Make Your Money Work For You: Think big, start small

By Anthea Gardner

DO YOU DREAM of a future free of financial stress? One where you can afford to start your own business, travel or retire comfortably? In Make Your Money Work For You, investment specialist Anthea Gardner shows you how to 'sweat your assets' and grow your wealth to achieve these dreams – and you won't even need a degree in accounting.
Gardner makes the world of investing accessible by:
Illustrating why it's important to know the difference between saving and investing
Explaining key terms, from 'unit trusts' and 'retirement annuities' to 'compound interest'
Clarifying the role of different players, such as financial advisors and asset managers
Describing how easy it is to buy shares on the stock market
You don't need millions to start. You can launch your financial future by investing just R100 a month. It's time to take action and make your money work for you.

• Language: English
• Publisher: Jonathan Ball
• Release date: Jun 11, 2019
• ISBN: 9781868429714

Book preview

ANTHEA GARDNER

MAKE YOUR

MONEY

WORK FOR YOU

Think big, start small

Jonathan Ball Publishers

Johannesburg & Cape Town

Table of Contents

Title Page

Dedication

Introduction

1 Why not simply spend it all?

2 Setting your financial goals

3 Clever in your thirties, relaxed in your sixties

4 Your friend, the stock market

5 From shares to property – taking a closer look at asset classes

6 Who’s who in the investment zo

7 Making your money work for you

8 The eighth wonder of the world – compound interest

9 Understanding risk

10 Designing your portfolio

11 The rise of the robo-advisor

12 How to avoid fraud and investment scams

13 Putting the whole picture together

Addendum

Acknowledgements

Notes

Praise for the book

About the book

About the author

Imprint page

This book is dedicated to every person who has ever

worried about saving, investing or retirement.

Read this book with a pencil in your hand and

feel free to make notes in the margins.

Introduction

Five years ago I started an asset management business and called it Cartesian Capital, after the French philosopher and mathematician René Descartes. He is best known for the saying, ‘I think therefore I am’, and his mathematical legacy includes the x-axis and y-axis plane. The string of numbers your GPS uses are called ‘Cartesian coordinates’, after Descartes.

Before that, I earned my stripes on trading floors and investment teams for large international banks, where I traded and invested such large sums of money that it often felt a bit surreal. But I’ve learned that every investment decision I take is important to the ordinary investor – you.

This book will show you how to take control of your financial future and how to make your hard-earned cash work harder for you – what we sometimes refer to as ‘sweating your assets’. For the record, your assets include your house, investments and cash.

Whether you’re a salaried employee with a company pension fund, a brave entrepreneur with overheads to meet every month or a future entrepreneur, this book will introduce you to the exciting world of investing and give you the knowledge you need to create wealth with your salary or savings. The goal is to retire comfortably, gain financial independence, create your personal discretionary spending fund, or all of the above.

Ideally, it is best to start investing as soon as you start earning a salary, but I understand that not everyone was given that advice or shown how to do it when they started working. I advocate starting as soon as possible to take advantage of a system that is set up to help you grow the money you earn. Even if you’re in your fifties – start now.

Whether you’ve got R500 000, R50 000, R5 000 or R500 there is no excuse not to start investing as soon as possible. No matter how small or large the amount, with a 12% per annum return you will double your money every six years. Look out for the Rule of 72 in Chapter 8; you won’t believe how easy it is to do the calculation and impress your friends.

This book will also introduce you to the concept of risk-taking and how to apply it to your personal circumstances. I’ll teach you the difference between an exchange-traded fund (ETF), a managed fund and a unit trust; why you need a retirement annuity (RA) as well as a pension fund; and how to be tax-efficient with your investments.

If one day you decide, like Jeff Bezos, that you want to give up the regularity of a monthly salary and those eye-watering bonuses, commissions or thirteenth cheques to start your own business from your garage, this book will help you create a safety net, put food on the table, and pay the mortgage while you establish your brand and build a financially successful business.

