How does a Financial Adviser invest his own money?

The world of investing normally sees experts telling us the 'right' way to manage our money. How often do these experts pull back the curtain and tell us how they invest their own money?

I decided to have this discussion with our Founder and Partner at PSG Wealth Melrose Arch, Heinrich Richter and take a different perspective to discussing financial matters, expert to expert.

Q: What does money mean to you?

A: Money to me means independence. From a young age I wanted to be financially independent. It motivated me to work, and it enabled me to buy many of my ‘desirables’ (rugby balls; bicycles) for myself with the money that I had saved without asking for ‘permission’ to do so from anyone. I was highly motivated to stand on my own two feet and also to show my doubters (some teachers in particular) that I could be a success (in a world where success is traditionally measured by money).

Further to this I have witnessed hard times at first hand, and I didn’t want that to be me. It has served to motivate me even further to work hard, to save and to invest such that I needn’t be reliant on anyone to look after me.

Q: What financial instruments do you invest in? (Cash; Bonds; Property; Shares).

A: Primarily equities. While I have tried my hand at day trading (trying to make a quick buck), to buying blue chip shares, I now outsource the investment decision making to highly skilled professional money managers, but with the mandate to invest mostly in Equities. I have a long-term investment time horizon and equities have the best chance (relative to the alternatives) of delivering meaningful inflation beating returns over a longer period.

Q: What is your take on Local vs. Offshore investing?

A: Having spent some time working abroad, I see the world as a global village. I’m thus more heavily weighted to Offshore vs. Local given the relatively small opportunity set in SA. I also believe that I typically advocate for more Offshore exposure (c. 50%) than most Advisers in SA for the same reasons as I view my own allocation – broader diversification.

As an aside, I send money abroad consistently and almost completely with my eyes closed to where the ZAR is trading.

Q: What is your preferred mechanism/vehicle for investing in those financial instruments? (Discretionary vs. Non-Discretionary; Direct vs. Unitised; Active vs. Passive; Single Manager vs. Multi-Manager)

Q: Discretionary (outsourced) Management vs. Non-Discretionary (self-investment)

A: Both. Discretionary where I prefer a professional money manager to assume responsibility, esp. Offshore where I don’t presume to know more than a team of highly skilled investment professionals and Non-Discretionary where I own a concentrated portfolio of shares where I have a good understanding. I should also mention that I don’t discount luck, esp. w.r.t. to my investment in PSG Group Ltd. There are many examples of guys out there who have been/were sitting on a single share/highly concentrated portfolio of shares and notwithstanding their intimate knowledge of those companies they got burned, e.g., Steinhoff. That could easily have been me.

Q: Investing Directly (via a Stockbroker/Portfolio Manager) vs. via Unit Trusts

A: Both. So typically, Unitised w.r.t. Discretionary and Direct w.r.t. Non-Discretionary.

Q: ‘Active’ vs. ‘Passive’

A: Active, but some of the solutions I invest in have an allocation to passive. I’m happy to pay fees to a money manager to make the decisions. The debate rages on, but for me, my advice is to worry less about the fees and to just get invested!

Q: Single Manager vs. Multi-Manager

A: Multi-manager. It’s the same as diversifying away from the concentration risk of buying one share/a handful of shares or buying a single manager who follows a particular style (Growth/Value/GARP/Momentum/Cyclical/Quality/etc./etc.) which style might then be in/out of favour. I prefer the consistency of performance that the diversification of multi-management offers.

Q: Do you invest in ‘alternative’ investments? (Structured Products; Private Equity; Venture Capital; Crypto)

A: No. I have participated in a few side line businesses, but simply as hobbies because of my interest in the concept of business. I have never considered these as part of my investment portfolio. Listed equity is ‘sexy’ enough. And even within listed equity there are varying degrees of ‘sexy’, think say Johnson & Johnson vs. Tesla.

Q: How do you think about risk/what does risk mean to you?

A: Outliving my money. Also, to me volatility (a traditional measure of an assets ‘riskiness’) does not equate to risk. Not outperforming inflation is a real risk and thus holding too much Cash is risky.

Q: Do you think about tax when investing your money?

A: Yes, but only in the way where I try to maximise/take advantage of the opportunities offered by SARS, so, e.g. I always contribute the maximum to a pre-retirement vehicle, e.g., Retirement Annuity (RA) as well as add the maximum to my Tax-Free Savings Account (TFSA). SARS are too smart to outwit and e.g., if I have made a capital gain on an investment, well then, I have been successful. I also only embark on structuring for estate planning purposes where this makes sense and not because this is going to offer me tax advantages.

Q: What’s the most amazing (worst) investment you ever made?

A: Best: PSG Group Ltd shares which I have only ever bought, and I have never sold. And obviously out of that came some brilliant investments in companies such as Capitec which is obviously part of the PSG success story.

Worst: Brainware - the high-flying conglomerate that crashed so spectacularly when I was still operating as a day trader.

Q: What’s the one that got away?

A: I suppose I sold some Capitec shares at around R15-R20 per share to fund the purchase of a house. While I had made good money out of the shares prior to the sales, had I hung on to those shares I really would have been smiling today.

Q: How do you navigate markets with your own capital? (What do you do in a Bull/Bear market)

A: In a Bull market I do nothing. In a Bear market I buy. When markets drop 20% or more, I gear and buy. Broadly speaking Clients do the opposite. It boggles my brain. But that is human nature. Our lizard brains are wired to take flight in times of stress and not run towards the stress.

Q: Would you consider using a Financial Advisor to manage your money?

A: I’m in a very privileged position to be able to consult with 10 top Financial Advisers who are my Partners in our Practice and I have no problems asking them for their advice. Even when I think I know the answer I like to test my thinking by bouncing it off of one or more of them. It gives me great peace of mind.

How do you think about Fees?

A: I want to pay a fair price. I do believe that you get what you pay for. Being overly fee sensitive will mean that you might compromise on quality. Cheap does not necessarily mean better and of course nor does expensive. Fees need to be considered i.t.o. the whole ‘package’. So, in our business it’s not confined to quality advice. It also means outstanding administration, service and support. I am happy to pay for peace of mind. This extends to paying for knowing that my loved ones will be taken care of in the event of my incapacitation or death. Who would they turn to if I have done ‘DIY’ in an attempt to save on Fees?

Q: Do you have any concluding thoughts?

A: I believe in simplicity. I have a Local RA and a TFSA and I have Offshore investments all of which are invested in unit trusts via multi-managers – the same PSG Wealth solutions we recommend and utilise for our Client Portfolios. I also have shares in my own company which I am close to. That’s my investment world. It’s no more complicated than that. While this approach may feel too simple for some/many, this approach has served me well. It’s true that I have had some luck, but even discounting that luck, I have been able to build a healthy investment portfolio just by doing the simple things consistently over time and not overthinking things. I have achieved my money goal, financial independence.

Conclusion

There is no single 'right' way to spend, save and invest. There is a kaleidoscope of perspectives on Bonds; Property; Shares and Alternatives as well as other means of achieving the life one desires. It is hoped, however, that these thoughts inspire readers to think creatively about their financial decisions and how money figures in the broader quest for a contented life.