Old Mutual Wealth
Old Mutual Wealth
What steps should I take to start investing?
The investment world can be daunting at times and not having all the information and resources at your disposal can make the process difficult and frustrating. Equipping yourself with the right knowledge by understanding the stock market, investment instruments, your risk tolerance and your time horizon, and having the right resources at your disposal are important aspects of managing your own money.
In this podcast Shivani Naidoo, Portfolio Manager at Old Mutual Wealth Private Client Securities discusses the steps you should take to start investing.
An investment portfolio can create a passive income as a side hustle. Let us help you get started today!
For more information visit:
https://www.oldmutual.co.za/wealth/hq-buildingwealth/
Ian Fraser 00:02
Meaningful wealth management is about much more than money. It's about how you see yourself, the impact you want to make, and the legacy that you want to leave. In this series, our team of wealth and investment specialists answer some hard questions about how your money can work as hard as you do, to help you build wealth for generations to come. Their answers are based on collective insights and extensive research that considers all facets of your life.
Ian Fraser 00:32
A very warm welcome to the podcast today. Let's turn our attention to Shivani Naidoo. Shivani is the Portfolio Manager and Head of Digital Investor Solutions at Old Mutual Wealth Private Client Securities. She specializes in local and offshore equity investing with a focus on the self-directed investor - that's in bold, because we'll talk about it in a second. Hey, Shivanic, welcome to the podcast. Good to have you here.
Shivani Naidoo 01:01
Hi, Ian. Thanks for having me. Keen to chat about this.
Ian Fraser 01:05
Ja, me too. Let's talk about all things investing, shall we? I'm going to start by talking about emerging investors, those people who are just getting going. And all of us really recognize the need to take control of our financial health - whether we do or not, is a whole nother conversation. But we will want to equip ourselves with some financial knowledge, a little bit of insight into where to start. And in order to achieve those financial goals, we kind of have to be proactive, which is why I guess we're starting by listening to this podcast and making informed decisions. Let's start, Shivani, by discussing then, after that preamble, what some of those actionable steps are. And then a follow on from that, what kind of information do we really need to start investing?
Shivani Naidoo 01:53
Well, Ian, I think you've hit it spot on. Investors starting out... investing can be kind of shrouded in mystique and somewhat of a formidable space for those who are not necessarily aware of what they're doing. I think an important distinction to start - for anyone starting out - is do you want to trade or do you want to invest? Those are two very different points. And I think it's worth mentioning that trading looks at a completely different set of skills. And in speaking to self-directed investors, this is the first stumbling block before they even move into how do I make this a viable opportunity for me? Trading is a very specialized skill set, as I've mentioned, whereas investing is equally as specialized, but a different beast completely. Investing looks at looking at more longer-term holdings, looking at fundamental analysis where trading is more speculation, trying to capitalize on day-to-day price movements. So, moving into the actual steps, once you've moved past, "Okay, I'm ready to invest". I like to break it down into three buckets. The why, the what, and the how. Getting to terms with "why I am investing", "what am I trying to achieve" is incredibly important for investors. It kind of sets the scene and gives you a roadmap to where you're going with this. And it's important to get granular and clear with yourself on what am I trying to get out of this experience. As professional managers, we use something called IPS or investor policy statement, it gives us a clear picture of where our client's needs lie, what their risk tolerance are, and what their time horizon is. So, I encourage self-directed investors to definitely take the time, put pen to paper, sit down, and get clear on "why am I investing?" It seems like a simple question. But picking it apart, you get a level of self-awareness in terms of "is investing for me? Can I stomach the risk? Can I stomach the reward? Is this something I can deal with on a day-to-day basis?" Because, I mean, that being said, if you're looking to manage your own money, this is something that requires a level of effort, a a level of commitment, and a willingness to understand. So, you have to have the propensity to want to invest. Then we look at what. What am I actually going to invest in? And this is where a bit of the brain work comes in. Getting to terms what is out there, what is the scope of the investment universe, and then referring back to my why, and what I've put down in my investor policy statement will give you clarity on what instruments you need to be investing in to reach the goal you've set out for yourself, whether that be equities, fixed income, there's a variety of investment resources at your disposal to help gain that knowledge. Many self-directed brokerage platforms will have that information accessible for their clients. And then from there, we can move on to how. This is more functional, it also harkens back to the actual platform. How will I do this? What are the resources and tools I need in place to support me on my investment journey and build out that investor toolkit.
Ian Fraser 05:06
There's a lot of research behind all of these things. I mean, we could go off on a branch here, Shivani. And to be perfectly honest with you, I could spend an hour going into the behind the scenes of trading versus long-term investing. I think that the one thing that comes up in this first kind of piece of conversation here is time. Time invested in educating yourself when it comes to trading versus time spent investing long-term, you know, and having the patience to hold on to those long-term investments, ride out the storms. There's a whole conversation waiting to be spoken about here, isn't there?
