Category: Chartered Blog

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Who should you nominate as the executor of your will?

pat-blamire

Who should I nominate as the Executor of my Will, is a question my clients often ask me. In the past, I believed that appointing a surviving spouse or family member to act as your Executor, was in your best interests. The thinking behind this was that by appointing a family member or spouse, you could negotiate and reduce the fee that the Executor charges. Over time though, I have become more and more aware of the emotional strain that this puts on the surviving spouse or family member.

The responsibility of an Executor is an onerous one. It is the Executor’s responsibility to carry out the directives in your Will, and take responsibility for making all the necessary disbursements from your estate and filing the correct documentation with the relevant authorities. The Executor remains responsible for this forever.

In some instances, where the surviving spouse has been nominated as the Executor, we find that the children get involved. They may have a friend who is a lawyer or accountant who offers to perform this function at a nominal fee. The problem here is that the lawyer or accountant may not wind up estates as a profession, so despite the nominal fee, the estate isn’t wound up properly. Decisions that were made in estate planning meetings with both spouses are often disregarded, and it takes years to wind up the estate.

One instance of this is a client of mine, whose husband died 15 years ago, and there are still shares in his name that have not been finalised and paid across to her. The Executor has since died, and the estate has been left in a heap. My client has since remarried, and her second husband is concerned that, should something happen to her, this will now become his responsibility when he was not involved in the first place.

Another instance is where an elderly couple in the Eastern Cape had nominated each other as their Executors, with the intention of the surviving spouse appointing an Agent to wind up the first spouse’s estate. The surviving spouse at that stage was 84, and not in good health herself. Even though she did appoint Chartered Legacy & Trust to assist us with winding up her late husband’s estate, she had to personally go to SARS to fulfil certain of her responsibilities as the Executor of the estate. She was pushed from pillar to post at SARS, which left her distraught, and in a very emotional state.

From experience, both through our clients’ stories and our own, we have come to respect the fee earned by Executors, and urge clients not to burden anyone but a professional Executor with this appointment. If there is a specific instance where a person would like a member of the family or friend to be involved in winding up the estate, they should instead consider appointing them as co-Executor along with a professional Executor.

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Retrenchments and Layoffs

tom-brukman-1

Sadly, retrenchment and layoffs are terms many people are having to come to grips with these days. These terms invoke anxiety and uncertainty, especially when it comes to an understanding of how being retrenched or laid off will affect their Pension or Provident funds as well as the company risk benefits.

If you have been retrenched or laid off, you need to understand all the options available to you, so that you can make informed decisions that best suit you and your family.

One way to help navigate through the uncertainty is to understand what your options are with each decision your employer takes regarding Company Pension / Provident Fund and Company Risk (insurance) products.

Pension / Provident Fund

Accessing your company Pension / Provident Fund will be one of your options if you are retrenched. However, before you decide to access your funds, you should ask yourself the following questions:
Do I have any savings that I can use for my daily living?
Do I need a short or longer-` term solution?
Do I have debt?
Do I have people that rely on me financially?

Depending on your age, your access is wide-ranging, but there are tax consequences. There are also options to access part of your Pension / Provident Fund and preserve the remainder.

Decisions regarding accessing your Pension / Provident Fund can have varying long-term financial consequences, so it is crucial to understand the implications before making any decisions. The decision to access your Pension/Provident fund should preferably be made after a consultation with your Financial Planner.

If you are laid off, you remain a part of the company and will not be able to access your Pension / Provident Fund. Your employer may offer to still contribute to your Pension / Provident Fund (potentially on your behalf), but this is not mandatory. It’s important to note that if you are laid off, and during your layoff period you find other employment and resign, you will not get the benefit of a retrenchment package. Again, each case is different and discussing what suits your situation best with a Financial Planner is encouraged.

Company Risk (insurance) products

If you have life cover or income replacement cover with your employer, these will fall away if you are retrenched. If you have debt and other responsibilities such as a family, understanding if you can continue with these significant benefits in your own capacity is extremely important. The ability to continue these benefits in your name can be an advantage from a cost and underwriting point of view. Continuing with these benefits in your own capacity when leaving your employer is a decision that your employer would have made at a group level, and needs to be confirmed by your employer. If you do not have this continuation benefit when leaving your employer, you are still able to approach insurers to apply for this cover in your own capacity.

