Sunél’s Blog | Put up your fences

Most of us know how to take care of our physical security. We put up burglar bars, fences and walls. We raise the walls and top them with electric fences.  We install alarm systems. We have panic buttons linked to armed response. We belong to village watch groups. We may even have permanent bodyguards. We take security seriously. We won’t allow intruders to threaten our physical space if we can prevent it.

Yet, when it comes to our mental space, it’s the complete opposite if we’re not aware. We allow the media, a stranger on Twitter or a narcissistic politician to have free access to our thoughts and feelings. We open the gates to anxiety-invoking theories and harmful stories, Facebook fights and Twitter arguments. We allow strangers to walk all over our hearts. We watch and read multiple news channels, which we know will upset us. And then we dwell on the thoughts and the feelings they evoke until that information becomes our looming reality – even if it is a distant threat.

Why? Why would we let our inner worlds be impacted, worse still, defiled? It shocks me. What shocks me more, is how few people realise that they have a choice, a choice which is vital to exercise.

We should guard our mental sanity and sanctity with the same vigour that we guard our physical security. We need soundness of mind, especially during this time, to make good decisions. We must choose to stop the stream of information into our mind. We cannot allow our minds to constantly race or go over the same alarming thoughts like a hamster on a wheel. 

We need to base our decisions on carefully curated information from a limited choice of trusted sources. We shouldn’t be ignorant, but there is a point at which additional sources of information are no longer useful, especially if it impacts our mental stability.

It is my job to know what is going on in the world because world events impact our clients’ wealth. It is equally important to guard my mind so that I can help my clients make good decisions.  Throughout the lockdown, I have had to watch over my mind too. At times, especially when I have felt anxiety threatening to overwhelm me, I have had to step away from social media and even daily news. I have had to switch off over weekends or go for long walks at the crack of dawn (because that’s what we had to do here in Cape Town) to secure a fresh perspective. I’ve found it unhelpful and at times, distressing, to listen to some of our global politicians and even those from developed nations. I’ve had to focus on having a quiet mind; purposefully choose to not to allow myself to get caught up in circular, or worse, downward spirals of thought. I’ve had to put up my own mental fences.

Think about your mental security as you would think about your physical security. You need to be vigilant, more so than usual, so that you have the capacity to make good decisions.

What do you need to do tighten your mental security? What has worked for you in the past? Have you perhaps let your guard down? How have you allowed your mental health to be affected by the news you have consumed? How ready is your state of mind for making good decisions?

Ps. I love to hear your comments. You can comment by hitting reply. Or you can comment in the section below on social media.

Kind regards,

Sunél

//29 May 2020

How do you respond to fear?

-By Elke Zeki

Money is emotive.  The reason for this is because of what money represents in our lives. It represents status, power, opportunity and limitations.  For most, it represents a life they want to live.  So, when the market goes into the fastest decline in recorded history, it threatens our life goals (represented by money) and understandably amplifies emotions such as anxiety and fear.

Scientists say that fear and our response to fear, can save us when faced with physical harm.  This was super handy in the caveman days but can be a hindrance in our modern lives.

Ahmad Hariri, professor of psychology and neuroscience at Duke University believes that “Change has occurred so rapidly for our species that now we are equipped with brains that are super sensitive to threats but also super capable of planning, thinking, forecasting and looking ahead.  So we essentially drive ourselves nuts worrying about things because we have too much time and don’t have many real threats on our survival, so fear gets express in these really strange, maladaptive ways.”

As financial planners, we often see how destructive fear can be when it comes to making investment or money decisions. Typically, we respond to fear in one of three ways:  fight it, freeze or run away.  Each of these natural responses may influence your behaviour and decision making. 

How do you respond to fear?

Fight it

These are the people that want to double up at the bottom of the market in an attempt to regain losses.  This response may lead you to punt a share or interesting story hoping to make a quick buck.   This response, if not managed or moderated can be risky and destructive. 

However, if managed well, this response can help you to see opportunities where others may be afraid to go. 

Freeze

These are the people paralysed by fear.  For them, it’s impossible to make decisions.  They freeze.  We often see this with people who are going through traumatic life transitions such as the death of a spouse, or who have been diagnosed with a life-threatening disease or are getting a divorce.  Some decisions cannot be put off and this response can be very destructive at those times. 

In the case of a major market crash, this response may be a blessing in disguise.  If you are a long-term investor with a well-diversified portfolio, doing nothing would be the best response.

