Tough times never last

Dr. Francois Stofberg: Senior Economist at Efficient Wealth and the Managing Director of Efficient Private Clients.

Last week, prices of both grades of petrol went up by R1.71 per litre while diesel increased by close to R3 per litre. The recent jump in fuel prices is driven by a twofold weakening of the exchange rate and a substantially higher oil price. Having started at around R17 to the United States (US) dollar at the start of the year, the rand has now depreciated by more than 11% year-to-date. The oil price, in turn, has increased by more than 10% already this year, reaching its latest level just above $90 a barrel. A higher oil price will likely add to inflationary pressure, although the impact of higher fuel prices is usually overstated.

In our estimate, we consider the year-to-date deprecation of the rand and the oil price increase. We also factor in the second-round price effect, namely that higher fuel prices make “everything” else more expensive. But, even then, the higher fuel prices we have experienced in 2023 should not add more than 1.08% to consumer inflation on an annual basis. What is more important is to consider the impact of higher fuel prices in the context of the deteriorating macro-economy. For this reason, we still believe that inflation will remain close to 4.5%, the mid-range of the South African Reserve Bank’s (SARB’s) target, in the medium term.
Overall, we do not expect the SARB to increase interest rates again, unless the US Federal Reserve becomes even more hawkish. If that happens, we might see one more increase of 0.25%. We agree with some analysts that we may even see our first interest rate decrease by mid-2024, which will be a welcome relief to most South Africans.

According to the FNB/BER Consumer Confidence Index (CCI), South African consumers have started to claw back some of the lost ground. Unfortunately, the index remains well within negative territory. Confidence among individuals who earn more than R20 000 per month plunged to an all-time low of -40 in the second quarter of 2023 but rebounded to -17 in the third quarter. The confidence levels of households earning between R5 000 and R20 000 per month also improved, from -22 to -15 during the third quarter.

Theoretically, the FNB/BER CCI can vary between -100 and 100 but the overall index has fluctuated between -33 (indicating an extreme lack of confidence) and +23 (indicating extreme confidence) since the BER started measuring consumer confidence comprehensively in 1982. The average of the index is +2 and could, therefore, be regarded as the neutral level. So, even if we have seen an “improvement” among certain household income groups, consumer confidence is still far from neutral levels, and even further away from what can be considered a consumer base that is once again confident about the economy and their future.

It is becoming clearer that 2023 will be a very difficult year for the South African economy. Even though the economy grew slightly better than expected in the second quarter, 0.6% instead of 0.3%, most analysts expect that we will only grow about 0.3% for the entire year. Some argue that we might even see an annual contraction. Add to this, our deteriorating state finances and balance of payments, and you start to understand why our local markets are not attracting even short-term capital. All the while, the chances of a Goldilocks (too good to be true) environment in the US continue to increase.

So, what should investors do in times like these? Do not try and do it on your own. Always seek independent, holistic financial advice so that you can get the best objective advice that considers your unique financial objectives across generations. Also, do not be hasty. Do not fall for scams that promise you the moon and the stars; be extremely cautious about anyone who guarantees you more than 10% returns annually. And always remember, tough times never last, only tough people do!

The superiority of independent, holistic financial advice

Dr. Francois Stofberg: Senior Economist at Efficient Wealth and the Managing Director of Efficient Private Clients.

The term “economics” has its roots in ancient Greece. It is derived from two Greek words, namely “oikos”, which means “house”, and “nomos”, which means “law” or “custom”. When combined, “oikonomia” roughly translates to “household management” and concerns itself with the efficient allocation of resources within a household. The first “economists” one might, therefore, argue were not the clever philosophical mathematicians of the eighteenth and nineteenth centuries but rather the ancient stewards who used their expertise of providence to steward households towards prosperity, wealth, health, and happiness.

Over time, economics evolved to encompass a broader meaning whereby it sought to understand and to analyse how societies manage their resources to achieve their goals and to improve their well-being. Economics also became more of a mathematical science and the stewarding skills which it once embraced were all but forgotten. Today, wealth and investment managers try to replicate what the prodigal stewards once did but most fall short because they neglect the independent and holistic approach followed by the experts of old.

Our approach is, however, different: We not only combine wealth and investment management expertise but we do so independently and holistically. In this way, we can truly guide families with providence towards prosperity, which is an all-encompassing term that refers to the wealth, health, and happiness of individuals and their families across generations.

Independent financial advice offers clients unbiased, personalised guidance that considers their unique financial circumstances and goals. This can lead to more informed financial decisions and a more appropriate product and service mix, which, ultimately, leads to more efficient returns in the long term. But independence also leads to increased financial security and greater confidence in one’s financial future, that is, greater peace of mind. Unfortunately, too many clients receive less efficient guidance from advisors who do not offer independent advice but only those products and services of the company that they represent.

