Your Money Unraveled: Expert Answers on Investments, Debt, and Finance

Understanding the distinction between your risk appetite and risk tolerance can significantly aid you in crafting an effective financial plan. Risk appetite refers to how much investment-related volatility you're generally willing to accept for potential returns, whereas risk tolerance pertains more specifically to what level of fluctuation you can handle without affecting your emotional well-being or deviating from your long-term goals. By grasping these concepts, as noted by Shreekanth Singh, a wealth adviser at PSG Wealth located in Northcliff, Johannesburg, you'll be better equipped to create a tailored financial strategy aligned with both your short- and long-term objectives.

In crafting a financial plan, an essential aspect is gauging the necessary degree of risk you must assume to meet your goals.

Risk appetite pertains to the degree and kind of risk assumed by an investor willing To pursue their monetary aims. This is an anticipatory strategy that encapsulates the degree of risk tolerance suitable for the investor, considering their aspirations and inclinations.

A person’s risk tolerance influences their choice of investment options, like an equity-heavy portfolio aimed at long-term expansion or safer choices centered around cash and bonds. As an illustration, individuals who exhibit a higher willingness to take risks might invest larger sums into equities aligned with a prolonged time frame for returns.

Risk tolerance is the investor's emotional and psychological comfort With uncertainties and possible financial losses in mind, this indicates their capacity for handling risks without getting excessively stressed or acting impulsively. As an example, someone who has a low threshold for risk might lean towards safer investments such as cash bonds rather than opting for more volatile stock options.

This choice does not indicate that it is the correct approach to reach your goal.

The main distinction is that risk appetite centers around the potential risks for an investor wants to take. Risk tolerance focuses on what risks an investor can emotionally endure .

These two ideas are essential for constructing a portfolio that matches an investor's objectives while reducing emotional strain during market ups and downs. Individuals often make unwise choices when confronted with financial upheaval, similar to what has occurred over the past month.

It's crucial to collaborate with a competent financial advisor who can aid you in handling your investments and assist in ensuring you reach your financial objectives without eroding your wealth through impulsive choices.

I've recently begun a new position which has increased my earnings by R5,000. To preserve my current standard of living and make good use of this additional income, what investment options do you recommend? Chrisley Botha, Wealth Adviser at PSG Wealth, could provide some insights.

Congratulations on your new position and raise—using the extra R5,000 prudently could significantly impact your finances in the long run. Prioritize building a strong financial base before diving into investments. Consider these steps essential:

1. Emergency savings — preferably three to six months' worth of living costs stored in a money market or high-yield savings account.
2. No high-interest debt - If you have credit card or personal loan debts, prioritize paying these off first.

After setting that up, you might want to look into these investment options:

1. Tax-Free Savings Account (TFSA): You have the option to invest up to R36,000 annually (or accumulate a total of R500,000 throughout your life) without being taxed on either the gains or withdrawals. This investment approach offers flexibility and suits best for objectives that aren’t immediate but rather medium- to long-term.
2. Retirement Annuity (RA): An excellent strategy to enhance your retirement savings over time. Making contributions can lower your taxable income due to being tax-deductible, benefiting your financial well-being later on.
3. Unit trusts or Exchange-Traded Funds (ETFs): These options are ideal for sustained development and provide entry into both domestic and international markets. Notably, ETFs stand out due to their affordability and broad diversification.
4. Targeted investments or fixed-goal financial instruments: Should you have particular objectives (such as saving for a down payment on a house or planning future trips), think about setting up an independent investment account tailored to both your time frame and tolerance for risk.

The main factor is consistency. Putting aside just R5,000 each month can lead to substantial growth thanks to compound interest. A financial advisor can assist you in making decisions that match your individual objectives and comfort level with risk.

I've recently begun my career and am seeking guidance on managing finances wisely. Could you provide tips for covering monthly costs, setting aside savings, and repaying my student loans? Bianca van Niekerk, Wealth Adviser from Vanderbiljpark Financial Planning, could offer some insights.

Congratulation on landing your initial position! Mastering budgeting is essential, particularly at the beginning of your professional journey. Even though banks might entice you with offers like credit cards or overdraft facilities, steer clear—high-interest debts can become overwhelming fast.

