Anyone who has been an entrepreneur or a manager, has personal experience of the journey from doing everything yourself, to gradually delegating your tasks so you can focus on what you’re good at, some with more success than others. We’ve all come across micromanagers at some time in our lives (and yes, sorry, they’re insufferable). We like to have control, its human nature, whether it’s as parents, spouses or bosses the need for control is found everywhere. Have you thought how this applies to your financial life? Delegation comes naturally in our work life, yet when it comes to managing our wealth, somehow these natural laws don’t seem to apply. Management is a spectrum (and I am not saying that just to be woke). At the one extreme one has micromanagement, the other, total abdication. How do you find the sweet spot, especially when it comes to managing wealth? Abdication is taking it one step too far, but unfortunately, it is not uncommon, especially with clients who do not understand the machinations of investing, find it boring and or overwhelming. They know they have to do something – so they just throw wealth at the wall hoping something sticks. This sometimes involves placing capital in something that gets advertised often (like ‘Global and Local’ on all the radio stations? That didn’t end well…) or add it to the company pension hoping something it will come out the other end. Frankly, unless you do something really speculative or put your eggs in one ‘fail safe’ investment, you might be okay, certainly for a time while you’re still earning, and can make up for ‘mistakes’ along the way – especially if it is protected by the Pensions Fund Act. It’s quite rare for a client to have nothing left even if abdication has been the default mode.  Greed and fear are natural emotions when it comes to anything to do with money, and those will evolve over time, as you have good and bad experiences. If you’ve taken enough trips around the sun, you’ve probably been burned in one shape or form somewhere along the line; an RA that had nasty termination penalties; stocks that tanked (Steinhoff anyone?); expensive and useless ‘cascading’ Trusts; high-fee offshore vehicles that tie up your funds and do nothing to protect the investment – the list is endless. When it comes to these bad experiences, it more often comes about through sins of ‘omission’ (what you’re not told…. the small print) rather than ‘commission’ – an outright lie. These experiences damage your trust in the wealth industry, and you may shy away from investing at all, putting it all in ‘the bank’ – or become a micromanager and drive your wealth advisor nuts.  The origins of our default ‘financial behavior’ often goes back to our childhood. It may be, for example, a remnant of a conservative upbringing, perhaps gender roles were more rigidly defined and where a surviving parent was left with a wealth portfolio with no knowledge as to how it was constructed or what the objectives are. They just focus on the income which comes into the account every month – and that is all that matters, right? (On more than one occasion the income is being derived not just from dividends but from capital depletion too, and the client is oblivious). That original behavior is then molded and evolved according to your life experience. You will take these experiences with you when you get to that point where you want to/need to retire and it might just be too late to undo some of the decisions you have made along the way. I get the reluctance to pay an advisor for something that you (or your spouse) have been doing for free for years. When you’re involved in a single asset class – like stocks – where all you have to worry about is growth, then watching markets and DIY is doable, if you devote enough time to it. That’s the key word …time. Unless managing wealth is your ‘day job’ and you have the qualifications and experience to do it – would your wealth not be better served on actually doing your day job better? Is it really worth putting hours and hours of effort into wrangling that wealth tiger, where your capital can go up or down daily as much as 3%, or delegate that to someone else, who, yes, as an asset manager and advisor team might charge you 1%-1,5% per annum, but frees you up to focus on what you’re good at? And then there is the emotional aspect of wealth management. It’s no surprise that I get the most queries when markets are down. It’s easy to manage emotions on the way up…. But on the way down that looming retirement date causes angst.  