Take flight

These people want to avoid pain at ANY cost.  Studies have shown that the pain of loss is physiologically twice as powerful as the pleasure of gaining.  For this reason, people react to losing money more dramatically than gaining money.  When you want to avoid pain it invariably means selling out of the market when it hurts, like now. This is a behavioural bias called loss aversion.

Loss aversion bias leads investors to timing the market by selling out when it looks dangerous and buying when they feel safe.  This can also be very destructive because you will buy when there is good news around and the market is typically already high and sell when there’s bad news around and the market has typically already fallen far. 

This can be easily seen in the example below from Morningstar.  Here they show the returns you would have received if you were invested in the South African share market from 1995 to 16 March 2020.  Their research shows that your annualised return would have been roughly 12% per annum.  If you were out of the market for a mere 25 days (which seems insignificant over a 25-year time period) your return would drop by half to 6% per annum.  This is a very substantial reduction and illustrates how difficult it is to get the timing right.  The more ‘good market days’ you miss the worse it gets.

Rationalising

Few people will admit to taking any of these actions based on fear. We rationalise our fears.  And it is normal to do so.  We can often find good reasons for our actions. Our current situation a case in point:  there are plenty of good reasons to react right now. In some cases, taking action is necessary but, in most cases, your long-term financial plan should not be changed drastically.

Good financial advisors are trained to identify and manage these behavioural biases.  Another longstanding study from Morningstar shows that advisors can add as much as 2% per annum (in USD) to investor returns by offering sound advice and keeping clients invested. 

So, what should we do? 

I’d like to end with the words from Leon Hoffman, co-director of the Pacella Research Centre at the New York Psychoanalytic Society & Institute.  He says, “Our culture valorises strength and power and showing fear is considered weakness.  But you are actually stronger if you can acknowledge fear.

Uncertainty creates fear.  This pandemic is non-discriminative and has touched every life across the globe.  We are all fearful.  Acknowledging this is already half the battle won.

<Foundation Family Wealth is an Authorised Financial Services Provider>

Cutting the budget “chop chop”

-By Sunél Veldtman & Michelle le Roux

The Great Lockdown is likely to be the biggest disruptor of the upward personal and global trajectory since the Second World War. Most of us have had occasional setbacks but this upheaval will cause economic hardship for many people who have never had much reason to worry about money. There have already been many job losses or salary cuts and there will be even more permanent unemployment in the coming months. Most of us will have to help family or friends through this and most of us will feel an obligation to extend a helping hand to our broader communities.

How should you react to these threats? Perhaps you are already in a situation where you have temporarily or permanently lost income. What should you do?

Keep a cool head

Cutting back your lifestyle suddenly is not easy, especially when it was not your choice. In most cases, sudden income loss is traumatic and it interferes with your rational thinking. Decisions driven by fear can turn out to be damaging. The best way to protect yourself is by either taking the time to think and/or discussing your decisions with an adviser or a friend. It is in these times that a professional financial planner can help you to think through your decisions, even if those decisions do not pertain to financial products.

You may find that it is more difficult to make decisions, in which case, an accountability partner can help you to move forward.

Project your cashflow

You need to figure out, quickly, how long your cash will last. Sadly, most South Africans do not keep much cash or save enough, so this crisis will expose those lacking savings habits.

I have found that building a simple cash-in & cash-out projection into the future helps. If you still have some income or savings, you can work out when you will run out of money. It will not only help you to focus your energy on making the necessary changes but may also help you to calm your anxiety if you see that your cash will last longer than you imagined.

Put your expenses under the magnifying glass

Knowing your monthly expenses is key. Surprisingly, many people do not have a clue about how much they spend and what they spend on.

If you have never analysed your spending, we recommend the three-bucket approach, which consists of Needs, Wants and Wishes. You can read more about this in our article The Art of Budgeting.

If you find yourself in a situation where money is suddenly tight, your first response should be to find “easy” items to remove from the budget. You identify the wants and wishes and you cut back on the entertainment expenses, holidays and luxury items. Within days you will have tightened the grocery budget and yes, poor ol’ Fluffy will now be on supermarket dogfood. Other categories to tackle include convenience services, like gardening or pool cleaning services. We have found that cleaning our pool and mowing the lawn is better exercise than the best gym contract.

Knock on the principal’s door

Educational fees are one of the priciest items in a household, often more than a bond repayment. Whether your child goes to private or public school, this will no doubt be an important, yet expensive, line-item on your budget.

