The Financial Wellness Coach: How to successfully find…

Question: I want to start investing but have heard horror stories about high fees, hidden costs and poor returns. How can I invest without making these mistakes?

Kenny Meiring

Kenny Meiring MBA CFP is an independent financial advisor. You can contact him at Financialwellnesscoach.co.za. Please send your questions to [email protected]

First published in Daily Maverick 168 weekly newspaper.

Reply: When making an investment, there are three things to look out for:

  • Costs;
  • Possible returns; and
  • Taxes.

If you consider just one of these elements, you can end up with an inefficient investment.

Platform costs

You can buy mutual funds directly from the mutual fund or through a platform that has access to a variety of mutual funds and other investments. In the second case, while you get the flexibility to have access to other mutual funds, you pay a platform fee. Granted, this platform fee is often low, but there are additional costs.

These additional costs don’t have to be a show stopper. The platform costs are subsidized by “wholesale pricing” on the investments through investments via a platform. This means that you get access to the investment via one platform at lower basic costs than if you invested directly.

So, if you’re looking to invest in a mutual fund or two, it probably makes sense to go direct. If you want more choice and flexibility, go through a platform.

Consulting costs

This is a controversial issue.

If you have a proper financial planner to help you structure your investments properly, then this is not a cost, it is an investment. A proper financial planner would examine your short, medium, and long term financial needs and ensure that you are using the right investment vehicles to get the best possible returns and pay the lowest taxes. The advisor would regularly review your portfolio and make the necessary adjustments to ensure you get the bottom line.

On the flip side, you have insurance agents who sell you an investment policy that pays them a nice upfront commission, and then they pretty much go away. Advice here is not an investment – it costs. No wonder so many people choose to do it themselves.

Do-it-yourself involves risks. If you are inexperienced, focus on the easily visible elements like cost. The appropriateness of the investment portfolio for the prevailing market conditions is often neglected, as is tax structures.

The right portfolio

In my practice, I often come across a lot of people making low-cost investments that have not proven themselves. In addition, these investments are often structured inefficiently, so that unnecessary taxes are due when the investment is due.

Tracker funds are cheaper than actively managed funds. There will be times when it makes perfect sense to use inexpensive tracker funds. For example, in the five years leading up to the market crash last year, most actively managed funds did not get the extra returns to justify using them in place of those that tracked the market or a particular sector.

After the global lockdowns, many active managers have stood their ground and achieved returns that more than justify their fees.

If you had even invested in low-cost funds, you would have missed out on some of that growth.

Tax structures

In a previous article (DM168 June 2, 2021) I wrote about the importance of using wrappers to save taxes.

For example, the same mutual fund investment can produce very different after-tax results depending on the wrapper you use.

When investing, you need to know what you want to achieve and whether a wrapper will give you a better result in terms of:

  • Pay lower taxes;
  • Noot paying capital gains tax on currency movements;
  • Do not pay inheritance tax;
  • Reducing your overall tax burden; and
  • He does not pay executor fees.

If you want to do it yourself you need to:

  • Understand the real investment costs;
  • Make sure your investments are appropriate to current and future market conditions (even if they are more expensive); and
  • Make sure you are using the correct structure.
  • If you feel like you don’t know enough to make the right calls here, you should find a decent financial planner to help you out. It is worth the effort to get it right – the cost of doing this can be high.

Try to find someone who will charge a consultation fee as this shows that they are focused on providing the right advice rather than selling a specific solution. If you can’t find any of these, look for a certified financial planner. DM168

This story first appeared in our daily newspaper, Daily Maverick 168, which is available free of charge to Pick n Pay smart shoppers in these Pick n Pay stores until July 24, 2021. From July 31, 2021, DM168 for R25 are at Pick n Pay, Exclusive. available books and airport bookstores.

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