Wealth Viewpoint June 2022
Welcome to the June 2022 edition of FC Viewpoint.
IN THE NEWS:
- The JSE All Share Index retracted from 68 367 on Monday 24 May 2022, to 65 713 on Wednesday 22 June 2022.
- 1 US Dollar will cost you R15.93; 1 Pound = R19.54 and 1 Euro = R16.83.
- Annual consumer price Inflation increased to 5% in June.
- The prime lending rate in SA is 8.25% per annum.
- 6% – the 40 year high that US inflation unexpectedly accelerated to.
SLIDE OF THE MONTH: THE JSE TRACKED VOLATILE INTERNATIONAL MARKETS
THIS MONTH’S TOPIC: WEALTH FOR THE NEXT GENERATION
Everyone wants to find that pot of gold at the end of the rainbow. It’s the stuff of childhood tales and countless rags to riches stories glamourised in tabloids. However, for most, wealth doesn’t fall out of the sky or grow on trees. The only ignition for true wealth is from employment and entrepreneurship that produces earnings that can be deployed to a well-thought-out and executable financial plan. This plan should be able to harness the parameters and opportunities of compounding capital into sustainable wealth for generations to come.
The real test of a good financial plan comes from translating an investor’s earning power and existing capital today into sustainable wealth that supports the desired lifestyle both now and in the future. However, the true financial value of an adviser will only be experienced over many decades of executing a robust financial plan. If this is the case, how can clients know that they are receiving good value?
In Morningstar’s seminary paper, Value of Advice, they highlight that personalised financial planning and advice, including behavioural coaching, is one of the key value-adds. Rather than focusing primarily on what funds and returns are available, a client’s intended lifetime financial plan and legacy needs to be understood and well planned for. Major events, such as divorce (currently 40% of all marriages end in divorce before their 10th anniversary, according to Stats SA) or starting a business (with approximately 80% failing within the first three years) are often downplayed, yet many can deplete financial savings and decimate future financial outcomes. Great financial planners articulate value by helping their clients plan for such moments.
Broadly then, two strategies will be needed to leave a legacy. An earning or capital base to support a lifetime of income and capital requirements and, once these lifetime financial requirements are planned for, legacy assets can be planned for.
Relationships With Money
Leaving a financial legacy can only happen if all lifetime financial needs are taken care of.
Everyone knows the expression: charity begins at home. Ensure your holistic plan covers your lifetime financial needs first. Further, ensure that those around you that may enable financial burdens start having similar relationships as you do with their financial plans.
It is crucial to engage early and build healthy relationships with money with future inheritors.
- Charity always begins at home: ensure that as far as possible, your children become financially independent from a reasonable age, and are building their own wealth journeys.
- Encourage conversations around their understanding of money, your values around money and what it means to you, and what you would like your legacy for them to be.
- To many, leaving a legacy means building intergenerational wealth. Ensure your beneficiaries understand that they are custodians of that legacy, and when the time comes, they should pass it on in the same or better situation than they received it.
- Understand that the world is changing at a rapid pace, that new innovative financial trends are accelerating, and that beneficiaries may be enticed by the potential of new ways of making money. For example, crypto-currencies have become increasingly popular over the last 10 years now, and the decade before that property syndications were very prevalent. Both of these examples hold notable risks for investors. Encourage your beneficiaries to engage in well-respected and established financial advice to understand boom and bust cycles are normal and with hindsight expose investment fads. For intergenerational wealth to be sustainable, investments should be founded on enduring, reliable strategies.
- Lastly, while leaving your legacy is important, you cannot control what will happen when you are no longer here. The best you can do is ensure you have a valid, unambiguous and concise will to maximise clarity on your legacy.
Work hard, plan well and balance your financial affairs to enjoy the now, save enough for future requirements and also leave a legacy.
QUOTE OF THE MONTH
“Time is the friend of the wonderful company and the enemy of the mediocre one.” – Warren Buffet.
Fanie Jansen Van Vuuren CA (SA), CFP®
Director: FC Wealth and Investments (Pty) Ltd
E: [email protected] | T: 083 384 5868