25 September 2024
“What are investments and what can they do for me on my journey to financial confidence?” Ordinary people with the desire to create and preserve wealth, ask this question constantly. Sherwin Govender, Business Development Manager at Glacier by Sanlam, offers some answers, by looking at the purpose and goals of investing.
As an investor, what is your purpose?
“What is the purpose of investing?” You might answer: “I want to be wealthier than I am now”. However, that answer is meaningless, open-ended and won’t help you. What is your actual goal? Is it saving for your child’s education? Is it to buy a property? Do you want to retire at the same level of comfort that you have now? Do you want to go on holiday overseas every two years? You need to probe deeper to uncover your very specific reasons for investing. This will help your adviser design a financial plan that includes a diversified investment portfolio that meets your needs and goals.
What to know about goals
An effective goal is not the same as a wish or dream. Here’s what to know about goals:
- They are deeply personal and specific, e.g. “I need my money to provide an education for my child at a good private school.”
- They have timeframes, e.g. “I want to travel abroad on holiday, every two years.”
- They are real and achievable, e.g. “When I retire, I want to have the kind of lifestyle where I can continue to afford to eat out at a new restaurant every week.”
- They are not broad or vague, e.g. “I want to be rich.”
- They are not unrealistic, e.g. “I want to be the richest person on the planet.”
The timeframe of when you will need to access your capital (which speaks to your need for liquidity) is also critical, so it’s important to know that goals have ‘soft’ and ‘hard’ deadlines. For example, your goal to travel abroad every two years is a soft deadline, as going on holiday is not a critical, life-impacting need. If the economy is challenging and the exchange rate unfavourable, you can delay your overseas trip until the situation improves.
However, your goal to provide for your child’s education or to afford a hefty co-payment for hip surgery, would be life-impacting and, therefore, a hard deadline.
What is your relationship with your money? That’s a key question.
The relationship that you have with your money is likely to be deeply emotional, and you probably don’t even know it. I’ll illustrate this with a story.
Recently, a family member (let’s call her Penny) turned to me for some help. She wanted to know if the R600 000 in her bank account that she kept for emergencies, should be invested in a better savings product, and what solution I would recommend. After some probing, I established material facts about what this savings fund meant to her, and how her relationship with this money had a direct impact on how it could or should be invested:
- She is a single parent, and determined to give her child the best education that money can buy. Therefore, she is quite intentional about having money readily available for that, and whatever he may need to enhance his education (e.g. hockey kit, art classes, a maths tutor, if necessary).
- Penny loves to travel and dips into this fund every second or third year to go on holiday abroad. The value of her money has become a concern for her in light of the exchange rate. Recently, she had to cancel her trip to the US due to the rand/dollar exchange rate being too high.
Solutions should meet your financial situation, needs, lifestyle, life stage and investment goals
After establishing her goals – what motivates Penny to keep saving and having a desire to invest – it emerged that her R600 000 should be invested as follows:
The solutions selected align with Penny’s goals, and together combine to form a diversified portfolio that is efficient from a tax and risk management perspective, allows for currency fluctuations and allows her to access funds if she needs it.
