed&nbsp;better than it did&nbsp;the previous year.&nbsp;So,&nbsp;what does this add up to?&nbsp;According to the&nbsp;<a href="https://aa.co.za/dont-take-the-insurance-bait-cheaper-is-not-always-better-2/">AA</a>&nbsp;“there are just over 11 million registered vehicles in South Africa (excluding caravans and trailers). According to statistics,&nbsp;most of&nbsp;these vehicles – around 60-70% are uninsured.”&nbsp;In short,&nbsp;vehicle insurance is not only&nbsp;there should you cause an accident and are&nbsp;liable but&nbsp;is a&nbsp;stress-free&nbsp;way of ensuring that&nbsp;if&nbsp;you abide by the law in combination with your policy wording,&nbsp;you will always be “covered” against accidents caused by you or someone else and&nbsp;will not&nbsp;have to rely on&nbsp;our legal system and/or&nbsp;negotiations with the third party to repair&nbsp;or replace&nbsp;your vehicle.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="820" height="589" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/03/vladyslav-bahara-tV3xPi7A8F4-unsplash-820x589.jpg" alt="" class="wp-image-399299" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/03/vladyslav-bahara-tV3xPi7A8F4-unsplash-820x589.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/vladyslav-bahara-tV3xPi7A8F4-unsplash-300x215.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/vladyslav-bahara-tV3xPi7A8F4-unsplash-768x552.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/vladyslav-bahara-tV3xPi7A8F4-unsplash-1536x1103.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/vladyslav-bahara-tV3xPi7A8F4-unsplash-scaled.jpg 2048w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption>Photo by&nbsp;<a href="https://unsplash.com/@vladbahara?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Vladyslav Bahara</a>&nbsp;on&nbsp;<a>Unsplash</a></figcaption></figure>



Content&nbsp;insurance covers damage or losses&nbsp;suffered to your personal possessions and&nbsp;commonly&nbsp;includes&nbsp;electronics,&nbsp;clothes, furniture etc.&nbsp;Please note that some items are usually excluded from this cover unless stipulated that they should be included. Chat to your financial advisor or insurance representative to ensure that all the items which deem dear and/or&nbsp;expensive to replace have been covered.



Homeowner&nbsp;cover is a&nbsp;type of insurance&nbsp;that&nbsp;focuses oninsuring you against loss or damage to the structure of your home.&nbsp;It can cover&nbsp;the cost of&nbsp;purchasing a new home&nbsp;orrepairs&nbsp;due to&nbsp;damage.&nbsp;Think about it, with all the rains&nbsp;we have&nbsp;had over the last few months, what if a pipe burst and caused significant damage to your property? Are you in a position to fix this out of pocket? Again here, the answer is no for most South Africans.&nbsp;Most financial&nbsp;providers&nbsp;require&nbsp;mandatory&nbsp;homeowner cover as a condition&nbsp;for approving anyhome loan&nbsp;for this reason.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/03/daniel-tausis-loeqHoa1uWY-unsplash-820x547.jpg" alt="" class="wp-image-399300" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/03/daniel-tausis-loeqHoa1uWY-unsplash-820x547.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/daniel-tausis-loeqHoa1uWY-unsplash-300x200.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/daniel-tausis-loeqHoa1uWY-unsplash-768x513.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/daniel-tausis-loeqHoa1uWY-unsplash-1536x1026.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/03/daniel-tausis-loeqHoa1uWY-unsplash-scaled.jpg 2048w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption>Photo by&nbsp;<a href="https://unsplash.com/@greatmalinco?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Daniel Tausis</a>&nbsp;on&nbsp;<a>Unsplash</a></figcaption></figure>



