Taking Stock of Another Year

2018 was a tough year

2018 was one of the toughest years of my career. Not only did we see a decline in global share markets, but safe asset classes did not help portfolios either. Most asset classes declined in unison. But that wasn’t the difficult part – volatility is normal in markets. For our clients, 2018 came after grueling prior years. Years that felt like the negativity resulting in slow growth, led to us going nowhere in portfolios. Since 2014, the average equity unit trust fund has barely been positive; and while the negative political sentiment had a brief reprieve with Ramaphoria, it subsequently plummeted as the land grab issue was debated and the extent of corruption became evident.

Warren Buffett says that the stock market is a device for transferring money from the impatient to the patient. Last year, patience was required to stay invested in the markets. It was challenging to help our clients remember this. But their patience paid off, with world markets recording the best January in 65 years.

It wasn’t just the markets

However, even more challenging than the markets, was the real fall out of the prolonged pedestrian economic conditions on real people’s lives. Everyone felt the squeeze on disposable income as incomes stagnated while the cost of living increased substantially. Think of the impact on your own budget with the increase in the petrol price, electricity and water costs, municipal rates and the price of transport and food. This on top of a substantial increase in taxes across the board. The squeeze on our Rands has been very real.

Globally, major shifts in geo-politics resulted in heightened policy uncertainty. What will Donald Trump do next? How will the UK extract themselves from the mess called Brexit? How will China respond to further trade wars when their economy is already slowing?

These tough conditions in people’s business and personal lives have led to elevated stress levels, which in turn leads to heightened tensions in relationships and even knee-jerk decisions.

Our portfolios held up well

2018 also sorted the wheat from the chaff in portfolio construction. Poorly diversified portfolios performed badly.  All those portfolios with overexposure to previous winners, such as property, had a terrible time. However, Foundation can look back at a great year from a portfolio construction perspective: our clients’ portfolios remained resilient and they produced top risk adjusted returns relative to the markets and competitors (as measured by risk adjusted returns). In difficult times, portfolio construction is crucial – much like the design and construction of a building during high winds or earthquakes, is paramount for inhabitant’s safety.

Great news was that Portfoliometrix, the discretionary fund manager who manages most of our clients’ money, claimed the Best Discretionary Fund Manager award of 2018 in London.  It has highlighted what our research showed:  they are world class investment managers.

Diversification and rebalancing of the portfolios paid off. The typical pension fund portfolio delivered a return of nearly 1%, compared to the losses suffered of around 8% in the equity market last year.

Real advice is crucial

2018 was also one of the most rewarding of my career. You may wonder how I can say this, but in these conditions, people need a sounding board. We have helped so many of our clients navigate these difficult times and changes. This is when real advice is crucial.

Knee-jerk decisions can permanently destroy wealth. We strive to help our clients consider their decisions carefully. Daniel Kahneman, Nobel prize winner and author of Thinking Fast and Slow, says that it is difficult to help oneself think through problems and see one’s own biases or worse, erroneous thinking. He says that others can see it better and therefore recommends that we seek this kind of help.

An experienced advisor – one who is trained to observe thinking – can make a crucial difference during these times. We are continually improving these particular skills at Foundation. Traditional training for financial planners never included these skills, but we have and will continue to do so. We believe that our own continued growth in this area better equips us to help our clients in uncertain times.

New ways of financial planning

We introduced new financial planning packages for our prospective clients. These packages were designed with their specific needs in mind. They include packages for young professionals; individuals or families who want better planning for their finances; people going through transitions such as divorce, retrenchment or career changes; and an executive package for those with complex financial affairs.

By structuring our approach to these clients and working to their identifiable needs, we have seen some of these plans deliver effective results in a short time. Satisfying moments include the conclusion of extremely complicated divorce matters; helping a client transition to a brand-new dream job; and seeing couples regain peace of mind because their holistic planning fell into place. Financial planning makes a real difference, and these are the fulfilling moments for the Foundation team!

Last year was a good one for our team

Elke Zeki, CFP®, Director, had a baby boy, Aidin, in April – a welcome addition to his 2-year-old sister Luca.

Michelle le Roux, CFP®, Financial Planner, passed her fiduciary board examination is now a qualified Fiducary Practitioner SA, FPSA®.

Thiart van der Merwe, CFP®, finished his supervision period and is now a fully-fledged representative for our firm, as a financial planner.

We promoted Melisa Brodie to the Head of Operations and are looking to fill her previous role as administrator of our clients’ affairs.

My eldest daughter finished matric on a high note and left the nest to study further at my alma mater in Stellenbosch.

What does the future hold?

Our motto remains: Wealth For Life. We want to continue to help our clients plan and manage their wealth through their lifetime. We want to help them make the money last. But we also want to help them apply that wealth to make their lives worthwhile – to reach their dreams and live purposefully.

This is a challenging motto at a time like this. We are living on the cusp of a new era – potentially, there are huge geo-political shifts ahead. The world as we’ve known it, with the established alliances in the West and contained power in the East, could disappear. Artificial intelligence and the fourth industrial revolution will make today’s top jobs redundant. Global warming will make weather more extreme. Medical science will make breakthroughs that extend lifespans, whilst the stress of modern work life reduces the longevity of corporate careers.

All these factors will play out on our clients’ money and their dreams. How should we react to it?

Focus on what we can control

In these uncertain times, we need to focus on the elements of our lives that we can control. We cannot control the sentiment or the stupidity of global politics, but we can control our minute daily choices. We can choose to remain focused on our own goals. We should not give up our dreams because of current sentiment yet, we also need to respond with wisdom.

I am convinced that one of the most important, but neglected, tools of the future for financial planning is personal spending. It is the one area of financial planning that we can respond to immediately and effectively, and allows us to anticipate difficult times – with more impact than changing our income, investments or retirement plans.

We can also control our reaction to the fear whipped up by global uncertainty. We must learn to observe our emotions and then take deliberate action, if any. The temptation is always there to do something about our investment strategy but in most cases, it’s the wrong decision. I wrote about this in more detail last year. Read the article here.

One of the best ways of dealing with uncertainty is scenario planning – there is no one future view for which we can plan. We must plan for different potential outcomes and future plot how we can control our own response to different outcomes.

We must become more human

In her talk on artificial intelligence, Dr. Vivienne Ming, asserts that we can best respond to robots by becoming more human. A large part of jobs, even financial planning jobs, will be consumed by artificial intelligence. We know that a big part of what we do now will be replaced by new AI technologies.

However, what will set us apart will be the quality of the conversations we have; whether we get to the real issues behind the money issues. Our clients will continue to need conversations about their wills, their children’s money habits, their retrenchment, divorce or even impending death. They will continue to need advice about their dreams and plans and how it impacts their money. Our clients will, in an increasingly complex world, still need to thrash matters out with us, not only as money experts, but skilled conversationalists.

We plan to further grow our skills and excellence in conversations and coaching.

We need resilience

Perhaps the human quality which will be most required from all of us, is resilience – the capacity to recover from difficult times. We will need a certain elasticity in our lives and money, to survive in difficult times. The good news is that resilience can be learnt, even by adults.

We plan to bring resilience expertise to our clients and team this year. Watch out for our upcoming events.

Finally, we mustn’t become too fearful or pessimistic. This doesn’t mean that we need to see the world through rose-colored lenses. But if our optimism is thoroughly checked by reality, we will be most successful – there is a plethora of academic research on the higher likelihood of success of optimists, read the article here.

We should be careful not to think that the current situation is permanent or pervasive. Especially if this pessimism causes us to follow ‘all or nothing strategies’ – because then, we will we lose out.

We look forward to continuing planning with you.