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Category Archives: personal finance

Is gold a good investment in the short term?

As with many similar questions that I have been asked over the years, it is vital that you meet with a financial planner. A full understanding of your financial situation is required. It is not wise to give recommendations based on only a portion of your investment information.

However, that said, let’s assume that I have understood your risk profile accurately, and that a ‘couple of years’ refers to two years. I would consider the following to be wise counsel:

It is unlikely that allocating the full amount to gold would be appropriate as the price of gold can be volatile over short-term periods. I would also assume that the lump sum of R500 000 is unlikely to be a small portion (i.e. less than 5%) of your overall portfolio, and this makes it even less appropriate to allocate the full amount to gold.

In addition, you specifically ask about physical gold, which in most cases is Krugerrands. When investing in Krugerrands there are fees of about R3 000 per ounce (you can buy for R21 000 versus selling for R18 000 as per the Cape Gold Coin Exchange), which need to be taken into account. Over a short-term horizon, these costs could be really punitive.

The gold price would therefore have to increase substantially over your two year period to beat the 6.4% per annum offered by your money market option. Remember you will also have to take into account the storage and insurance costs of holding physical gold. Therefore, taking all things into consideration, I would consider gold to be a relatively high risk investment for you.

The money market is probably one of your safest options. However, I am interested that you quote an interest rate of 6.4%, as I know other options that offer up to 8.0% per annum. Make sure that you do your homework well, in conjunction with your financial planner. You may even look at the possibility of a 24 month fixed deposit, where the interest offered is currently about 8.8%.

Depending on your marginal tax rate and your age, a more efficient investment may well be through a dividend income-type of portfolio. Ask your financial planner about this because you should be able to achieve an improved growth rate after tax compared to a money market. All in all, this will still be the relatively low risk that you require in a two year, short-term investment.

Three key investment mistakes to avoid

The current environment is an extremely testing one for fund managers. There is so much uncertainty on so many levels, that selecting appropriate investments takes both a lot of analysis and a lot of courage.

However, Paul Bosman, the co-manager of the PSG Balanced Fund, says that even in times like this it is possible to build robust portfolios that allow both the fund managers and investors to sleep well at night.

“Regardless of whether times are rosy or stormy, the three key mistakes to avoid remain the same,” Bosman says. “Don’t pay significantly more for something than it’s worth; don’t buy something just because it looks cheap; and don’t build highly correlated portfolios.”

To do this, however, you have to be able to look past the short term noise and appreciate the longer term fundamentals of what you are buying.

Understand the risks

Bosman points out that it is possible to manage risk by trying to work out what is already in the price of an asset. And when quality assets sell off, that doesn’t make them more risky, but less so.

“Even the worst of news can be priced into a stock,” says Bosman. “And if it’s already in the price, then it’s not such a risky investment.”

For example, South African banking stocks collapsed at the time of Nenegate last year and have largely remained depressed. Nedbank is basically trading flat over the last three years.

“There is a lot of bad news in the share price,” says Bosman, “but this is a quality business with good intrinsic growth, paying a 5% dividend yield.

“There can be further political challenges in the short run, but over the long term an investment is about competitive forces in the market,” he says. “Banking is not an easy industry to come into, and with all the noise in South Africa there aren’t a lot of people who want to try. So if you can buy this kind of business with inherent quality that the market is not pricing correctly, that is actually a low risk strategy.”

Be circumspect

However, Bosman does caution that just because there is strong negative sentiment in the market, doesn’t mean that everything that has sold off is now worth buying.

“Just because something is down, doesn’t mean that it’s cheap,” he says. “You still need to look for inherent quality that’s worth paying for.”

When adding assets into a portfolio, you also have to be aware of how they are likely to move in relation to each other. Especially when building bottom up portfolios, there is the risk of ending up with assets that are highly correlated as it is likely that the stocks that are currently attractively-priced, may have all sold off for similar reasons.

“You have to try to balance this,” Bosman explains. “At PSG we follow a bottom-up process, but are very aware of having too much unintended correlation because you don’t want the whole portfolio to perform strongly only in one kind of environment and poorly in another.”

In the same vein, it is very important not to construct a portfolio around a single outcome.

“You can draw parallels between building a portfolio and going to the supermarket,” Bosman says. “If you only go to the supermarket to buy things that you will need in a world war three scenario you are going to be pretty well stocked up on canned food. Whereas if go and you do your regular shopping, but also buy food for the kind of circumstances that might stop you from going to the supermarket in the future, such as a world war, you will have that canned food in the pantry, but you haven’t built your lifestyle around it. So when you need it it’s there, but you aren’t only eating baked beans.”

