The next best thing for investors…

Ray Dalio is an American billionaire hedge fund manager and philanthropist who has served as co-chief investment officer of Bridgewater Associates since 1985. As a thought leader and industry pioneer, he also founded the world’s largest hedge fund and firmly advocates that “diversification is a wonderful, mechanical, good way to reduce risk without reducing expected return.” 

So – what’s the next best thing for investors in our current market turmoil? 


Whilst it’s been a long standing ‘good-practice’ in financial planning and investment management, investors still find themselves overloading in areas as they follow market sentiment and forget to apply a diverse strategy to their stock, fund or asset class purchasing decisions.

Remember – much of our investment behaviour is highly emotional, no matter how hard we try to convince ourselves otherwise. With global politics, world markets and local business in a growing state of volatility, emotions are running high.

In an article for Business Insider, Dalio says that “… investors shouldn’t subscribe to the “dangerous bias” that the past is representative of the future, he said. “If you go through history, when you have some of these conflicts, you might have a different result.”

Depending on where you find yourself today, you might be hearing loud messages of ‘invest in property’, ‘buy gold’, ‘invest offshore’ or ‘switch to cash’. The markets are changing constantly and Dalio’s counsel is now more prevalent than ever.

“The most important thing investors can do to manage this risk is to diversify by asset class, country, and currency. Diversification doesn’t cost you anything. Because when your asset classes are going to – if you balance them right – have approximately equal expected risk-adjusted returns, so you can balance them, because they all compete with each other, so not one is necessarily clearly better,” he said to Business Insider.

The exciting thing about investing is there is always opportunity – we just have to know where to look, and cover our bases. There are no quick wins or shortcuts to growing our wealth.

Who wants to save more?

This is not such an easy question to answer.

Many of us may shoot up our hands, quickly realizing that what follows is a tough call-to-action: “Then start saving!” So we shrivel back and think we’ll rather start saving next month, or when we get our next increase.

Others, already encumbered with tough monthly expenses, may take a slightly more cynical response off the bat, realizing that saving often feels like an impossible task in our current world-economy.

But deep down, most of us want to save more. We don’t have to be sold on the benefits of saving.

What we need is a workable solution to actually saving more! 

Self-help books on this topic are a dime a dozen, but here are some ideas from Behavioral Economist Wendy de la Rosa. She wasn’t happy with how much she was spending, and like many of us, felt like she couldn’t stop. Here are two behavioural changes that she employed in her own life to reduce her spending and increase her saving.

  1. Take aim at your small, frequent purchases

Big purchases are easy to reign in – but it’s the small ones that are a doozy. 

Eating out is a frequent purchase that many of us make regularly, but, savings-wise, it’s death by a thousand cuts. A lunch here, a smoothie there — it all adds up and decreases our savings ability. It’s not just the big dinners or take-outs for main meals, it’s the small snacks and convenience foods that we spend on when we haven’t put proper planning into our meal prep.

You may have other small ‘luxuries’ that you afford yourself, but if you spend longer than 30-seconds thinking about them, you could probably avoid them.

A helpful hack to reduce these is to switch from using a credit card for daily spending, and using cash or a capped debit card. Using a credit card to pay for meals on the fly or last-minute lunches keeps us detached from the accumulating costs until we receive our statement a month later. But, spending a finite amount of cash from our pocket or seeing our balance drop on our debit account keeps us far more in tune with just how much we’re spending and influences our behaviour.

  1. Commit your Future Self

De la Rosa says: “Fundamentally, we humans think about ourselves in two different ways: there’s our present self and there’s our future self. We have an optimistic view of our future selves. Our future selves are the one who will work out, who will call our parents more, who will save for retirement. And one reason we don’t save is because we believe that our future selves are going to take care of it. We forget that our future selves are actually the same as our present selves and that our present selves need to start doing this good thing now.”

Here’s a great hack that she offers – plan to save a percentage of your tax refund. It doesn’t have to be a massive amount, but it’s something! In their research they found that if they asked clients how much they would like to save BEFORE they received their refund, it was 10% more than those who were asked after they received their refund.

