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Wealth Management

WHY INVESTING IN EMERGING MARKET COMPANIES MAKES MORE OF AN IMPACT THAN FOREIGN AID

By Martin Soderberg, Managing Partner, SPEAR Capital

 

For decades, many have viewed foreign aid as the best way for rich, developed countries to help poor, developing countries.  In fact, the value of international development aid reached a new peak of $152.8 billion in 2019, a slight increase over 2018, according to the Organisation for Economic Co-operation and Development (OECD).

COVID-19 and its associated lockdowns have, however, underscored the limitations of foreign aid. In Uganda, for example, aid cuts have forced hundreds of thousands of people to the brink of starvation. Even outside of such an extreme example, many believe that foreign aid only serves the interests of donor countries and that it either creates dependency or has too many destitution “traps” to be effective. There are also some who argue that most foreign aid is spent on Western consultants, instead of the people it’s supposed to help.  

But if foreign aid is ineffective and we accept that wealthier countries should “do their bit” to help, how should they go about doing so?

A much better solution may be to invest in companies in these countries which have long-term commercial viability and which provide local solutions to local problems.

 

Foreign aid and missing incentives

One of the problems with foreign aid is that it doesn’t provide the right incentives for donors or recipients.

For many public and private sector donors, the responsibility is over once whatever project they were funding is complete. Whether it’s the construction of a well, a new school, or handing out mosquito nets, there’s little reason for funders to stay invested in the long run. Certainly, some NGOs might play on their ability to demonstrate impact, but the best they can offer funders is a sense that their money’s being well spent.

Similarly, the recipients of aid funding don’t have any incentive to sustain a project if they don’t have ownership of it. We’ve witnessed this first-hand, having been involved in funding a Zimbabwean dairy training centre.

Once the site was handed over to management, herd size began to shrink, and feedstock was no longer managed properly. By June 2020, the herd had dropped to 21 herd of cattle, down from 35 in August 2018. As of October 2020, there were 13 cattle, comprised of 2 cows, 1 bull and 10 heifers. Many of the cattle were malnourished and we received reports that several had died while giving birth.

While such a vocational facility clearly has benefits for the people it serves, the incentives simply weren’t strong enough for it to run sustainably.

 

Investment and ESG

Contrast that to the relationship between a business and an investor. When it’s looking for an investment, a business will do everything it can to prove that it’s viable. And once it’s made an investment, a good investor will do everything it can to ensure that the business succeeds.

This is especially true of private equity investors who typically restructure companies to give them the best chance of success.

And if the concern — as is the case with most foreign aid — is making a sustainable difference in emerging markets, then there are plenty of opportunities to invest in companies with a good environmental, sustainable, and governance (ESG) record. There are also private equity funds who’ll guide investors through the process.

Imagine what these funds could do with the US$60-billion spent on aid to Africa every year. Imagine what impact a growth explosion in tax-paying businesses could have on the continent’s poverty, employment, and development levels. And, all of that can happen while still providing investors with real returns.

 

A growing imperative

With traditional big Western donors set to target aid budgets as their own economies falter, the imperative for investment only becomes bigger. Handouts may alleviate some of the pain caused by 2020’s economic ructions, but only temporarily.

Beyond simple recovery, what’s needed is sustainable growth which benefits people on the ground. This is especially true of already fragile emerging market economies which have been decimated by the pandemic. Properly managed, foreign investment can achieve much more and much quicker than aid will ever be able to.

 

Wealth Management

WHAT LIFESTYLE DO YOU WANT IN RETIREMENT?

By Jaco Prinsloo, Certified financial planner, Alexander Forbes Financial Planning Consultants

 

The answer to this question will be different for everyone, so here are some things to think about:

 

Does it seem a long time away?

If you are under the age of 40, the chances are that thinking seriously about retirement may not be top of mind. The Covid-19 pandemic, sending the kids to school, disrupted holidays, and everyone’s health are more likely to be a concern. The fact is that you have time on your side, so now is the time to DO something and start saving. Consider this:

If you’re 25 and you save R500 a month for 40 years, with an investment return of 10% a year, you will have R3 188 390 at the age of 65.

If you’re 45 and you save R1 000 a month for 20 years, with the same return of 10% a year,

you will only have R765 697 at the age of 65.

The investment amount is the same, but it is compound interest (the interest on your interest) that makes the difference, because you have longer to invest. The key message here is: Make a start, no matter how small – it will add up over time.

 

Does retirement seem fairly close?

If you are over the age of 40, then retirement saving may well be on your radar, and if you are over 60 then you are probably seriously contemplating what retirement will look like for you.

 

Check what you have

Most people have worked in more than one job over the years and you may have a store of various pension pots waiting to be claimed as you moved from one place of work to another. Contact your ex-employers to see who administers these pensions or talk to a financial adviser to help you track down any hidden pots of gold. Those annual statements that are stuffed into a file somewhere may be very handy now. If you have moved address since you last worked at a company, make sure that you inform the scheme administrators so that they can send you up-to-date information – that is a responsibility many people forget.

 

Think about the lifestyle you would like in retirement

The days of working full time and stopping at retirement are now quite rare. People are generally still healthy in their 60s and many enjoy the social and mental aspects of working. Part-time working is becoming more common and now that ‘working from home’ is practically the norm, employers are being more flexible on hours. A ’phased’ retirement is much more common nowadays.

