The Swan Effect - Creating and Sustaining Your Financial Wellbeing
The Swan Effect - Creating and Sustaining Your Financial Wellbeing
S3 E9 Assetify your portfolio
On episode 9 of Season 2 of the Swan Effect podcast, Arthi and Malika continue the journey into understanding and simplifying financial investments, by introducing and explaining the fundamental building blocks available to grow one's moneyverse: assets.
In coining the terms 'assetify', which is meant to describe making one's portfolio asset-rich through diversification, Malika and Arthi talk about traditional asset types and non-traditional ones too, some that can produce income creating side hustles.
Arthi further explains how these can be used effectively to diversify a portfolio while seeking guidance and advice from an ecosystem of support including financial planners, advisers and coaches.
Listen in to hear Arthi and Malika share about:
- traditional asset classes - equity, property, bonds, cash
- what is a balanced fund
- Active fund management versus passive fund management
- examples of diversification in a portfolio
- things to consider such as fees and taxes when building your asset porfolio
- non traditional assets - cryptocurrency, NFTs, capital assets that produce income.
And so much more!
Hear practical tips on how having an asset rich portfolio and making your assets work together in harmony, can bring you closer to your financial goals.
Remember, "you are your greatest asset!".
We would love to hear your views based on the concepts covered in this episode.
Do rate, write a review, and share with others.
This episode is proudly sponsored by Old Mutual Wealth.
Your legacy is about more than just investment returns. It's about the peace of mind that comes with knowing your investments are in the right hands and that you've partnered with an investment manager who has the right skills and experience to grow your wealth. Old mutual wealth is a world class investment destination offering you a wide range of investment strategies and specialist wealth management solutions. Whether your goal is to grow your wealth, generate income or preserve capital old mutual wealth selects the best and most suitable investments based on your investment strategy and their extensive research and insights. Together with your financial planner, old mutual wealth team of experienced specialists go to great lengths to understand what really drives you. Once they know your priorities, they model a strategy around your specific needs supported by a multi skilled team dedicated to taking your wealth further, whether your goal is to grow your wealth, generate income or preserve and pass on capital Old mutual wealth is here to partner with you on this journey so that you can do more, have more, leave more and be more old mutual wealth is an advice led wealth management business aimed at providing financial planners and their clients with a full suite of industry leading strategies and services. For more information, please visit their website at www.oldmutual.co.za/wealth Hi, there, I'm Arthi Rabikrisson Hello, I'm Malika Petersen. Welcome to
Malika Petersen:The swan effect podcast.
Arthi Rabikrisson:Money makes the world go round. Yet it's not so easy to understand its complexities, particularly when it comes to investing.
Malika Petersen:That's why Arthi and I are using this platform to educate, inspire and help you gain confidence in your relationship with money
Arthi Rabikrisson:so that you can better manage your finances and investments.
Malika Petersen:We are two women in finance.
Arthi Rabikrisson:That's pretty cool, isn't it?
Malika Petersen:It certainly is. You've been in stock broking private wealth management, asset management and now an award winning business woman who is coaching and assisting businesses with capital and strategic advice
Arthi Rabikrisson:and Malika you have a wealth of experience in wealth, excuse the plan in financial planning, investments and relationship management. So you're also at the coalface when it comes to where and how people are investing, or getting it right and getting it wrong
Malika Petersen:and stuck in the gray areas to. Indeed, I've seen the many phases and moods of financial cycle and how our decisions at those times impact us. So listeners and subscribers. If you are looking to get unstuck, feel empowered and make some strides in how you tackle your money. We are here to help you.
Arthi Rabikrisson:And it all starts with listening to this upcoming episode. Enjoy. Welcome back everyone to the swan effect Podcast, the podcast that helps you make practical sense of your finances in a really simplified way. I feel we have covered so much ground in season two already and I hope you've been on the journey with us to listeners. If you haven't, don't stress, just download and listen to our previous episodes on your favorite podcast channel and you'll be up to speed in no time. And a lovely Hello and welcome to my co host Malika, how are you doing today?
Malika Petersen:I'm well Arthi hard to believe we have fast approaching the middle of the year. Time indeeed does fly.
