When planning for retirement, many people establish how much they need to have saved when they retire so that they are able to live off the interest. In theory this sounds like a wise decision – investing your capital so that it creates interest, and then living off this interest while not touching the capital amount.
However, living off a set amount of interest won’t allow you to maintain a constant standard of living for your full period of retirement. This is because inflation will affect the buying power of your capital amountandthe interest earned on your capital amount.
 
Effects of inflation
Warren Ingram, Executive Director at Galileo Capital, says he is frequently exposed to cases of retirees who live off their investments’ interest. “This is not viable,” he says, “because interest has no ability to track inflation.” Over long periods of time, using the local Short-term Fixed Interest Composite Index (STeFI) as a benchmark, he says you’ll see a real return of 1%, before tax. (“Real return” is the annual return of an investment, adjusted for changes in prices due to inflation or other external effects.) “Effectively, you’re standing still,” Ingram points out.
As an example, with an interest-focused investment of R1 million, generating a return of 6.7% over the last 12 months will mean a return of R67 000 for the year. But, consumer price inflation is at 6.3% during that same period. Living off the interest means your capital amount will remain relatively fixed. However, because inflation erodes the value of your R1 million, you will be going backwards because the capital amount (and the interest it produces) is worth less and less over time. At an average inflation rate of 5% a year, your R1 million will halve in purchasing power in less than 15 years. And the interest earned on this money will also reduce in purchasing power.﻿
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Investing to draw an income
Considering the above, a fundamental aim of investing for an income in retirement should be to provide an income that keeps pace with (or outperforms) inflation. There are various ways to do this.
 
Linked annuity
“I would caution against having 100% of your capital in interest-bearing (cash only) investments because it will decline in real terms over time,” says Ingram. By comparison, he says that a classic balanced portfolio accessible through a linked annuity with a linked investment service provider, invested two-thirds in equities with the remainder in property, bonds and cash, will generate a real return of 4% to 5% a year over the long term, based on historic long-term averages. With a balanced portfolio, your income is much more likely to outperform inflation, which means you could comfortably draw down a portion of these returns while your capital continues to grow.
 
Life annuities
A life annuity, also known as a compulsory annuity, is one way of ensuring regular and predictable income during retirement. This annuity factors in your life expectancy when you purchase it, and as such has “obvious merit if you are retiring relatively young, and have a history of longevity in your family,” points out Ingram. This would be because life expectancies are actuarial averages, and you would be on the right side of that equation. The one downside of annuities is the “high correlation between the income rates you get and the interest rate environment when you buy them.”
Many people also look to property as an answer to the income problem because this investment provides an income in the form of rent, which tends to be adjusted for inflation. But Ingram argues that, unless you have a large, diversified portfolio of investment properties, he “would always look for this exposure via listed property” because it offers better diversification.
 
Determining your drawdown
Once you’ve retired, the amount of money you withdraw from your savings on a monthly or annual basis  – your “rawdown amount – is critical. If your drawdown is too large, you risk reducing your capital amount. Also, your drawdown needs to keep pace with inflation, so it will need to increase over time.
“You definitely require professional advice from a financial adviser, even if it’s just to do this calculation,” says Ingram.
With a drawdown of “3% or less per year, you can be reasonably sure you won’t draw down on your capital in nominal or in real terms,” says Ingram. “At a drawdown of 6% or 7%, it’s very possible that over time you will start to erode your capital.”
In some ways, this corroborates the so-called <a href="https://www.discovery.co.za/portal/individual/invest-news-mar16-retirement-planning">4% rule</a>, but the shortcomings with a one-size-fits-all type number like this is that the answer will necessarily be different for each individual. The difference between 3% and 5% seems small, but has massive consequences over time.
 
For more information on investing for retirement, speak to your financial adviser.
This article is part of an investment series by Discovery Invest. ﻿

Can I and should I live off my investments’ interest?

Helping your children by investing for them could be seen as a luxury, but with the cost of education soaring, it’s looking more and more like a necessity. A <a href="http://city-press.news24.com/News/infographic-this-is-what-it-will-cost-to-educate-your-child-20160120">2016 report from City Press</a> indicated that education for a child starting Grade R in 2016 and matriculating in 2028 would cost approximately R253 000  at average fee-paying schools, R676 000  at upper-income former Model C schools, and R3.7 million  at private schools. And that’s just the bill before tertiary education.
Depending on the education choices you make for your children, it’s likely you might feel some financial stress once your children start school.
Remember that any saving or investment should align with short-, medium- and long-term goals. And know that these goals change over time. Paying for a child’s secondary or tertiary education would be a long-term goal when they’re a baby, says the US Financial Industry Regulatory Authority, but a short-term one when they’re in the final year of high school.
 
