🔒 Personal finance: Tackling scary truths about your SA savings, investments – money expert

In this BizNews Personal Finance podcast, Johannesburg money expert Dawn Ridler chats to Jackie Cameron about how to start getting your personal finances in order. Ridler sets out some of the obstacles to growing wealth, including the huge returns you need to make to generate a decent return when investment costs are so high.  Dawn has a real knack for simplifying the world of money, so this podcast is essential listening for anyone who wants to get their personal finances into better shape. – Jackie Cameron

Investing in South Africa has been a very scary place for the past five years, particularly for people coming close to retirement.

So says Dawn Ridler, of Kerenga Wealth Ecology in Johannesburg, in this week’s BizNews Personal Finance podcast.

The big questions are: Do you have enough to retire? And how do you manage these funds?

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Ridler advises taking stock of your investments and liabilities on one spreadsheet. The latter have to be sorted out before or during retirement, or at death.

“List what you’ve got and where you’ve got it. Break it down into how it is invested, where the assets are, what the fees are.”

Companies are supposed to give you an effective annual cost. Be warned: You can get an enormous shock at how costs not only erode returns but shrink your savings and investments.

Ridler gives an example of an endowment, which has an effective annual cost of 5.6%. Add that to inflation, of 5%, and that means for the client to make one cent from that investment it has to make more than 10.6% a year.

“We haven’t seen those kinds of returns in South Africa for years,” she notes. That, in turn, means individuals who are invested in these products are losing money each year and their investment pot is steadily declining.

Read also: 10 ways to get wealth-building back on track after the Zuma years – Dawn Ridler

How can you make these returns now? Ridler says: “Right now with the markets volatile, you need an emergency cash fund and it needs to be substantial – at least three months and preferably more.”

Exchange Traded Funds (ETFs), which carry lower fees than other fund types, are a good starting point for younger investors, “but bear in mind the markets are extremely volatile”. Putting R1,000 a month into an ETF is “a very good idea”, she says.

Other considerations as you consolidate your investments include whether there are any penalties for stopping investments on retirement.

Ridler singles out life company products, with life assurers generally charging extortionate fees, as failing to deliver returns.

As you get close to retirement, align assets specifically with what you want to do with the money, she says.

Doing a personal finance audit is not difficult but it is time-consuming.

Ridler suggests that individuals should serve as their own “Minister of Finance”. The rate of divorce is incredibly high, so it’s important to ensure you can manage your own money.

It’s an uphill battle in a relationship where one person is a spender, or both are spenders, continues Ridler. If the position of Minister of Finance is unfulfilled “that’s when you have a real problem when you come into retirement” and “meeting expectations is often impossible”.