For instance, he points out that nobody can know with 100% certainty that South Africa’s credit rating will be downgraded. So it would be irrational to build 100% of a portfolio around this outcome.

“But if you think there is a 30% that we will be downgraded and you can build 30% of your portfolio accordingly, that’s rational,” he says.

PSG therefore does hold a lot of cash at the moment as security against a worst-case scenario, but it is also willing to use that cash when opportunities present themselves.

“That cash can become very powerful when quality assets are selling off,” Bosman says. “We only allocate money when we find an opportunity that is compelling. At the moment across our portfolios we are very happy to sit in cash, and so we don’t mind when the market sells off because that creates opportunities we can enjoy.”

Are you paying too much in bank charges?

In South Africa’s somewhat peculiar banking system, monthly charges for transactional accounts are a given. But is the few hundred rand you’re paying per month (if you’re lucky!) the best possible deal?

The first question you need to answer is whether you value having a ‘platinum’ or ‘private clients’ account with all the “value-adds” these offer?

Things like lounge access, bundled credit cards and a ‘personal’ banker are must-haves for some in the upper middle market. On the other end of the scale are basic, no-frills bank accounts (like Capitec’s Global One (and the clones from the other major banks)), but the truth is that most people need something a little more comprehensive than that. There’s likely a home loan, almost certainly vehicle finance and definitely a credit card.

So, do you need a ‘platinum’ (Premier/Prestige/Savvy Bundle)-type account? Do you actually use or need those value-adds? Or, do you enjoy the ‘status’ of having a platinum or black credit card? (Here, emotion – and ego – comes into the equation….)

This is an important question to answer, because the difference in bank charges between a more vanilla bundle account and ‘platinum’ is easily 50%!

While banks try to shoehorn you into product categories based on your salary or profession, there’s nothing stopping you from moving to another product (or refusing those ‘upgrades’). From a personal perspective, the only reason I have an FNB Premier (i.e. platinum) account (not gold) is because I do actually make use of the ‘free’, albeit diminishing, Slow Lounge access. And, the eBucks rewards I earn on this account are the most lucrative of the lot, based on the products I use, my transaction habits and spending patterns. (‘Upgrading’ to Private Clients is a mugs game because the thresholds for ‘earning’ rewards are significantly higher, to match one’s status and earnings, of course!)

Once you’ve answered this question – which is more important than most people realise – the next step is to figure out whether a bundled account or pay-as-you-transact one makes the most sense. Most of us enjoy not having to ‘worry’, so we readily sign up for the all-in-one package without actually understanding the differences in pricing.

For the purposes of this exercise, FNB pricing will be used (as its most relevant to me). But, the overall price structures (bundled vs unbundled) are roughly the same for the four full-service banks, and links to the most recent pricing for the various banks are available here:

Now, figure out what an average month of transactions on your cheque account looks like. For most, this won’t change meaningfully month-to-month. There’ll be some debit orders (internal and external), electronic account payments, inter-account transfers (e.g. settling your credit card or moving money to a savings account), and perhaps some withdrawals from an ATM. It isn’t too useful to look at one month in isolation as there may be atypical transactions that distort the picture.

In this example (loosely based on my transaction history), the bundled option makes the most sense. But, you’ll find that this is not always the answer. It is worth dissecting what does and what doesn’t form part of the bundled options from your bank. In all cases (at the higher end, i.e. platinum), debit orders and electronic transactions are ‘free’ and some transactions like cash withdrawals are free up to a certain number per month. But there are some variances that will attract fees over and above the flat monthly rate.

Once you’ve done this exercise – which you need only do once a year (June for FNB customers and December for Absa/Nedbank/Standard Bank ones), you’ll know exactly which account type suits you best. If you’re on pay-as-you-transact and you’re spending more than ±R200 a month consistently, you should change to bundled. If you’re on bundled and do a handful of transactions a month (and don’t have too many (any) external debit orders), then pay-as-you-transact will save you money. You’re not looking at hundreds of rands a month year, but across a year your savings would easily add up to over R1000.

Tips for parents to save for their kids’ school fees

With the start of 2017 looming, many parents may have started to consider the cost of their children’s school and tuition fees for the next school year. While families have a number of financial commitments to attend to every month, this is the time of year where school funds are often moved to the top priority to ensure that the family is financially prepared for the expenses that accompany a new school year.

Saving for a child’s education requires careful consideration and proper planning.