Holistic financial advice considers the individual, their family, and even the generations to come. It also considers each one of these from the much broader perspective of wealth, health, and happiness. By addressing these three dimensions together, holistic financial advice aims to improve a person’s overall well-being. This approach acknowledges that financial success alone does not guarantee health or happiness. The key is to find the right balance between accumulating wealth, maintaining physical and mental health, and pursuing a fulfilling and purpose-driven life. In essence, holistic financial advice recognises that wealth is a means to an end, and that end is often health and happiness. It provides a roadmap for individuals to use their financial resources to create a life that aligns with their values, promotes well-being, and, ultimately, leads to greater contentment.

Like the ancient stewards, we aim to provide independent, holistic financial advice to our clients in a way that can improve their wealth, health, and happiness for generations to come. To do this, we partner with the best product and service providers, and offer our clients unbiased, personalised advice in the context of their overall well-being.

Behavioural finance and why it matters

Dr. Francois Stofberg: Senior Economist at Efficient Wealth and the Managing Director of Efficient Private Clients, with specialist input from Christiaan van Wyk  

The world of finance and investments is often associated with numbers and statistics but the real-world experience looks a bit different with behavioural patterns often playing a significant role in financial markets. Behavioural finance is the study of the psychological influences and biases that both investors and financial practitioners experience when making financial decisions. These influences and biases can explain some of the market anomalies that we observe, such as dramatic moves in stock prices that are unexplained by the numbers and available information alone. Behavioural finance, therefore, attempts to explain why investors make different decisions than would be expected from a perfectly-rational individual that only makes decisions based on facts and sound reasoning. When working with real-world investors, one quickly realises that constructing financial plans based on the ‘optimal solution’ that a perfectly-rational investor would prefer, often leads to suboptimal outcomes as investors struggle to stick to these plans because of their inherent biases. We, as financial practitioners, therefore, have an obligation to educate investors on the various pitfalls that behavioural biases create and, where necessary, adjust our recommendations to accommodate these biases.

One example where a middle ground may be found is when an investor exhibits a bias known as ‘mental accounting’. This bias refers to the tendency of individuals to treat money, which should be seen as perfectly fungible, differently, based on the source or specific purpose assigned thereto. For example, individuals expecting to draw an income from their investment would often take on too little risk in their total portfolio because they tend to choose a ‘safer’ investment to the detriment of long-term performance. To accommodate investors, we often employ the bucket or layered approach to portfolio management, where each financial goal, whether it be income or growth, has its own sub-portfolio. The total portfolio is often less optimal than the perfectly-rational portfolio but the client is more likely to remain invested, leading to a better overall outcome.

Another common behavioural trait exhibited by both investors and financial practitioners is ‘herding’. It is very common for individuals to ‘follow the herd’ when making decisions, which often leads to irrational behaviour and asset bubbles. History is full of examples of this phenomenon and, admittingly, it is very difficult to swim against the current, especially if you must do so over an extended period. We, as financial practitioners, must build controls into our processes to avoid making the costly mistake of comfortably following the herd to avoid being different. Advertisers have gained enormous reach through online marketing in recent years, which increases the risk of investors succumbing to this bias because they have the perception that ‘everyone’ is investing in this new product, increasing the feeling of FOMO (fear of missing out).

The list of behavioural biases that impact investors is extensive. We believe that the perfectly-rational solution, although theoretically optimal, might not be the correct recommendation for all clients in reality. It is, therefore, important to properly understand and identify biases that investors exhibit, educate clients and, if necessary, manage behavioural biases for the ultimate benefit of investors.

How to grow the South African economy

Dr Francois Stofberg
Managing Director: Efficient Private Clients.

Theoretically, it is not difficult to grow an economy. But practically, it is a nightmare to execute. Although there are many ways to approach economic growth, I would like to focus on the collective ideas of improving the ease of doing business and facilitating sound money. Overall, these collective ideas can encompass most of what is needed to sustainably grow the South African economy. However, knowing what to do, or even how to do it, is not as important as knowing why you are doing it. We should have more capitalist collectivism and less bureaucratic collectivism.

Improving the ease of doing business
The ease of doing business is everything that is needed to start and to run a successful and sustainable business. It has nothing to do with the traditional idea of government support, and everything to do with guiding, gearing, and getting out of the way of entrepreneurs. Governments should only guide and gear industries that have a high multiplier, that is, those that generate wealth and, consequently, more jobs. Importantly, these industries must have export discipline, meaning that they must be able to compete internationally. Also, guiding and gearing should only be for a set period. The South African textile industry is, therefore, possibly the worst industry to support.

