11 Wealth Management Tips for the Everyday Investor

COVID-19 has left investors across the globe in major economic turmoil. Many smart investment choices with high returns taken before COVID are currently giving negative returns while a recession looks inevitable.

As it stands currently, everything, from the opening up of economies to driving to the office, is still at a standstill due to lockdown and the different restrictions being placed on normal activity around the globe. No one can foretell how long this will last and how severely it is going to impact our livelihoods and financial planning in the future.

That being said, when the economic situation is not looking positive or favourable, whether that’s through COVID 19, or another major contributor, what should be your main financial strategy to not just manage, but grow your wealth to secure your financial future?

These wealth savings’, investing, and spending tips will help you towards your goals to achieve greater financial independence despite adverse prevailing conditions.

Understand Your Earnings Are Not Wealth

There are many myths about wealth, but one of the most common misconceptions is that income equals wealth.

Wealth takes a long time to build while income is earned immediately. There are many people with high incomes. However, an income doesn’t equate to wealth unless you keep and save some of it which you use to build wealth. To really be considered wealthy, what you must understand is that your income needs to support today as well as tomorrow. If you lost your main source of income today, could you live out the rest of your life without a struggle?

To understand what your wealth looks like, take all of your assets minus all of your liabilities. You’ll then have a figure that can tell you where you stand financially.

To summarise, income focuses on the present, while wealth focuses on the long-term.

Move from Bad Debt to Good Debt

Good debts are smart, calculated investments that have clear potential to grow in value, and generate long-term stable income. Good debts are loans that have the potential to increase your net worth. An example of a good debt could be investing in your own business for expansion, or taking a mortgage where the asset increases every year.

Bad debts are those that deplete your hard-earned money and offer no way of ‘paying for themselves’ in the future. Bad debts involve borrowing money to purchase depreciating assets. An example of bad debt is buying a luxury car you don’t need, which loses value, while still paying a high-interest rate every month.

It’s important to keep in mind that too much good debt can also turn into bad debt. Taking on too much debt, even if it is at a low-interest rate, without a clear plan and strategy on how and when to pay it off, can become bad debt and lead to an unsustainable lifestyle.

Build Passive Income

Passive income works on the premise of the “long tail.” You start off with an investment, whether it is time, energy, or financial. In the long term, your investment slowly and steadily brings in revenue.

It’s important to keep in mind that passive income isn’t a get-rich-quick solution, it’s more like a get- rich-slowly solution if done right. Some examples of passive income can include rental income through Airbnb, dividend stocks, or loans with interest.

Whatever passive income route you choose, make sure you have a long term strategy in mind. For example, many well known and successful investors, including Warren Buffett, earn money by owning shares in dividend stocks. Dividend income is money paid to shareholders of stocks in the form of cash. Usually, every quarter, companies that have dividend-paying stocks issue dividend checks to stockholders. A good long term strategy would be to reinvest those dividends to buy more shares of stock. Once you have a few of them, you can take the money as a paycheck and live off it.

If you’re stressed or worried about being able to save enough of your earnings to meet your retirement goals or are of the age of retirement and have no savings, building wealth through passive income streams is a strategy that might appeal to you.

Insure Against Catastrophic Loss

Catastrophe insurance protects businesses and homeowners against natural and man-made disasters such as earthquakes, floods, and storms, riots or terrorist attacks, amongst others.

We’ve all experienced how sudden COVID-19 shook the entire world, which is why it’s better to be prepared for the future. No single event or action, man-made or not, should derail your financial plan, whether that comes in the form of a natural disaster, recession, or something different.

Sticking with your financial goals means being proactive and ensuring what you can to protect yourself and your family from economic loss.

Work With A Financial Advisor At Every Major Stage Of Your Life

As you go through different life stages, your financial situation should complement each stage. For example, what’s right when you start a business may change as you start a family.

A financial planner or adviser can help you balance what you need to do today to be ready for the years to come. Some of your financial changes and plans will be long-term — for instance, saving for retirement takes place across many years, but that doesn’t make shorter goals, such as saving for a large mortgage downpayment, any less challenging.

Just as you don’t hesitate to go to the mechanic to repair your car or visit your doctor for health-related issues or a general checkup, you should seek the help of an experienced financial advisor to help you protect, manage and grow your wealth.

Here is an example of how a financial advisor will help you craft a financial plan tailored to your requirements, at different stages of your life:

Stage: Newly Graduated Doctor Already Practicing

• Help and assist with decisions on investing for retirement
• Financial planning for future purchase of a private practice
• A strategy to monitor and manage income vs expenses
• Put together a savings plan for a down payment to buy a home

Stage: Established Doctor Mid-Career

• Assist with decisions to buy property and business real estate if desired
• Big picture advice for decisions on the strategic use of money: spend, save, invest, pay down debt
• Advice on vacation and business real estate purchases
• Design of a professional investment program that you will build on during your prime wealth-building years.

Stage: Retired Doctor

• Tax minimisation with investments
• Annual cash flow review to examine spending levels vs. income on an after-tax basis; net worth preservation to ensure adequate resources for the rest of your life
• Charitable giving and creation of trusts and foundations
• Update estate plans for new and existing family members (wills, trusts, etc.)