If you are laid off, the consequences of your Company Risk (insurance) products depend on whether your employer will continue with your contributions to the insurer. Again, you can apply for these benefits in your personal capacity directly at insurers.

We encourage you to speak to a Financial Planner so that you understand all options available, as well as the consequences of any decisions you make. Knowledge gives us the confidence to make the right decisions during these uncertain times.

Podcast

Tom Bruckman and Kim Potgieter discuss retrenchments and layoffs, and what you need to consider so that you can make informed financial decisions should you be retrenched or laid off.

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The Impact of Covid-19 on our Financial Planning

john-cambell-3

There was much talk, in the early days of the lockdown, of the significance of COVID-19, and the impact this virus will have on our lives, and potentially our finances. It came at us so suddenly that I think we all probably spent the first few weeks digesting what had just happened, and trying to get our minds around the situation in which we all found ourselves. Most of our thoughts were very much centred on the present, as we waited in anticipation for our President’s next address. Now, almost 84 days later, we are witnessing the real impact of this pandemic. Reading the news this past week, it has become apparent that a vast wave of retrenchments are lying ahead, along with many businesses closing their doors.

I have spent some time in a few client meetings recently and have realised the significance of the last few months on all of our lives. One couple shared how they had just retired in March and had six months of travel planned, most of which was booked over a year ago starting with a road trip to Namibia, with further plans to see more of Southern Africa. Another client has just completed building their retirement home in the Cape and was due to move in early April, they are still in Johannesburg and anticipate being here for the balance of the year. This past week Kim and I ran the first of a series of workshops for 80 pilots who are all facing retrenchment. These pilots range in age from the early stages of their working life, to pilots a few years from retirement. Given the specialist training and career of a pilot, and the difficulty in trying to find other work, made worse by the fact that the airline industry is probably the hardest hit globally, made this session particularly tricky. It is not easy to plan under these circumstances.

I am sure that many of you have not only been worried about your health, but also your finances, and added to this the potential burden that your children could be facing retrenchments or pay reductions. These feelings that you are experiencing are indeed not isolated; it is quite apparent that every one of us has been affected in different ways.

If we stop and reflect on our lives before lockdown, there are many lessons we can learn from a crisis such as this one. We have all learnt to slow down and appreciate the simpler things in life. The younger generation has possibly realised that this fast-paced material world that we are trying to keep pace with is not worth it. The importance of having some savings during this time is most likely proving invaluable now, especially as job security and earnings are threatened. Many people have had to revisit their financial plans and make adjustments to get them through this uncertainty.

On a positive note, the markets have made a remarkable recovery, a good lesson for all of us to sit tight during these unpredictable times as it’s impossible to second guess the stock markets. Thank you all for your feedback in the recent survey, it was comforting to know that you appreciate all we have tried to do to keep you informed and cared for during the extreme uncertainty we have lived through in the last few months. I am most grateful to our incredible team at Chartered who have all needed to adapt to working from home. Many of whom have young children and needed to juggle their careers and home life.

Wishing you all the best as you venture out to treat yourselves to those long- awaited golf games, pamper sessions or visits to the hairdresser, but please continue to take care in the months ahead as we anticipate the increased spread of this dreaded virus.

Warm regards,
John

Offshore Investing in the World of COVID-19

Offshore Investing in the world of COVID-19

Stephanie Bakhuis

Given recent events and the uncertainty around the world, queries about offshore investing are at an all-time high. Although COVID-19 certainly has a role to play, questions and discussions around investing offshore are always extremely topical amongst South Africans. This topic evokes emotion and brings up many questions, which if answered correctly, will enable you to make sound financial decisions in keeping with your long-term financial plan.

The Why

Why Should I invest offshore? Well, as South Africans, having exposure to offshore assets is essential for the following reasons: it provides protection against inherent risks in South Africa and the depreciation of the Rand; it helps to diversify investments, and it allows access to a greater range of opportunities to invest in.