Why is it important to first create wealth and then to employ more people? And why is it important that businesses, and not governments, create jobs? Because businesses employ people in the most effective manner, not governments. Businesses create more out of nothing and employ out of excess. Add export discipline and businesses are forced to invest in technology and in their people in a way that enables them to compete internationally. Governments do not compete, they simply impose, and because they do not compete, they never learn the skill of wealth creation, and because they do not create, they employ out of lack. Then there is also the lack of pricing signals that is missing in the government sector which makes it almost impossible to effectively allocate scarce resources.

Practically, to improve the ease of doing business means to fix Eskom, fix our railways, get rid of employment equity policies, and pull the teeth of unions. But it also means protecting private property rights and allowing for free trade. How do you do this? By building momentum through doing small things right to build confidence that can lead to larger victories. It starts with keeping the streets clean, and it ends with an education system that can compete with the best in the world.

Facilitating sound money
Sound money is the two-fold working of healthy fiscal and monetary policy that creates an environment that is conducive to growth. In terms of fiscal policy, this means effectively spending on capital and spending less on current expenditure (salaries and grants). Capital spending includes, but is not limited to, infrastructure, education, and healthcare. Sound money also means not wasting money and being accountable for every cent that is spent. Furthermore, it means guiding and gearing industries that need the support to create the wealth that can later be distributed from the self-interest perspective of collectivism. In terms of monetary policy, it means creating a stable price environment without reducing consumer confidence.

Economic growth all starts with the correct ideology
Economic growth all starts with the correct ideology, or else you will lose yourself along the way, much like the government did during the Zuma era. Our current ideology must lean less towards bureaucratic collectivism and more towards capitalist collectivism. Because our ideology is incorrect, private property rights are not protected like they should be to incentivise and facilitate the wealth-creative process of entrepreneurship.

However, the idea of collectivism is important because government should channel the efforts of capitalists (entrepreneurs) towards those industries that generate the greatest sustainable returns, that is, those that have the highest multipliers in a way that benefits all stakeholders. Moving to a collective self-identity, like the Rainbow Nation that we had under Nelson Mandela, will come naturally as government wins back the confidence of its citizens.

Private healthcare cover – Partner with the professionals

When it comes to the private healthcare cover, the financial sector can be confusing, and you may need guidance through this complex maze. At Efficient Wealth, we understand that your wealth cannot be separated from your health; your physical well-being plays an integral part in your financial welfare. While you might be financially secure and physically fit, prevention is still better than cure.

Unfortunately, we also know that healthcare is not always placed as a priority in many people’s financial portfolios. However, neglecting to address decent medical aid, hospital plans, or dreaded disease cover for you and your family could lead to financial ruin if you are forced to pay from your cash reserves.

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Cash Deposit Management and Different Types of Cash-Management Servicesstee

Regardless of your investment horizon, investment goals, and risk profile, it is always advisable to have a liquid cash deposit management strategy. It is a wise choice to budget for a space in your investment portfolio for liquidity and physical cash that is available at short notice, or within a specifically acceptable time frame to adjust to your ever-changing needs and circumstances.

With effective cash deposit management, you can earn interest against cash that is otherwise lying dormant in a standard savings account. The returns on this cash will vary significantly over different time frames and depending on where the money is invested. Our skilled professionals at Efficient Wealth place emphasis on this to ensure that the liquid funds invested on your behalf achieve optimal returns.

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Why estate planning is so important

The crux of Estate planning is protecting your family and loved ones. Sadly, it seems like many people devote more time to planning a vacation, which is most likely a sign of the level of discomfort they feel around the subject.

Deciding who will inherit your assets after you are gone is usually a difficult topic to broach, but it is one of the most important life decisions you can make. Without estate planning, you cannot select who receives your belongings and assets that you have spent your whole life accumulating.

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Stockbroking – What It Is and What It Entails

Stockbroking is performed by individuals who buy and sell stocks, securities, and other financial shares through the stock exchange. It is a vital role in the financial services industry. Stockbrokers perform this task on behalf of their clients, who may be private individuals, companies, or institutions. Stock brokers work closely with fund managers, financial advisors, wealth managers, and other financial planners to establish a stock portfolio that best suits their client’s investment goals and risk profile.

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Why Consider Cash Management Services?

There are several things a person or company can do to improve the efficiency of receivables and payables. Implementing a strict cash management system is one of them. Cash management is the process of managing cash inflows and outflows. This process is important for individuals and businesses because cash is always the primary asset used to invest and to pay any liabilities. Managing cash flows effectively leads to higher working capital and better operating cash flow. The ultimate goal of cash management is to maximise liquidity and minimise debt.

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What is Short-Term Insurance?

As the name suggests, short-term insurance protects assets for a short period. This type of insurance is designed to give you peace of mind and temporary protection against loss or damage to your private property when certain insured events occur, such as vehicle accidents, vehicle theft, or hijacking.

There are various types of short-term insurance: personal, travel, and commercial. However, not all insurance companies have a licence to sell all these types of insurance.

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