To find out more, click here

Optimize Your Taxes

Finding ways to save money on your taxes can really add up over time. Whether that’s getting the timing right, or tax minimisation with investments, there are many options available to optimise one’s taxes.

You don’t have to become an expert on local and international tax laws, but it’s going to benefit you to take the time to really understand your own tax structure each year at a detailed level.

It’s also wise to take up smart offers from the government when situations present themselves. As the world continues to respond to the impact of Covid-19, an increasing number of countries are introducing tax facilities to support businesses and the economy. Tax relief and tax extensions can go a long way if you know how to use them correctly.

There’s also a big difference between doing something on the last day of your financial year, and doing it a day later. For example, If you know an upcoming expense is going to be tax-deductible, think about whether you can pay for it this year rather than next. Making March’s office payment in February, for example, could give you an extra month’s worth of interest to deduct.

Similarly, if you know you’re near the threshold for the medical expenses deduction, get that scheduled sooner rather than later, lessen the pain of owing more taxes.

Invest Early, Often, and As Much As You Can Afford

Most of us have heard the phrase ‘the sooner the better’. This phrase is especially true when it comes to investing. Starting your investing journey early provides you the opportunity to make the most of the investment, and understand the industry’s ups and downs. Starting early is one of the best ways to build on your investment.

Investing over a longer period of time is considered more effective than waiting until you have a large nest egg to invest. This is because of compounding.

Compounding is the snowball effect that occurs when the amount you earn investing generates even more earnings. In simple terms, you grow not only the original amount you invested, but also any accumulated interest, dividends, and capital gains. The longer you are invested in the asset, the more time there is for your investment returns to compound, and make you a high return on your investment.

What I like most about investing early is that it allows you the opportunity to build up risk appetite and understand the market. When you invest at a younger age, you have time on your hands which allows you to take different risks without much fear of the consequences. Leaving your investment for later on in life, comes with responsibilities already on your shoulders, making the same investment much riskier.

While you have the options to invest in anything, the three most reliable investment classes for most people are:

• Real estate
• Bonds
• Stocks

These investment classes have a lot of historical data about how they perform over time and you’re able to control key variables to maximize your investment returns while at the same time minimizing your risk.

Also, investing regularly can help smooth out returns over time and reduce overall portfolio volatility.

Diversify your investments

Diversification is the single most effective way of reducing investment risk and growing wealth in different markets. Diversification means a financial spread of your portfolio, across different asset classes, geographical markets, and industries to protect and safeguard your wealth.

Different financial markets and industries don’t move in the same way and at the same time. When you diversify your portfolio, you are better positioned to tap into opportunities across different investments as they arise and become valuable. This tends to create a smoother investment experience because investments that increase in value can balance out those that are not performing as well.

Consider investing offshore

Offshore investments are any investments housed in a country other than the investor’s country of residence. International and offshore investing are the same and the terms are used interchangeably.

Offshore investing has many advantages, but mainly to offer a hedge for investors who fear the depreciation of the rand.

Investing offshore allows you to completely control and diversify your investment by spreading your risk ratio and allow you to benefit from a broader global spread of industries, companies, geographical regions, and currencies, protecting you from the poor market performance and shrinking rand.

Offshore investing is crucial, and in my opinion, should form part of your overall long-term investment plan.

As of 2019, South Africa only represented an estimated 1% of the global financial markets, which basically means that there is a further 99% of the global market opportunity of which to take advantage.

You can find out more about offshore investing here

Protect you and your estate

Having worked hard to build up your estate, it’s even more important that you have an effective and strong estate planning strategy in place, to ensure that you can pass on your wealth to your loved ones and minimise the amount of tax you pay.

In its most simple form, estate planning is about peace of mind, both for you and your family. Estate planning is all about putting the right legal and financial structures in place to make sure your assets are distributed the way you want them, with no surprises.

Whether you are concerned about your personal or your business assets, various structures exist to keep your property safe.

Read more about estate planning here.

Enjoy Your Wealth

A common trait in people is that they carry a certain amount of guilt when it comes to enjoying their wealth.

To enjoy wealth is to experience it working positively for you.

The benefits of enjoying your hard-earned money along the way, rather than storing up all the fruit for the end of the journey, is that you tend to feel happier, less stressed, and more motivated to stay on track with your financial goals and plans.

Just like someone who makes healthy eating choices regularly but doesn’t hold back from indulging occasionally, tends to be in better shape than someone who is on a “strict” diet, people who enjoy their money by building it into a smart spending plan tend to be in better financial shape than those who keep themselves on a tight and strict budget for years.

Conclusion

Of course, there’s more to growing and managing your wealth than these few tips can cover.

Protecting and managing wealth is at the heart of what I do. I provide a highly personal service, based on your needs and objectives, and designed to build and safeguard your long-term prosperity.

I am Giles Maynard. I provide individual investment and wealth management services for private clients and companies. I have been trusted by clients, large and small to manage, protect, and preserve their wealth. How can I help you with yours?