The various savings options available to parents include the following:
Unit trusts
Unit trusts, either bought directly from the asset manager or through a Linked Investment Service Provider (LISP), offer a simple and generally cost-efficient way to get exposure to equities. If you have a long-term education saving goal, you would necessarily want to look at asset classes that have the best chance of outperforming inflation over the long term (given the fact that education inflation is much higher than consumer price inflation, it’s no use keeping your savings in cash because you will underperform against inflation over time). Equities have historically proven to be the best option for beating inflation.
 
Tax-free savings accounts
A tax-free savings account can be opened in the name of a child, who will have their own R30 000 annual limit. The lifetime contribution limit of R500 000 can be ignored because this will only become an issue by the time they’re 16 (if you started contributing when they were born). By then, it is likely that this limit will have been increased. And with the power of compound interest, a relatively modest investment should more than cover the cost of your child’s education.
 
Education saving plans
Education plans on offer by most financial services companies and insurers are typically endowment policies. With endowment policies, a monthly contribution is made for a specified period and a lump–sum amount is paid out at the end of the period. The minimum investment term is generally five years. For higher-income earners, endowments potentially offer greater tax efficiency because they are taxed at a flat rate of 30%.
Life cover is also important because you’d want whatever investments you’ve made for your children to be continued. Something like Discovery Life’s Global Education Protector will cover the cost of education (including tertiary studies globally) in the case of disability, severe illness or death.
 
Fundisa
<a href="http://www.fundisa.org.za/">Fundisa</a>, an education savings initiative by the government, the National Student Financial Aid Scheme and the Association for Savings and Investment South Africa, has the advantage of a top-up bonus annually as a reward. This can be as much as 25% of the amount saved per year, up to a maximum of R600 per child. The minimum contribution is R40 per month, and there is no maximum.
However, only the first R2 400 saved per year will qualify for that top-up bonus. Fundisa is designed for lower-income earners, and only learners whose families earn below R180 000 per year will qualify. This only applies to the learner (and their family), which makes it a compelling way to contribute to education savings for a child of a nanny or similar employee.
Any option that has the goal of providing for a child’s education is important because savings are ring-fenced for a specific purpose.
Make sure your children are part of the process of saving for their education (especially as they become older and more mathematically and economically literate). This is an invaluable teaching tool and is a real opportunity to instill lessons such as the value of money and the importance of saving.
 
For more information on investing for retirement, speak to your financial adviser.
This article is part of an investment series by Discovery Invest. ﻿

A head start for your children

Investing isn’t an exact science, and the number of variables affecting the performance of your money can make it difficult to predict a certain outcome. However, you can certainly increase your chances of creating a successful investment strategy by avoiding these common mistakes:
 
<ol>
<li>1.     Focusing too much on past performance</li>
</ol>
This is one of the easiest traps to fall into. People often make the mistake of selecting unit trusts or exchange-traded funds that top the charts over the past year, expecting that they’ll do so in the next 12 months. Just because a certain share or fund (or asset class) has performed exceptionally wellrecentlydoes not mean that trend will continue. “Some investments have shown positive performance not because of a clever strategy or good security selection but because the market has done well and ‘the tide has lifted all boats’,” says Robert Stammers, the director of Investor Education at the Chartered Financial Analyst (CFA) Institute.
 
“Stay away from simply finding funds or managers that have performed well in the past and look for those whose performance against the market and other competing investments says something about what they may be apt to do in the future.”
 
<ol>
<li>2.     Using borrowed money for investment purposes</li>
</ol>
Debt, or borrowed money, isn’t necessarily a bad thing. For example, many people will borrow money in the form of a bond in order to buy a home. But there is a difference between this kind of debt, and “expensive debt” that comes with a high interest rate. Generally it is not advisable to use expensive debt to buy shares (or other equity investments) because it is no use running an overdraft or large credit card balance that costs a lot of money to service while saving 10% of your income. Many financial advisers suggest immediately paying down short-term debt, instead of first rushing off to save.
 
<ol>
<li>3.     Not having investment goals</li>
</ol>
“The adage, ‘If you don’t know where you are going, you will probably end up somewhere else,’ is as true of investing as anything else,” says Stammers. “Too many investors focus on the latest investment fad or on maximising short-term investment return instead of designing an investment portfolio that has a high probability of achieving their long-term investment objectives.” As discussed in “Goals: Keeping you focused on financial success”, creating realistic short- and long-term goals can help you save and invest successfully.
 
<ol>
<li>4.     Not reviewing your portfolio regularly</li>
</ol>
“If you are invested in a diversified portfolio,” says Stammers, “there is an excellent chance that some things will go up while others go down. At the end of a quarter or a year, the portfolio you built with careful planning will start to look quite different [from what it did initially]. Don’t get too far off track. Check in regularly (at a minimum once a year) to make sure that your investments still make sense for your situation and that your portfolio doesn’t need rebalancing.”
 
