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Ninety One launched its Women and Investing Hub more than three years ago, and since then, a wealth of practical tips and guidance has been accumulated to help set women on the path to financial success. Kotie Basson, Head of Marketing for the Africa Client Group at Ninety One, scoured the hub to compile her favourite ABCs of investing and help demystify what can be a confusing topic.
A
Asset allocation
Asset allocation is the practice of spreading your investment portfolio among different asset classes such as equities (or shares in listed companies), bonds, cash and offshore investments. Each have different levels of risk and volatility, so by allocating your investment across asset classes you balance the risk and reward according to your risk appetite and time horizon.
B
Budget
Budgeting is a fundamental aspect of financial success. Create a realistic budget that takes into consideration your income, expenses, and savings goals. Be diligent about tracking your spending and adjust as needed. A well-managed budget not only helps you save more but also means that you clearly understand where your money is going.
C
Compound interest
Not for nothing is compound interest called the eighth wonder of the world, and the sooner you start investing, the longer compounding has to work in your favour. Essentially, the money you invest earns interest. Then you earn interest on the money you originally saved, plus on the interest you’ve accumulated. As your savings grow, you earn interest on a bigger and bigger pool of money.
D
Diversification
Diversification is a key investment principle for reducing risk. It comes down to not putting all your eggs in one basket. By spreading your investments across different asset classes, industries, and geographic regions, you can potentially reduce the risk in your overall portfolio, so that a downturn in any single investment should have less of an impact on your returns. Consider a multi-asset unit trust like the Ninety One Opportunity Fund if you’re investing for the long term – a professional fund manager makes the decisions on allocating between the various asset classes. These funds can also hold up to 45% in foreign assets, so offshore investments are included too.
E
Emotion
Don’t let emotion derail your investment strategy. Greed can drive investors to chase hot trends or take excessive risks in pursuit of higher returns, while fear can cause them to panic and sell their investments during market downturns (which is usually the very worst time). A professional financial advisor can help you avoid falling in an emotion trap and keep you on track.
F
Financial advice
Personal finance can be complex, with investments, tax, risk and estate planning just some of the considerations. A professional financial advisor can help you set realistic financial goals, draw up a plan and partner with you as you adapt to changing needs and circumstances. If you don’t yet have an advisor, check out our list of qualified and licensed advisors from around the country who can help you make informed investment decisions.
G
Growth engine
Think of equities, or shares in companies listed on a stock exchange, as the growth engine of your investment portfolio. They represent ownership in companies, and historically, they have provided higher returns compared to other asset classes over the long term. While they come with more risk, they also offer the potential for significant growth and should be an important component of any diversified portfolio.
H
Hype
Don’t be distracted by what your friends and colleagues are investing in or be influenced by social media frenzies and market hype. If it sounds too good to be true, it probably is. Trust the financial planning process and your investment partners and be patient. Consistency and good investment decisions compound over the long term, resulting in great investment outcomes for good investors.
I
Inflation
Inflation is the silent enemy that erodes the value of money over time. Rising prices mean your money today won’t be able to buy the same goods and services in the future if you don’t grow it faster than inflation. To outsmart this stealthy invader, you need to ensure that funds you’re allocating towards your long-term needs retain their purchasing power.
J
Just start
Procrastination is the enemy of investing success. Don’t wait for the ‘perfect’ moment to start investing – begin now, even if it’s with small amounts. Time in the market beats timing the market.
K
Kids and intergenerational wealth transfer
Planning for your children’s financial well-being involves more than just saving for their education or future expenses; it’s about laying the groundwork for a legacy that extends beyond your lifetime. Protecting and growing family wealth requires careful planning. We have developed the Ninety One Family Office to help you create prosperity for your family that can span many generations.
L
Long-term perspective
Investing is a marathon, not a sprint. Remember that most investors have a very long investment horizon, typically up to 40 years during your working years and conceivably another 30 years or more after retirement. This is why portfolios should have a meaningful allocation to growth assets, like equities, which, while more volatile in the short term, provide the best returns in the long term.
M
Managing debt
While debt can be a useful tool for achieving important goals like buying a home or investing in education, it can also become burdensome if not managed properly. High-interest debt, such as credit card debt, can quickly spiral out of control and hinder your ability to build wealth and achieve financial security. By effectively managing debt, you can minimise interest costs, improve your credit score, and free up resources to allocate towards savings and investments. Developing a debt repayment plan that prioritises high-interest debt, and avoiding unnecessary borrowing are essential steps to managing debt effectively. By taking control of your debt, you pave the way for a healthier financial future and greater peace of mind.
N
Needs versus wants
Distinguishing between needs (essential expenses required for survival and well-being) and wants (non-essential or discretionary expenses) is crucial for effective budgeting and financial planning. Prioritising needs over wants can help you allocate resources more efficiently and achieve your financial goals more effectively.
