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IOL News
3 days ago
- Business
- IOL News
Your investment, retirement, and insurance questions answered
PSG answers the investment, retirement, and insurance questions. Image: Freepik With industries and trends changing rapidly, I often feel tempted to change my investment strategy (specifically the portion of shares that I've invested in). Can you advise me on how to navigate these "hypes" and remain committed to my financial plan? Alexi Coutsoudis, Wealth Adviser, PSG Wealth, Umhlanga Ridge In today's fast-paced, always-connected world, the sheer volume of investment news and social media commentary can be overwhelming. This constant stream of information and success stories often fuels the urge to adjust investment strategies in response to the latest winners. However, staying focused is essential to preserving your long-term financial plan, as yesterday's winners can become tomorrow's losers. Warren Buffett put it best: 'To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.' One of the most effective ways to manage the pressure of 'investment FOMO' is to recognise a key truth: individual stock selection has far less impact on long-term portfolio performance than your overall asset allocation does. In other words, how much you invest in equities matters far more to long-term performance than which specific shares you pick. Even with a few standout stocks, consistently outperforming the market is rare. What's more damaging to long-term returns is being underexposed to equities altogether. That's why your focus should be on aligning your portfolio with your risk tolerance and long-term goals, rather than being tempted to chase the next big thing. Finally, one of the most powerful defences against emotional decision-making is getting caught up in the hype is working with a Certified Financial Planner®. A trusted adviser offers objective guidance, helping you filter out noise and stay committed to your strategy — even when headlines suggest otherwise. Market trends come and go, but a disciplined, well-structured plan is what builds lasting wealth. I am currently working full-time and would like to use a portion of my salary to invest in starting my own business, but I also need to keep paying rent and other living expenses. Do you have advice for how I can achieve this and remain financially stable? Dulcie Weyks, Financial Adviser, PSG Wealth, Waterkloof Starting your own business while working full-time is a smart way to lower financial risk, but it takes planning to stay on track. Begin by understanding your monthly budget. Make sure your essential expenses — rent, groceries, transport, and debt repayments are covered. Then calculate how much of your remaining income you can safely set aside for your business without affecting your day-to-day living. Open a separate account for your business savings and contribute to it regularly. Even a small monthly amount can grow over time and give you a solid starting base. A study by the Kauffman Foundation found that nearly 65% of successful entrepreneurs launched their businesses while still employed, proving that steady progress can pay off. Start small. Choose a business idea with low upfront costs — like a service or online offering — that you can manage in your spare time. This approach keeps your risk low and allows you to test your idea before investing more. It's also wise to build an emergency fund with at least three months' worth of living expenses. This safety net gives you breathing room if the unexpected happens or income is tight for a while. Use your evenings and weekends to build your business gradually. As it grows, you can reinvest profits rather than taking on debt. With a steady income, a clear plan, and the discipline to build step by step, it's entirely possible to start a business without putting your financial stability at risk. I've just started a new job and I'm finally able to start putting additional money away towards my retirement. What do I need to be aware of to maximise my strategy? Kim Wheeler, Wealth Manager, PSG Wealth, Northcliff Only around 6% of South Africans can afford to retire when they hit retirement age. Think of it this way: for every R4,500 to R5,000 per month of income (after tax) you will need for your retirement, you are going to have to have invested R1 million, and then still hope you do not outlive your funds. This is why it is always good to start working on making your retirement secure early in your career. The earlier you start, the better. After all, the 8th wonder of the world is the power of compound interest! But it is never too late. In South Africa, there are several advantages to contributing to a retirement fund: A deduction of up to 27.5% of your taxable income (capped to a maximum of R350,000 per annum) in respect of your contributions is allowed, which reduces your taxable income – so this earns you tax relief. The growth in the investment is not taxed. On retirement, the first R550,000 of all cash lump sums you take is tax-free. Retirement funds fall outside of your estate, so when you die, your heirs can benefit without the burdens of estate duty and executors' fees. Remember that if your retirement fund is your only source of retirement income, you will need to take into consideration that you will pay tax on your income at your marginal tax rate. So, it is always advisable to have some 'discretionary' money set aside to top up your income or to meet unforeseen expenses. A qualified financial adviser can help you draw up a retirement plan tailored to your needs. I haven't started saving for my long-term goals. What's the best strategy for a 10-year investment? Kobie Kritzinger, Wealth Adviser, PSG Wealth, Menlyn Congratulations on taking the first step to start saving towards your long-term goals. Given that you have not started saving yet, you might have