Here are some tips below for parents to ensure that they have planned appropriately for their children’s education costs:

Start early

Parents should start saving for their children’s education as soon as they possibly can. Many people do not consider, or are not aware of, the great advantages of compound interest, and how accumulated savings grow over several years when invested properly. By investing from an early age, parents will eliminate the financial worry of not having sufficient funds to give their children the best education possible, as the funds in their investment will grow every year.

Automate savings

The best way for parents to ensure they are regularly contributing towards their children’s education is to open a dedicated savings account and set up a monthly debit order. This way the parents will automatically save money every month towards this cause. However, they must have a strict rule in place to never withdraw any money from this account if it is not related to the child’s education.

Explore ways to get discounts

It is advisable to do some research and contact schools to find out whether they offer financial incentives that could result in long-term savings. Many schools offer a discount if the fees are paid as a once-off amount in advance. Some also offer a reduction when there is more than one child attending the school. These types of savings can make a big difference over an 18-year period.

Include education funding in the financial plan

It is important that parents include education funding in their overall financial plan. These expenses have to be accounted for as part of the monthly household expenses to determine how it will affect the family’s overall financial position. When it comes to developing financial plans, it is usually a good idea to consult a reputable financial planner who will be able to develop a solution for the client to ensure that they have provided sufficiently for their children’s tuition fees and related education expenses.

With the cost of education increasing every year, parents are faced with increased expenses for the privilege of sending their children to school. School fees are a big financial commitment, but with the right advice, families do not have to see this expense as a financial burden.

Four easy ways to save money this Christmas

Christmas may be the season of joy and goodwill, but it is also the season of spending. Often our enthusiasm for being festive outpaces our bank balances.

However, there are some simple ways to save some money without taking the enjoyment out of the season. Some of these may even make your Christmas even better.

Here are four simple ideas to curtail your Christmas budget:

  1. Make your own crackers

Who isn’t tired of paying up for expensive crackers with the same gifts, the party hats that make you sweat, and the same lame jokes every year? (What’s Santa’s favourite pizza? One that’s deep pan, crisp and even.)

Making your own crackers might sound like an awful effort, but it can really be quite simple and extremely cost effective. A number of craft shops sell the cracker bodies that just need to be folded into shape, together with the ‘snaps’ that deliver the necessary bang when they are pulled. (You could download the template from the internet and cut some patterned cardboard or wrapping paper yourself, but this would be a lot more time consuming.)

Easy, cheap and always popular fillings, include luxury chocolate balls, mini soaps or lip gloss. Tiny bottles of whisky or liqueur also go down well, depending on the company.

Making Christmas crackers can also be a fun activity for your children to keep them busy for a few hours during the holidays. And that is priceless.

  1. Make your own gifts

Depending on the size of your family, Christmas gift shopping can easily bite a big chunk out of your budget. It could also mean spending hours at crowded malls dodging speeding trolleys and cosmetics salespeople.

A far more relaxing and cost-effective option is to make gifts yourself, and it’s quite possible to do this tastefully. Baking biscuits and making jam are old favourites, but there are other options too.

You can make up your own mini hampers by ordering small hand-crafted pottery dishes online and filling them with personalised treats like artisanal chocolate and home-made confectionery. Wrap these up in cellophane and you have gifts that everyone will love.

  1. Order your drinks online

Christmas almost demands good wine or even some top class South African brandy, and who doesn’t deserve a drink after a long year of hard work? But just popping down to your local off-license and filling a trolley is not always the best idea.

Firstly, you can’t be sure of getting the best prices, and secondly you’re likely to grab more than you really need just because it’s there and you’re in a festive mood.

Ordering drinks online can be a lot cheaper as you can looks for specials at the many local online stores available. You can also be unemotional about how much you actually need when the bottles aren’t staring you in the face.

Some shops also allow you to collect, which means there is no delivery fee. And that’s more money you can keep in your pocket.

  1. Don’t try to feed everyone yourself

If you’re hosting the family Christmas dinner, you will inevitably face the temptation of providing everything. After all, that’s what good hosts do.

There is however nothing wrong with asking everyone to chip in. You may want to do the main dishes yourself, but a salad here and a dessert there will not only save you time in the kitchen, but also get everyone involved in the meal and spread around some of the cost.

Give the gift that keeps on giving

This time of year sees both children and adults preparing their wish-lists for the upcoming festive season. But as many South Africans continue to grapple with rising debt, now is a good time to shift the focus from giving material items to providing future financial well-being.

Giving a child an investment as a gift will not only promote a culture of saving from a young age, but will also show them how you can make money grow.

