Personal investing

Take charge of your finance this Women's month

A man is not a financial plan and women today are becoming more aware of the fact that they must take ownership of their finances. August is Women’s month, so we use this opportunity to pose three key questions to Jeanette Marais, director of distribution and client service.

1. What types of products and assets are you invested in for your own long-term savings and retirement?

Our investment choices depend on our investment goals, and our investment goals depend on our personal priorities in life. There is no generic recipe that applies to everyone. Even though certain goals may be similar in nature, we all have different timelines, risk profiles and personal circumstances, and our portfolios need to be constructed accordingly.

My portfolio reflects my long-term focus on saving towards a comfortable retirement. I make us of a retirement annuity fund, with the Allan Gray Balanced Fund as its underlying investment. A good balanced fund, managed by a great manager, gives you complete peace of mind because investment decisions are left in their hands. You can invest up to 27.5% of your salary in an RA tax free (capped at R350 000), so I aim to make the best use of this that I can each year.

I supplement my RA with a tax-free investment account, which allows me to invest R33 000 annually and benefit from growth free of dividends tax, income tax on interest and capital gains tax.

If I look at my monthly basket of goods, many are imported. I therefore have about 40% of my overall portfolio in offshore investments to allow me to broaden my exposure and access companies and sectors that aren’t available locally, and to protect me from rand weakness. South Africa is only 1% of the world market, so it’s a good idea to maximise offshore equity investments for maximum long-term growth potential. Over the long term inflation (not earning real growth) is your greatest enemy.

I have a small investment in a money market fund in case of emergencies and unexpected expenses.

Make conscious choices

Understanding how much risk you are comfortable taking on, and how much return, ideally, you need to achieve, and investing accordingly, is key to allowing you to remain disciplined and committed to your investment plan. This can be difficult at times: between the fear of losing hard-earned cash and the fear of missing out on a great opportunity, it is understandable that many investors get distracted along the way and have the urge to chop and change their investments. If you make conscious choices based on your personal profile, it is easier to stay committed to your long-term plan. A financial adviser can help tailor your savings to suit your characteristics and objectives and ensure that you have a diversified portfolio that caters for both short-term and long-term goals.

2. Do you consider this the right mix of investments in what may be a low-return environment going forward?

The current environment locally and internationally highlights the importance of having a long-term investment plan and a diversified investment portfolio. I have structured my portfolio for multiple scenarios, so I am satisfied that I am reasonably well positioned for a low-return environment. I’m not too worried about the short term. I have time, and know these are just cycles that will correct.

Diversification is key. In my balanced fund the portfolio managers have many levers to pull to ensure decent returns. If they see potential in equities, the fund will have a larger equity exposure. When equities do well, they will cash in the gains and look to invest in other asset classes that offer potential over time.

My offshore investment gives me the opportunity to get return from sectors and shares that aren’t available locally. Again my offshore investments are in mutual funds (which are similar to unit trusts). I have handed over the tough stock picking and asset allocation decisions to the professionals.

Adopt a long-term approach

If you have chosen the right fund with a long-term track record of performing through the cycles, or created a portfolio that is well-diversified across currencies and asset classes, a changing environment shouldn’t make you panic. A diversified portfolio limits the risk of permanent capital loss, but still maximises the probability of real returns, even in a low-return environment.

Of course it is important to regularly review your portfolios, but caution against making investment decisions that are in reaction to market news and movements. 

While it is clear that we are currently in a period of uncertainty, investors must try to remain calm, tune out the market noise, and continue investing in line with their objectives and risk tolerance. If you second guess your investment strategy based on short-term news, you can end up destroying a lot of value.

If your portfolio includes holdings in well-diversified businesses whose earnings are generated offshore and not in South Africa, there is a good chance that the fund you are invested in is well-positioned to withstand changes in market sentiment.

3. What investment mistakes have you made in the past that you have learned from, and that could serve as a lesson for all of us?

I have made many investment mistakes along the way. Two important lessons for readers: avoid dipping into the cookie jar and avoid switching indiscriminately:

Avoid dipping into the cookie jar

Many years ago when I was changing jobs I decided to cash in my retirement savings and use the money to buy a house. This seemed like the right decision at the time, but I didn’t fully understand the impact it would have on my retirement savings. My message to readers is to guard against dipping into your retirement savings when you change jobs unless you absolutely have no choice. Not preserving sets you back further than you think: Not only will you have to start all over again, you will also miss out on the full power of compound interest.

A small investment made early will deliver so much more than a larger investment made later; making the first 10 years far more important than the last. For example, if one person invests R1000 a month for ten years and then stops but remains invested for the next 30 years (a total of R120 000 contributions), and another invests R1000 per month for the last 30 years (a total of R360 000 contributions), they both end up with the same amount at the end of the 40-year period.

Avoid switching indiscriminately

Another mistake that has cost me is following my heart and not my head by selling out of an investment as it was falling. Acting emotionally, rather than rationally, meant I locked in losses. With hindsight, had I waited, I would have done much better.

Often when your unit trust doesn’t perform as well as you would like, or if there is a period of extreme volatility in the market, you may be tempted to sell one fund and buy another, otherwise known as “switching”.

Switching when the market has dipped can destroy the value of your investment. Timing the market correctly is extremely difficult, and responding emotionally may take you much further from your investment goal.

Do careful homework at the outset to make sure you pick an investment you are comfortable sticking with. Give your investment manager the opportunity to really make your money work for you. You should change your portfolio when your investment objectives have changed, and not in response to market movements.

Know your goals, choose what is going to be right for you and avoid these basic mistakes. If you find the decision-making process too complex or daunting, consider talking to an independent financial adviser.

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(a) I am not a South African citizen; or 
(b) I do not reside in the Republic of South Africa; or 
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