Arthi Rabikrisson:In deed, you know we are in the month of May and I hope our listeners are not getting that May Day panicky feeling Malika, especially when it comes to considering our financial activities and progress towards our financial freedom, which is what we will about in our show. You know, I was actually taking stock over the long weekend that we've just emerged from in South Africa about my own progress towards my financial goals for the year and Malika and I must say thanks to the practical advice shared about shaping our moneyverse you've played a massive part in that I've actually been quite comfortable. So I've been really looking at my asset allocation in conjunction with my key support resources as well and that's actually my spouse and my financial advisor. And I must say I've been quite strategic about my spending plans to using that delayed gratification that we talked about in previous episodes. I find that tactic is really helping me to work towards the bigger reward and I'm also starting to plug some of my leakages that really snapping away at my disposable income, you know, and I wasn't actually noticing these things previously, but now I'm aware of it and I've plugged it. So these are just some of the examples of the tactics I've employed. And I'm feeling in a really, really good and confident space now about my wellness journey
Malika Petersen:Financially that is so pleasing to hear , it is really great to be able to do a reflection and be in a positive mindset because it sets the tone for the upcoming decisions that you will have.
Arthi Rabikrisson:Hmm, True. True. True.
Malika Petersen:Personally, I had some difficult things happen on my side that if made no grateful for having my emergency fund at hand, okay. Yeah. Well as some different assets available to me that could specific case just to help fund this unexpected cash outflow. So now can you can imagine, if that wasn't in place, we have a huge amount of stress around finances, which adds to the stress on managing difficult health and family strength, right? Yes, yes. And it can truly overwhelm us completely, which is you're at an uncomfortable space to be. So listeners i want to encourage you to use our podcast as the monthly trigger, to remind you to focus on the activity that we have identified together, in order to meet your financial goal. Having said that, I'm very excited to get into the next topic and this will really help us develop our knowledge in all things wealth creation, as specifically today on assestify o my word Arthi that word is so challenging for me. And assest-ify in your portfolio. Right?
Arthi Rabikrisson:Yeah,
Malika Petersen:I love when we created new terms like this.
Arthi Rabikrisson:Oh, my goodness, yes. You know, we are so hip Malika. when we are assest-ifying your portfolio, but it just makes me curious to know about it, right. And listeners, if you're curious about what that is, what we're actually alluding to here is, you know, if you want to satisfy this appetite for assets in building out your moneyverse, one of the key ways that we're going to do it is actually then look at what are the different asset classes that's going to be able to help you to build out this wealth portfolio. So that's why we're calling it assest-ify your portfolio, right? We want to know that and some really, really cool assets. And you know, the last time Malika, we discussed the various investment vehicles that actually exist, right. So just that quick recap. And then we also mentioned that those vehicles are the wrappers that help us to achieve our financial goals. So what we're going to be doing today is talking about the stuff that goes inside that wrapper that's really going to bring us those investment returns and these are typically grouped into various asset classes.
Malika Petersen:So Arthi in my job, right, I have had the privilege of sometimes being able to witness some of the conversations between financial advisors and their client.
Arthi Rabikrisson:Yes.
Malika Petersen:And I'm often intrigued by how much the basic understanding of underlying asset classes can bring value to not only that relationship, right, but also the behavioral aspects around investment. Okay. And this ultimately results in the achievement of people's financial goals. So let me let me use an example for you, I met a client with his financial advisor in fact it was exactly four years ago, because I was 40 at the time. And I remember this because this client was telling me how he had started an investment in 1979, which is the year I was born in. And what he said to me was, this investment started at around R150, and in 1979, now, okay, he had put in a inflation linked increase every year, and that it increased over time. But what was intriguing was that when we looked at it, the total amount he had invested over the 40 year period, was just over R170 to R180,000 in total. Now, that is not a huge amount of money when you think about the fact that it's spanned a 40 year period, and that he was investing kind ofR100 a month, etc, etc. And it was increasing over time. Yes, the value of that investment was over R4.5 million when I'd spoken.
Arthi Rabikrisson:Okay, okay. Uh huh.
Malika Petersen:Now, the reason I say that his knowledge of asset classes in this situation is interesting is because there were periods during that 40 year term that he was like, No, I want to stop this investment I'm not happy with how the markets are doing. I want to be sure that my money grows. I want and during that time, is financial advisors, every step of the way was speaking to don't stop the investment, you're not happy with how this is going, it's let's look at different asset classes, let's consider different vehicles that we might potentially or assest areas that we might potentially look at. So okay, the role of the financial advisor in that relationship was really to, to provide him with an adequate knowledge and says, if it wasn't for this financial part of the number one, it would never stuck to my plan and number two, I would never have had this kind of stomach and understanding of asset classes to be able to judge to manage the market volatility.
Arthi Rabikrisson:Sure, that's a great example.