There’s a powerful story of one customer’s commitment to leave a legacy for his family, and the value of sound financial advice. In November 1968, a customer made an initial deposit of  R400 into the Old Mutual Investors’ Fund and 48 years later, his investment is today worth over R600 000.

More precious than the value of his money, however, was the culture of saving and the legacy that he passed on to his children and grandchildren. On special occasions such as Christmas and birthdays, he invested a set amount of money on his children’s or grandchildren’s behalf. With this investment, his daughter was able to provide for her daughter’s schooling.

If South Africa is to develop a generation of financially savvy adults, it is crucial to not just talk about it, but actually practise good money habits. It is important to teach your children about money, and the festive season – with the spirit of giving – is a good time of the year for parents to set a good example. Teach your children about the importance of giving within your means, as well as showing them the value of relaxing with family and rewinding after a long, hard year, while respecting the value of hard-earned money.

Families should consider starting a financial tradition of their own. Set a reasonable budget for gift giving this festive season, and instead of spending all your money on gifts that are likely to fade, go missing or be forgotten, speak to your financial adviser about starting an investment in the name of your children.

When children become old enough to understand more about money management, parents should involve them in the process. Teach them the principle of compound interest and explain why putting money away today means they will have more money tomorrow. Help them set a budget for the money they’ll receive over the festive season, encouraging them to spend a smaller percentage today, and investing the rest for the future.

Here are various ways you can give a gift that keeps on giving long after the hype of the festive period has subsided:

  1. Start saving for your children’s education: A hotly debated topic this year, the cost of education is something that needs to be saved towards and planned for. Opening an account and allocating money to it each month can help you fund your children’s future education.
  1. Life-starter fund: Every parent dreams of having the power to provide their children with the necessities in life, but in reality, this isn’t always possible. Setting up an investment and adding to it each year, even just a small contribution of R500, will enable you to provide your children with a lump sum that they can use as a deposit for their first car or deposit on a house.
  1. Set up a tax-free savings account for your children: A tax-free savings account can enable you to save towards your children’s long-term dreams and financial goals, but is also flexible enough to be accessed at any time should it be required. Also, by investing in a tax-free savings account, you won’t get taxed on the growth earned from the investment.

It is never too late to start saving, but the sooner the better, so don’t delay and start today by speaking to a financial adviser. Saving and investing make wishes come true.

Simple ways to give 2017 a financial kick in the pants

  • Prepare an itemised list of all your expenses and divide the expenses into Group A, being fixed expenses, such as car repayments, other debts and payments you are contractually bound to pay monthly. Other discretionary expenses you are able to reduce or even cancel without suffering any negative legal or financial consequences such as entertainment, clothing, cable TV should be included in a Group B.Select certain Group B expenses you wish to reduce or stop [that gym subscription?), do so and allocate extra payments to shorten the outstanding payment periods (and reduce the interest payable) of Group A expenses or start a small rainy day account for those unexpected financial surprises. Which expenses should be reduced and in what order of priority will depend upon circumstances such as interest rates, tax deductibility, outstanding payment periods and so on. Always a good idea to consult a professional to assist you in making the correct decision.
  • Make an appointment with your financial planner to verify whether your life, disability, dread disease and accident benefits are adequate or surplus to your needs and whether recent product developments have resulted in more cost efficient and/or comprehensive cover being available at the same or at a cheaper cost to you. Planners are, today, required to provide you with comprehensive comparative information to provide you with the peace of mind that you are making a decision that is in your best interest.
  • Create a filing system (whether it be a lever arch file or a folder on your desktop for emailed documentation) for all your financial records such bank or credit card statements, accounts and invoices. This will save an enormous amount of time when a payment is in dispute. If you have other important legal documents, why not also save these using a similar format?
  • Request your short term broker to review your insurance to ensure that your house, car and other property is sufficiently insured against damage or loss.
  • You will have, in all probability, already made a decision as to your medical aid plan for 2017. Speak to the medical aid consultant about so-called Gap cover to meet any possible shortfalls you may experience in the event of a medical emergency. These plans are relatively inexpensive and worth consideration.
  • Harass your banker for a better deal around your banking options. Is it really worth all those bank charges to have a Rolls Royce cheque account and credit card if you are not making use of all the benefits they offer? Consider a down grade of the banking package, at the risk of losing benefits you don’t use anyway but in so doing your bank charges may very well be substantially reduced.
  • Contact a credit bureau and request your free creditworthiness check, even the basic information provided by these reports can be an eye-opener. If there are there any adverse debt payment findings present on your profile, take steps to correct these by speaking to an attorney or the creditor responsible for the adverse record. Be particularly aware of possible instances of identity theft where your personal information and even identity number has been fraudulently used to obtain financing or credit facilities without your knowledge.
  • Assess your available credit facilities and, if necessary reduce the facility(ies) to a reasonable limit. For instance, having a credit facility to buy clothing for R50 000 may be flattering on your monthly statement but if you only regularly use R5 000 of the available amount the surplus R45 000 availability will negatively impact on the amount of any further credit you may apply for when wanting to purchase, say, a car or even a house!
  • Strategise your next vacation, it’s anticipated cost and save regularly in a separate investment such as a Money Market or Income fund type investment to fund the holiday. Your financial planner will be able to advise you as to appropriate investment options taking into account your personal circumstances, duration of the investment period, relevant amounts, costs and any risk that may be involved.
  • Consult with your tax advisor to identify any tax savings strategiesavailable to you. At the very least confirm that you are investing an adequate tax deductible amount in retirement annuity investments. A visit to your HR department to ascertain whether you can make an additional contribution to your pension or provident fund may also provide a tax efficient investment option.Take the information from your HR Department and your last tax assessment to your financial advisor and ask him to make proposals concerning your retirement annuity investment and/or any possible topping up of your pension or provident fund investment. Be very careful to assess the cash flow impact of any decision you make to increase contributions.
  • Re-assess your investment strategy with your investment advisor to make use of available tax-free saving investments. The maximum yearly contribution of R30 000 a year over a long period of time will provide substantial income tax and capital gains tax benefits that impact on your investment returns.
  • Are all the clauses in your last will and testament still appropriate and relevant? Is your previously jolly and fun-loving but now cranky brother-in-law still the right person to be the guardian of your minor children when you pass away? Have you recently divorced? If your financial circumstances are complex rather consult with an estate planning specialist, he or she will help you overcome pitfalls that you may not even know exist.