The How

There are two ways in which you can invest offshore. The first is taking a direct route, which means that you physically buy offshore currency, for example, US Dollars. Once the money is in offshore currency, you can invest those US Dollars in various offshore investments.

The second is through asset swops or feeder funds. By investing via asset swops or feeder funds, your money never has to change from Rands to an offshore currency. It is the chosen investments of underlying funds that you choose that gives you the exposure to offshore assets.

Your Financial Plan

The big question is, does investing offshore make sense in terms of your Financial Plan? Direct versus asset swop offshore investing often has a different place in investors’ portfolios, and we often forget that many of us already have offshore exposure.

At Chartered, we separate clients investments into Retirement Assets and Surplus Assets.

With clients Retirement Assets, we aim to have the right balance between local and offshore exposure. This is based on expected future growth and the need to beat inflation in South Africa. This would be done via asset swops, because this money is needed to fund future expenses, and therefore needs to be flexible and liquid. Often bringing money back from overseas is costly and impractical.

With Surplus Assets, we tend to invest this money directly offshore. This allows us to buy foreign currency which will be held offshore and doesn’t need to come back to Rands. This route of investing is often seen as a kind of “insurance policy” for South Africans. In some circumstances, depending on the amount, you may need to apply for clearance.

Investing directly offshore is generally warranted with larger amounts given currency fees and the costs of investing offshore. Making use of asset swops can be a great opportunity to gain offshore exposure with smaller amounts.

The When

Is now a good time to invest offshore? It is a gamble to try and time currency because the Rand is volatile. We forget that the Rand went to more than R16 to the Dollar in 2016.

At the time, this seemed impossible. In 2020 we have gone from R14 to over R19 and all the way back to around R16.50 in a matter of a few weeks. At the time of writing, the Rand is back up to R17.20.

If we stay true to the long-term nature mentioned for Surplus Assets or Assets that are not needed over 10+ years, then what we pay for our US Dollars is less important.

Global markets are still trying to make sense of the virus, the impact on economies and the effect of all the stimulus packages seen around the globe.

With such uncertainty, both globally and locally, any investing should be done with extreme caution and in line with your Financial Plan. The decision should not be an emotional one. Now more than ever, professional advice is crucial to making the right decision for your long-term wealth.

For a more in-depth discussion on this topic, listen to our podcast.

Podcast

Given recent events and the uncertainty around the world, queries about offshore investing are at an all-time high. Kim Potgieter and Stephanie Bakhuis delve deeper into the why, the how and the when of offshore investing, and how it ties into your Financial Plan.

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The importance of a Financial Plan during uncertain times

John-Cambell

Once again, our family congregated around the television for our President’s address last night, hoping that the rules may be relaxed a little further, even if just to be allowed to stock up on some wine, see some friends and possibly exercise in the afternoon. It looks like we will need to be patient until the end of the month.

My three sons and I have taken to playing golf during lockdown. We tee off at 4:30 pm every afternoon and play nine holes. Our games last 20 minutes in total, and to date, we have played 47 games. This golf is a little different to the golf we all know, and does not include beautiful fairways and manicured greens. Our holes are the base of the many trees in our garden, and the only club required is a sand wedge.

This time spent with my sons has allowed us to chat about the many aspects of Chartered Wealth. They see me enter my office at 8.30 and emerge again at 4.30, and wonder what it is I do all day.

I explained to them that the core of what we do is ensuring that every client has a RetiremeantTM Plan. You may recall your first meeting at Chartered and remember how, although you wanted to invest some money, we insisted that before you do this, we need to put a plan together. The purpose of the plan, simply put, is to understand what the money is for. In most cases, we work this out together in a life planning discussion. We then work out what return you need on your money to enable you to live the life you aspire to, and then ideally get your money to outlive you. Lastly, we try and understand your risk profile, and ensure that your money is invested appropriately . The critical work is the planning that follows – what we call reviews. I often tell clients that we plan as if that road through life is straight. However, along the way, we are going to experience unexpected events that will require revisiting your plan and adjusting it accordingly.

