THE INVESTMENT BRIEF WHY YOU MUST BE RICH

By Laurence I Sithole, Bachelor of Commerce (Honours), Banking & Investment Management, National University of Science & Technology (2013).

INTRODUCTION

Because it is not fun to be poor. It is a matter of urgency and it has always been. It can no longer be ambition of a fortunate few to aspire to and achieve. Having your financial house in order is of the utmost importance. Your financial well-being and those dependent on you must become to you what war was to Sun Tzu, the ancient and great Chinese general who penned the timeless classic, the Art of War.

He said:

"The Art of War is of vital importance to the State. It is a matter of life and death a road either to safety or to ruin. Hence it is a subject of inquiry which cannot be neglected."

Within our own context today he would say:

"The Art of Wealth Creation, it's preservation and personal finance are absolutely important to the individual and his/her family. These concepts are a matter of life or death, a road either to prosperity or poverty. It is on this basis that careful attention needs to be given to them, to be learned and to be mastered."

The decisions that affect the well-being of an individual can no longer be delegated to financial advisors who do not have a stake in the life of the clients they act for.

Developments in recent years and even historically have made it necessary for people to be more and more clued in on the workings of their money.

Money is important both as a medium of exchange but also as a commodity for our existence as human beings. The Bible even acknowledges it likening it to a defense and having the ability to answer all things (Ecclesiastes 7:12 and 10:19).

Recent times have brought with them great advancement and opportunity but also plenty of uncertainty. This uncertainty makes it necessary for every person to build strong personal financial fortifications.

AMONG SOME OF THE DEVELOPMENTS ARE...

The fact that no job is ever truly secure.

It is a known fact from the corona virus pandemic that the world can descend into chaos in a short space of time and remain in a chaotic space for years on end. Livelihoods have been damaged in ways that cannot be imagined. The pandemic and resulting lockdown measures have brought desperation and devastation to millions. Household finances have been decimated and it's not unusual to hear of people going hungry.

The pandemic has evolved into what has been described as the worst unemployment crisis in modern times. Businesses right across the board have restructured and in the worst instances closed on account of the pandemic and hostile business environment.

The ultimate lesson to be learned from all of this is that no job is secure. This reality flies in the face of conventional wisdom that parents have taught their children since time immemorial. Children are taught early in life to go to school and get good grades so that they can find safe and secure jobs with benefits. This is an illusion.

Whenever an economy sneezes, shakes or rattles, the very first casualties are jobs. Even in the best of times economically people can still be laid off and jobs can be made redundant, recall all of the people who were employed as librarians before the advent of the internet who then lost their jobs and livelihoods as a result.

Technological advancements for all their merits pose a direct and very real threat to jobs done by people more than ever before.

Government pensions and retirement.

It used to be in the past that an individual who was employed in a company would give 30 years of their working lives to the organization and look forward to a somewhat reasonably comfortable retirement paid for by the government from pension contributions that individual would have made during the course of their career.

In other instances, companies have retirement/pension plans that employees contribute to and are subsequently paid out when these employees retire. This may sound full proof, but it is not. It might seem compelling as though nothing can go wrong when one considers that government and a person's employer will take care of a retired employee after their time of work is done. This is not always the case.

Government pension funds are notoriously inefficient. Contributions made to these pension funds are not always managed optimally resulting in paltry retirement pay outs when pensioners retire.

One could argue considering this fact that private companies are much more efficient at managing pension funds on behalf of their employees. This could be true however companies are not immune to economic cycles, trends in customer preferences and bad management, all of which can bankrupt a company.?

Companies have gone bust or bankrupt, leaving not only their employees out of work but also with nothing saved for their retirement, Think Enron, Northern Rock. Lehman Brothers, even locally in Zimbabwe all the company closures that began around 2013 to date have left their former employees in similar circumstances.

A bad economy and inflation.?

Not everyone is financially clueless. Some people were savvy enough to set aside money for a rainy day in preparation for the time that they would not be able to work. Economies go through cycles. There are appropriate investments for every stage that the economy goes through and there are investments that are not appropriate given a particular state an economy may be in.

A classic example is that whenever inflation emerges in an economy, the first casualties are normally the fixed income securities, savings accounts, and fixed life policies. Investments that make sense in such environments tend to be equities, real estate, and precious metals.

This factor more than any other demands that individuals be literate, conversant, and consummate financially so that they can read the economic environment and adjust their financial portfolios accordingly. It is discouraging to imagine how people who had been prudent to save in Zimbabwe saw their monies accumulated get decimated by the first tide of hyperinflation not knowing that they could have taken action to adjust their portfolio of investments to ride out the wave had they been more knowledgeable of the financial and economic landscape.

Over reliance on financial advisors.

This bunch of people always attracts mixed feelings. They can provide the guidance necessary to navigate the financial and economic landscape however, people must be careful not to be overly reliant on them.

The financial advisor is never to be viewed as a friend or relative because it is not all the time that the interests of the individual and advisor will be convergent in fact on most cases, they will often be divergent.