Staying focused on the long-term and rebalancing and reviewing one’s portfolio are not at odds with each other. Circumstances change and what’s relevant to you in your thirties is almost certainly not 10 years later.
 
<ol>
<li>5.     Not understanding what you’re investing in</li>
</ol>
Know where your money is invested, and how the investment vehicle works. Because of regulatory pressure and a fast-evolving market, there has been a noticeable push in South Africa’s financial services sector to simplify offerings and marketing, which is of great benefit to investors.
And be careful of promises of unrealistic returns. The phrase, “If it sounds too good to be true, it probably is” is particularly apt when it comes to investments.
 
<ol>
<li>6.     Not factoring in costs</li>
</ol>
It is easy to get caught up in performance numbers, particularly given that gross figures are often publicised, i.e. before fees and costs are taken into account. Understand the detail of every cost you’re paying (you are able to ask for this breakdown from your financial services provider) and make sure to consider performance of a fund or share within the context of your overall portfolio.
What seem to be small differences in fees (even 50 basis points) can have a significant effect on your returns and wealth in the long-term. And always remember to measure your performance against inflation. It’s no use celebrating that 7% return if inflation is running at over 6% because your real returns are barely a percent.
 
<ol>
<li>7.     Taking too much, too little, or the wrong risk</li>
</ol>
Investing always involves risk. And it’s this risk that, over the long-term especially, is translated into some level of reward. The CFA Institute’s Stammers cautions about “taking too much risk which “can lead to large variations in investment performance that may be outside your comfort zone. However, taking too little risk can result in returns too low to achieve your financial goals. Make sure that you know your financial and emotional ability to take <a href="https://www.discovery.co.za/discovery_coza/web/linked_content/pdfs/invest/your_risk_portrait.pdf">risks</a> and recognise the investment risks you are taking.”
 
Trying to time the market
When equity markets are rallying, the temptation is there to follow the herd. Conversely, when markets drop, it’s easy to think about heading for the exits too. “Instead of rational decision making, many investment decisions are motivated by fear or greed,” says Stammers. “In many cases, investors buy high in an attempt to maximise short-term returns instead of trying to achieve long-term investment goals.” Focusing on those long-term goals will help the investor stay focused, and ignore the noise of short-term market movements that ultimately don’t have an impact on the end game.
 
For more information on investing for retirement, speak to your financial adviser.
This article is part of an investment series by Discovery Invest.
Discovery Invest is an authorised financial services provider. Registration number 2007/005969/07. For more information on Discovery Invest, contact your financial adviser.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell investment funds.﻿

8 common investment errors

South Africa&#8217;s wealthy Gupta family, accused in a government corruption probe of allegedly holding undue influence over President Jacob Zuma, said on Tuesday it had asked a court to force a financial regulator to give the family details concerning the closure of its business accounts.
The country&#8217;s four major banks, Barclay&#8217;s , Standard Bank , FNB and Nedbank early in 2016 terminated the accounts of several companies, spanning mining to media operations, controlled by the family under the Johannesburg exchange listed Oakbay Resources.
The banks refused to make public their reasons for closing the accounts. Analysts have said the banks were likely prompted by concerns about reputational risk.
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The Guptas have denied accusations that they have used their friendship with Zuma to advance their interests as well accusations of money laundering and fraud.
In the affidavit the family requested the High Court to force the Financial Intelligence Centre (FIC) to provide details of transactions totalling 6.8 billion rand ($493 million) flagged as suspicious by the regulator in a report to Finance Minister Pravin Gordhan.
An anti-graft probe published this month by the Public Protector focused on claims that the brothers, Ajay, Atul and Rajesh Gupta influenced the appointment of ministers.
It also called for an investigation into whether Zuma, some of his cabinet members and some state companies had acted improperly, triggering renewed calls for the president&#8217;s resignation.
President Zuma, who on Monday was facing a motion to remove him by members of his party, the ANC, has said that the Guptas are his friends but denied doing anything improper.
($1 = 13.7952 rand)﻿

S.Africa's Gupta family asks court to force release of details over closure of accounts

