Investments

Your goals matter – find out how they help shape your investments

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? Probing your very specific reasons for investing will help your adviser design a financial plan that includes a diversified investment portfolio that will meet your needs and goals.

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What to know about goals

An effective goal is not the same as a wish or a dream. Here’s what to know:

They are deeply personal and specific – “I need my money to provide an education for my child at a good private school.”
They have timeframes – “I want to travel abroad on holiday, every two years.”
They are realistic and achievable – “When I retire, I want to have the kind of lifestyle that allows me to continue to afford eating out at a different restaurant every week.”
They are not broad or vague – “I want to be rich.”
They are not unrealistic – “I want to be the richest person on the planet.”

Determining when you will need to access your money (i.e. your need for liquidity) is critical, so it’s important to distinguish between goals with ‘soft’ and ‘hard’ deadlines. For example, your goal to travel abroad every two years has a soft deadline, as going on holiday is not a critical, life-impacting need. Your trip can be delayed. However, your goal to provide for your child’s education would be life-impacting and, therefore, has a hard deadline.

What is your relationship with your money? That’s a key question.

The relationship you have with your money is likely to be deeply emotional, and you probably don’t even know it.

Recently, a family member (let’s call her Penny) wanted to know if the R600 000 that she kept in her bank account 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 money can buy.
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 currency exchange rate.

What could Penny’s diversified portfolio look like, taking into account her goals?

Solutions	Capital Amount	Why the solution suits Penny’s needs
Tax-free savings account	R36 000	Tax efficiency. Penny can adjust her portfolio when her needs and risk appetite change. It's easy for Penny to access her money if she needs to.
Offshore investment	R164 000	Could help with mitigating currency fluctuations that affect her ability to travel when she wants to. Gives Penny access to different markets and currencies. Grows her savings by investing in a range of unit trust funds denominated in foreign currencies.
Endowment	R350 000	Addresses the need to save for her son’s education. May help with tax efficiency. Could offer protection to limit losses in a declining market.
Discretionary investment such as a money market investment	R86 000	Preserves and parks money for the short or medium term. Provides access to interest-bearing funds with high yields at low risk. Penny can make withdrawals at any time for unexpected expenses or emergencies.
Total capital invested in Penny’s portfolio	R600 000

The solutions align with Penny’s goals, and together combine to form a diversified portfolio that is efficient from a tax and risk management perspective, allowing for currency fluctuations and giving her access to funds when she needs it.

All capital sums and solutions quoted in this article are for illustrative purposes only. Please consult an appropriately appropriately authorised adviser for a holistic financial plan that includes a diversified investment portfolio.

All values in this article are for illustrative purposes only and do not constitute advice.

Glacier Financial Solutions (Pty) Ltd is a licensed financial services provider.

Sanlam Life is a licensed life insurer and financial services provider, and a registered credit provider (NCRCP43)

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