Financial advisors much of the time if not always are compensated in whole or in part through commissions from the sale of financial products. They will not at any point put the interest of their clients ahead of their own even though they might claim to. These advisors make their money from the volume of business they generate and not so much from ensuring that the clients who are their principals do well financially. Advisors can recommend mutual funds, annuities or insurance products that pad their bottom-line so to speak while possibly not being the best product for their clients. Not all advisors are like this though. Some are compensated in ways that attempt to ensure that their interests and those of their clients are convergent and aligned.

THINK AGAIN & THINK DIFFERENTLY

Most people are just a single salary away from disaster!

If their income was disrupted for a single month their lives would be ruined.

This reality is indiscriminate. It has no regard for the size of income that a person draws at a time or their station in society. There are just as many people working C-Suite level jobs who cannot imagine or fathom the prospect of being out of a job or any disruption to their income as there are low level job holders in the same predicament.

Every person is and can be susceptible to financial vulnerabilities.

Personal finance and financial literacy require a paradigm shift if we are to appropriate the most from them. To be able to build a financial fortification needs a person to conduct a stress test on their money.

How to conduct a personal financial stress test

Ask yourself the following questions:

1. If your main source of income were disrupted for a prolonged period how long would it take before you need to make drastic changes to your lifestyle? The longer this takes the more likely it is that you are financially secure. The shorter the period the more likely it is that individual is financially insecure.

2. If you suddenly took ill would you have sleepless nights about the medical bills and how they would be settled?

3. Do you have any other source of income other than your salary?

4. If you were asked to talk about your financial infrastructure would you be able to talk about anything aside from your salary and state pension?

5. If you met with an untimely ending to your life, what would become of your children and dependents?

6. Does the thought provoked by the foregoing question give you peace or trepidation?

7. Do you have a personal portfolio of investments and what is it worth?

8. Is that portfolio generating income greater than or equal to the income you are drawing from work?

9. Can the portfolio you own provide you with an income to comfortably sustain you in the absence of an income from employment and government pension?

If answering all these questions causes a person stress it is because their finances are in urgent need of attention.

THE CONCLUSION OF THE MATTER: BECOMING MORE PRAGMATIC WITH MONEY

Attention to personal finances that results in a fortification must always take a pragmatic approach and begins right at the grass roots.

Is there a picture of a desired financial future??

The goal of every person must be to become a Prodigious Accumulator of Wealth. This simply means that they must be able to accumulate a net worth above the average that can be derived from multiplying their age by their pre-tax income. This metric is then used as an indication to show how much your net worth should be at a given age.

If your present net worth is equal to or greater than your estimate from the wealth metric, then you are a prodigious accumulator of wealth.?

Most individuals starting out in life will have low numbers on their wealth metrics but that should not be a discouragement but a motivation to pursue this worthy goal. You can never build a financial fortification without a desired end in mind because doing so requires deliberate and intentional effort.?

Money must always leave a trail.

If income generated from any activity doesn't leave a trail it is probably because the individual cannot properly account for it. This is money that is being spent as fast as it is earned. Money only leaves a trail when it has purpose. A budget is what gives money a purpose. There is no substitute for a detailed monthly budget. In this way a person can follow their money and direct it toward the goals desired in the previously mentioned point.

Be invested in something. Start investing.?

If financial abundance is your goal, then investment will be the vehicle that gets you there. There is no path to financial security that does not include investment or investment activity.

Investors are different and investment is extensive and versatile. The universe of investible assets is large and includes shares of stock in listed and unlisted companies, bonds, currencies, derivatives, real estate and the esoteric world of alternative investments and cryptocurrencies.

Investments made wisely will in the long run provide cash flows more than the investor's financial needs.

Investment is also critical because of something called compound interest where you can earn interest on interest. The obvious implication of this is that the earlier you begin your investment portfolio the more you will be better off in the future.

Be responsible to yourself and to those who depend on you.

Humankind is not immortal. Individuals will not live forever. Inevitably human beings will die. This fact does not nullify the responsibilities that people have to those who depend on them. In other words, people who are dependent on you will still need to be taken care of long after you are gone. Every person that has dependents owes it to them to leave them a home or homes that are free and clear after they are gone.

We also owe it to the people we love to leave them an estate with assets that can look after them as though you are still alive. In other words when you are gone the only thing that your family must miss is your presence. With that said the subject of estate planning cannot be put on the back burner. It must come to the fore. The topic of estate planning suffered from the perception that it was a strict preserve of the wealthy. It is imperative to provide for your family to enjoy life even in your absence. Therefore, it is not taboo or a sacrilege to prepare a will, trust, life, and health insurance as well as funeral assurance.

Get involved in enterprise.

There has been the age-old debate on whether entrepreneurs are born or made. For as long as your financial well-being is concerned you cannot afford this debate. Everyone has the capability of enterprise especially if it is a matter of survival. Enterprise is not an option. It is a must. Of all the factors of production (land, labor, and capital) none pays more than enterprise.

When you start to do all of these things together in the long run you will build a financial fortification that will help you weather all the shocks and disruptions of life and your family will be provided for long after you are gone.

Is there any appeal in poverty?