Our present self… is actually more likely to make better decisions than our future self! 

We can apply the same to our annual bonus, or payback from our rewards schemes. Deciding today, and committing to that, is far more effective than saving as an afterthought.

One of the key points to saving more is looking at the behaviours that need to change in our lives. Financial success is based on financial behaviours – not just knowledge. There is a lot of time spent on financial education, but if it doesn’t change our choices for the better – they’re just words on a page or sentiments in a conversation.

Start with one thing you’d like to change, and take it one behaviour at a time.

How much is enough?

Medical aid (including insurance products) contributions need to form part of our overall financial planning. Every year these products are adjusted slightly – both in how much they cost in monthly premiums and in what they cover. These increasing costs can feel burdensome and unnecessary to those who seldom use their medical cover, but they remain a crucial part of our financial planning.

Unforeseen medical expenses can completely decimate our savings and future opportunities if we don’t have some form of cover in place.

The tricky question – for EVERYONE – is how much cover is enough?

Often we think of really hard scenarios, like a freak accident or the life-changing diagnosis of cancer or another dread disease. But the reality is that there are so many scenarios and we can’t possibly plan for them all. And, if we have a run of good health, we might feel like we have the space to reduce our medical cover – especially given that budgets are being stretched tighter than ever and private medical care doesn’t come cheap.

Everyone’s situation is unique, so it’s never 100% appropriate to base financial planning on averages, but a good understanding of trends is helpful in guiding us to making prudent decisions when there are so many variables to sway us.

In a late 2018 article for New24, Jillian Larkan (then head of health consulting at GTC), advised that their benchmark is around 10% of the household income, for the whole family. This is less if there is higher confidence in the state-provided medical care.

It’s quite easy to understand how this will become a grudge-purchase for those who reach the end of a tax year having had zero claims on their medical aid. For those who have benefitted, it’s a no-brainer.

The general rule-of-thumb is that for those members who are younger, healthier and have no dependents, a lighter medical plan is sufficient. It’s not all-encompassing but the average risk for that member is considerably lower. For members who are older, have dependents and may have developed underlying health conditions, a more comprehensive (and more expensive) medical plan would be most likely.

Inside of a good financial plan, a contingency should be made for possible short-falls in all scenarios. It’s wise to remember that in every scenario there will be unforeseen outcomes, if we think we are ‘completely’ covered for ‘any eventuality’ we are setting ourselves up for frustration and disappointment.

We are now living in a world where even the best government or state-provided medical care is not the first choice for most people. Having access to private medical care gives us increased autonomy in our decisions when a health tragedy has already placed strain and stress on our lives.

You may not need to spend as much as 10%, or you may need to be budgeting closer to 15%. Depending on your lifestyle and your current responsibilities, your personal financial plan needs to have a medical cover review every year around November as most providers only allow for changes and upgrades once a year.

Pre-Lockdown vs Post-Lockdown Spending Trends

The largest factor in our wealth creation, and our wealth protection, is our behaviour. How we choose to save and how we choose to spend are the habits that will determine if we are able to grow our money over time, or if we will erode it over time.

There are other factors, certainly. We can’t forecast all the transitional events in our life, nor precisely when they will happen – so attitude and external factors also play a role, but even these two can be considered influencers of our behaviour.

22Seven recently conducted research on the top 10 spending categories in the City of Cape Town (and certain out-lying suburbs and metros) to understand how the Black Swan of COVID-19 and lockdown influenced consumer behaviour in those areas. Whilst these are geographically unique they help us understand the trends in other major cities too and can help us find deeper meaning in our own spending habits.

Unchanged habits

Spending on groceries remained a top priority both before and after lockdown. This is partly because we can’t go without food, and also because they were the only stores which we could, and needed to, visit during the lockdown period. Two other consistent areas were on cellphone (and data) and transport costs. 

Spending habits that dropped

Entertainment and takeaway meals pretty much zeroed out, but started showing more growth as industries opened up and lockdown lifted – but the caution of consumers has clearly played a role in reshaping this habit. With many informal traders and small businesses unable to operate, ATM and cash withdrawals also bottomed out. The fact that cash is a physical payment method, and the virus being contagious, and that ATMs require public touchpad engagement would have played a considerable role in the change of this habit too.

