Personal finance tips: How to thrive in a slower economy – Dawn Ridler

One of the reasons I am delighted that Cyril Ramaphosa is president is because I’m hoping he will use his magic to boost the economy and, in so doing, help inject some fuel into my SA-based retirement annuity investments. Like many other South Africans, I expect this business-savvy ANC leader to overhaul government and improve political policies so that the economy will grow, jobs can be created and consumers will spend more. All this activity could help push the value of shares held in my underlying portfolio upwards. As respected financial commentator Magnus Heystek observed at the end of last year: Since 2010, returns from Johannesburg-listed stocks have been disappointing, a trend which has roughly coincided with the years of misrule, corruption and state capture under ex-president Jacob Zuma. “Each and every South African investor is now paying the price in the form of below-inflation returns on residential property (over ten years now) and more than 5 years for investments linked to the Johannesburg Stock Exchange (JSE). Most retirement funds have also not beaten the inflation rate over 1, 3 and 5 years,” Heystek said. As we wait for Ramaphosa to do his tricks, consider some tips from Dawn Ridler, who provides financial advice to individuals, on how to thrive in a slower economy. – Jackie Cameron

By Dawn Ridler*

We’d all love the good times to last forever, or at least a good few years. The reality in good old SA Inc is that in the last decade we haven’t seen much of the good times, they were hijacked by the nimble-fingered Houdini artists, some still proudly walking the halls of the Union buildings. The last five years have been tough on our investments, salary increases and nerves. While we can look at the glass as half empty – in that it is going to take a while for things to come right – there is plenty that you can do in the quiet times to set yourself up for the better times, even if the better times come in fits and starts and little pockets of light.

Dawn RIdler
Dawn Ridler

Wealth is a result of thousands of small decisions over decades – unless you win the lottery or get a huge inheritance. Accumulating wealth isn’t complicated, it is what is left over after you have consumed your income. Investing that wealth properly is hugely important, of course. You need to make sure it is in the right assets and portfolio, that it is tax efficient, that it will achieve your long term objectives, that the costs don’t erode what gains you do get and so on. That is my ‘day job’ as an advisor, but that is only because the other two, more important, aspects of accumulating wealth are up to you. If you consume more than you earn, with the best will in the world the best investment advisor out there can’t do anything with nothing, or less than nothing. That doesn’t mean that an advisor can’t give you some good pointers on how to make sure you produce enough for him or her to help you invest properly at some time in the near future.

So how can you thrive in the slower times? First, you need to focus on your long term ability to earn an income, and where possible diversify that and make it resilient in an ever-changing environment. This isn’t necessarily a matter of getting a degree anymore – unless you’re a professional – it’s more about learning soft skills and transient knowledge, and that can be really hard. It’s about embracing skills that you might have sneered at in the past like sales, creativity, relationship building, a side-gig (or even a day-job for ‘stay at home’ spouses), getting tech-savvy or network building. The great thing about this is that the internet has made it easy, affordable and fun to learn many of those skills. I personally love to use the apps Udemy and Audible (which can turn a long commute into a pleasant learning session). If you want quick overviews of business books, look at the Blinkist app to get ideas. An App like SaveMyTime can help you track your time and make you more productive.

Obviously tracking, monitoring and adjusting your consumption is just as important. Take a good look at how you spend your money, preferably with someone like your financial advisor who can help you cut costs without judgement.

Never abdicate the responsibility for managing your wealth to someone else, remain educated and engaged and ask questions when you don’t understand – that is what you’re paying financial advisory fees for. Delegate, manage the manager but stay engaged. Your financial advisor should be helping you acquire the knowledge you need to make informed decisions about your investment – beyond the obligatory annual review of the performance.

One important consideration is whether or not to keep on making regular contributions to your investments in the slow times. Most advisors will answer “Obviously!” but there are caveats, and that is going to depend on your typical financial behaviour.

Buying stocks when the market is down is like a fire sale: a stock that might have cost R1,000 a few months ago, now costs R800 a bargain especially if it fits into your equity portfolio objective. All the usual sale warnings apply – there is no point in buying it just because it is cheap. Now if you have debt that is costing you 18% or more – which you would never get from an investment right now (unless you’re lucky) – then that money would be much better ‘invested in’ not paying punitive interest on credit.

Here comes the caveat – if you’re going to pay off that credit card, a loan or even a bond, only to run it back up again then please… just keep on investing. Understanding your financial behaviour is probably the best thing you can do for yourself so that you can put things in place to save you from yourself. Put a plan in place to kill your debt (starting with the smallest first – small wins have a big psychological effect) and when done (except perhaps your bond) then put that money you’ve been using to kill the debt straight into investment. Oh, by the way, kill the debt properly – close the account don’t just put it on ice.

For many of us paying off debt and investing has to happen concurrently, and there is nothing wrong with that. Our brain finds it hard to think really long term, we always think that there’ll be time to ‘catch-up’, but that is rarely the case until that short-termism habit is broken. There are two ways that people sabotage their financial security. First, living beyond their means (more consumption than income) and secondly ‘blowing’ windfalls like pension savings when leaving a job, inheritances or bonuses.

Be kind to yourself, there is no point in becoming a miserable scrooge, but keep your rewards small. Listen to that inner voice telling you you’re being an idiot once in a while.

  • Dawn Ridler is an independent financial planner.  Her unusual combination of an MBA, BSc and CFP ® has evolved into an ‘ecological’ and holistic approach to advisory, which she has tagged ‘Wealth Ecology’ in her company, Kerenga.

Also read:

Four Retirement Annuity (RA) traps to avoid. Quick wealth-building tips.

Why you should love Retirement Annuities: wealth manager

Wealth preservation: How to draw your retirement income

Tax-free investments: Do Retirement Annuities make financial sense?