This Covid-19 virus is one of those unexpected black swan events. These events usually have a significant impact, not only on your money, but on your life too. We have all had first-hand experience of this over the past eight weeks. Our Retiremeant™ and Wealth Specialists have been working hard over this time, trying to reach out to each of you to ensure that your plan is on track and making the necessary changes. It is during these times that importance of a plan is evident as it helps us stick to the longer-term goals and not be distracted by the recent events.

The lockdown moved from a level 5 to a level 4 at the end of April, and with this certain businesses, including Chartered, were allowed to go back to work. However, we have decided that in the interests of our clients and our staff we will continue to work from home for the foreseeable future. We closed the business a week before lockdown when there were 65 confirmed cases and about five new infections a day. It is not prudent to now open our business when there are 12074 cases, and this figure is growing by almost 700 per day.

Thank you to all of our clients who have joined us in adapting to this new online world. Please contact us should you have any questions or concerns. Enjoy your exercise time and stay healthy.

Warm regards
John

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Cash vs Equity – Which investment carries more risk?

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There is no doubt that the year 2020 will go down in history for a number of reasons. When considering the stock market, it will never be forgotten. This year we saw one of the fastest and most aggressive equity downturns in the last 100 years, rivalled only by the 1929 stock market crash.

In late December and early January, the investment community began hearing rumblings of a virus in China that had local authorities slightly concerned. Most of us didn’t give it a second thought. By the middle of February, the virus, now known as Covid-19, had spread across the world, causing panic amongst health professionals and financial markets alike.

At one stage, a Bloomberg reporter said, “if it is listed on an exchange, it is being sold.” Not even Bonds, Gilts, Treasuries or Gold could escape the sell-off. Countries began closing their borders, and governments shut down business activity. Financial markets plummeted 30% or more as the global economy came to a grinding halt. It has been a stark reminder of how quickly equity markets can move against you. Many investors will be questioning the need to be invested in riskier assets. Is the risk worth the reward?

When asked the question “Which investment carries more risk – cash or stocks?” what would you be inclined to say? Stocks, most likely. The answer, Warren Buffett argued in a letter to his shareholders, is cash, hands down, without a doubt.

Many retirement investors think cash is a safer investment than equity. But, it should be the other way around. Due to inflation, a relentless force that destroys purchasing power, cash is the absolute loser.

The problem, Warren Buffet argues, is that investors, textbooks, and business schools incorrectly equate volatility with risk. While this makes for easy teaching, volatility is far from synonymous with risk, he says. Fluctuations in stock prices are not risk; they are opportunities. Risk should rather be defined as permanent loss of capital, caused by inflation. You cannot reverse inflation. But an investment in the equity market, while it may rise and fall, can reverse downturns, and yield a positive, real return. Buying publicly traded shares is not risk- free but avoiding stocks for the “safety” of cash is a mirage and dangerous for your retirement portfolio.

To preserve the long-term purchasing power of your wealth, investors need to generate a return that is equal to or preferably higher than inflation. In any given period, equities could underperform cash, but if your return requirement is more than cash can deliver, holding cash will guarantee that it falls short of this objective. With historically low-interest rates, investors need higher-risk strategies to achieve that required return.

In South Africa, however, over the last five years, cash has yielded higher returns than S.A equities. But over the longer term, stocks have significantly outperformed cash. We will never know for certain how equities might perform, but what we do know is that investing in cash will always cap your potential upside to no more than 2% above inflation.

A widely used stock market phrase says, “It is time in the market, not timing the market” that counts. It is often argued that for long -term investors, the most effective entry point is when headlines are gloomy, and the market is weak and cheap. Emotionally, this is easier said than done, and it is not easy fighting your cautious instinct. That is why, getting invested and staying invested through a balanced, globally diversified portfolio with a significant weighting to equities has consistently given clients a much better chance of preserving and growing their wealth throughout different economic cycles.

Your RetiremeantTM Specialist and Investment Consultant always take these factors into consideration when structuring your investments.