22Seven also said that: “Home & Garden and Health and Medical also dropped off the list completely post lockdown. Home & Garden spending decreased mainly because those who offered the services were not allowed to operate and many of us had time to attend to those services ourselves while we were at home.

You may [be] wondering how counterintuitive it is that spending on Health and Medical related expenses dropped off the list during the lockdown? Well, it boils down to two things mainly: firstly, the health-seeking behaviour of [those surveyed] would have dropped during the lockdown period. People would’ve put off any non-emergency trips to their healthcare professionals to avoid contact with people. Fewer trips to your doctor also mean fewer trips to the pharmacy, which equals less spending.

Secondly, people would’ve stocked up on their essential medication before the lockdown period started to avoid having to visit pharmacies, and increasing exposure to others, once the lockdown commenced.”

Spending (saving…) habits that improved

According to 22Seven, “Investments, Savings, Insurance and Card Repayments all climbed up the list. While there was a portion […] who saw a reduction in or lost their incomes completely, those who had stable incomes during the lockdown suddenly had extra money left over – mainly because they could spend their money on fewer goods and services.“

This proved to be a good habit-forming contributor as debt and card repayments increased and both long- and short-term investments were bolstered with the extra money that was available to those still earning salaries.

It’s helpful to take some time to review how big events have affected us, not just financially, but emotionally, relationally and mentally too. All of these will play into the habits that we form and reform around our wealth, and to our perception of value. 

Some habits we may have forgotten through the trauma of an event and would want to work on again, other habits we may decide to release and form new ones that have greater meaning to us and our family.

If you’d like to read even more, here’s the link to their article:


Not to be confused with the EFF (the South African political party or the lesser-known Electronic Frontier Foundation…), ETFs have been gaining popularity in investment portfolios for about a decade.

ETFs (exchange-traded funds) were first developed in the early 1990s by Nathan Most, they offer both retail and institutional investors a great passive investment option.

Nathan initially started thinking about the ETF option in this way:

“I started thinking about a warehouse receipt holding the shares in the fund, which could then be divided up into pieces,” said Most in a 2004 interview with CBS MarketWatch, recalling his background in commodities trading. “You could reassemble the pieces and get back the stocks, but otherwise only the pieces would trade.”

It took him about six years to finalize the offering that we now recognize as ETFs.

“I never thought they would be this big,” said Most. “But the ETF was designed with the investor in mind, and they have low fees. Also, ETFs are a natural fit for stock exchanges, which have gotten behind them.”

Andrew Goldman, in his 2020 blog on ETFs vs Stocks, draws a much richer definition that speaks more directly to those looking to enjoy some DIY investing lessons. He puts it like this:

“The difference between a stock and an ETF is like the difference between a can of soup and a whole grocery store. When you buy a stock you’re investing in a single company [a can of soup] — Apple for instance. When that company does well, the stock price goes up and so does the value of your investment. When it goes down? Yipes! When you buy an ETF (which stands for Exchange-Traded Fund) you’re buying a whole collection of different stocks [the whole grocery store]. But more than that, an ETF is like investing in the market as a whole, rather than trying to pick individual ‘winners’ and ‘losers.’”

This is a very general definition that is painted with broad strokes, but it helps show that ETFS offer benefits like:

  • Automated diversification
  • More discretion when it comes to buying and selling
  • Lower cost entry and management
  • Higher level of transparency
  • Can be more tax efficient

ETFs are not the be-all and end-all of investing and they’re not the answer to volatility in the markets – but they offer a healthy space to develop savings habits and understand the markets a little better without having to spend all of your investment budget in one place.

As the markets mature, these products are going to start to offer complex sub-types (like Leveraged ETFs) and will require more prudent and experienced management, so even if you do want to learn a little on your own, make sure you bounce your ideas off your financial adviser first.

Otherwise, remember this: a robust portfolio succeeds only in the scope of its diversification and time to grow with the markets. Don’t place all your bets on one horse and, unless you’re an investment specialist, don’t go it alone.

