Financial planning 2011 outlook

Written by Tshepo Matseba and Kevin Campbell
Tuesday, 05 July 2011 15:21

Although South Africa has weathered the financial crisis during the past two years, most consumers are still feeling the impact of the recession on their finances. Disposable income continues to shrink and the uncertainty regarding the economic environment remains a reality. The need for sound financial advice becomes a greater necessity that people cannot afford to compromise on. Tshepo Matseba (TM) spoke to Kevin Campbell (KC), Senior Executive Financial Planner and Momentum’s Financial Planner of the Year 2010/11, on the outlook for 2011 in terms of financial planning.


What are some of the key issues or factors that people should note for financial planning this year?


Our economy has survived its worst knock in many years.
Unemployment has increased. Interest rates have bottomed out. Property sales are at an all-time low. Fuel prices are increasing. Despite the above, we are a resilient nation.
There is a lot more positivity in the market this January, than there was last year.
The All Share Index is around the 32 000 mark. I think what these last few years have taught us is that we should focus on reducing debt. Hold on to that vehicle a little longer; explore some of our own country rather than indulging in expensive overseas travel. Cut up that credit card; pay additional money into your mortgage bond.


Financial planning is a complex discipline – what should people prioritise in their personal financial plan? Is it retirement, life insurance, investing in your child’s education, etc. or a combination of issues?


It is important to prioritise.
If you have to wait a year to start a retirement plan, or to fund for your children’s education, it’s not a train smash.
However, if one does not have death, disability and critical illness cover in place and something goes wrong, it is a train smash.
Focus on getting risk cover in place first, then short-term investment and then retirement funding.


What would you caution against (about personal finances)?

 

• Complacency
• Many people think “It will never happen to me” or “I have many years to fund for my retirement”.
• Before you know it, it’s too late.
• Start taking responsibility at an early age.
• None of us is bulletproof.

What are the key ingredients of a credible retirement plan?

 

• A proper retirement plan should be built on three foundations
• Property investments
• Business interests
• Retirement funding through a life insurance company

It’s amazing how often property investments and business interests don’t pan out, and suddenly retirement funding through a life insurance company becomes plan A. In the difficult times we’ve experienced recently, people have had to “give away” properties at bargain-basement prices, in order to remain solvent. In addition, many people have relied on their businesses to fund their retirement and they’ve now lost their businesses. Therefore, don’t neglect retirement funding through a life insurance company.

On which aspects of a financial plan should there be no compromise?

 

• Risk cover and retirement funding.
• One can generally always “make a plan” regarding education and short-term investment goals. Where one cannot “make a plan” is if there is not risk cover or not enough risk cover in place, and the same goes for retirement funding.
• I have yet to see a widow/widower with too much cash nor have I ever seen anyone retire with too much money.

In which vehicles should people invest their money (property, cash, bonds, etc)?


As I’ve said previously, a proper retirement plan should comprise property investments, business interests and retirement funding through a life insurance company. However, in funding through a life insurance company, I always favour a spread of balanced or managed funds. These fund managers are the experts, let them decide in which asset classes to invest the funds.


How does one strike the right balance between saving money and paying off debt? Which one should come first?

• That’s a tough one.
• One can’t retire with debt, but by the same token, one can’t retire without provision of enough retirement funding. I don’t believe either should come first, as they are equally important.

People often don’t read the fine print of policy documents. What are the risks of not reading this?

 

• The financial planner should ensure that there is no non-disclosure at application stage, and that the correct product solution is recommended to the client.
• Policy documents confuse clients, and are often very lengthy documents.
• However, in law, there is a term “Let the buyer beware.”

If you are dealing with a reputable life insurance company and a financial planner with integrity, this shouldn’t be a problem.