As a rule of thumb, you should plan for 60-75% of the amount you are earning before retirement once you actually retire. This can vary greatly depending on what you want to do. For many it can be the opportunity to travel or turn to a hobby full time. Some become carers for grandchildren or turn to volunteer and charity work. It is worth calculating a budget of what you think you will need. Don’t forget to factor in the impact of inflation; what you have today may not buy you the same in the future.

Often people focus on the early active years of retirement and forget that they may slow down over time. Some seniors will require nursing care and move to a frail care facility if their health becomes more fragile. It is best to start planning for that day early if you think you’ll need it.

 

How do I get there?

Once you have thought about what you might need in retirement and how long until you get there, you need to consider how much to save and to make your money grow.

 

Group retirement funds

If you are working and your employer offers a pension or provident fund, then make sure you join as soon as you can. You can contribute up to 27.50% of your salary – try to contribute as much as you can. Your employer will explain the fund rules to you and the investment choices available. If you’re not sure, then speak to a financial adviser.

 

Personal retirement funds

Suppose you don’t have access to an employer fund. In that case, you need to set up a personal pension, also known as a retirement annuity fund. Our advisers can help you with this.

 

Tax relief

You can contribute and deduct up to 27.50% of your taxable income or remuneration – whichever amount is the greater – against your personal income tax. This would reduce the amount of tax you are currently paying.

 

Investment decisions

How you invest your retirement funds will be important in helping you have the lifestyle you want in retirement. You may be new to investing and naturally want to avoid taking any risks with your money. The longer you have to invest, the more time your money has to recover from any downturn in the market, so don’t be afraid to take some risk.

Make sure you understand what you are buying and avoid anything offering outrageous returns; the current interest rate on bank deposit accounts is less than 6%, so anything offering returns above 10% a year must have considerable risk.

Our advisers will always recommend you hold some cash for emergencies but keeping your retirement savings in cash will not give you any growth on your money at all. Worse still, the impact of inflation over the long term will mean that your cash will buy less when you retire.

Understand how much risk you are willing to take; you don’t want to be up all night worrying that your money might be lost and you don’t want to sleepwalk into a retirement with no income. You need to take a sensible amount of risk to achieve a reasonable return.

 

Will I have enough?

 Remember that on average you are likely to live for 18 to 21 years after you retire and many people live well into their 90s now, so your money has to work hard to provide you with a decent income. Review your retirement plans once a year with your adviser to see if you are on track, be prepared to take action and stay focused on the lifestyle you want to live in retirement.

 

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Wealth Management

CHECKLISTS FOR CHOOSING A CORRECT TRADING MENTOR

The trading mentor should be proficient in the particular field and have proper cognition about the field. The duty of the mentor is to help the beginners to improve their trading performance. If the mentor has a lack of experience, he or she will not able to help others. The newcomers face different types of problems when they arrive in the field of Forex, so they become disoriented. At this time, a trading coach can help them to deal with the situation. So, this is very important to choose a good one. Let’s know about the checklist for making the selection of a good one.

 

Full-Time Trader

The mentor should be a full-time trader so that he or she can understand the current market position. If the person cannot practice now, he or she will not able to give the proper solutions to the beginners. So, the traders who trade regularly by managing the money can help others. You also find out that he or she has proper experience in your zone. When the person will invest time to learn about the market, he or she will able to gain more knowledge and ability to help others.

 

Be Successful

If the coach is not successful in his or her field, he or she will not able to help others. Successful investors have the power to inspire others. The fresher will also get motivation when he or she sees that the mentor has gained success. So, they try to learn from him or her properly. The person also needs to share his or her wisdom with others. People should bear in mind that 5% to 10% of traders are successful in the Forex field. So, when you make the choice, you have to be careful. You can also see the features of Rakuten. And we believe, if you analyze their premium offer, you will definitely say let’s trade with Rakuten as they provide professional environment to the retail traders.

 

Motivational and inspirational

If the person cannot able to motivate others for working hard, he or she will not become a good mentor. The coach should inspire the beginners so that they can go forward. The newcomers cannot ignore the emotional components so they cannot able to think for the better. In this situation, the coach can help by inspiring the. If the professional able to increase the confidence level of the fresher by motivating them, you should choose him or her. On the other hand, some are not so bothered about the beginners’ performance, so they should not choose them.

 

Should Respect the Fresher’s Trading Style

The investors have their own styles and preferences. People also need to give priority to their own patterns which will help them to trade independently. The person should try to demonstrate their individuality in the Forex market. If the coach tries to change the style of the trader, this will not better for him or her. When the mentor will not show proper respect for your trading style, you will not able to be comfortable with him or her. Here, he or she will always try to change you. So, investors should aware of this fact.

The coach will help the investors to identify the new opportunity and will increase the thirst for gaining knowledge. They will not able to ensure success but they can able to show the right path. Some mentors are not able to provide authentic information. So, this is not an easy task to find a suitable one. An honest coach can support people in a difficult situation. On the other hand, a dishonest mentor can destroy the career of the fresher. So, the investors are required to check the review and they can also take suggestions from the others to select a suitable person. If the coach demands money from you, then you should understand that he or she is not the right choice.

 

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