Of course, not everyone dreams of starting the next Amazon, and you might be content that your corporate job affords you a monthly income, sometimes accompanied by a subsidised pension fund and medical aid. However, maybe your son will turn out to be a tennis prodigy who needs to travel to Los Angeles, where all the top tennis coaches are based, or maybe your daughter will be the one who needs you to help cover her rent while she creates the next Facebook from her room in university residence.

So why not create the financial stability that will allow you to give them that helping hand? And if it turns out that they don’t need it, well, there’s nothing wrong with having money to travel the world in your retirement, paying for life-saving surgery, or not having to worry about whether you will have enough money to live to 100.

I want to demystify investments and the stock market and show you how to invest wisely. While I will do my best to avoid all the technical concepts and jargon, a few basics must be covered. It’s important to know the difference between saving and investing, what your personal risk profile looks like, and how to invest to achieve your personal financial goals (we’re not so worried about anyone else right now, but if you are, then pass this book on to them when you’re done).

When a financial advisor is told not to use jargon, or when their client tells them they know nothing about investments, the advisor’s immediate reaction is to ‘dumb it down’ and talk down to the person in front of them. This book does not do that. I’m going to assume that you are smart and thoughtful enough to understand your personal financial situation (because that’s what this is all about), and I’m going to assume you want to take the time to think about the concepts and ideas I present in the chapters that follow.

I’m sure you know how to use Google to find more information. If you still have questions, email me at [e-mail] or visit www.thinkbigstartsmall.co.za.

1

Why not simply spend it all?

If you don’t know where you are going,

any road can take you there.

– Lewis Carroll, Alice’s Adventures in Wonderland

As an asset manager, I interact directly with clients, who include my sister and my brother-in-law. In the last couple of years, I have realised that our industry uses a lot of jargon, and not just any kind of jargon, but scary jargon.

Even my sister, who is clever and worldly-wise and who grew up with both parents working in banking and finance, had very little idea of the simplest concepts that I take for granted. After several conversations with her and my brother-in-law about how they could invest, I realised that even though they were smart enough to know they needed to invest, they were too anxious to go to a financial planner. Not only because they thought they needed millions to engage with an investment manager, but also because it’s daunting when you don’t even know what questions to ask, or what to look out for.

Furthermore, they’d just had their second child. Children cost money, so why even bother to save or invest when the children need so much? At least, that was their thinking.

They are not alone. I find that many people are intimidated by the concept of investing. They believe it’s a complex and abstract thing that can be done only by professionals.

I have news for you. If you have a home, a car or a career, you already have investments. You’ve put time and hard-earned money into these assets. If you already have one or more of these investments, the only real question is whether it’s a good investment.

Think about it: if investing is about making money, then surely your career is an investment. I’m not here to give you career advice, but I would recommend you treat your work hours with an expectation that you will generate a return. Define your career goals. Plan your career. Be fastidious about getting the best return on your hours invested.

It is much easier than you might think to invest in the stock market. If you set and achieve basic personal financial goals, you’ll be able to achieve financial independence simply by using your salary.

Many people confuse financial independence with financial freedom. Financial freedom is a generic term used to explain the feeling individuals get when they are in a position to purchase whatever they need and don’t have to panic when unexpected expenses crop up. For some people, it’s about being able to put food on the table; for others, it’s about being able to afford a fancy car, to send their children to private school, or not to worry about the exchange rate while on an overseas holiday. For some, financial freedom is as simple as earning a decent salary every month.

My question to that person is, what happens if the company you work for closes down? We should then strive for financial independence, which means we have enough wealth and reserves to live without being dependent on a salary.

One of the most common misconceptions about investing is that you must be rich to invest. While investing R5 a month won’t make you the next Bill Gates, you do need to start somewhere, and the sooner you start, the easier it will be down the line. Some funds require no minimum investment and other platforms offer investments for as little as R100.

Consumers in emerging markets like ours hold a particular fascination for me. Consumerism seems to be the curse of most South Africans. I understand that suddenly having access to wealth makes it tempting to go out and buy all the nice things you could never afford before, but I also think that spending or saving money is a cultural phenomenon.

Why is it that China and India have high savings rates, while South Africa has a horrendously low savings rate? Chinese and Indian households save 40% and 30% of their income, respectively, while South African households put aside less than 5%.