Having a plan when saving for retirement is half the battle won. Last month we examined how important it is to set goals when planning your long-term financial future. Since retirement saving often focusses on a goal that is decades in the future, it is inherently difficult. Breaking things up into short, medium and long-term goals helps immeasurably.
Following your financial plan requires consistency and discipline, and an awareness of the common hurdles you can stumble over on your way to building the nest egg you’re aiming for.
<ol>
<li>1.  Instant gratification</li>
</ol>
Warren Ingram, the executive director at Galileo Capital, believes that “our need for instant gratification” is “probably at the top of the list” of challenges people face when saving. On one hand, you could simply not be saving enough and instead spending what you should be putting away. On the other hand, it could be spending your retirement savings when changing jobs. Cashing out your pension fund to pay down debt (or simply spending it) can be one of the biggest hurdles to saving an effective sum for retirement.
The National Treasury is currently trying to address this issue by reforming elements of the retirement process, but it’s something that investors need to bear in mind when faced with the option of spending retirement savings.
<ol>
<li>2.  Inflation</li>
</ol>
One of the largest threats to saving in the long term is inflation (and it’s largely invisible!). Simply, inflation is the increasing cost of living that you need to keep up with, and ideally beat. The value of R1 000 today is less than it was one year ago, and will be worth even less as the years march on. With inflation averaging around 5% a year over the past five years, your investments need to return more than 5% to keep up.
This is where costs and fees come in. You need to factor them inbeforeyou calculate your returns versus inflation. Suddenly, a 6% annual return that looks great on paper but carries 2.5% in fees does not compare favourably with inflation at 5%. Ingram says people will generally know if they’ve invested in low, medium, or high-risk funds. But they won’t know what “a 2% difference in costs a year” actually translates to. This, he says, could be the difference between retiring securely or not.
<ol>
<li>3.  Asset allocation</li>
</ol>
Related to this, Ingram says a major obstacle is “incorrect asset allocation, where savers approaching retirement will typically be underweight in inflation-beating asset classes” (in other words, equities and listed property). The mistake investors sometimes make is to switch to so-called “safer” asset classes like cash without properly weighing the pros and cons with a financial adviser. Investors sometimes try to “buy certainty,” says Ingram “and the certainty is that they don’t beat inflation at all”.
<ol>
<li>4.  Exchange rates</li>
</ol>
We cannot help but pay attention to volatile exchange rates, especially during a period of sharp depreciation like the one we’ve seen in recent months. Asset diversification is an important tool for investors who want to protect themselves against depreciation, and there are numerous products available to South Africans that allow them to get exposure to other markets.
<ol>
<li>5.  Market crashes – or not?</li>
</ol>
Finally, what many consider an obstacle – market crashes – doesn’t necessarily have to be thought of as negative.
Ingram points out that in the long term there is a major market crash every seven years on average. “If you are saving and living for 60 years, [which you will likely be if you start saving in your early twenties,] you’ll experience eight or nine crashes.”
“The tide comes in and it goes out,” he says. The important thing is not to adjust your behaviour based on your emotions.
This also means that investors should be cautious about being over-optimistic when markets are doing well.
Consistency and discipline, especially in the lead up to retirement is critical. And if you don’t stumble over one of these common hurdles, you will likely execute your plan almost perfectly.
 
For more information on investing, speak to your financial adviser.
This article is part of an investment series by Discovery Invest.
Discovery Invest is an authorised financial services provider. Registration number 2007/005969/07. For more information on Discovery Invest, contact your financial adviser.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell investment funds.﻿