Shivani Naidoo 05:48
No, 100% agree. I mean, anything, you'd be simplifying it down in a podcast of a couple of minutes. But that is, in essence, the goal of an investor. You... a person who wants to be a successful investor is continually furrowing out those little nuggets, continually learning, it is a personality type. It's not for everyone. But for those that are interested, it's a rabbit hole waiting to go down.
Ian Fraser 06:14
Ja, absolutely. Okay, let's not spend too much time on that, I understand that - my hope that you listening will also understand that it's going to take a lot of time and a lot of your time to be able to educate yourself. Let's move on quickly and speak about how investing plays a role in our lives. Because really, we want to start with money, and we want to make more of that money as time goes on. That's why we're talking about this. So, let's unpack that role, of how investing plays its role out in our lives.
Shivani Naidoo 06:46
Well, investing is, I think, arguably one of the most powerful, if not the most powerful, tools at an individual's resources for exponential wealth creation. It's something that differs from your traditional savings, not to say one shouldn't have savings, you know, they are both two parts in a fully fledged financial plan. But investing has the ability to put your money to work, your money is going to work and earn for you. And it's a direct reflection of what you put into it. So, picking companies that you believe have growth potential based on your background information, and the research you've garnered, it is vital in putting forward a fully fledged wealth creation plan. That being said, it is really your journey. I mean, like you've mentioned, retirement, saving for retirement, providing for retirement, is a big one, it's one of the major goals for many investors. But that, again, comes down to what your needs are for your investment funds. They could be medium- to long-term goals such as funding asset purchases, or expenses, your kids education, or just overall wealth creation. That then comes down to the individual investor, fleshing that out from the beginning. And understanding by holding on and the long-term nature of this, I have the potential to lever up my wealth creation using compounding, which is the reinvestment of your dividends, if you so choose to invest in dividend providing shares, and have the ability to benefit from capital appreciation, something that traditional savings is not necessarily providing you with this moment, you know, it's the opportunity to outpace inflation.
Ian Fraser 08:31
Ja, I mean, again, there's a whole bunch of things which I can add to that and take away from that and speak about. Also your risk tolerance, the time of where you are in your life in terms of your age, and your appetite for risk, the time horizon that's left to invest in your life and your objective. You know, you spoke about that right in the beginning, you were like, what is your objective? That investment landscape is different for everybody. So, how do we create a bespoke plan for understanding our investment landscape going forward?
Shivani Naidoo 09:04
So, the best way for me, I think to start is, so when... understand that your investment landscape, it's important to build out what I call an investor blueprint. It's a picture of your future financial self that you can use as a reference to work back on, and build out what assets I would require to reach that goal. That being said, it's important that investors start understanding and getting comfortable with the terminology and language used within the investment space. Investing is a specialized skill set and it does come with a layer of jargon that needs to be understood. And understanding that is probably one of the most intimidating things for an investor starting out. It can really assist in clarifying what fundamentals are of value to you, what characteristics you're looking for within your investment scope. I mean, another important point is understanding the risk reward characteristics and profile of the various asset classes at your disposal. It's fixed income, equities, property, each have unique characteristics and understanding what those can do and how to use them in conjunction with each other to build out a diversified portfolio is pretty important to moving forward within your investment journey. Other useful things to look at, regardless of your level of experience, is what kind of investor do I want to be within this entire universe? Do I want to invest actively or passively? Would I prefer ETF exposure versus direct exposure? Then it's to look at thematic investing. Maybe ESG is important to you. These are all things to consider in building out what you define as your investment landscape. It's basically the arena you get to play in.
Ian Fraser 10:50
It sounds quite appealing all of the, you know, all of the different options. At the same time, you know, where there's yin, there's yang, and where it's appealing on one hand, it's also confusing on the other. So, you know, we started right out at the top by kind of going, you know, you need to educate yourself. And I think you're always learning and you're always discovering new things that go along the way. Something we haven't touched on. And this is the big one for me, it really is, is your mindset, your appetite for having the big match temperament when things go south, and you're expecting them to go up and they're going down, and you're holding on, and you're believing, and then you sell. And I'm just kind of looking at this whole thing with a wry grin on my face going how do we manage our mindset when it comes to this investing. You know, it's all very well educating ourselves. But maybe there's a bit of a psychological element to this whole thing, isn't there?