Luckily, most schools can accommodate parents who fall into temporary financial distress. Talk to the school and find out how you can apply. This is a private arrangement, and your child will be none the wiser.

The last thing any parent wants is to uproot their child or destabilise their day-to-day routine. If circumstances become dire though, you may have to cancel some/all extra-curricular activities for a while. If this becomes your unfortunate reality, talk to the coach or the teacher and find out how your child can continue lessons or practice on their own for a while. 

For us as parents, it’s normal to want to ensure that our children have well-diversified lives and perhaps have opportunities that we never had. But there’s always a chance that the piano lessons matter more to you than they do to your child. They may not be as devastated to take a break as you think!

Tackle your base costs

But what can you do if you need to cut back further, and with immediate effect? The items in your needs column then also need to be revised. These are often the most difficult. You need to review how much it costs you to stay in your current property. Although banks have provided loan holidays or extensions to mortgage bonds and facilities for a few months, you may need to sell your house or rent a cheaper place. If you do not take action, the bank will eventually force you to. Talk to the bank about the best course of action.

Decipher your insurance

There are very few scenarios where cancelling your medical aid would be advisable but there may be cheaper options, which cover you for the big events.

You also should not cancel your short-term or life insurance without consulting an advisor or the service provider. Like the pool guy, it may be worth talking to other providers. Insurance is an aspect that we often leave for years at a time because the administrative hassle seems overwhelming. Set one morning aside to make a few calls and make sure that you’re getting the best value for the best premium.

Don’t skip installment payments!

If you are unable to meet a monthly obligation in terms of a credit agreement, talk to the provider. Don’t simply skip a payment. Whether you have a small amount due to a retail store, or a big payment on your bond, if you default on either it will affect your credit record. In turn, this will adversely affect your credit applications in the future.

Make that call well ahead of time and try to make a plan. It doesn’t mean that you will have to go into debt counselling because you are a reckless spender…it means that you are a responsible adult, who is trying to navigate their way through a difficult time.

Talk to your family

It is better to play open cards with your spouse and children and even your extended family and circle of friends. Your children will feel your anxiety around money even if you do not tell them. How you deal with the situation, will teach them valuable money skills or damage their relationship with money. If they do not understand the money pressure, they may also demand the same lifestyle – which could put a strain on your relationship. We frequently see people with so much anxiety around money.  Anxiety which started with a traumatic event, such as the sudden loss of income in their childhood homes.

Spouses should be clear about their spending limits and accountability otherwise it can cause additional tension and resentment. Managing the money should preferably be a shared experience, a practice that then ensures shared accountability.

Get over shame

You may feel shame over having to change your lifestyle or admit to your problem. You may not be able to keep up with your friends’ standard of living anymore. You may have to make decisions that will impact your children’s friendships.  This time, many people will be in the same boat. It will not be unusual for people to have to make adjustments. Times will be tough for most and it will be in-vogue to live a frugal lifestyle.

However, if you feel overwhelming guilt or shame over your situation, you should seek help. Not only will it help you to protect your mental wellbeing at a time when you really need to think straight, it may help you to move forward. Shame and guilt are destructive forces which hold you back.

Drawing retirement savings is a last resort

You should preferably leave your retirement savings alone. Not only will you lose the tax benefits of what you have saved but you will be heavily taxed on withdrawing the funds. However, sometimes, this is exactly what it is, a last resort and you have no choice but to use these funds. You can and should postpone the withdrawal of your pension fund until you really need the money. Last year, we wrote an article about the options for retrenchment.  

Deal with your ability to save less

In an ideal world, every household should have an emergency fund or monthly household savings. But what do you do when you just can’t put away the 25% of your paycheck, as your mother taught you to do?

The golden rule is not to go into debt so that you can save somewhere else. It doesn’t make sense, for instance, to borrow money at huge cost so that you can invest it “wisely” elsewhere.  Rather break even every month, than borrow from Peter to pay Paul.

A strong word of caution: if you are unable to continue saving towards your retirement, talk to your financial advisor first. It may be unavoidable, but you must be clear on the consequences, and how you can possibly make up for the break in contributions in the future.

Earn an income fast

If you have lost your job, it may be difficult to find something in your line of work again. Sadly, the unemployment will pile up, not only in South Africa but globally. Find some way to earn an income. At a time like this, we need to put away our ideals and focus on what is in front of you. One thing we have learnt from lockdown is that we no longer have to work in our own city or country. We can stay right where we are and do work somewhere else by using digital platforms. You may have to think out of the box. Look at your accumulated skills rather than at your previous job to expand your range of potential jobs.