Don’t let these retirement stumbling blocks trip you up

Investing, like much in life, is a skill. Mastering it, however, is not as simple as sticking to theory. Choices in investing are often not black and white. Emotions can come into play and your personality type may influence how you invest your money.
The two “investment personality” extremes are quite straightforward: on one hand, there is the  risk-taker; on the other, an individual who is ultra-cautious.
We all know someone who’s a risk-taker – the kind of person who is comfortable making choices that can have extreme positive or negative consequences. We also all know someone who’s ultra-cautious – the kind of person who spends weeks buried in spreadsheets before they make the most straightforward decision.
However, not everyone falls neatly into one of these two categories. The majority of investors fall somewhere between the two extremes.
Discovery broker Louw Venter says that in the course of his work he meets many different financial personalities: “I see clients who lost money early and are now afraid, I see dreamy-eyed investors who are idealistic about how much money they can make, I see greed and I see fear. But you have to understand that everyone is different, and you have to work with the various personalities.”
Becoming better informed
It’s neither good nor a bad to be a  risk-taker, cautious investor or somewhere in between. What’s far more important isunderstandingyour investment personality. Identifying what kind of investor you are can help you make better-informed investment decisions.
The benefit of understanding your investment personality is that you can compensate for areas where you are weaker. For example, if you know you are a risk-taker, you should be able to actively adjust for your first instincts and possibly make more conservative investment decisions.
Venter says one of the important tasks of any financial adviser is to understand clients’ investment style: “The knowledge base of the investor is critical in determining a suitable investment strategy. The adviser needs to find this out by asking the right questions.”
Financial advisers understand the typical correlations between personality type, portfolio choices made and investment results. There is no one-size-fits-all answer. There never is. Your personality type is just one of the many variables (including life stage, debt, career, current portfolio) that you and any financial adviser have to consider when planning your financial future.
Risk friendly or risk averse?
The American bank BBVA Compass suggests <a href="https://www.bbvacompass.com/moneyfit/retirement/whats-your-investing-personality.jsp">there are a four basic questions</a> that will help you understand what kind of investing personality you have:
<ol>
<li>Can you tolerate a high risk of losing money?</li>
<li>Do you expect to make extremely high returns?</li>
<li>Are you comfortable with investing over a long period of time (more than 10 years)?</li>
<li>Will you need access to some or all of your money at short notice?</li>
</ol>
If you answered “yes” to all the questions, you are probably an aggressive investor: “You believe that over time, the stock market will go up. You are willing to take the risks of ups and downs in the stock market, because you believe that&#8217;s where the most money can be made.” Aggressive investors, who are comfortable with risk, tend to favour equities. Within equities, less cautious investors tend to make snap decisions. They may, for example, think nothing about sticking 5% of their portfolio in a new listing or in a small or mid cap that they’ve heard good things about.
Venter says that risk-loving clients can be more difficult to work with. “Risk-takers worry me the most – often they feel good when they make money, but when they lose money it becomes more difficult. These personalities like jumping into the deep end.”
However, he points out that there is a big difference between risk-takers who “have made volatility their friend and are prepared for the consequences” and greedy investors who try to make a quick buck, but do not have the necessary knowledge.
On the other end of the continuum are those who answered “no” to all the questions. These are ultra-conservative investors who typically steer towards cash and bonds, and are more concerned about the potential loss of capital than they are about potential returns. They simply don’t tolerate risk.
You’ll typically find that risk-averse individuals calculate and extrapolate virtually every possible eventuality before making an investment. They’re the kind of person who reads all the fine print, including (often complicated) costs and performance fee schedules. Their equity exposure is typically be via balanced funds.
From a financial adviser’s perspective, these clients can be more easily managed. “My role as a financial adviser is to make them comfortable with volatility over time – but you can do it slowly, until they feel comfortable with more risk,” says Venter.
Between the two extremes are those who answered “yes” to some questions and “no” to others, and these people are likely to balance their investments between the various asset classes, including equities and cash.
Finding a balance
Canadian investment resource <a href="http://www.investingforme.com/">Investing for Me</a> suggests that the first of those four simple questions (Can you tolerate a high risk of losing money?) is key in understanding what kind of you investor you are: “For the most part, an analysis of your investing personality is focused upon how you respond to losing money. Do you accept the loss and move forward? Or does the lost money bother you for days and months later?”
A knowledgeable financial adviser interprets your responses to these kinds of questions. Understanding your responses will assist you in finding an investment strategy that strikes a balance between offering you comfortandattempting to remove unhelpful emotions from your investment and saving decisions. This will allow you to compensate for your biases by increasing the equity portion of your portfolio if you’re too cautious, or making certain that you have exposure to other asset classes if you are too much of a  risk-taker. Your portfolio will be the better for it.
For more information on investing, speak to your financial adviser.
This article is part of an investment series by Discovery Invest.
Discovery Invest is an authorised financial services provider. Registration number 2007/005969/07. For more information on Discovery Invest, contact your financial adviser.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell investment funds.﻿