According to&nbsp;<a href="http://www.scielo.org.za/pdf/samj/v109n1/11.pdf">scielo.org.za</a>,&nbsp;a&nbsp;study was conducted at an 846-bed central hospital in the&nbsp;eThekwini Health District in KwaZulu-Natal.&nbsp;The&nbsp;mean cost per admission was&nbsp;R157 883 in the trauma ICU,&nbsp;R201 347 in the neurosurgical section and&nbsp;R332&nbsp;161 in the medical and surgical section of the combined ICU.&nbsp;Adding 6 years of inflation to the numbers&nbsp;supra&nbsp;start to&nbsp;resemble&nbsp;a horror movie.&nbsp;This is why&nbsp;medical aid, especially in South Africa, is crucial.&nbsp;Although a large portion of the population make do with the public health sector,&nbsp;it isimportant to understand that for a large majority of them, there is no option.&nbsp;Although a great medical&nbsp;aid&nbsp;and gap cover may be expensive, it provides another level of comfort when it comes to your&nbsp;piece of mind in medical emergencies.&nbsp;Medical aids can be expensive, a&nbsp;great option is&nbsp;a hospital plan.&nbsp;A&nbsp;hospital plan&nbsp;covers you for any medical procedures that are performed in a private&nbsp;hospital&nbsp;and just like a medical aid, it&nbsp;requires you to pay a monthly premium that would cover you for treatments and procedures in a private&nbsp;hospital. Therefore, the most expensive part of having to go to hospital&nbsp;in the case of serious injury is covered.&nbsp;



A lessor know form of short-term insurance is travel insurance.&nbsp;This form of insurance&nbsp;covers you for lost luggage, cancelled flights and unexpected medical expenses.&nbsp;There are a few crucial things to think about before you&nbsp;purchase&nbsp;travel insurance for&nbsp;a&nbsp;trip:



1.&nbsp;How much medical&nbsp;aid do you already have&nbsp;for the territory and activities which you will be partaking in&nbsp;– No one wants to think about getting&nbsp;sick&nbsp;or having an accident&nbsp;on holiday&nbsp;but, unfortunately&nbsp;just like stepping out of your home you opening yourself up to a number of risks and possible&nbsp;life events.



2.&nbsp;The activities you’re likely to be doing – If you’re planning&nbsp;anything really extreme, you may need additional cover for extreme sports.



3.&nbsp;The cost of your trip – If you have to cancel&nbsp;a flight or the trip in its entirety, it’s important to know that you can get&nbsp;all or some of&nbsp;your money back



It’s&nbsp;extremely important to&nbsp;understand your cover and go through the policy wording. As we saw with Covid-19, some people were&nbsp;covered,&nbsp;and others&nbsp;were not.&nbsp;



Simply put, short&nbsp;term Insurance&nbsp;is not a luxury, it is a necessity. It is&nbsp;that&nbsp;piece of mind&nbsp;when you walk into a hospital, you hear that ding against your car or the heavens decide to open up like they did over the SADC region earlier this year. You work so hard growing your wealth, why not protect it with the&nbsp;plethora of&nbsp;short term&nbsp;cover&nbsp;options available in the market.&nbsp;Just ask yourself, could you pay for your car, house, content and/or health should something go wrong&nbsp;right now? 



We encourage you to sign up to PocketFin and you will be enabled to master your understanding of all aspects around building a successful financial future!



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Short Term Insurance Explained

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life.&nbsp;CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin. 



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The topic of paying off your mortgage quicker by contributing more on a month to month basis or rather utilizing those extra disposable funds to invest in other investments has been an ongoing debate for decades, especially during the Covid-19 pandemic as we have seen interest rates globally fall to record lows.



Paying off your mortgage to reduce your debt repayments and ultimately the interest that you are paying to service this debt has always been an advisable thing to do but the issue comes when you have ignored the key to building a stable financial plan which is diversification in your wealth creation plan.&nbsp;



In order to answer this very popular question, we need to take into account two different views or opinions on this matter: Firstly the more traditional view that one needs to pay off home loans and any other debt as quickly as possible to avoid high levels of debt or debt-servicing costs, and then a view that investing your extra cash into an investment instrument or basket of diverse investments can be more rewarding over the long run.