If you’d like to read even more, here are some great articles:

Markets don’t make you money

Markets don’t make you money; your habits… make you money.

As creatures of habit, we ultimately become our own best friend, or our own worst enemy. This is why it’s important to be mindful of how our emotions affect our choices and influence our behaviour.

We can remind ourselves of this time and time again, but still we might find ourselves slipping into old habits and allowing emotional decisions to vilify our investment strategies.

This is largely due to the fact that if we step back and take a broader look at the market performance of the past three to five years, most local markets have underperformed. Many will say that only offshore has been showing growth, but even that is another way of saying that the ‘grass is greener on the other side of the fence.’

We all know that the grass is greener where it’s watered!

But here’s why this concept throws us so easily: performance doesn’t follow calendar years.

We do. We follow calendar (or financial) years. The reality is that three bad years doesn’t necessarily mean that your investment strategy is wrong. There will ALWAYS be a better performing asset class, share or fund. There will always be that temptation to jump ship when we see another vessel moving ahead a little quicker than ours.

And this is typically where we lose our money. This behaviour assumes that the markets will make us rich, and forgets that it’s our habits that make us wealthy. Markets yield the best returns over time, and not at a specific time, which speaks to the importance of following the ‘buy and hold’ strategy rather than the ‘buy and sell’ strategy.

Emotional awareness and diligent behaviour have the biggest impact on our portfolio. Managing these two key elements to our future wealth are not easy as both can be easily swayed under the right conditions – and poor market performance (especially after a Black Swan) creates these exact conditions!

Don’t try to go it alone when you’re feeling like this.

Having an objective partner on your side to help you process the emotional turmoil that rides the wave of a crashing market is invaluable to building your wealth. People who work with an adviser typically enjoy 1-2% better returns; over 25 years that can be almost double the return of someone who invests without an adviser.

They will also be able to remind you that maintaining your premiums during volatility allows you to purchase shares or allocations at cheaper prices (effectively acquiring more stock) and benefit your portfolio even more in the future.

Remember, it’s not the markets that will make you wealthy; it’s your habits.

The impact of the economy on small businesses

In a 2018 article, Tim Davis (President of The UPS Store) said this of small businesses:

“Small business is the backbone of the economy. … It’s these businesses that are driving local economies, providing jobs for local residents and impacting key community organizations, through charity and service.”

Whilst small businesses are crucial to the infrastructure of a robust economy, they are equally affected by the health of that very same economy that they drive.

If we think about our own bodies – everything is connected. Having good posture is not just about sitting up straight!

“To maintain proper posture, you need to have adequate muscle flexibility and strength, normal joint motion in the spine and other body regions, as well as efficient postural muscles that are balanced on both sides of the spine.”

When we think about our spine, or back bone, we tend to initially focus on the bones. We may think of a skeleton that we once saw in a book or classroom. But a healthy functioning body is more than just a skeleton – it’s everything in between and around it! Even the foods we eat and drink can have a serious impact on our health. Any change in one area of our bodies can affect everything else.

In the economy, financial distress caused by the effects of black swan events will cause the majority of small, medium and micro-sized enterprises (SMMEs) to come under severe strain, and possibly even leave their future survival uncertain.

During the COVID-19 pandemic, many countries are finding that as many as nine in ten small businesses are struggling or temporarily closed as a result of the impact of the virus (a black swan event) on the economy. A fraction are able to operate as normal and almost none would ever say that they are thriving. Decreased revenues and lack of financial resources mean that the backbone of the economy is heavily strained during these times and needs serious recovery and therapy time.

Cash flows dry up and small businesses are unable to operate for much more than three months without conditions changing. This affects their ability to pay rent (hitting landlords hard), salaries (hitting staff hard) and other service provider contracts (hitting other SMME’s hard).

Despite all of this, we find that the spirit and determination of small business owners to be far more resilient than the economy! It’s for this reason that the economy can indeed recover, and new opportunities can be found – but we all have to work together.