Understanding your financial personality can pay dividends

Research shows goals help to drive success in various areas of life such as your career and your health. When it comes to your financial future, goals are non-negotiable. Setting realistic goals and staying focused on them means you have the best possible shot at saving and investing successfully.
However, Warren Ingram, executive director at Galileo Capital, says that long-term financial planning is inherently difficult: “If you’re 25 and you set a goal to retire at age 55, that is so far in the future relative to where you are that the concept is almost academic.”
“That’s why so few people take their saving and retirement planning seriously”, he believes.
The goals are so far away that they’re simply “not realistic”.
Keep it SMART
The question then is how to make financial goals realistic. That’s where the well-known SMART system for (general) goal-setting is useful. The acronym suggests that every goal or objective should aim to be:
<ul>
<li>Specific – not ambiguous or vague, rather state exactly what is required</li>
<li>Measurable – necessary to quantify progress to achieve it</li>
<li>Achievable – not extreme, but something realistic</li>
<li>Relevant – goals that matter and</li>
<li>Time-bound – set a goal within a defined time frame.</li>
</ul>
This system applies to all goals, but being “SMART” is crucial to achieve financial goal. An example of a SMART financial goal would be: “By 2021 I want to have saved R100 000 to put towards a deposit on a second property worth R800 000 in the Douglasdale area.”
Short-term steps
Ingram also advises investors to create short-term goals that are realistic, in order to reach their long-term goal. He likens these to waypoints on a long journey: “Without these, after a while you won’t even know what direction to go.”
Take the SMART goal: “By 2021 I want to have saved R100 000 to put towards a deposit on a second property worth R800 000 in the Douglasdale area.”
In order to achieve this, you decide that your short-term goals (or “waypoints”) are to save an extra R20 000 for the next five years. You then narrow it down and write down more goals to indicate how you plan to save an extra R20 000 every year.﻿
<img loading="lazy" decoding="async" src="/media/19229913/oct_wealth.jpg" width="504" height="504" alt="Oct Wealth"/>﻿
Breaking up a barely comprehendible time horizon into chunks also means your plan won’t be too complicated.
Ingram does not believe it is possible to have too many goals. Nor is it possible to plan too far ahead – if you’ve broken down your goals down into attainable objectives.
“A goal would be just the way you budget every month, for example,” he says. “Or a goal would be to save every month. Having these allows you to measure better towards your bigger goal.”
Review progress
These waypoints help you to review your progress far more easily, and also provide helpful context when looking back over a few months, or even years. Ask yourself: How am I measuring up against that?’
Being able to track your progress regularly means you can also catch any issue quickly says Ingram. “It’s difficult to make a year’s worth of saving up in month 11, if you only notice it then!”
But setting goals can be difficult. Not everyone can whip up a spreadsheet in a few hours that has structured, attainable financial goals for the next five years.
Whether or not you need the help of a professional financial adviser to help set goals is “dependent on the type of person,” says Ingram. In a room of 100 people, 33 of them would probably be able to do this on their own, he says. A further 33 would have no idea of what to do, and the group in between would probably be able to figure out a rough plan, but would need some help.
Adapt where necessary
Of course, all financial goals need flexibility because life is unpredictable. A marriage or partnership is one of the key events that can be a reason for some goal adjustment because different (and sometimes conflicting) needs and wants come into play.
Ingram believes that any partnership should have common goals that both people work towards. But this doesn’t mean “that there can’t be independence between the two,” he adds. Common goals mean agreeing on a path, agreeing how much you are going to spend and how much you are going to save.
But when you’re faced with any fork in the road, you will have to make a decision about whether or not you need to adjust your goals, says Ingram. “There will be various factors that will influence you”. The bottom line is that you should always keep your eye on the long-term financial goals, and adjust your short-term steps for getting there if necessary.
 
Discovery Invest is an authorised financial services provider. Registration number 2007/005969/07. For more information on Discovery Invest, contact your financial adviser.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell investment funds.﻿

Goals: Keeping you focused on financial success

When David Magang opened Botswana&#8217;s first domestic law firm shortly after independence in 1966, he and his country were starting from scratch.
Since then, both he and the former British protectorate, which celebrates its 50th birthday this week, have travelled a huge distance based largely on Botswana&#8217;s vast diamond wealth. With those riches running low, the outlook is less rosy.
Trained in London, Magang was one of only two local lawyers &#8211; the rest being British or South African &#8211; while Botswana, an expanse of arid scrubland the size of France, had just 7 km (4 miles) of tarred road and a capital that amounted to little more than a railway station.
&#8220;On the face of it Botswana was very poor &#8211; good for hunting and not much else. It was basically an agrarian, subsistence society,&#8221; Magang told Reuters. &#8220;All we had was a railway, and that was owned by South Africa and Rhodesia.&#8221;
The 77-year-old is now chairman of a luxury golf and housing estate on the outskirts of Gaborone &#8211; still known by some as &#8216;The Station&#8217; &#8211; while Botswana is the world&#8217;s biggest diamond producer and one of Africa&#8217;s richest and most stable countries.
Its road network stretches for nearly 7,000 km, the government&#8217;s credit rating is the highest on the continent and per capita income has risen 13-fold to $7,000 thanks to growth averaging 8.2 percent a year, according to the World Bank.
Over the past half century, only South Korea and China boast such dramatic increases in national wealth.
&#8220;I compare it to an ant and an elephant,&#8221; President Ian Khama, the son of founding father Seretse Khama and his British wife, Ruth, told Reuters in his wood-pannelled offices in the heart of Gaborone&#8217;s bustling government district.
Outside his window, labourers hammered away near high-rise apartment and office blocks more akin to Dubai than the sleepy town romanticised in British author Alexander McCall Smith&#8217;s tales of Ma Ramotswe and her &#8216;No. 1 Ladies&#8217; Detective Agency&#8217;.
&#8220;It&#8217;s chalk and cheese when you compare what the country looked like back then to what it is now,&#8221; Khama said.
&#8220;EATING DIAMONDS&#8221;
To mark the 50-year milestone, armies of state workers have festooned street-lights with flags and daubed roadside rocks with sky-blue paint, Botswana&#8217;s national colour.
But the celebrations are also tinged with unease.
The cornerstone of Botswana&#8217;s success has been one commodity, diamonds, coupled with a rigid adherence to prudent use of their revenues, a rarity on a continent where natural riches are routinely squandered, stolen or the cause of civil war.
Besides roads, they have funded hospitals, schools and a welfare state that provides free healthcare and education to all, generous by African standards. There is also a $5.4 billion sovereign wealth fund and $8 billion in central bank reserves.
But each of Botswana&#8217;s 2.3 million people knows that, unlike in the movies, the gems do not last forever, and the breakneck growth they have fuelled in the past will not be repeated.
Even if output remains constant, with a growing and ageing population &#8211; life expectancy has risen to 64 despite one of the world&#8217;s worst HIV/AIDS epidemics &#8211; the net effect is a per capita windfall that shrinks a fraction each year.
&#8220;In a sense, we are eating diamonds,&#8221; said economist Keith Jefferis of Gaborone-based econsult. &#8220;There is no immediate threat to Botswana&#8217;s current &#8216;business model&#8217; but diamond mining is unlikely to provide economic growth in the future.&#8221;
NEED BETTER PEOPLE, NOT ROADS
In response, the government has achieved some success in its attempts to wean the economy off diamonds.
Mining made up just one fifth of GDP last year compared with half in the late 1980s at the height of the diamond boom, while financial services and tourism &#8211; the Okavango Delta is one Africa&#8217;s premier safari destinations &#8211; are growing fast.
But Botswana&#8217;s banks and hotels are not generating sufficient numbers of jobs to satisfy a population used to rapidly improving standards of living. Unemployment is stuck above 20 percent and is more than double that for young people.
&#8220;So many graduates are just street-walking with no jobs,&#8221; said Marks Leselwa, a 53-year-old labour claims adjudicator in Gaborone. &#8220;I&#8217;m worried by the fact that there is no employment.&#8221;
This is not to say Botswana is doomed.
Improvements in mining technology and new discoveries mean the &#8216;end of diamonds&#8217; once forecast for 2018 has been pushed out to as late as 2050, Khama said, giving time to address one acknowledged failing: high-quality education.
&#8220;Modern economies are propelled by people who have been properly trained. One of the mistakes we made is not training people to be doers and creators,&#8221; Magang said. &#8220;But I&#8217;m an optimist. We can easily fix that.&#8221;
 
