In June I had the privilege of giving a presentation about the history of money. Of course, that involves how a strategic, diversified portfolio can help deal with the unpleasant subject of inflation.
I enjoyed researching the history of money. I was reminded that people vote good and bad governments into power, or accept dictators, who tweak policies – but the value of money or inflation is usually the core of the success or failure of countries and economies. Inflation and the way it is managed damages or builds confidence.
There seems to be a cycle of wars, peace, economic booms, lean times and inflation. What is clear is that inflation undermines wealth, whether we look at the fascinating Roman Empire experience of 1700 years ago, or when we look at the swings of the last century or so. Your and my ability to improve lives and lifestyle depends a lot on how we manage inflation.
The reality is that we are still dealing with the same cycles and there is no magic wand. With a little attention though, we can do a lot to protect wealth and investments. True wealth management is multi-disciplined: investors need to plan investment strategy and cash flow needs. A diversified basket of asset types that are suitably flexible, helps to stay ahead of inflation.
As you dig deeper into what to invest in, as well as strategies, and how to diversify and be flexible, you realise that there are quite a lot of opportunities to make a difference, even when times are tough. Along the way, you want to be sure that you are tax efficient in the mix. It’s complicated, but solvable.
In recent years, most stock markets have been difficult or performed poorly. Low-risk interest bearing investments have tended to beat higher-risk shares. It has been tempting to settle for more predictable interest rate returns as they have beaten the JSE in recent years. Yet when markets run, you don’t want to miss the boat. We can never be sure when the cycle will turn and they have a way of turning just when least expected, perhaps soon.
In South Africa the government seems to be hoping that lower interest rates will stimulate the dreary economy. The theory is that this would encourage businesses to either spend their cash or borrow money to expand their business activities, resulting in less unemployment and a boost to the stock market. Yet structural and confidence problems persist. We still live with risks of inflation as politicians ignore the lessons of history.
Around the world studies show that wealth and fund managers achieve most of their investment returns by getting their asset allocation correct. This is key, even more so than which share they buy and when.
Benjamin Franklin wisely once said that “money has never made man happy, nor will it, there is nothing in its nature to produce happiness.” As a wealth manager and financial advisor I watch this play out in so many families.
I am continually surprised that people live with unanswered questions about how much is enough money for my family to live off, whether I live to 80 or 100? Making more and earning more is only part of the answer.
Are we wisely or appropriately invested? Are our investments correctly diversified? And the worst question that people live with – is my money safe?
It’s true – if you long for a sweet, nourishing, fulfilling life, your answer is not cash. Money is the soil we plant the tree in. Eventually it will bear that sweet, satisfying fruit for you to enjoy.
So, what do some of us do? We load a whole bunch of soil into our lives, if we can, and then wait next to our pile of soil, waiting to be happy. Not even sure that we have the right soil or whether we have enough.
The question really is; what are we planting?
Of course, to plant a ‘tree’ of riches in the wealth you’re creating, you have to first decide what true riches look like for you; what choices do you have for what to grow in your soil? Or what are the questions that you want answered.
The more you think about it, and have helpful conversations with those you trust, your options may change. It’s not about having the money, but what we do with that money.
We need to know that we’re doing something – not just in the future, but now – that is of value. That’s when we start to feel rich.
Allocate time to ponder what relative wealth looks like for you. What can you do now towards looking after and building what you have?
Coco Chanel, a woman who overcame her fair share of financial difficulties to become one of the most successful women of all time, said: “There are people who have money and people who are rich.”