Monthly Archives: December 2016

How to teaching your children about money

For many parents, money is an uncomfortable subject. Discussing finances with your children is either too scary or too personal for many people.

However, a panel of experts at The 2016 Money Expo agreed that this is one of the most important subjects any parent has to manage. Preparing your children for their financial futures is one of the greatest gifts you can give them.

Nikki Taylor from Taylored Financial Solutions said that the earlier parents start on this journey, the easier and more effective the lessons will be.

“For me, it’s about starting them early,” said Taylor. “How do you teach children manners? You don’t wait until they are 15. You start when they are really young.”

Brand manager at Emperor Asset Management, Lungile Msibi, said that even two- and three-year olds can appreciate the lessons of delayed gratification and working towards a goal.

“Start kids when they are young with goal-based savings,” she advised. “If they want a Barbie doll, for instance, show how they can save towards that goal. That’s important because later in life they will understand that you can’t invest if you don’t have a goal.”

As they grow older, you will have therefore prepared them for conversations about investing for the long term. It’s particularly helpful if family members support you.

“When my kids were born I gave their grandparents bank account details for both of them and said instead of filling my house with toys at birthdays and Christmas, please put money in these bank accounts,” said Taylor. “My children still get toys and presents, but they also see the money in their accounts and how it is earning interest. They now get excited at every birthday and Christmas to see who has put money in for them and how much they now have.”

The Facts versus fiction

I was appalled after reading the lead article on Moneyweb today, ‘Why an index fund in South Africa is not always the best option’ by Magnus Heystek. The article displayed a complete lack of understanding of basic investment principles. Sadly, many unsuspecting readers may actually believe that what is written is correct.

This article provides the facts about actively-managed funds.

Let’s face reality. Everyone in the financial services industry is conflicted

This is our business and we all want to grow our business. Every advisor, investment company and product provider says the same thing: “we really care about you our client and we want to do what’s best for you”.

Sadly these are empty promises, as demonstrated by the industry’s dismal track record littered with poor practices, heavy fines and clients with far less money than they should have. In most cases, investors suffer and the industry prospers.

How do you overcome these conflicts?

You must distinguish facts from fiction (opinions). All experienced, intellectually honest investment professionals know the facts about active investing, even if their day jobs don’t support the facts. We learn this in the first year of the internationally-recognised CFA (chartered financial analyst) designation. These facts are remarkably simple. William Sharpe (Nobel Laurette), published this truth in The Financial Analyst Journal in 1991:

“If ‘active’ and ‘passive’ management styles are defined in sensible ways, it must be the case that

(1) before costs, the return on the average actively managed dollar will equal the return on the average passively managed dollar and

(2) after costs, the return on the average actively managed dollar will be less than the return on the average passively managed dollar

These assertions will hold for any time period. Moreover, they depend only on the laws of addition, subtraction, multiplication and division. Nothing else is required.”