(Reporting by Ed Cropley; Editing by Richard Balmforth)﻿

Botswana: Diamond wealth won't last forever

Our personal money management often falls into the “tomorrow is another day” denial space. Many of us don’t take our personal financial health seriously enough. We often just get by and don’t look to improve our personal money habits or to prioritise our goals.
Pause and ask yourself the following:
1. Do you fear money – or the lack of it?
Many of us have various (and at times, contradictory) phobias about money: we fear not having enough but we also dread and put off the necessary actions to prevent this from happening (such as deferring certain purchases, investing and engaging a certified financial planner).
Consider that financial failure and success don’t happen randomly. These outcomes are the direct results of good or bad decisions and disciplined financial habits. Financial freedom is achieved by having a sound financial plan or a road map and sticking to it over the long term.
2. Do you believe the money myths?
Many of us grow up believing various myths about money, to the detriment of our potential financial success. Some of these include:
&#8211;          If you earn more you will be rich
&#8211;          My partner will always take care of me
&#8211;          Inflation is not a significant problem
&#8211;          Women are not good with numbers
&#8211;          Money can’t buy happiness (neither can poverty)
&#8211;          If you work hard you will be rewarded financially
&#8211;          Having money means having fewer worries
&#8211;          Financial matters are too complicated to understand
&#8211;          Financial planning should be left to the experts
&#8211;          Credit makes purchasing easy
&#8211;          Money is the best indicator of success
These are just myths. By taking control of your finances, you can work towards a comfortable retirement, irrespective of your family history or earning potential.
3. Can you set achievable financial goals?
Do you have achievable short, medium and long term financial goals? By aligning these with your personal spending plan, you will be able to build a solid capital base for retirement. Be sure your financial goals are achievable and stick to your financial plan. Make a point of sitting down each year to reassesses these goals.
4. Have you considered hiring a financial advisor?
Have you ever thought of hiring a financial guide? If you do wish to, ask your potential financial guide the following questions:
&#8211;          Are you suitably qualified and what type of advice are you licensed to dispense?
&#8211;          Are you an independent advisor or are you a tied agent?
&#8211;          Which institutions do you prefer to use and why?
&#8211;          What type of remuneration do you prefer: commission or fee-based?
5. Do you spend according to a financial plan?
One of the first steps to sound personal financial management is preparing a spending plan or budget. Break the budget up as follows;
&#8211;          Income
&#8211;          Fixed Expenses
&#8211;          Variable Expenses
&#8211;          Discretionary Expenses
Be honest with yourself: don’t ignore those “guilty pleasure” expenses, budget for them. For a month, record each purchase, then reconcile your monthly expenses and bank statement to your spending plan and adjust and improve it where necessary.
6. What is your attitude to debt?
There are two types of debt: “good debt” and “bad debt”. Good debt – such as a mortgage or a car loan – should provide a positive return in time. An investment in a house can provide a positive return over time should you add value to the property through cost-effective upgrades or property prices in the area increase; the purchase of a car enables you to be economically active and earn a return on the investment in that way. Problems arise when we overextend ourselves and abuse “bad debt”, which is often short-term debt used to fund a lifestyle as opposed to purchase an asset that could appreciate. Items such as clothing, gadgets, holidays, expensive gifts and other consumables of little lasting value are the main culprits for the rising tide of bad debt across society.
We need to take our money seriously today to secure our financial future tomorrow. Be a master of your money rather than a slave to your debt: take back your financial freedom.﻿