Let’s pick apart the pro’s and con’s of each:



Investing your extra funds:



Paying extra into your mortgage will definitely save you interest but what this means is you completely limit your ability to create a basket of investments that can help protect you if for example the property sector had to crash or you were to hit financial trouble. If you have a diverse exposure to a basket of asset classes (equities, property, bonds and cash, both local and foreign) and keep in mind the various tax benefits that some investment products can give you, you would be far better off using any extra disposable income to have “many eggs in many baskets”



Portfolio diversification is particularly important, and we always encourage investors to spread their risk and not be too concentrated in one asset class. In a well designed financial plan we like to think of it as a bicycle wheel, and each spoke of the wheel represents a different investment, if one spoke were to break or in this example fail or crash, the bike would still be okay to ride, however if you only had one spoke and it broke, you wouldn’t be able to ride the bike.



Putting all your money into a bond will mean you have 100% exposure to property and will have all your eggs in one basket.



Different asset classes tend to perform differently during certain economic cycles, and therefore diversification will add value to your overall investment portfolio.



Especially during the Covid-19 pandemic many countries have significantly dropped interest rates to help ease off pressure on the average consumer or those servicing debt, this has actually made it an even better idea to invest in other assets or funds that can outperform the low debt servicing cost.



Paying off a mortgage:



“People have been advised over the years that having debt, especially a high interest rate mortgage is bad and should be avoided or at least reduced as quickly as possible. If you are to pay an extra lump sum into the mortgage this will allow you to pay off the capital portion sooner, which reduces the term of the loan and hence reduces the total amount of interest paid. A key aspect to acknowledge is that unless your mortgage has an access facility, that money is locked in that mortgage until sale of the property, and this can cause complications especially if you do not have an emergency fund built up and something happens which requires you to access urgent cash, this is why it is so important to be guided through the home buying process by a professional”. says Desigan Naidoo, CEO of Omega Property Group and Omega Mortgage.



If you decide to invest the money, you can select an option that provides easy access to your funds should they be required such as a unit trust or call account. Considering the situation we find ourselves in whereby many individuals are taking salary cuts or losing income, keeping all your money in your mortgage can be quite risky.



It is important when considering how you wish to make use of any disposable income to be well-informed or speak to a financial professional who would be able to personally assess your situation and provide you with options to make the correct choice tailored to your personal financial situation. Yes debt is not great, but diversification in wealth building is critical for longevity!



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To pay off your mortgage or invest?

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life. CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



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Lifestyle inflation happens when your standard of living increases drastically and former luxuries all of a sudden become the norm.&nbsp;



Generally as you start to advance in your career your income tends to trend upwards, and so do your expenses! As earnings increase, it’s normal that you wish for a better car, or nicer clothes, because you think to yourself that you can now afford this and you deserve it!&nbsp;



“The big mistake many individuals make is that they do not increase their savings portion inline with their expenses, and it’s incredible easy to rather spend more on lifestyle and just keep your savings rate the same year to year” says Pierre Van der Merwe, CEO of PocketFin &#8211; The Financial School of Real Life.



You could actually end up worse off compared to when you were earning less money because often these expensive lifestyle decisions are bought on credit.



Lifestyle inflation is often difficult to avoid because it isn’t always easy to see. Unless you just won the lottery, the increase in spending tends to happen slowly and is often disguised by the fast pace of life.



How lifestyle inflation can affect your finances negatively:



Let’s look at an example. Say you were to change jobs and earn 20% more than you were in your old job, lets just say you went from earning 5000$ a month to 6000$ a month.



This equates to a net raise of 1000$ a month or 12000$ a year. So lets then say that you start making some adjustments to your lifestyle.



Throughout the year, you make the following adjustments:



<ul><li>Entertainment/dining out : You spend an additional 250$ a month on eating out.</li></ul>



<ul><li>Clothing : You enjoy brand names and therefore spend an additional 150$ a month on buying a fancier item of clothing.</li></ul>



<ul><li>New Car: You upgrade your car and spend an additional 500$ a month on this new car.</li></ul>



As we can see here, it&#8217;s so incredibly easy to spend your valuable raise in income on very simple lifestyle decisions, the issue is now that you have spent that additional 20% raise on material goods and have not increase your savings rate of say 20% of your income inline with this 20% so in fact your savings rate now drops to 15% of your net income.