Malika Petersen:Yeah, why it's very important. Again, and essentially, there are two groups of asset classes that I think we have to discuss today in order to help our listeners and paint the landscape in terms of what investing looks like.
Arthi Rabikrisson:You know, and love to that example, you know, having, you know, that sort of behavioral characteristic as well around, oh, my goodness, things are looking bad, and we need to do something. And then you just always having that calming sort of nature, and that reality check from the financial advisor to help him understand the implications of it. I think that's so important, right. And I agree Malika, you know, this different asset classes, it's good for us to get an understanding of it, right. And that's what we're going to do here today, listeners, give you that high level overview, but encourage you definitely to reach out to your financial support structures, okay, like your financial advisor, and either traditionally, Malika, we really focus on a cool group of assets, right? It's ones that everyone knows about, but in recent years, it's actually become one way important to consider a second group of what we're calling non traditional asset classes, as part of this diversification to enable us to achieve true sustainable wealth.
Malika Petersen:So let's take a step back for a second it. Okay, the investment vehicle that we spoke about last time, right, like an RA, for example, that often has an underlined fund? Yes. And this fund maybe actively managed by fund manager, meaning that the fund manager makes the selection on your behalf of what goes into that fund? Right. I'll explain a little bit more about this student Right. Or, or there is also what we call pacify. Right? Where, the fund manager or fund house would essentially try to replicate an existing index of stocks available on the stock exchange, right? They don't make the decision on what goes into the index. They just tracking the performance of that index. Hence the distinction between active fund manager and what's called passive fund manager.
Arthi Rabikrisson:Right, gotcha.
Malika Petersen:Now, indices that can be tracked include, for example, the JC top 40 index of global s&p 500 index, right, these are rarely equity stock index, indices sorry. Now, let's come back to the actively managed. Fund managers take their asset allocation decisions carefully. Especially when it's in what's called the Balanced Fund, which means that they hold a few different types of investment with different levels of riskiness right. Now a balanced fund would contain various traditional asset classes, like cash, bonds, property and equity. All right. And the reason that the fund manager takes that approach is because asset classes did not always perform the same. Let me use an example over the last year foreign equity has been the best performing asset class but the year before that, it was SA equity. When you have a diversified portfolio, it reduces the risk of market volatility,it allows you to enjoy the growth of top performing asset classes. Right, right. And in South Africa, we also have regulations in place about maximum limits a finance manager can place in say global equities in the balanced portfolio and this is meant to offer the consumer a level of risk protection. Now it's important to note that you do get some funds that are actively managed per sector within in the classes that I've mentioned right. These managers actively select the stocks or equities or bonds or bond fund right to pass a to passive fund manager to put in and you will find that list that listener that an active fund manager does tend to charge higher t feeshan a passive fund manager is and that is essentially because of the selection value inherent in the fund managers decision. You must remember that they have a research team that backs them, they have in dated and discussed interpretations of what's happening in local and global markets, they consult with economists. There's a whole lot of work that goes into the fund manager, ultimate selection of the underlying asset they they invest in.
Arthi Rabikrisson:Yeah, absolutely. I love how you've actually now just simplified this whole thing for us, right in terms of that process, understanding your active and your passive managers, and also about the traditional assets. And also, what I'm enjoying, too, is the whole element around the risk and the fee elements to it, right. So that's important for us to know, especially if we're going to be taking decisions about where we're going to be putting our money. Right. So thanks, Malika. That's really, really informative. And you know, when I was going through my own underlying funds, and fund manager selection recently, as I mentioned earlier, when I was talking to my financial advisor, we were talking about exactly this, right, things like the fees, the risk profiles of the different funds, and I wanted to match my own risk profile at the stage of my life, right. But then I also, as you were saying, Malika, you know, I want to ensure that I have good exposure to local and foreign equities, because exactly your example, I don't know which one is going to I don't have a crystal ball, to know that it's going to be foreign equities. And suddenly, SA equities, but that diversification is so important, because then it means that whenever a certain sector or certain area is starting to perform, I'm gonna participate in some of that upside, too. And also, just by choosing different managers, I'm able to also reduce some of the fees, you know, between the active and the passive, because that was something I was wanting to optimize in my portfolio. And, you know, in terms of that selection, thankfully, my financial advisor, you know, knows the, the market knows the different fund managers, and eventually, based on the discussion, it came down to well, what do I value? What Who am I going to trust? Okay, so that everyone just a bit of a personal sort of discussion around, what are some of the questions you could be asking your financial advisor to help you in making that decision? So Malika, I think, now, let's go into just describing these asset classes that we've mentioned, right, especially as we're talking about a diversified portfolio now, and how investment returns are being achieved, maybe let me start with a bond, for example. Okay, now, everyone, we talk about bonds, maybe you're not quite clear what that actually means. So a bond, essentially, it's a note or a promise to return an investment amount, let's say R100,000. Right. So that's the investment amount, at a specified time in the future, let's say five years, okay, plus an additional amount, based on a rate agreed upfront, that additional amount is something like a rate, maybe it's 5%. So at the end of that five year term, you're gonna get your 100,000 back plus 5%. Of over that period. Okay, very simply put, that's what it is, it's a promise to return that. Typically, bonds are raised by governments, they also raise by corporates, and they use that as a means to raise capital for whatever it is they want to be using. Right? So they borrowing from you. Let's go to cash cash is one that we're familiar with, right? It's also essentially a return on a cash amount. So everyone very simply think of your day to day call account, right? That's you, you get through your bank, it's locked away for 32 days, but you're earning a really good interest because you've not used that money for a month's period. And that continues to grow if you keep keeping it in that 32 day old account. So these are instruments that are used by both corporates and banks, as we said to raise capital and they're paying you for the ability to use your cash to do that.