If you’re not a small business owner, try and find out from your immediate network how you can support local businesses. This may mean buying veggies from a local supplier, or using smaller retail outlets for your purchases rather than going through bigger branded chain stores. If you already use the services of SMMEs, try to pay their bills on time and encourage your friends to use them too.

This is how we boost the strength and resilience of our economy when major events occur. This is how we keep our friends and family employed and how we pull the very best of ourselves through the toughest of times.

What did you do with your first paycheck?

One thing we can always know for certain is the past; but with far less certainty, the future, and even ‘later today’… eludes us. Despite knowing this, we often fall into the trap of thinking that we should have done certain things better, because we can see (looking back…) what a difference it would have made in our lives today.

Some of the lingo we repeatedly hear says: “Do something today that your future self will thank you for.”

Market updates are full of articles telling us that if we’d invested $1000 in Amazon, Tesla or Google etc, it would be worth tens of thousands now. But a good financial adviser or wealth manager will tell you that this information only tells us one thing: we can learn from the past, but we can’t predict the future.

When it comes to personal financial planning, we need to be aware of what’s going on around us, but we can’t put that first. What’s going on in the world (past and present) should colour our decisions, but not form the heart of our personal financial plan; your personal financial plan needs to be about YOU!

Even when we look at our own personal financial situations, we can fall into the trap of looking back and wishing we’d played a few of our cards differently. Sometimes, this pertains to habits we’ve formed from our very first paycheck.

We can’t change what we’ve done with the last 12, 36 or even 120 paychecks, but we can decide what we will do with the next one.

1. Get into the habit of saving

When we receive our paycheck (or a few bulk client payments for those who are self-employed) it can feel so well-deserved and the urge to spend is overwhelming. We need a plan to avoid spending it all, thinking to ourselves all the time that we’ll save next month.

Warren Buffet says: “Do not save what is left after spending, but spend what is left after saving.”

Saving is about paying your future self a bonus. It’s a habit that will only benefit you – if you haven’t been able to form this habit from your first paycheck – try and start it this month.

2. Personal finance is personal

It’s really hard to see the things that our family and friends are buying and not feel tempted to make similar purchases, simply because they have done it first. If their money decisions make sense with your personal plan (like buying a practical car or investing in a course to upskill) – then learn from their homework and outcomes. But, if it’s outside of your dreams, your goals AND your income… don’t do it.

Many people look like they are doing really well, but they’re actually drowning in debt. Try not to be one of those people. If you are, remember that your finances are personal – they’re yours; you’re in control. We can work together to manage your debt, we can also work together to help you make personal financial decisions that make sense for you. Use your next paycheck to make decisions that are unique to your personal financial situation.

3. Avoid bad debt

Spinning off that last thought; avoid bad debt!

Not all debt is bad, but it makes no sense to pay the high interest rates attached to credit cards when a bit of planning and patience will allow you to buy the things you really need. Especially when times are tough, it’s easy to take out extra credit rather than reign in our expenses. This is the advantage that you have in a financial adviser – together we can help you make objective, positive choices for your next paycheck.

In a recent article on Allan Gray’s website, Phiko Peter wrote the following:

“You are at your most powerful today to take care of the “future you”.”

You can’t change what you did with your first paycheck – but you can change what you will do with your next one.

Lessons from the lighthouse

Here’s the thing about the lighthouse – it’s focus is always offshore. At the time of writing this article, the world is still flailing under the storm of the Coronavirus and the conditions have caused us all to rethink many of the foundations in our lives that we once thought secure.

Just like the view from the lighthouse, the seas can go from calm to savage in a matter of hours, the visibility can decrease from clear to cloudy in minutes and the boats in the bay may find themselves in sudden peril.

Do they stay – or do they sail off for calmer seas?

Whilst the lighthouse is always looking out for ships, it’s purpose is to warn them that there are rocks nearby. It’s not actually there to locate ships (even though it’s a helpful vantage point), it’s up to the ships to decide whether to risk the onshore conditions, wait it out, or find a different port.

