Coronavirus panic is taking hold of vast swathes of the globe. In China, where hundreds are dead and entire cities are like ghost towns as the authorities enforce strict quarantine, fear is understandable. But elsewhere many are starting to worry about the impact of the disease, beyond the obvious risk to health and life. Companies like luxury brand retailer Burberry, smartphone seller Apple and McDonald’s have warned that sales have been negatively impacted in China. In the UK, universities are bracing for a major hit on fee income as Chinese students are unlikely to be able to enrol in their usual high numbers at the start of the next academic year after the summer. Johannesburg intermediary Dawn Ridler cuts through the scaremongering, highlighting that there often is an unexpected risk to your wealth building efforts – whether it’s coronavirus today or a bad political decision tomorrow. She sets out some ideas on how you can reduce the risk of making a stupid money move amid uncertainty and crisis. – Jackie Cameron
Can you buffer your wealth?
By Dawn Ridler*
Just when you thought things were calming down in your wealth ecosystem you can almost guarantee that some loudmouth will upend your peace, a virus will explode out of a dodgy Chinese animal market or an ill-informed politician truck out their favourite, wealth-destroying idea (NHI, Mining charter, Acquisition without Compensation.)
Fear often leads to over-reaction, and that is dangerous to your wealth. There are a number of strategies to reduce or manage your fear so you don’t do something stupid…
1. Whenever you see a sensationalist headline that gives you a fright, investigate it in more detail… Where is the vested interest? – because there is always someone who will benefit from stirring up the manure. A really popular headline at the moment is that SA Inc is going to hell in a poitjie pot and you need to sell everything, house included, and take it all offshore (preferably placed in the pot-stirrer’s expensive offshore funds or pet investment (usually some sort of property scheme) that they have set up to ‘help’ you.) I am not going to rehash my blog on offshore, but the one takeaway was “think before you leap”. While jumping and building your wings on the way down might be way ‘cooler’, you are much more likely to end up as a puddle of marula jelly at the bottom of the cliff. Social media seems to bring out the extremist in everyone, we all have our opinions and they can be spewed out in social media without repercussion or filter (nor spellcheck or any semblance of grammar, but that is another issue altogether).
On social media fake news goes around the world twice before truth has even opened Facebook. The human brain has evolved to pay much more attention to bad news than good, it was a way to keep us ‘safe’ as cavemen. It is up to the more evolved part of you to take back control of this emotion before it wrecks your plans. Before buying into some sensationalist news (and sharing it), research it and fact-check it.
2. Have a plan. A plan can’t be wrecked if you don’t have one, obviously, but that’s like starting a road trip without a map and wonder how you ended up in Pofadder. This plan should be holistic and cover every aspect of your life, the financial plan is just putting numbers to your goals and dreams. You can get templates and ideas for your personal plan from the internet, and this will form the basis of your wealth plan. Wealth is what is left over after you have consumed your income.
Making that income, and consuming it is all up to you and unless you spend less than you earn and invest what’s left, you’ll have no wealth. No financial advisor wealth their salt will be an ‘order taker’, investments and risk mitigation need to be aligned to your goals and objectives. Core to your plan should be the protection of your long-term ability to earn. You can insure the risk of physically not being able to do the job, but what about becoming obsolete?
The hierarchical corporate ladder is crumbling. Layers and layers of lower/middle/senior management are disappearing as people manage themselves and only brought together for specific projects (often with a different leader each time). More than 40% of the US workers are involved in the gig economy or freelancers, and this is growing. Do you really want some corporate rule-book to tell you when to retire? Before you get to your corporate sell-by date, get out of your comfort zone, upskill yourself and start building your wings so when you jump you can soar not splat. Your financial advisor can help you determine when to ‘jump’ from a financial perspective – the best thing to do is to run your gig and day job concurrently until the gig can sustain itself.
3. Being “unconsciously incompetent” (you don’t know how little you know) will kill your wealth – upskill yourself. I hate to break it to you, you don’t know everything and if you treat your wealth like you do, you’re going to come short. Even we wealth professionals (that aren’t cowboys) don’t pretend you know everything. The internet has made it so much quicker, easier and cheaper to upskill ourselves – but we need to know when something is false news. Getting specific, customised advice of course is not going to be free beyond the introductory meeting (and sometimes not even then). One of an advisor’s most valuable assets is their personal intellectual property – the stuff in their head that you want them to use to advised you. Nobody worth their salt gives that away anymore.
4. Don’t let a bad experience in the past colour your future response. Unfortunately, most of the clients have come across have had at least one bad experience at the hands of a broker or insurance company. One area that I get the most vociferous response is Retirement Annuities – mostly caused by fees and penalties (you can read more about that here). RAs can be a valuable way to bring down your tax bill, but often I will find a client who will not even entertain the idea. The every-day saving toward your retirement, in a fund that can’t be touched (but should allow you a hiatus from time to time, without penalty), enforces financial discipline that most of us need – especially in the bad times. It is the small decisions like that, done consistently over decades that results in financial security. RAs are also protected from creditors and are free from estate duty. Life insurance is another area that is viewed so negatively that ‘investment advisors’ (their descriptor) won’t even go there. Personally, it only took my first death claim (a young father who died in a tragic accident) for me to change my perception of the value of the cover, as the bond and other debt was paid off, the children’s education and wellbeing assured and the family could greave without financial worry. Sounds like a glib line from a life insurance ad, but it happens. Not everyone needs ‘life’ cover, but until you have a nice fat pension pot that can absorb knocks like disability or a dread disease and your progeny and dependents off your hands, it might be a good buffer.
5. Don’t get emotionally attached to a single concept, asset class or job. In ecology we call this monoculture and it usually ends badly. One rogue virus can kill your entire harvest – and if that harvest is your retirement plan… I have come across clients that are emotionally bonded to commodities, gold, a single company share and property. Diversifying is the way to future-proof your wealth and your ability to earn.
Don’t be a one-trick pony, upskill yourself in multiple areas, especially in soft skills like sales and communication. If you’re going to freelance successfully, you’re going to need a diverse skill set to get, keep and negotiate with your clients. Your investments also need to be diversified – and you’re going to have to fight off FOMO and the angst that comes from not ‘taking all the money off the table’ (not putting all your money in equity when that has a nice run, for example).
- Johannesburg intermediary Dawn Ridler, MBA, BSc and CFP ® is founder of Kerenga.