Malika Petersen:Shew and then the next asset which is equity Arthi and equity is my favourite assest because it makes me feel like a boss.
Arthi Rabikrisson:Oh, me too, I must say we are boss ladies in finance Malika
Malika Petersen:Right. So, the beauty of this is that all of us can be bosses like this and the reason for this is that equity is essentially the ownership Yeah, in the share of a company. So, investment returns are really achieved when that share price increases or when the company declares dividend. The last traditional asset classes property and these are either commercial or residential property and investment returns are achieved when the property value increases or when income from rental are received.
Arthi Rabikrisson:You're making me think back now Malika to when I used to be a sell side equity analysts which is like many moons ago. One of the things I appreciated in terms of understanding about equity stocks was how well they were valued on the stock exchange and whether they could be a mispricing, which then gives you that sort of an opportunity window to either buy or sell, depending on what side of this. But again, everyone, we're not talking about timing the market, okay? Because as we mentioned in the previous episode, that constant trading can actually erode a lot of value. What I'm actually more talking about is, you know, be able to have that discussion with your financial adviser regularly, where you can kind of assess, you know, based on maybe some understanding of what's happening, let's say, especially in equities, what's happening in the market, and having that informed discussion now about whether to add or remove from your portfolio, you can actually end up making quite smart decisions that will benefit you over the long term. Similarly, in the example that Malika was talking about earlier, I almost think of it as a game of chess, so it's really about a bit of a strategy. Now, I did allude as well to that erosion of value, and that is typically those costs of trading, you know, to buy or to sell stocks. So Malika, I think it's important that we really mentioned to our listeners that the reason a fund like a Balanced Fund is a good way to expose ourselves to the investment returns from the different asset classes, is because it's very seldom that we actually have enough capital on hand to be able to invest in these different asset classes directly and separately, okay, it tends to become expensive, everyone, if you're gonna do it that way. So these connective funds, this balance fund, actually allows us to get that exposure, then we're contributing an automated or a nominal amount every month, for example. And typically, that's getting spread into all of these lovely asset classes giving us that diversification and it's cost effective, everyone.
Malika Petersen:Yeah. And I think that curiosity around markets for equities especially is relevant listeners, because you don't need to be a specialist financial marketer, like what Arthi used to do, right? To learn more money. You need to read the newspaper magazine that showcase these radio and TV programs, talk about the that ultimately helps you not only learn about something new, but also be in a better position to talk to your financial support structure partners, like your account and your financial value financial coach. And I just want to reiterate that those automated regular investments into collective funds are what ultimately creates wealth. You know, I mean, like the example that I mentioned earlier, it's it's that regular investing, automatically without almost noticing it. Now we also mentioned non traditional assests, and here we really talking about assests that require a big investment amount, generally. And they are usually once off or sporadic interval that these investments would occur. So let assume something, something, let's assume that I've got a long lost uncle that lives off the coast of Mexico and lent me some money. Oh, my goodness Malika I think we'd all love for you inherit some cash. So I mean, I might say every period sounds good. But it can also get complicated, right? Like things like inheritance taxes, and if you don't know how to ensure that it's handled, correct. And become a bit complicated.