<Foundation Family Wealth is an Authorised Financial Services Provider>

Sunél’s Blog | How confident should you be now?

Correlation does not equal causation. Confusing the two is a basic error in critical thinking. For example, if there is a declining trend of COVID-19 infections in Italy at the same time that more people are wearing masks, it does not mean that the declining trend was caused by the mask-wearing.

But let’s first backtrack to what each term means.  Correlation is a statistical measure that indicates the extent to which two or more variables fluctuate together.  Causation is the capacity of one variable to influence the other.


Proving causation is difficult. In fact, proving correlation is not easy either. Both require complicated statistical tests performed on carefully controlled data sets.

So those Facebook posts, Tweets and newspaper articles proving peoples’ points of view often only prove ignorance about statistics and critical thinking in uncertain times. No one knows enough about COVID-19 to be confident about the various aspects of the virus or policies concerning it. 

Further, proof is not conclusively determined by one expert, one study, one country’s experience or even most of these. And even if there is proof of correlation it doesn’t prove causation.  My point here then is not about mask wearing, (please do wear your mask!), or even causation and correlation with regard to COVID-19 trends.  It is rather about highlighting the difficulty of establishing proof that it is beneficial.  The difficulty of proving theories and then translating them into policies or actions. 

This difficulty is true for most fields. Those who are the real experts are often those who sound self-doubting. They are familiar with the nuances and complexities of their subject field. Whereas those who are shouting loudest, confident about their way, should be regarded with suspicion. Their opinions are often far from expert.   As we learn more about COVID-19 and as we emerge from lockdown, it will become increasingly difficult to navigate our learnings.  To differentiate between causation and correlation.  But it is essential that we do because it often determines what we think we know about the world and influences the decisions we make that are based on what we know.

In the money world, it is no different. No one has experience in dealing with anything like this. Never have markets declined so fast and governments thrown so much at a disaster. This is not 1929. Governments have reacted this time by supporting financial markets, unlike more than a hundred years ago. It may perhaps be enough to offset a long, drawn-out recession, if not here, then perhaps elsewhere in the world. We simply do not know enough to be confident about economic outcomes.

Somehow, we want certainty and in doing so, we sometimes force our leaders and advisers into actions that are not necessarily in our best interest.

Now more than ever we must not move forward with false confidence but with small considered steps. 

Ps. I love to hear your comments. You can comment by hitting reply. Or you can comment in the section below on social media. You can subscribe to receive this blog weekly if you are not already receiving it in your inbox at http://www.foundationsa.com/contact/.

Kind regards,

Sunél

//22 MAY 2020

Sunél’s Blog | The last of the human freedoms

This week, as I digested President Ramaphosa’s speech, I was struck by the enormity of what we are experiencing. Not for the first time, an acute anxiety about the outcome of the Great Lockdown overwhelmed me. The economic consequences will be extremely difficult to deal with.

Maybe you haven’t felt anxiety. Perhaps you have felt powerless, helpless, scared or confused.  Perhaps you have chosen to ignore the threats to your future or maybe you are already fighting for survival. Each of us responds to the threat in a different way.

We are all in unfamiliar territory, being held captive by an unknown enemy and the erratic response of our governments; both fuel our terror.

Victor Frankl, a survivor of the Holocaust, said: ‘The last of the human freedoms, [is] the ability to choose one’s own attitude in any given circumstances, the ability to choose one’s own way.’

It is our belief in our own ability to cope that will battle our anxiety, our powerlessness. This daily belief, enough just for today, every day, is what will get us through this. This is hope – a deep trust that it will be fine. You can do this. We can do this.

What we need now is hope.

Kind regards,

Sunél

//15 MAY 2020

Sunél’s Blog | The stories we tell ourselves

A blog by Carl Richards (they are the shortest, most impactful blogs on money and life that you do not want to miss) alerted me to the gap between facts and stories. And the potential impact of that gap.

COVID-19 is a good example for illustrating this: the facts, the story and the gap. 

Right now, there are known facts about the spread of the COVID-19 virus. There are also known facts about the lockdown restrictions. It is true that some of the facts may not be 100% correct. There may be more people who have died of the virus than we know of. But we base our knowledge on the facts that we have at hand. 