Shivani Naidoo 11:49
Oh, Ian, definitely. I always say investing is equally much as about managing your money as managing yourself. It really is about investors understanding their inherent biases and fears, which all humans have. It's a well documented study within the financial industry - behavioral finance, there's many terms and topics that we can discuss and pick apart, but in essence, it's paramount that an investor understand that we're never making decisions 100% rationally. We're always subjected to some level of cognitive bias or our echo chamber of ourselves. And it's our responsibility as investors to test those beliefs constantly and make sure they're not influencing us negatively. You know, it's important for an investor to be able to zoom out and understand the long-term nature of their investment journey, you need to be able to stomach these short-term fluctuations, as you mentioned, the volatility that is inherent in any investment market. But it's important for an investor to see that it really is time in the market versus timing the markets. I know this is an adage been said often, but it really is true. Would that steadfast nature an investor needs to be able to be flexible, have an open mind, although you've come to an investment case on a specific stock, and have invested in it and hold it passionately. It's important to constantly test that investment case when presented with new information. There's a behavioral finance bias, well documented, called loss aversion and regret bias. And I think this is something many investors fall prey to. It's essentially fearing that loss, it's something that is unavoidable within the investment space. So, I would say, get comfortable with it. It is that comfortable with being uncomfortable. One way to combat that is to start with a demo account. It is useful for investors to get comfortable with that uncertainty and using fictitious money is a good way to learn to deal with the emotional, very much real feelings that creep up when you see the negative numbers hitting your screen.
Ian Fraser 14:09
Shivani, I'd like to find out from you, what does it really take to start investing? You've touched on it briefly, but but let's just go into it just a little bit more.
Shivani Naidoo 14:19
Well, Ian, first things first, it's an inalienable truth of investing. It requires you to do your homework. And that's a bit difficult in today's society where we are flooded with information from left, right, and center, leading many investors to what I call analysis paralysis. I just think it's useful, a good starting point, for successful investors to be able to block out that external noise. You can partner with reputable sources, would be a good place to start, once again most brokerage houses do offer a research capability, and then understanding how to derive investment inspiration. That can be as simple as is something that's important to you, starting top down and looking at global themes, whether it be biotech, semiconductors, medical technology, or bottom up, you enjoy shopping at Checkers, let's see if there's an investment case behind that. It really is deriving inspiration and excitement about investing from your surroundings, not looking at it as homework.
Ian Fraser 15:24
Ja, I mean, if you use a product, and you love that product, and you're aligned with that product, and it speaks to your values, why not invest in it? I mean, if you believe in it so much, and you're using it anyway, go check it out, right, that's a good place to start.
Shivani Naidoo 15:37
It's a great place to start. I mean, you're voting with your Rands anyway, you're adding to that balance sheet every day, might as well benefit from your expenditure - if the investment case is in place.
Ian Fraser 15:48
Shivani, it's all rather interesting when it comes to the big match temperament that I was referring to earlier on. I know there are technical terms for it, that's what I'll use. But I do want to go off script for just a second here. And I want to ask you for an off the cuff takeaway for those people listening to the podcast. They've got some cash, they do want to invest in something. We've spoken about trading versus long-term investment. We've spoken about what role that plays in our lives, in other words, saving money for our retirement, etc. We've spoken about the investment landscape. Now I want to ask you, certainly from an Old Mutual Wealth point of view, where do we start? Give us your off script where do we start to look for these tips and tricks. What's the best way to get going?
Shivani Naidoo 16:35
So, in the self-directed investor space, there is numerous brokerage accounts available for investors wanting to begin - that you've got some money, you want to understand how this works. They are quite powerful resources within these brokerage platforms. So, we are at Old Mutual offer one called the "My Wealth Trader" brokerage, where we offer something called an assisted investor. If you're not 100% confident with starting, we have portfolio consultants that are able to guide you. But all brokerage houses, more often than not, offer education courses, webinars, resources for investors to flesh out their toolkit and teach you how to do your homework, which is so vital in investing.
Ian Fraser 17:17
Ja, absolutely. I think that that's a good place to start, go and check out the Old Mutual website. Certainly the the Old Mutual Wealth Private Client side of it, and you'll be able to find more there and get more details. That's super helpful. Shivani, thanks. That's a nice touch. A brief touch albeit, on some of the investing opportunities. Thank you for your time today. I really appreciate it.
Shivani Naidoo 17:39
Thanks, Ian, it was lovely speaking to you.
Ian Fraser 17:44
Old Mutual Wealth is a world class investment destination, offering you a wide range of investment strategies and specialist wealth management solutions. Whether your goal is to grow your wealth, generate income, or preserve and pass on capital, our focus on generational wealth ensures your legacy lasts for generations to come. It is vital to work with reputable specialists who can effectively structure an investment portfolio that is tailored to your unique needs and objectives. Email us at hardquestions@omwealth.co.za, so that we can help you take your wealth further.