to play catch-up and allocate a bigger portion of your budget towards your investment. This means you may have to make some lifestyle sacrifices. The other commitment you have to make is an emotional commitment. Investors underestimate the risk posed by inflation on investments over the long term. There is a perceived sense of safety in having your money in a bank account earning interest. Interest is a wolf in sheep's clothing, because it is taxed and cannot beat inflation over the long term. Growth assets such as local and international equities are the only assets that can beat inflation over the long term. I like to refer to equities as the 'hard-working' money. Your behaviour during the different market cycles will determine the success of your investment, meaning that if you make emotional decisions, it could affect your investment. A qualified and experienced financial adviser can craft an investment plan tailor-made to your unique circumstances and help you stay the course and achieve success. I recently heard about the concept of 'duty of care' regarding car insurance. In the context of car keys, which we often hand over to multiple people in our normal daily interactions, how does this work? Ryno de Kock, Head: Distribution, PSG Insure Duty of care is a legal obligation that all insured parties must take reasonable care to protect their insured assets. There are many situations where you may unknowingly neglect your 'duty of care' requirement when it comes to safeguarding car keys as many of us may find ourselves in situations where we hand over our keys to third parties. While in most cases, it might be handed over to trusted parties, we need to exercise caution in certain situations. Some examples include: The car wash A quick trip to the car wash includes handing keys over without knowing where they are being stored, leaving your vehicle vulnerable to theft. Keep in mind that criminals may attempt to claim your keys without your knowledge by pretending to work for the carwash you are leaving your vehicle at. It is your responsibility to prioritise the safety of your vehicle. It's always best to choose a reputable car wash with clear security measures and protocols in place. Airport parking Leaving your car at the airport for a long period is convenient, but if your arrangement involves handing over the keys for valet or repositioning services, there's a risk of damage or even theft. Before you travel, speak to your adviser to make sure you're covered for any unexpected incidents. Ultimately, ensure you have comprehensive cover in place. Reach out to one of our qualified advisers for more information. PERSONAL FINANCE
IOL News
26-04-2025
- Business
- IOL News
Your investment, debt and financial questions answered
How can understanding the difference between risk appetite and risk tolerance help me develop my financial strategy? Shreekanth Sing, Wealth Adviser, PSG Wealth, Northcliff, Johannesburg When developing a financial strategy, a key element is understanding the required level of risk you need to take to achieve your objectives. Risk appetite refers to the level and type of risk an investor is willing to take in pursuit of their financial goals. It is a strategic, forward-looking concept that reflects the investor's desired level of risk exposure based on their objectives and preferences. Risk appetite helps determine the types of investments a person chooses, such as an equity-focused long-term growth portfolio or lower-risk conservative portfolios that focus on cash and bonds. For example, someone with a high-risk appetite may allocate more funds with more equity exposure matched with a long-term investment horizon. Risk tolerance is the investor's emotional and psychological comfort with uncertainty and potential losses. It reflects how much risk they can handle without becoming overly stressed or making impulsive decisions. For instance, a person with low risk tolerance may prefer low-risk assets like cash bonds over stocks. This preference doesn't mean that it is the right solution to achieve your objective. The main distinction is that risk appetite focuses on what risks an investor wants to take. Risk tolerance focuses on what risks an investor can emotionally endure. Both concepts are crucial for building a portfolio that aligns with an investor's goals while minimising emotional stress during market fluctuations. People typically make poor decisions when faced with market turmoil, like what's been experienced over the last month. It's important to work with a qualified financial adviser who can assist you with managing your investments and help ensure you achieve your financial goals and not destroy your wealth by making knee-jerk decisions. I recently started a new job and I am now earning R5,000 more. I would like to maintain my existing lifestyle so that I can use this money effectively. What investment vehicles would you suggest I look at? Chrisley Botha, Wealth Adviser at PSG Wealth Congratulations on your new job and the salary increase — using the additional R5,000 wisely can make a real difference over time. Before investing, make sure you have a solid financial foundation. This includes: Emergency savings – ideally three to six months' worth of expenses in a money market or high-interest savings account. No high-interest debt – if you have credit card or personal loan debt, consider settling this first. Once that's in place, here are a few investment vehicles to consider: Tax-Free Savings Account (TFSA): You can invest up to R36,000 per year (R500,000 over your lifetime) without paying tax on the growth or withdrawals. It's flexible and ideal for medium- to long-term goals. Retirement Annuity (RA): A great way to boost your long-term retirement savings. Contributions are tax-deductible, which can reduce your taxable income — a smart move for future you. Unit trusts or Exchange-Traded