Do we take our money seriously?

A quote about compound interest being “the eighth wonder of the world” is often attributed to Albert Einstein. Whether the famous physicist actually ever said these words is <a href="http://skeptics.stackexchange.com/questions/25330/did-einstein-ever-remark-on-compound-interest">up for debate</a>, but the sentiment about the value of compound interest is not.
Compounding is the central pillar of investing – it is the reason investing works over the long term. <a href="http://www.investopedia.com/">Investopedia</a> describes it as “the process of generating earnings on an asset&#8217;s reinvested earnings”. Simply, over time, you are earning returns on previouslyreinvested money. Or, interest on interest.
Reinvestment of returns
Reinvestment of returns is key and it makes a fundamental difference. Saving R10 000 at a return of 6% and withdrawing your interest every year means at the end of 10 years, you’ll still have R10 000, with R600 each year in returns (or R6 000).
But reinvest the returns and by year two you’re generating returns on R10 600; by year three you’re generating returns on R11 236, and so on. You are earning more interest each year because the amount invested each year is increasing, without you making any additional investments.﻿
 <img loading="lazy" decoding="async" src="/media/19218902/sept_wealth_600x600.jpg" width="600" height="600" alt="Sept Wealth"/>﻿
The compound interest gained on the initial amount of R10 000 may not seem significant, but if applied to larger figures the effect of compound interest becomes substantial.
And time is everything. No wonder financial advisers urge you to start saving when you are in your 20s or 30s. You have time on your side and that alone is half the battle won.
Time – an investor’s ally
Saving for as many years as possible can have a very positive effect – thanks to compound interest. This is illustrated by the story of Xoliswa and Mark.﻿
 <img loading="lazy" decoding="async" src="/media/19218989/sept_wealth_2_600x600.jpg" width="600" height="600" alt="Sept Wealth 2"/>﻿
Let us imagine two university graduates, Xoliswa and Mark, both starting out their careers.
From age 25, Xoliswa saves R4 000 a month in a unit trust ­ a steep ask, but she’s disciplined. Over time, the unit trust she’s invested in generates a return of 8% per year, on average. After a decade, by age 35, her investment will be worth R731 784. The amount she’s saved every month totals R480 000 but the rest of that growth – R250 000 – is all due to compound interest. At this point, Xoliswa decides to stop her monthly contributions.
Leaving compounding to work its magic means her investment will have grown to R5.37 million by age 60. Remember, this is with no additional contributions.
Mark, on the other hand, is 35 when he decides he needs to make sure he has money saved for retirement.
He also saves R4 000 a month in a unit trust, and is also lucky enough to receive an average return of 8%. He is starting later than planned, but he’s certain he will catch up to Xoliswa: he has 25 years until he retires.
By age 60, Mark will have R3.8 million saved, and he is happy. His contributions over this time will amount to R1.2 million, with interest totalling R2.6 million. Compounding did the trick for him too.
But because of the benefit of time – a head start of 10 years – Xoliswa has over R1.5 million more saved, despite contributing only 40% of what Mark contributed (R480 000 versus R1.2 million). Those 10 years make a remarkable difference, and illustrate the benefit of saving – and putting compound interest to work – as early as possible.
But if you are more like Mark, and have not started saving yet, do not panic. You always have time ahead of you. The most important thing is just to start.
For more information on investing, speak to your financial adviser.
This article is part of an investment series by Discovery Invest.
 
Discovery Invest is an authorised financial services provider. Registration number 2007/005969/07. For more information on Discovery Invest, contact your financial adviser.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell investment funds.﻿

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wealth

Can I and should I live off my investments’ interest?

A head start for your children

8 common investment errors

S.Africa's Gupta family asks court to force release of details over closure of accounts

Don’t let these retirement stumbling blocks trip you up

Understanding your financial personality can pay dividends

Goals: Keeping you focused on financial success

Botswana: Diamond wealth won't last forever

Do we take our money seriously?

The beauty of compound interest

News Tips

Advertise With Us

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