Why bother saving, investing and growing your financial safety net? Many people ask, why can’t they just live and enjoy life in the here and now? The future will take care of itself, won’t it?

Let me tell you, it won’t.

Let me share a story or two from my experiences in taking part in Ironman triathlon competitions. I enjoy triathlons, to the point where I even had a coach for a couple of years. I used to get a weekly email from Donovan, my cyber-coach, which I’d read to check my daily programme. Almost every day I would read the tagline: ‘Today I do what others won’t, so tomorrow I can accomplish what others cannot.’¹

This powerful message saw me through a couple of sprint-distance² triathlons in Cape Town, Johannesburg and London, and a few Olympic-distance triathlons, including the world’s largest – the London and the Paris triathlons. It also encouraged me to triple my training so that I could do a half Ironman on the beautiful island of Mallorca and some other scenic locations around the world. And when I decided (actually, I think I might have been pushed by my coach and coerced by my training partners in Tunis, where I worked at the time) to do the full Ironman in Sweden, it was those words that got me out of bed at 4 am through summer and winter, onto my bike, into my trainers and, worse still, into a cold-water swimming pool at ungodly hours, to achieve my goal.

The sacrifices were hard to stomach, and the discipline required was almost superhuman. But today I can say that on a cold morning in September 2012, I got up before the sun, force-fed myself a high-energy breakfast, put on my tri-suit, checked and racked my bike in the transition area, packed my cycling and running gear, squeezed into my wetsuit and walked down to the pier in Kalmar, a beautiful town on the Baltic Sea.

When the starting gun went off, I ignored the butterflies and started a 15-hour journey of swimming in the cold Baltic, cycling on the island of Öland (in the rain), and running the streets and forests of Kalmar. All the while I was talking to myself, thinking why, oh why, have I willingly brought such pain on myself?

But when I crossed the finish line and I heard legendary Ironman announcer Paul Kaye say, ‘Anthea. You. Are. An. Ironman’, I knew exactly why.

More than pride, I felt a huge sense of accomplishment.

The thing is, doing an Ironman is a bit like investing. It’s a long-term goal that requires quite a bit of sacrifice, but it is incredibly satisfying crossing the finishing line and knowing it was you, and only you, who did it. At the end of an Ironman, there is a sense of accomplishment worth infinitely more than instant gratification.

An Ironman consists of a 3,8-km swim, 180-km cycle and 42,2-km run (all of that before the 17-hour midnight cut-off). It’s big and audacious by anyone’s standards. But there is simplicity in achieving the goal. Have a plan, stick to the plan, and just put one foot in front of the other.

Equally, you will only succeed financially if you know why you’re doing it. If you want financial independence badly enough, you will set the time aside to plan for it and you will make the necessary sacrifices. Whatever your personal reason, get your mind right – make the decision to think big even if you have to start small.

Every single person has their own reason for taking control of their money. One person might have ambitions to leave her boring corporate job to start her own small business; another might want the freedom to travel, to have money to see her through a possible redundancy or simply to ensure there’s a roof over her family’s head. The list is endless.

I’ve found my personal good reason for taking control of my money. It has been proven that financial stress lowers your IQ by a full 13 points. That’s right! Stress lowers glucose levels and negatively impacts the frontal cortex of the brain, which is responsible for attention and discipline. According to an article in the journal Science, people who worried about money experienced, on average, a 13-point drop in their IQ, which is the same impact as sleep-deprivation torture.³

Being poor is stressful. Financial stability, on the other hand, affords you the freedom to grow, not only materially, but also intellectually.

Everyone thinks long and hard about choosing a career, or buying a home and a car, but as they get closer to their sixties, suddenly they start panicking about whether or not they will have enough money to retire. We need to think about saving and investing as a rite of passage to being a grown-up. It must become second nature.

Let me show you how to take control – right now!

Before we set out on our journey to set personal financial goals and achieve financial independence, we need to investigate our attitude towards money.

Money is not a dirty word. I know many people were taught not to speak about money; it was considered tactless. I can’t specifically remember my parents telling me that it was impolite to speak about money, but for many years somewhere deep inside me was the feeling that it was not the