Depending on the skill of the captain and the crew, the size of the boat and the value of the cargo, they can choose how they react to the prevailing conditions. Likewise, when it comes to investing and your portfolio – you too can decide how to react to the prevailing conditions.

For some, the option is clear: go offshore.

For others – they would prefer to handle the risk of the rocks that they know are there and try to navigate them safely into harbour.

It’s not a straightforward decision. Right now, there are enormous differences in the crests and dips of the current and forecasted waves as economists look at the short, medium and long term. The IMF (International Monetary Fund) forecasts global GDP to decline nearly 5% in 2020 and rebound 5.4% in 2021.

The lighthouse is warning us that there is a lot of forecast risk here and a lot depends on political, medical and economical stability and strength returning. Some feel that the global economy will only return to 2019 levels, in 2023, but possibly later.

The speculations are that our best operational capacity for the economy will be around 90% for the next three to five years. This means that we will have to consider our investment opportunities far more prudently, and consider other avenues of generating, stimulating and sustaining income.

Offshore investment products will be a good solution for most investors during the next few years and may very well accrue a heavier weighting in their portfolio. Before you make big decisions about your investment portfolio, ensure that you’ve consulted with us and that your choices are in line with your personal financial plan.

What the low interest rate means for you

In light of the difficult times recently, Southern Africa has been awash in low interest rates. When South Africa significantly cut its base interest rate from an already-low 6.25% down to 4.25%, it officially became the lowest interest rate the country has ever had. In late 2019, the Bank of Namibia’s Monetary Policy Committee reduced the rate to 6.5% from 6.75%, then lending rates at Bank Windhoek were slashed further come 2020.

Interest rates, particularly interest rate cuts, typically have complex and far-reaching effects on the market, but what does it mean for you?

From you as a consumer to you as an investor, we’ve rounded up the most significant ways the low interest rate affects you – and how to best capitalise on it.

Cash is not king (when investing…)

In the wake of the devastation of the markets, economy and the enormous volatility in recent history, the interest rate cuts came as a boon to consumers to keep their heads above water. But what is a help to the consumer is a hindrance to the investor. Yes, money not appreciating in value means that goods and services won’t cost more and a household’s day-to-day dollars will stretch further, but any money set away in savings won’t appreciate in value.

Now is not the time to be overweight in cash investments. “If you’ve got money in a bank deposit account, money market account or other “cash-type” vehicle, your interest rate earned will fall by a full 2%,” said Prudential earlier this year. “According to Prudential’s calculations, cash-related investments are now only likely to return around 0.2% p.a. more than inflation over the next three to five years. With its potential returns so much lower, the cash holdings in your portfolio could now be too high if you have a medium- to longer-term investment timeframe, acting as a drag on future returns.”

Risky business

Fortune favours the bold, especially in this kind of market. As we have mentioned above, simply leaving your cash to sit in an account as a means of saving will not get you any richer (in fact, it’s now worth 2% less!) and so higher risk, with higher yield, options need to be considered. For example, things like equities, investing offshore and gold have all found favour recently. 

A debt to pay

A recent communication from insurer Liberty outlined another useful aspect of the low interest rate. “This is the lowest interest rate cycle we’ve seen in a long time – cut off your debt and do not get into new commitments right now,” said Liberty economist Tendani Mantshimuli.

In addition to this, your home loan costs are lower, because the value amount in your bond is worth less than it used to be when interest rates were higher. It’s a great time to repay your debts faster, but try not to extend debt as it will be more affordable now, but will become expensive when the interest rate increases again and markets strengthen.

Now is the time to save

Compound interest is one of the most wonderful roads to wealth creation – it’s why financial advisers urge people to start saving younger. Unfortunately, it is hamstrung by low interest rates. In our current environment, any savings will take longer than it would have in the past to be worth as much and then to appreciate as much as when rates were higher.

For that reason, it’s even more important than ever to set aside as much for savings as you can, as early as you can, because more than ever you can’t afford to lose out on valuable time that will make you compound interest later. 

Ultimately, like every move of the market, low interest rates have their good sides and bad, opportunities and dangers. That’s why it always helps to stay in touch with your financial adviser who can help you make the most of exactly where you are.