You must, of course, start with the right facts!

Fact:  COVID-19 is not like the flu (if you believe that, you have the wrong facts and you should seek out a broad range of factual, preferably scientific writing about COVID-19).

The story: What you believe about those facts, are the stories you make up. All of us make up those stories. And none can claim to have a monopoly on the right story. Some of us may believe that the government has failed dismally in their response to COVID-19. Others praise their response. Some have no hope, where others feel more hopeful about the co-operation and community spirit that has resulted from our current reality. Same facts, different stories.

But in between the facts and stories, lie our emotions and our thoughts. This is the gap.  Our emotions and thoughts inform our stories and are influenced by our personalities, our pasts, the people we believe and the pain we feel now. We are all in distress now for many different reasons. There will be much emotion in between fact and story. There will be passionate differences in the storylines. And these differences may cause even more pain.

We mistake stories for facts, the impact of which can be harmful. But, Carl Richards asks, “What if we didn’t?

What if we were honest about our own path from fact to story. What if we questioned how we arrived at our story? Interrogated why we believed what we do? Unpacked which emotions led us to our story? What if we were aware, in real-time, of the difference between the two? How differently would so many of our conversations go?

Having this kind of awareness is what allows us to be kind with one another’s stories. It pushes us to not confuse story for fact.  When unpacking a story, you’re unpacking all the events, traits, pain or people that led to that story. And you need to be mindful and unpack them carefully.  Because when you misjudge that gap, the impact could be explosive.

I learnt that recently when I nearly destroyed a dear relationship by the way I unpacked my friend’s story. I apologised for my clumsy unpacking. And then I tried to understand more about their gap and how they arrived at their story. It is the essence of empathy – putting yourself in the other person’s shoes to understand their perspective. It doesn’t mean that your story will or need to change – it just helps you to understand their story and respond with kindness.

What are the stories you believe, the stories you hear and how is it working out for you?

Kind regards,

Sunél

//08 MAY 2020

Sunél’s Blog | A different kind of capital is now

Most of us toil, throughout our lives to convert human and physical capital into financial capital. We derive income from our human and physical capital, and then we save enough to fund our future income through our investments, culminating in retirement.

During the COVID-19 pandemic, we have focussed on the demise of financial capital as a result of the lockdown measures implemented by most governments. The existing and potential threat to financial capital is massive. The Great Depression is the only previous experience in our modern memory that we can compare the Great Lockdown to. Millions across the world are now receiving state support and millions of others are hungry as a result of the lack of state support.

However, there is another type of capital which, like in previous pandemics and crises, is rising. Social capital. It refers to the network of relationships that exist in communities and societies. In good times, people forget about social capital. Before the lockdown, most people just toiled to build financial capital. Our lives were characterised by busyness, most of it at a frantic speed, resulting in us being over-tired or without any time for our friends and family, not to mention our communities. 

We anticipated that social distancing would damage social capital even further. However, the opposite has happened. Social capital is rising. Our friendships and connections with family are stronger. Most of us have stories about increased social contact with family and friends, work colleagues or our wider business networks. In addition, there has been a huge increase in volunteering and charitable efforts.

I don’t think it is necessary to elaborate on the extent of the challenge to feed our nation during this crisis. However, like during previous pandemics and crises, our generosity and co-operation across political divide, racial lines or wealth spheres, will be what prevents the pandemic from becoming a famine. This week I read the most extraordinary examples of such stories, from the farmers who are working with local municipalities and communities to feed hundreds of families, to the defence force teams who donated their own money to help out in a township. One big charity reported a 250% increase of people offering their support – and the same has been reported in other countries. Social capital is not only about money – it’s about volunteering talents and time. It is about connecting people who may benefit from each other’s knowledge or skills. It is sometimes just about the strength of the support derived from the connections. I highly recommend following GoodThingsGuy for a regular dose of good news like this.

Social capital is our hope in South Africa, perhaps our only hope. It is the glue that will keep this society from collapsing.

And once this is over, we should honour and continue to build social capital.

Ps. I love to hear your comments. You can comment by hitting reply. Or you can comment in the section below.

Pss. It is why, at Foundation Family Wealth, we have not only given to FoodforwardSA, and encouraged you to give, but are now also volunteering our financial planning services to our network. It’s how we can help during this time of crises. If you, or someone you know, need to make fast and important financial decisions now, we can help.

Kind regards,

Sunél

//01 MAY 2020