Funds (ETFs): These are suitable for long-term growth and offer access to local and offshore markets. ETFs, in particular, are low-cost and well-diversified. Fixed products or goal-based investment: If you have specific goals (like a deposit on a home or future travel), consider a separate investment account aligned to your timeline and risk profile. The key is consistency. Investing even R5,000 a month can grow significantly due to compound interest. A financial adviser can help you align your choices with your personal goals and risk tolerance. I just started working and would like advice on how to effectively budget. How do I cover my monthly expenses, save, and pay off my student loan? Bianca van Niekerk, Wealth Adviser, Vanderbijlpark Financial Planning Congratulations on your first job! Budgeting is a crucial skill, especially when starting your career. While financial institutions may tempt you with credit cards or overdrafts, avoid them — high-interest debt can spiral quickly. A budget is simply an estimate of your income and expenses over a set period. To start, create a spreadsheet with monthly tabs. First, list your net income - the amount deposited into your account after deductions. Next, track fixed expenses like car payments, insurance, and medical contributions. Subtract these from your income to find your remaining balance. Then, outline variable expenses, including transport, groceries, and personal care. These fluctuate monthly, but tracking them will help you stay in control. After deducting these, you'll see what's left —this is where luxuries come in. Items like gifts, beauty treatment, and shopping should be added cautiously since they aren't necessities. If your budget doesn't balance, this is where you should cut back. Consider allocating extra funds to your student loan or any high-interest debt, but don't overcommit. If you find yourself short on money, you might feel pressured to take on more debt, creating a dangerous cycle. While some debt, like a car or home loan, can be beneficial, reckless borrowing leads to financial instability. Start planning for the future early. Opening a Tax-Free Savings Account allows you to invest without tax levies (provided you contribute within the prescribed maximums). This ensures financial security while keeping funds accessible for emergencies. This is just the beginning — your financial journey will evolve with time. Taking charge of your finances now sets you up for long-term success. Stay disciplined, make informed choices, and enjoy the rewards of financial independence. Given the economic climate locally and internationally, how can I protect my assets from unexpected events or market volatility? Richus Nel, Financial Adviser at PSG Wealth, Old Oak Financial markets may not favour short-term investors. It does, however, mostly reward the long-term investor despite short-term valuation disparities. Since we cannot know the short-term outcome with certainty, being a disciplined investor is the best strategy. Short-term There is a clear distinction between saving and investing. Saving is normally restricted to cash and cash-like instruments, earning a pedestrian interest rate return (considering inflation and tax). With no value fluctuation, ideally, a 'parking' facility. Investing is utilising asset classes that can appreciate (and drop) in value, depending on the economic environment. Investors focus on achieving marginal capital appreciation 'over and above' the interest or income earned from that instrument. Well-run money market, bond or diversified income unit trust solutions (at the most extreme) are useful investment tools for short-term savings and investing. Investors should stick to a low equity exposure of 20-30% and be content with the inflation +1%, -2% return. The main aim here is short-focused 'inflation-like returns' for stability and certainty. During times of volatility, short-term investors can re-evaluate their investment strategy with a financial adviser, as such times could offer the opportunity to realign with risk assets. The above options are only appropriate if your investment focus is shorter than 3 years. Long-term Short-term savings and conservative investments are not suitable over the long term due to inflation. A long-term investment requires appropriate exposure to equity and should be well-diversified. During market turmoil, like we are currently experiencing, greater buying opportunities present themselves. These opportunities only exist due to short-term market fear. Volatility can work for you in the long run when partnering with the right investment managers who know when to take advantage of investment opportunities. Successful investing is a science, but it's easy to achieve if you stick to your investment plan with a financial adviser. Kidnappings for ransom have been steadily increasing globally and in South Africa over the past few years. What cover is available for this type of event? Ryno de Kock, Head: Distribution at PSG Insure There are different types of kidnappings to be aware of. Recently, we have seen a surge in express kidnappings in South Africa in which kidnappers will demand you log on to your banking app and process transactions into their accounts or take you to an ATM to withdraw cash. These values are normally much lower than larger organised syndicates, but happen frequently. Wealthy individuals, tourists and owners of cash-based businesses are generally targeted by more sophisticated criminals. Beyond financial protection, kidnap for ransom cover also includes access to a range of support, such as hostage negotiators, specialist investigators, and security experts to help secure the release of the kidnapped individual in a safe and effective manner. To learn more about this policy and what else it covers, please reach out to one of our qualified advisers for more information. PERSONAL FINANCE