How to avoid the traps of lifestyle inflation



Automate your savings



Debit/stop order investing is fantastic as you make use of “dollar cost averaging” , buying throughout all the dips in the markets which is traditionally more beneficial than lump sum investing (ie &#8211; entering the market at one specific point) , by putting a debit/stop order on your payday your savings are done when you get paid and thus prevents you from overspending unnecessarily. Often people can say they are disciplined enough to do their own investments but this often is not the case.



If you don’t set it up automatically, when the cash piles up it’s tempting to spend for today rather than invest for your future. People regret not having saved more along the way. Few look back and wish they took more vacations in business class.



Invest outside of your company pension account



Just because you have a company pension fund does not mean your savings are taken care of. It is critical to explore and diversify your investments across various asset classes and investment vehicles.&nbsp;



It would be an idea to explore investments such as unit trusts/mutual funds, ETF’s, shares, bonds etc as an example to help expand your wealth creation plan and not only rely on one investment vehicle such as a corporate pension fund.



Spend responsibly



It is difficult to not fall into the lifestyle trap but especially in the first 10 years of your working career it is absolutely critical to remain disciplined in your efforts to build wealth. In ten years would you rather have a solid foundation and be financially abundant or would you be stressed having minimal savings but trying to upkeep a flashy lifestyle?



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Beware of lifestyle inflation!

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life. CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



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The COVID-19 pandemic has and still is hammering the global economy. More than 33 million people have lost their jobs, businesses across the world are running on fumes or have had to close their doors, and a major drop in interest rates have shattered the returns of cash investments.



If anything, what this pandemic has taught us is that financial planning is an extremely important aspect to our financial wellbeing and we need to adequately prepare ourselves for if we were to find ourselves in this situation again.



“What have you learnt from your habits with your income and your expenses pre pandemic and now?” Asks Kayembe Gilles Ilunga, a director of PocketFin , the financial school of real life.



“Many people neglected aspects of their personal finances such as budgeting, managing debt effectively and saving and investing, perhaps this pandemic was the financial wake up call many people needed” says Ilunga.



For some people the pandemic and harsh lockdowns actually enabled them to save more as regular expenses such as dining out or travel was limited or non existent but some people will revert back to these spending habits as the pandemic ends, there is however a major opportunity to start living by more responsible financial practices going forward:



Do a detailed budget:



As per one of the most popular PocketFin courses “how to budget like a boss” , it&#8217;s important to get honest with yourself and comb over your bank statements so you can get an indication of your spending habits. Stick to this budget and review it at least twice a year to make sure you stay on track.



Build an emergency/safety net fund:



It is absolutely critical to start building a safety net of 3-6 months of your monthly income incase of retrenchment or any type of unexpected expense comes up. Ideally you want this safety net to be invested in a conservative cash fund that doesn’t have any major fluctuations.&nbsp;



Minimise debt:



Although interest rates might be the lowest its been in years to help the consumer through this tough time, it is of the utmost importance to chip away at your high interest debt such as credit cards or short term loans. Any debt repayments that you can minimise will enable you to save more.



The Covid-19 pandemic is the third major financial disaster to hit the world in the past 25 years, firstly with the dot.com financial crash in 2001, followed by the 2008/2009 financial crisis. Many people have only recently recovered from the 2008 financial crisis, and they are now finding themselves wondering how they will recover from the Covid-19 pandemic.



It is important to acknowledge that this will not be the last major financial calamity in our times and we should do our best to be ready for the next one, by implementing and maintaining good financial habits, you’ll be better positioned to get through challenging times such as the Covid-19 pandemic.







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Money management during a pandemic

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life. CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



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Investing by oneself has become more popular than ever, with the rise in technology it has become easier to access information on almost every topic in the world, even such as this article based on financial education!



There is no denying the digital revolution is well upon us, but when researching how to invest or where to invest, it can still be a daunting task. Today we will discuss one of the most important topics around investing and that is understanding the concept of risk profiling, which along with further education can enable you to make more informed decisions on your wealth creation journey.