O
Offshore investing
The South African stock market comprises less than 1% of the world’s listed capital markets, while our GDP is less than 0.5% of global GDP. An offshore investment is an excellent way to tap into opportunities across countries, industries and companies that may not be available here. At the same time, you’re diversifying your portfolio, which reduces the overall risk. And let’s not forget that the rand is one of the world’s most volatile currencies, so investing in assets denominated in different currencies reduces the impact of rand depreciation or political and market events on your wealth.
P
Preserve your retirement savings
When changing jobs, the temptation to cash out your retirement fund can be strong, especially when faced with immediate financial needs. However, it’s important to resist this urge and consider the long-term consequences. Instead, explore options like rolling over your retirement assets into your new employer’s plan or transferring them to a preservation fund. By preserving your retirement assets, you maintain the momentum of your savings journey, ensuring financial security in your golden years.
Q
Quick fix
While it’s natural to seek immediate solutions to financial challenges, remember that there are no short cuts to lasting financial success. Building true wealth requires time, patience, and discipline. Quick-fix schemes are more likely to lead to financial ruin than progress. Instead, focus on establishing sound financial habits, such as budgeting, saving, and investing for the long term, with the help of a qualified financial advisor.
R
Risk
Don’t assume bank accounts or money market accounts are the safest options. Over the long term, they could be riskier, because while you may not lose money in nominal terms, in real terms your investment is not keeping pace with inflation and you’re actually getting poorer. Investors who have a long investment horizon should be prepared to ride out the short-term volatility that comes with riskier investments like equities. Markets go up and down, and it may sometimes feel scary. Over the long term, however, equities tend to provide the best growth.
S
Statistics
- Statistically, 34% of women say their financial situation keeps them up at night at least once a month.
- Statistically, women live longer than men but retire with 30 to 40% less money.
- Statistically, 85% of women manage everyday expenses but only 23% take the lead in long-term financial planning.
Let’s change these statistics and carve out a better financial future for ourselves.
T
Tax-efficient investments
There are several tax-efficient investment vehicles that can help you minimise your tax liabilities and maximise returns. These include:
Retirement annuities (RAs) are long-term investment products designed to help individuals save for retirement. Contributions made to RAs are tax-deductible, meaning you can reduce your taxable income by contributing to an RA. Additionally, the growth within the RA is tax-free, although retirement cash lump sums will be taxed according to the retirement tax table. You’ll also be subject to tax on retirement income you draw from your living/life annuity.
Tax-free savings accounts (TFSAs) allow you to invest up to R36 000 a year (and a life-time contribution of R500 000) without paying any local tax on the returns earned. This includes interest, dividends, and capital gains.
Employer-sponsored retirement funds also provide a tax-efficient way to save for retirement, and like RAs, contributions are tax-deductible up to certain limits and the growth within the retirement fund is tax-free. However, retirement cash lump sums will be taxed according to the retirement tax table. You’ll also be subject to tax on retirement income you receive from your pension/annuity.
Sinking fund policies are insurance policies that offer attractive tax benefits for investors with a marginal tax rate above 30%. All tax is deducted within the policy (for example, capital gains at only 12%).
U
Update your financial plan
Regularly review and update your financial plan with the guidance of your financial advisor to ensure that it remains aligned with your goals, financial situation and changing life circumstances.
V
Volatility
Volatility is part and parcel of investing and refers to the fluctuation in asset prices over time. Sometimes, volatility can be uncomfortable, but here’s the thing: it’s not necessarily bad. It can present buying opportunities for active asset managers like Ninety One. By understanding and embracing volatility, you can navigate market turbulence with confidence, knowing that staying the course and sticking to a well-considered plan often leads to long-term success.
W
War chest
A war chest is your emergency fund, there to keep you safe from unforeseen expenses that threaten to trip you up. As a rule of thumb, ensure you’ve saved at least six months’ worth of income. Don’t dip into your emergency fund and remember to top it up regularly as your income increases. Individuals and businesses typically use a money market fund as a vehicle to build their war chest.
X
(e)Xpectations
Managing your expectations is essential for successful investing. While markets can deliver strong returns over the long term, they are also subject to short-term fluctuations and uncertainty. Setting realistic expectations based on historical market performance, economic conditions and your own risk tolerance can help you stay focused on your investment goals and avoid making impulsive decisions based on emotion.
Y
Yesterday
There’s an old saying that goes: “The best time to invest was yesterday. The second-best time is today.” If you start investing at a young age, it becomes a habit. If you start later in life, it can be daunting but it’s never too late. Do it in small steps. Those small steps start compounding and ultimately yield good results.
Z
ZAR
Few things influence the national mood quite as much as the performance of our currency. When it’s strong, we feel good; when it weakens, we feel depressed. However, the important thing to remember is that the rand tends to depreciate over time against major developed market currencies (with massive short-term swings). It’s just another reason to have a well-diversified portfolio to cushion against the vagaries of our currency.
With its Women and Investing Hub, Ninety One hopes to empower women to make confident financial decisions for their families, their business, and their future. So, whether you dream of owning your own home, starting a business, providing for your children’s education, or securing a comfortable retirement, it all starts by setting goals and taking the first steps. Start today by visiting the hub for more investment advice and to sign up for regular Women and Investing content and updates.