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Money habits – Going back to Basics

wade-hoal

We all have our own money story; we call this our relationship with money – this is shaped by our values, history, what our parents and grandparents taught us, experiences and general money habits. As Covid-19 has hit hard throughout the world, it may be a good time to sit back and try and understand what our relationship with money is, and whether or not this has changed over the last few months.

Do we have money habits that have been shaped by our history? Will these habits enable us to become financially free, or will they steer us into a never-ending money trap?

What if I told you six months back that Covid-19 was coming in 2020? That the stock market would be down 35%, and your salary would be cut by 20%? Would your money habits have changed, or would they be the same?

We’ve had numerous discussions with clients around this topic. On the one hand, clients have had to completely review their money habits – they have done a complete 180. On the other hand, we’ve had clients who have been unaffected, because they have ‘prepared’ themselves for black swan events such as this; they have not overextended themselves and know about every cent that goes in and out of their accounts.

In a time of panic and uncertainty, as is the case now, it’s extremely important that you go back to the basics and do a quick reflection about your own money habits. This will be different for each one of you, depending on which phase of life you are currently in.

Here are five tips to help you manage your money during this time:

  1. Take some time to revise or redo your budget – it’s vital that we understand what comes in versus what goes out and whether we are living within our means – we should be updating our budgets at least once a year, or when a material financial transition occurs.
  2. Remember to pay yourself first – you are investing in your financial freedom, and this should be on the top of the list.
  3. Pay off short term, high interest-bearing debt.
  4. Do not go into debt to maintain your lifestyle – this short-term gratification can have disastrous effects for your long- term goals.
  5. Last, but not least, don’t panic – although uncomfortable, it’s critical that we do not make emotional decisions and stick to our financial plan and investment strategies.

We are living in a time of chaos, and it is uncertain and uncomfortable for us all, but by understanding our relationship with money and tweaking our money habits (or even keeping the same), we can ensure we get through this pandemic stronger, and wiser.

Podcast

If you knew six months ago that COVID-19 was coming, what financial changes would you have made? Wade Hoal and Kim Potgieter discuss money habits and tips to help you manage your money during this crisis.

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Six tips about drawdowns during the COVID-19 crisis

jason-appel

Drawdowns have positive and negative implications for our long-term financial planning. Although ideally, withdrawals should be around 4% to weather any storm, your optimal withdrawal is dependent on multiple factors such as your age, investment strategy and individual cash flow needs. In a time where we feel more helpless and unable to control the outcomes, it is worthwhile looking at some proactive ways we can protect ourselves in volatile times when it comes to drawing down from investment portfolios.

1) Try delay unnecessary withdrawals.
Try not to withdraw funds out of your portfolio unnecessarily. This will happen naturally to an extent as we are not allowed to travel and are staying home. Consider delaying the purchase of vehicles and postponing overseas travel to 2021.

2) Cut back on monthly expenses over lockdown.
Cutting back could allow you to stop or lower your withdrawals from your liquid assets, even if just temporarily while on lockdown. By reducing your drawdown, you reduce the losses realised as the impact of sequencing risk. Your drawdown on liquid investments can be amended at any time so when lockdown measures lighten, and your budget needs to be adjusted, you can readjust your withdrawals where needed.

3) If you are unable to reduce costs, try ways to budget around keeping your withdrawals unchanged.
Do this in consultation with your Retiremeant™ Specialist. They would have already structured your income as efficiently as possible at your last income review. There may be some short-term scope to reduce your risk and the impact of negative compounding. By simply not increasing your drawdown from last year, you can reduce the impact on your portfolios considerably.

4) Amending your Living Annuity drawdown if your anniversary is still months away?
With Living Annuities, you are usually locked into your income until the anniversary of the contract. However, National Treasury has just released COVID-19 tax relief measures on the 23rd of April 2020 that state the following:

“Individuals who receive funds from a living annuity will temporarily be allowed to immediately either increase (up to a maximum of 20 per cent from 17.5 per cent) or decrease (down to a minimum of 0.5 per cent from 2.5 per cent) the proportion they receive as annuity income, instead of waiting up to one year until their next contract “anniversary date”. This will assist individuals who either need cash flow immediately or who do not want to be forced to sell after their investments have underperformed.”