Risk tolerance is a very important aspect of the first steps to investing. Depending on your age, income, investments, and goals, you will fall into one of five risk categories:



Conservative



Moderately conservative



Moderate



Moderately aggressive



Aggressive



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The easiest way to get a feel for which end of the spectrum you fall is to go by age as when it comes to investing, especially for the long term which is how we accrue future wealth, it is often about the old adage of “the sooner you start the better”.



If you’re young and have a long time horizon, you should have the ability to be aggressive, while if you are older your time horizon would be shorter as you want to protect the capital you have accrued, this meaning you should be more conservative.



Let’s briefly discuss the five different risk profiles and how to manage that risk:



Aggressive investor:



If you are an aggressive investor it is quite simple to make your investment choices. You have time, and have an appetite for risk and that means you would want your investments to be in riskier assets such as equities or properties and little to none in cash and bonds which are traditionally very safe investments. Another way to diversify is not necessarily stock pick but make use of ETFs and/or mutual funds.Keep in mind that you would still want to have a conservative emergency fund (preferably three to six months of your expenses) and build assets up.



Moderately aggressive investor:



You are well into your working career and are putting a substantial amount of your income after expenses into investments, this phase, much like being an aggressive investor still focuses on capital creation via riskier and growth based investments. A moderately aggressive risk profile generally comprises about 70-80% equities and the rest remains in fixed income such as corporate or government bonds which still carry some risk but yields superior returns to cash investments. 



Moderate investor:



When you are +- ten to twelve years away from your ideal retirement age, you would’ve taken substantial risk with aggressive investments for a good decade or two and would have hopefully been rewarded for that risk appetite. Generally at this phase you would switch into a more moderate investment stance, perhaps lowering that equity exposure to around 50-60% of your portfolio as you are ideally getting to a place of financial security. 



Moderately conservative investor:



When you are +- eight to ten years out from your ideal retirement age you would generally consider shifting into a moderately conservative wealth creation stance, this entails possibly starting to sell out from equity funds and focus on squashing any left over debt, perhaps keeping around 30-40% left in equities or pure growth generating investments or funds. Balanced cautious funds become popular to the moderately conservative investor as well as holding large cap stocks that do not fluctuate or carry as much risk as mid or low cap stocks. Utilizing fixed deposits/bonds and opening more exposure to safe cash investments generally become more popular during this phase of your financial life.



Conservative investor:



By the time you are within a few years of retirement, your assets should generally be made more conservative by utilizing cash funds or low risk investments to avoid any potential market downturns and unwanted losses. You are now entering a wealth preservation phase of your financial life and ideally do not want more than 10-20% left in equities or capital growth based assets. Five to seven years prior to your retirement you want to start preparing yourself. During these years, you do not want to lose money while you plan your retirement lifestyle and income needs. After a few years of retirement, you can actually start to take on more risk if your debt has been minimised or depleted and have enough cash to draw a sustainable income that can increase in line with inflation.



Conclusion:



It is important to be educated on various risk profiles and the concept of time horizons in investing and how asset classes differ. We will discuss asset classes in more detail in future articles.



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Risk profiles in investing

This article is part of an ongoing series of basic financial education brought to you by financial industry professionals curated by PocketFin – The Financial School of Real Life.&nbsp;CNBC Africa provides content from PocketFin as a service to its readers but does not edit the articles it publishes. CNBC Africa is not responsible for the content provided by PocketFin.



An incredibly popular topic when it comes to investing is the differentiation or option to invest with lump sums at a particular point in the market or invest monthly and make use of the idea of a “cost-average” over an extended amount of time. In this article PocketFin CEO , Pierre Van der Merwe explains the difference between a lump sum investment and a monthly investment and lends his opinion on what works best for wealth creation over the long run.