Delegation of your wealth management should really happen when it gets to a critical mass that you wouldn’t be comfortable losing chunks of it. It may be a good way to stay engaged but have some professional oversight, especially as you build up a sizable portfolio or need to convert your portfolio from growth (stocks) into one that produces income, (where the average 2% dividends won’t cut it, and taking on high dividend stocks usually comes at the expense of growth.) This conversion from ‘growth’ to ‘income’ is something we at Rexsolom have spent years mastering. Our biggest stress test came during the pandemic where interest rates cratered overnight, and we had to get creative finding other sources of ‘yield’. It was (as the curse goes) ‘Interesting Times’, but gave us valuable insight into portfolio management that you cannot get in a class room. Sorry if you’ve heard this from me before – but when you decide to retire or semi retire, in other words that event where you turn off the growth phase of your wealth journey and turn it into producing you an income, trying to DIY to save a couple of bob could cost you a chunk of that wealth. Mistakes made at this point, when you do not have the time or ‘active’ income (as opposed to the passive pension income) to regain that capital can be devastating. You want to be able to rest assured that you have a constant income, that grows with inflation, has some wriggle room to increase in the last years of your life but importantly, never run out. This should all be built into a comprehensive financial/retirement/estate plan, along with your desire to ‘leave a legacy’.  So how do you delegate the management of your wealth? Should you have a stable full of advisors and wealth managers – I mean, diversification is key, right? Sure, you can do that but be aware that when you ‘dechunk’ your portfolio, it is going to come with higher fees – and when you start translating that into hard currency, lost lifestyle and investment opportunities, that will stick in your gullet. It’s important to understand how your investments are protected through the use of ‘custodial’ banks and accounts, the use of the Pensions Fund act approved investments, FSCA approved products etc. More than anything else that will help you shift your mindset out the negative perceptions you might have been holding onto. If you choose an experienced professional (like a CFP ®) you’re halfway there. My personal preference is for my clients to be informed and involved as much as possible. If there are economic problems bubbling under the horizon, interest rate drops that might require rebalancing of portfolios to maintain income or regulatory changes that could affect their local or offshore Trusts or investments (like SITUS tax https://rexsolom.co.za/situs-the-myths-and-reality/) – I would rather my clients were not blindsided. That never feels good. I put out a weekly newsletter and podcast (available on our website www.rexsolom.co.za and your favourite podcast platform.) If you visit our website you can follow the prompts to be added to the newsletter (or email me).  The fearmongering out there on social media, by local pundits who should know better, caused irreparable damage to numerous portfolios during the pandemic, when everyone was vulnerable, and frankly, I am on a mission to prevent that happening again. For example, clients cashed in their preserved pension products, took an up to 36% tax hit, and moved it all overseas. There is no time more vulnerable than when you’re depending on these assets for a fixed income to last you the rest of your life. There are two extremes when it comes to emotions’ that fuel the market – fear and greed. During the pandemic it was probably the most fearful most of us are going to be in our lifetimes. Right now, with buoyant, frothy bubble-like markets we’re coming close to maximum greed. FOMO is rampant, and it is the ‘retail’ investors (the DIY crowd) not the professionals that are driving the market. A professional advisor buffers you from that dangerous exuberance and keeps you focused on your objective. Going into retirement or reaching the point when one feels overwhelmed with the decision making can be a vulnerable time – but this shouldn’t result in abdication. |
| Articles and Blogs: Spoiled for choice NEW Who needs a plan anyway NEW 8 questions you need to ask around retirement What to do when interest rates drop How to survive volatility in your investments What to do when interest rates drop Difficult Financial Conversations Financial Implications of Longevity Kick Start your own Retirement Plan You matter more than your kids – in retirement To catch a falling knife Income at retirement 2025 Budget Apportioning blame for your financial state Tempering fear and greed New Year’s resolutions over? Try a Wealth Bingo Card instead. Wills and Estate Planning (comprehensive 3 in one post) Pre-retirement – The make-or-break moments Some unconventional thoughts on wealth and risk management Wealth creation is a balancing act over time Wealth traps waiting for unsuspecting entrepreneurs Two Pot pension system demystified Cobie Legrange and Dawn Ridler, Rexsolom Invest, Licensed FSP 45521. Email: cobie@rexsolom.co.za, dawn@rexsolom.co.za Website: rexsolom.co.za, wealthecology.co.za |