Arthi Rabikrisson:Yeah, no, no, actually, you're right there. Which are you bringing a healthy dose into the situation? Yeah, because it's never as rosy as it seems. Right. But any continue the example.
Malika Petersen:As I was saying, if I have my regular investments going, that is creating my wealth, I could consider investing in a non traditional asset class like cryptocurrency or some kind of income generating business like buying a vending machine. I could consider digital investments like NFT's that these are essentially non refundable tokens
Arthi Rabikrisson:So, you know, I think the key message is that it's important that we diversify, and that we do enough research into any investment before taking that decision to invest into it right. Again, it's important to consult a financial advisor who will have access to this expertise, through other investment specialists as well who can assist us when you're making these types of decisions, Malika, especially in these non traditional areas, I mean, also yes for our traditional asset classes, but especially for these non traditional ones because like somebody like cryptocurrency, it's fairly new. And I mean, I do have some exposure to it's I've just noticed how volatile it's been lately. Something that can income producing assets like a vending machine. I mean, that's great, right? It offers the ability everyone, to actually begin some side hustles, which we've talked about in previous episodes, right. And that brings in income. Okay, so that's cool. And then these NFT's that you've mentioned, I mean, it's increasing in popularity now because you can tokenize all types of assets be digital, be it real types of assets, like the ones we've spoken about art and property and all of that. It allows one to actually buy and sell them quite efficiently, while reducing the probability of fraud. So you know, understanding it, getting some guidance around it will allow you to then make the right decision about where to go with
Malika Petersen:Yeah, thanks for that Arthi and youve raised it
Arthi Rabikrisson:You've painted a truly beautiful such an important point here, to my personal vision, or goal or wish or pray for all South Africans, is that we co create our personal diversified portfolios with out financial advisor. Yes, and the reason this is, this is such a strong goal for me is because I actually believe that that is the best possible chance that we going to have of achieving our long term financial boom, and understand that when an individual is financially uplifted, it benefits the entire society. it uplifts the entire economy and as a result, the social status of our country, vision, Malika and you know, I guess with the swan effect podcast, we're playing a small part in helping people on that journey. So listeners, you know, don't worry about we talked a lot about diversification and portfolio diversification. We will cover that in an upcoming episode too and we'll break down exactly what that means because there's a few ways to diversify, okay, that you may not have considered before we've mentioned one or two, there's a few others to consider
Malika Petersen:Absolutely so listeners, I hope that today's episode has shed some light about assets that you can consider bringing into your moneyverse to expand it is in both traditional and non traditional way. And then galvanise into action with some curiosity.
Arthi Rabikrisson:Change in behaviors that if you practice consistently, will lead to great productive habits and you know with that, Malika, what would be your parting shot for episode today?
Malika Petersen:My parting shot in exactly like the traditional South African seven colors meal that many of us enjoy understand it, right? We understand that achieving our financial goals requires all of our investment assets working together in harmony. What about you Arthi?
Arthi Rabikrisson:You know, I always say your biggest asset everyone is your brain. Okay? And when this truly magnificent supercomputer is supercharged and challenged, it produces phenomenal results. So challenge your brain to think about your finances to help you in your wealth creation journey and to assest-ify your portfolio. Okay, so these conversations with your advisor, the reading of material and just getting a bit more familiar, man, this phenomenal supercomputer is gonna get you coming up with some really interesting insights, new ideas, and overall, you're going to be satisfied with the outcome that comes from it because you're going to take steps towards reaching your financial goals. It's mind over matter, everyone you can do it. really
Malika Petersen:Dont sell yourself short everybody, you are your best asset. Oh, absolutely. For sure. Now, if only we could clone ourselves Malika. We are talking about artificial intelligence.
Arthi Rabikrisson:Uh, you know, we should we should actually put that question into Jack GPT and see what answer it comes up with. And you know what I actually think it might overwhelmingly be I guess I'm the best assest ever
Malika Petersen:I'm gonna actually do that right now.
Arthi Rabikrisson:Okay, let me know what comes out. Thanks Malika, great conversation again, taking until the next time
Malika Petersen:Sharing is caring. And knowledge is power. Time for you to be daring and let your money confidence bloom like a sunflower. Thanks for joining us. We hope you found these ideas and guidance useful
Arthi Rabikrisson:do subscribe, share and write a review or send us comments. We would love to hear from you.
Malika Petersen:Catch you on the next episode
Arthi Rabikrisson:of the Swan effect podcast.
Malika Petersen:Bye for now.
Arthi Rabikrisson:Ciao.