This means that should you be receiving surplus income from a Living Annuity, you are able to apply to reduce your Living Annuity incomes (down to a minimum of 0.5%). Any changes must be done in consultation with your Retiremeant™ Specialist as they have likely already structured your incomes optimally for various reason specific to your individual planning.

In cases where you are under severe cash flow strain you can also increase your Living Annuity drawdown (limited to a max of 20%), but this should be last resort where possible as SARS will still charge PAYE income tax on the incomes and higher drawdown in the current economic environment should be avoided as much as possible

5) Be mindful of your liquidity position.
It may be more advisable to maintain your current drawdown on a Living Annuity to create additional liquid funds if your Retiremeant™ Specialist identifies this as something to be cautious of in your planning. In Retiremeant™ Planning, Liquidity is still king, and should not be sacrificed for short -term reasons.

6) Don’t be tempted to reduce your Living Annuity payment to reduce tax.
It will result in having to increase your withdrawals on other assets which could negatively impact your Liquidity, as well as increase the sequencing risk on those investments. Instead, review your income planning with your Retiremeant™ Specialist. They can ensure that your income is structured as tax-efficiently as possible while catering for your long- term liquidity needs.

Now more than ever, it is vital to have a robust and flexible financial plan. This involves adjusting your planning to react to an ever-changing world. We will all likely come out of this lockdown with a greater sense of awareness of what is important to us, which will give even more meaning to our money.

Podcast

Drawdowns have positive and negative implications for our long-term financial planning. Jason Appel shares some insight on how to realistically assess the impact this crisis has had on your financial plan by diving deeper in the concept of portfolio drawdowns, as well as steps that can be taken to reduce the impact of drawdowns.

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Online Security Tips

jason-appel

Lockdown has brought with it a learning curve where we have all had to leave our comfort zone and become more tech-savvy, embracing new technologies and ways of communicating. Unfortunately, this new digital world doesn’t come without its risks, and we need to develop good security habits when using technology.

Be aware of phishing scams
Phishing is the fraudulent attempt to obtain sensitive information such as usernames, passwords and credit card details by disguising oneself as a trustworthy entity in an electronic communication. The best way to protect against phishing scams is through scrutinising your emails: who is the mail from, do you know them, and were you expecting it? Take note of tone and formatting as this can raise alarm bells, even if it from a familiar email address. Often, phishing scams are associated with emails where there is a false sense of urgency, i.e. requesting you to confirm details to avoid your account being blocked. Also, check if there are any links to webpages or attachments in the email. Only open the email and its attachments when you are confident it is legitimate.

Ensure your software on your devices is always up to date
The world of online security is constantly changing. Most smartphones and computers prompt auto-updates which you can accept, and this usually links you to the correct place for the update. A link sent via an email or through Whatsapp to update your app is quite likely to be a security threat, so only use the official channels for updates.

Upgrade your passwords
We are all tempted to use one password across all our devices; however, they can usually be easily hacked. When choosing passwords, take the following into consideration:

  • Never re-use passwords. Where possible, you should have a unique password for every online account.
  • Try using passphrases as your password; these are similar to passwords but generally longer for added security. For example, if you are choosing a Facebook password instead of using your name and a popular number rather use a crazy passphrase like- Don’t spy on me Mark Zuckerberg! Or with Apple Music, try a line from your favourite song, for example, Lucy In The Sky With Diamonds.
  • Use special characters and upper- and lower-case letters in your password or passphrase – D0n’t$pyOnMeM@rkZuckerberg!
  • Log out of applications, and don’t opt for your browser to remember your passwords. While most mobile devices have fingerprint access and most devices offer the option to remember your passwords, the safest option, which may be as old as time, is to write down your passwords and store them in a safe space.
  • Activate Two-Factor Authentication. This is when you provide an email address and cell phone number when signing up for an online profile. Whenever a new login from another device is triggered, it sends either an OTP or some form of a link to your cell phone via SMS or an email to notify you of the login attempt and to authorise access. This has become standard practice on most social networking and other online platforms.