A budget is basically a forecast of your earnings and expenditures over a specific duration. To begin, make a spreadsheet with separate sheets for each month. Initially, jot down your net income - the amount deposited into your account after deductions. Next, track fixed expenses like car payments, insurance, and medical contributions. Subtract these from your income to find your remaining balance.

Then, outline variable expenses , including transport, groceries, and personal care. These fluctuate monthly, but tracking them will help you stay in control. After deducting these, you’ll see what’s left —this is where luxuries come in. Items like gifts, beauty treatment,  and shopping should be added cautiously since they aren’t necessities. If your budget doesn’t balance, this is where you should cut back.

Think about setting aside additional money for your project. student loans or any debts with high interest rates , but don’t overcommit. If you find yourself short on money, you might feel pressured to take on more debt, creating a dangerous cycle. While some debt, like a car or home loan, can be beneficial, Careless lending results in economic unrest. .

Begin planning for the future sooner rather than later. Open a Tax-Free Savings Account enables you to invest free of taxes (as long as you stay within the specified limits). This guarantees financial stability while maintaining access to funds for unexpected needs. Remember, this is merely the start—your fiscal path will develop over time.

Asserting control over your money today positions you for future prosperity. Maintain self-discipline, opt for well-considered decisions, and savor the benefits of monetary freedom.

Considering the current local and global economic conditions, what steps should one take to safeguard their assets against unforeseen occurrences or market fluctuations? Richus Nel, Financial Adviser at PSG Wealth, Old Oak

The financial markets might not be particularly advantageous for short-term investors. Nonetheless, they generally benefit those who invest over the long term, even when valuations fluctuate in the short run. Given our inability to predict outcomes with precision in the near term, maintaining discipline as an investor proves to be the most effective approach.

Short-term

It’s evident that there is a difference between saving and investing.

• Typically, savings are limited to money and similar financial tools that offer a modest interest rate after accounting for inflation and taxes. These vehicles maintain stable values without much variation, essentially serving as secure storage options.
• Investing involves utilizing various asset categories that may increase (or decrease) in worth based on prevailing economic conditions. The aim for investors is to secure slight gains in capital appreciation beyond the interest or earnings generated from those assets.

A well-managed money market, bond, or diversified income unit trust can serve as effective instruments for short-term financial goals and investments. It’s advisable for investors to maintain a minimal stock allocation around 20-30% and find satisfaction in achieving returns slightly above inflation at about +1%, but potentially dipping up to -2%. The primary objective is to secure stable and predictable "inflation-matched" gains over the shorter term.

In periods of market turbulence, short-term investors might consider revisiting their investment approach alongside a financial advisor, since these moments may provide chances to adjust allocations towards risky assets.

These choices are suitable exclusively if your investment horizon is less than three years.

Long-term

Short-term savings and cautious investments aren't ideal for the long haul because of inflation. For extended periods, you should opt for more involvement with stocks and ensure your portfolio is widely diversified. Amidst current market disruptions, increased chances for purchases arise. These prospects only arise because of temporary market anxiety.

Over time, volatility can be beneficial when teamed up with suitable investment managers who understand how to seize advantageous investment chances.

Effective investing is a science, yet it becomes straightforward when you adhere to your investment strategy alongside a financial advisor.

The incidence of kidnappings for ransom has been rising consistently both worldwide and in South Africa over recent years. What coverage options are available for such incidents? Ryno de Kock, who leads distribution at PSG Insure, addresses this question.

There are different types of kidnappings to be aware of. Recently, we have seen a surge in express kidnappings in South Africa in which kidnappers will demand you log on to your banking app and process transactions into their accounts or take you to an ATM to withdraw cash. These values are normally much lower than larger organised syndicates, but happen frequently. Wealthy individuals, tourists and owners of cash-based businesses are generally targeted by more sophisticated criminals. Beyond financial protection, kidnap for ransom cover also includes access to a range of support, such as hostage negotiators, specialist investigators, and security experts to help secure the release of the kidnapped individual in a safe and effective manner.

To learn more about this policy and what else it covers, please reach out to one of our qualified advisers for more information.

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