Women’s Month: 10 steps to owning your financial future

I found an interesting article published by Ninety One asset managers and seeing as we celebrate women’s month in August, I thought it would be nice to share. For me personally, the most important point is point 1. Like the Nike’s slogan rightly says:   Just do it. It is so satisfying to see how your money grows, even if you just start with a monthly debit order.

It is also very empowering to take charge of your own finances. The right professional help is out there. Again, just ask, your financial adviser should be your coach and your best friend.

1. Get started!
There’s an old adage 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 do
it in small steps. Be realistic and remember that it’s like dieting: if you
aim too high – eg, losing 20kg – and then don’t, you’ll just give up.
Many people also don’t start investing because they think everything
must first be perfect. They’re waiting for the day when they get ‘that
job’, or for when they’re married, and think that’s when they’ll start.
But ‘one day’ never comes.
Those small steps start compounding and ultimately yield good
results. It’s common for women to feel overwhelmed in their early
30s. They want to buy property and need investments as well as a
retirement fund. But you can’t get there overnight. Just make a start
and build on it incrementally.
People also tend to change jobs in their 30s and cash in on their
pensions. The reason is that R100,000 sitting in a pension fund doesn’t
feel like a lot when you need to pay off your home loan or credit card
debt. But if you don’t leave that R100,000 to grow, it will never be a
million. It takes time to build wealth, so be patient.

2. Don’t be afraid to ask for help
Investing can seem overwhelming, so if you’re unsure, rather leave
it up to a professional. Your best bet is a financial planner who can
take you on a journey – someone who gets you, understands you,
and is prepared to challenge your thinking as well as support your
thinking. Women are very good at taking advice – and following it.
They tend not to be ego-driven and have a sound idea of why they’re
investing. There’s a purpose behind it – often for their families and for
experiences they want to have.

3. Don’t confuse saving and investing
There’s a fundamental difference between saving and investing. Savin
is the act of preservation. So, if you’re going to need your money in the
short term – anything up to two years – you don’t have to invest that
money and it should rather be kept in a cash-type product, where the
capital or integrity of the capital will be maintained. But as soon as you
don’t need that money, or don’t need it for a protracted time – you’ll
start losing value if it’s held in a savings account. Then, you’ll be better
off investing that money or committing it to an investment product.
That’s when you’ll get the compounding effect.

4. Beware of putting all your eggs in one basket
It’s important to have a diversified set of investments rather than
betting on a single asset. By allocating your investment across
different asset classes (i.e. equities, bonds, cash, property and credit)
and geographies you reduce your risk and are more likely to maximize
returns as these asset classes react differently to changes in market
conditions. A multi-asset unit trust is a good place to start, as a
professional fund manager makes the decisions on allocating between
the various asset classes. These funds can also hold up to 30% in
foreign assets, so there is offshore exposure included too.

5. Debunking the myth of playing it safe – take on enough risk
Don’t make the mistake of thinking bank accounts or money market
accounts are the safest options. Over the long term, they’re riskier,
because while you may not lose money in nominal terms, in real
terms, your investment is not keeping pace with inflation so you’re
actually getting poorer. Remember too that most people have a long
investment horizon and can afford 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, but over the long term, equities
tend to provide the best growth.

6. Embrace the magic of compounding
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. Here’s a simple illustration.
Say you invest R100 and the annual interest rate you earn is 10%. In the
first year, you’ll earn R10. If you didn’t have compounding, you’d also
earn R10 in the second year, and in the third, and so forth. So after
10 years, you’d have R200 (your initial R100 plus the R100 interest
earned). However, with compounding, you’ll earn the 10% interest on
the R110 (R11,00) in the second year, and in the third year, you’ll earn
interest on the R121. So, by the end of the 10 years, instead of having
earned R100 in interest, you’ll have earned almost R160, bringing your
total investment to R260.
R100 invested in year one:
– The value of your R100 after 10 years without compounding earn interest on investment: R200
– with compounding earn interest on interest: R260

7. Keep track of how much you should invest
The rule of thumb is to invest 15-20% of your income, but ultimately,
it’s a personal decision that depends on various factors. If you start
investing in your 20s, you can work on approximately 15%. But if you
start a little later, in your 30s, it needs to increase to around 20%. The
older you are and the later you leave it, the bigger the number should
be. While 20% is a safe bet, it’s just a guideline, and it would serve you
to exceed it.

8. Analyse your spending habits
It’s easy for experts to say you should invest, but where does one find
the money when everything is important? Think of your money in three
separate buckets:
Your needs; Your wants and Securing your financial future.
Often the trick lies in having a closer look at your spending habits to
understand where your money’s going. When you go through it with a
fine-tooth comb, it may not be that hard to find a couple of hundred here
and there, and you can start your investment journey. You won’t start
with a million rand – the whole point is to make a little grow to be a lot.

9. Keep your emotions in check
It’s often emotions that sabotage investments most in the beginning,
which is why it’s important to examine your relationship with money
and share your experiences with your financial planner, if you have
one. In the end, your ability to ride the rollercoaster will be crucial.
In the investment world, the difference between what investors see
as a return over time and what the market gives them is called ‘the
behaviour gap’. When markets do well, they want to invest, and when
markets crash, they pull out. This can have a major impact on returns,
as investors mostly get it the wrong way around – you’re supposed to
buy when it’s low and sell when it’s high.

Sell when high
Buy when low

10. Women are risk-aware, not risk-averse – embrace it!
Women and men approach money and investing differently. A panel
discussion in the US showed that when men talk about investments,
they want to know what the returns will be. Women will state their
goals and ask how to achieve them – which means they want to know
about the entire process behind the investment planning. Furthermore,
women in particular gain a lot by talking through things and analysing
and processing concerns. So, empowering conversations – with
daughters, friends and more – go a long way to learn from each other
and share advice. Money doesn’t have to be daunting; and investing
doesn’t have to be complicated and scary.

Credit: Ninety One

Yvonne Velthuysen

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