Never share sensitive personal information over emails such as online banking profile details or other login information
It’s a general rule that banks and providers will never ask you for login information via an email or attach a link for you to click on to log in to your profile.

Zoom Calls and other online meeting applications
Now that we are meeting online and attending Webinars at Chartered, we also need to stay safe in these environments. Unfortunately, due to the increase in use, Zoom has become susceptible to cyber criminals. If you are going to set up your own zoom calls, then we suggest you make your meeting password protected. Chartered will be using Microsoft Teams for formal reviews or discussions that need confidentiality as it has proven to be more secure. Rest assured Chartered does take every precaution when hosting Webinars on Zoom, so please do join us.

We encourage you to keep security top of mind and remain aware of potential security threats. Should you ever have a concern around a communication you received from an Investment provider or directly from Chartered, please contact someone in your RetiremeantTM planning team, and they will gladly clarify things for you.

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Sticking to your Plan – How to be aware of behavioural biases

tom-brukman-1

Sticking to a long-term plan can be difficult. We are constantly bombarded with news and noise that makes us question if we will have the future we want. A plan gives us the framework and roadmap that enables us to navigate through the short-term volatility that we are currently going through and will go through again in the future.

We can start to be aware of ourselves and wanting to act out emotions we are feeling through how it affects us physically. When we have an emotional reaction to a situation, we often display physical symptoms such as a red face, and increased body temperature or sweaty hands. These emotions are natural, and being aware of them can also make us aware of the behavioural bias that can follow.

Bias behaviour is as long-standing among humans as the English language. We each see the world through our own particular lens, and this affects how we process and react to information. Academics have discovered over 100 human bias behaviours, but we are going to touch on three of the most common below.

Confirmation Bias – Reading views/opinions that back up our preconceived idea.

This bias is very common and is being proliferated by the advent and abuse of fake news. The recent case of the very negative article about the Gates Foundation wanting to test a vaccine in Africa is testament to this.

This story was completely fake and was picked up and published by mainstream media around the world. Eventually, the facts were checked and found to be false, and media outlets, such as News24, were forced to apologise. Here confirmation bias manifested itself through those that believed Africa is the testing ground of the world and seen as less important.

When it comes to investing, confirmation bias is common when people use phrases such as “I knew we should have had more offshore, look what the Rand exchange rate has done.” This is a comment made in hindsight regarding preconceived ideas about South Africa over a short period. Importantly, investors need to understand the facts of their situation, especially in the context of their plan.

Herd Bias – Wanting to follow the perceived crowd in the decision one makes. Safety in numbers.

Yet another widespread bias we all can fall prey to. Herd bias has been very apparent through this current, as well as previous financial crises, as people hear that they need to have more of their investments in cash. Friends repeat this message around the braai (digital braais we hope!) as does the media. Again, investors need to understand what their position is first and what affect their plan moving their investments into cash would have.

Action Bias – If I take an action of any kind, I will be more in control, and I will then feel less anxious/uncertain.

This is a behavioural bias, but it can also be an overriding bias leading to other biases, such as the two above. We all like to be in control, and when this lack of control becomes front of mind, it drives us to seek action to wrestle some of this control back. Action that is based on emotion nearly always leads to outcomes that haven’t been thought out, and are in contravention to the long term plan we have. That’s not to say that we can’t make calculated changes during times of uncertainty. We can look at the parts of our lives that we have control over, such as our monthly budgets, health and learning.

In all the cases above, it can always help to speak to your RetiremeantTM Specialists and talk through the thoughts/emotions you are experiencing. Does it suit my Financial Plan? How will my investments change if…? The RetiremeantTM Specialists ability to help you stick to your plan and cut out the short -term noise is one of the most valuable roles that they hold.

Podcast

Sticking to a short-term and long-term plan can be difficult. We are constantly bombarded with news and noise that makes us question if we will have the future we want. A plan gives us the framework and roadmap that actually enables us to navigate through the short- term volatility that we are currently going through and will go through again in the future.

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Tel: +27 41 001 1026
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(FSP no. 13909)

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