<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="820" height="548" src="https://cms.cnbcafrica.com/wp-content/uploads/2021/02/austin-distel-DfjJMVhwH_8-unsplash-820x548.jpg" alt="" class="wp-image-397473" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2021/02/austin-distel-DfjJMVhwH_8-unsplash-820x548.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/austin-distel-DfjJMVhwH_8-unsplash-300x201.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/austin-distel-DfjJMVhwH_8-unsplash-768x514.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/austin-distel-DfjJMVhwH_8-unsplash-1536x1027.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2021/02/austin-distel-DfjJMVhwH_8-unsplash-scaled.jpg 2048w" sizes="(max-width: 820px) 100vw, 820px" /><figcaption>Photo by&nbsp;<a href="https://unsplash.com/@austindistel?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Austin Distel</a>&nbsp;on&nbsp;<a href="https://unsplash.com/s/photos/invest?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></figcaption></figure>



A lump sum investment is a single contribution investment which enters the market at a specific date and at that specific price in the market. Lump sum investing is often not possible for everyone as most people are building wealth via monthly savings using their disposable income, but if for example a cash lump sum was received from the sale of an asset or an inheritance this would give you the option to invest from a lump sum perspective.&nbsp;



A lump sum investment can work well in times of a major market downturn, in various “market crashes” over the past have we seen people benefit from “buying at the bottom” and therefore making a larger capital gain. Although there is a very prevalent saying in personal financial planning which is “it&#8217;s not about timing the market, but time spent in the market” , many have used the opportunity of market crashes to their advantage.&nbsp;



A more achievable and popular method of investing for the long term is to make use of “cost-averaging” , and what this means is disciplined monthly contributions over a long period of time regardless of what state the market is in, by doing so you are buying “units” or “shares” at different prices resulting in an average price over the long run.&nbsp;



“When most people start to panic when there is a market downturn, this is actually the absolute best time for you to have monthly amounts buying units” says Van der Merwe. This long term investment strategy involves spreading your contributions over many months and many years.&nbsp;



Cost averaging can also help you deal with the turbulent markets where if you had perhaps placed a lump sum and the market crashed by say 30%, it would not affect you so badly at least from an appearance point of view. While cost averaging helps mitigate the risk if the market collapses it could also minimise potential reward. Therefore cost averaging is not a strategy to maximize an investment return but it is generally deemed safer and more manageable than a lump sum investment.



In an ideal world to really maximise the potential of your long term wealth creation, a disciplined plan involving a budget with allocated savings towards short, medium and long term investments is extremely important, if you are in the position to invest lump sums throughout your life it may be an option to “phase in” over time, perhaps releasing 25% of the lump sum every quarter, or if an opportunities arises and the market crashes, it could be your opportunity to pick up some cheap units that can benefit you at the finish line.



We hope that you enjoyed this article on the concept of lump sum investing and cost-average investing!



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Changes in the approach to financial success over the past generation

Navigating a global recession

Why Financial Literacy needs to start at a grass roots level

Financial lessons from Covid-19

Why you should pay attention to Investment Fee’s

Cryptocurrency as part of a wealth creation plan

Deciding on the right car insurance for your needs

Understanding NFT’s

The financial literacy revolution, Nandi Madida leans in

The protection of your wealth – the cornerstone of a proper financial plan

The trap of emotion in investing

Short Term Insurance Explained

To pay off your mortgage or invest?

Beware of lifestyle inflation!

Money management during a pandemic

Risk profiles in investing

Lump sum vs cost-average investing

News Tips

Advertise With Us

PocketFin

Changes in the approach to financial success over the past generation

Navigating a global recession

Why Financial Literacy needs to start at a grass roots level

Financial lessons from Covid-19

Why you should pay attention to Investment Fee’s

Cryptocurrency as part of a wealth creation plan

Deciding on the right car insurance for your needs

Understanding NFT’s

The financial literacy revolution, Nandi Madida leans in

The protection of your wealth – the cornerstone of a proper financial plan

The trap of emotion in investing

Short Term Insurance Explained

To pay off your mortgage or invest?

Beware of lifestyle inflation!

Money management during a pandemic

Risk profiles in investing

Lump sum vs cost-average investing

News Tips

Advertise With Us

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