YOUR MONEY: Financial advisers are not just for wealthy people

Question:

I work as a security guard at a private company, where I am a member of a provident fund scheme set up by my employer.

I have studied accounting, business economics and economics and have a general understanding of finances. As I am working, my money should work for me too.

I have a tax-free investment which I started last year, and I contribute R500 monthly after investing a lump sum of R10,000. I also plan to start a retirement annuity, contributing a minimum of R100 a month.

I want to learn to do my financial planning on my own. Is this a wise approach, or do I need an independent financial adviser to make sure that my journey is monitored well and I stick to saving consistently?

Do financial advisers have an interest in working with ordinary people who are not wealthy, like me?

— S Nkosi

Answer:

When it comes to financial planning and navigating the market, my main point of advice for any individual would always remain time. It’s not about timing the market, but time in the market.

I would always recommend starting to build your financial portfolio with a wealth adviser from the day you start earning an income. I think if you can approach a great wealth manager from day one — establishing short-, medium- and long-term goals — you avoid a lot of mistakes in the long run. Like choosing the wrong platforms, which will incur unnecessary fees and penalties over time. Or choosing the wrong portfolios, strategies and the like. The sooner you choose the correct strategy and stick to it, the less pressure in the long run, and the more you benefit from the positive effects of pure compounding returns.

There are also multiple tax benefits you can optimise with different investment vehicles, and if you can start doing this from the beginning, so much the better.

I think one of the biggest investment mistakes many people make is starting too late and losing many years of investing in the process. It’s important to understand the end goal from day one. To put this into a rough perspective, you need to save an estimated 15% of your income over 40 years (your whole working life), assuming inflation of 6% and an average return of 10%, to replace 75% of your income. We don’t really have time to waste when it comes to investing.

Keep in mind there are a few goals you need to achieve when you start earning an income:

• Building an emergency fund;
• Optimising all tax benefits available; and
• Ensuring a comfortable retirement one day, keeping in mind that the average person will retire at about 60-65, and live for another 30 years. Your portfolio therefore needs to be able to replace 30 years of income need.

When it comes to investing, it’s never too early to start. Start where you are with what you have. The biggest mistake will be to start too late and lose years you will never be able to make up.

— Elke Brink, wealth adviser at R21 Wealth Management Stellenbosch

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