Private versus public pay practices

Remuneration practices have far-reaching consequences, not only for individuals and companies but for the economy as a whole.

Employees’ personal finances for the most part, depend on their salaries. These salaries allow them to procure goods and services which stimulate the economy and ultimately form the life blood of the economy. These salaries, however, cannot simply be raised indefinitely in a bid to stimulate the economy (through increased demand), as the cost associated with these increased salaries will cause the cost of goods and services to rise (inflation). As a result, individuals would still only be able to purchase the same basket of goods as they did before, despite the increased salaries.

Employee remuneration is more often than not, the largest percentage of a company’s total expenditure. As a result, firms are highly concerned with their pay practices as they impact on their financial bottom line.

The pay practices of public (municipalities and State-owned enterprises (SoE)) and private sector firms differ significantly, particularly at the lower levels. According to 21st Century’s salary database, Table 1 shows the pay practices of the public and private sector at each occupational level.

Executives have been left out of the analysis as the remuneration structure of private sector executives is heavily influenced by long-term incentives. The compa ratio of the public entities is expressed as a percentage of the private sector salaries e.g. at the A band the SoE salary is 192% of the private sector salary and the municipal salaries are 231% of the private sector salaries.

The median pay by grade at each grade has been calculated for each sector and has been expressed as a percentage of the private sector’s median total guaranteed package. The lowest occupational level (A Band) has the largest diversion in pay practices between the public and private sector.

At first glance, it may appear that the SoEs and municipalities pay these employees too much, but it must be borne in mind that the private sector’s low-pay level at this occupational level plays a significant role as well. The data would suggest that whereas the public sector seeks to pay low-level employees a liveable wage, the private sector which is profit seeking, ties pay to productivity more closely. A large contributor to this difference is that across all occupational levels, public sector employees receive larger benefits as a percentage of their basic salary (cash component of total guaranteed package).

The relatively high levels of pay enjoyed by public sector employees at the lower levels, results in there being significantly less inequality within the public sector compared with the private sector.

The Gini Coefficient and the 10 – 10 ratio are measures of income inequality. The Gini Coefficient ranges between zero and one, with zero representing absolute equality and one representing absolute inequality. The 10 – 10 ratio expresses the sum of the salaries of the highest paid 10% of employees as a ratio of the sum of the salaries earned by the lowest-earning 10% of employees. The larger this ratio, the more inequality exists.

A large contributor to this is the low level of pay paid by the private sector at the lowest occupational level. The private sector’s profit motive and linking of pay to productivity plays a substantial role in guiding its pay practices, together with the supply of labour at each occupational level. South Africa has an abundance of unemployed, low-skilled individuals and, as a result, these firms do not need to pay premiums to attract employees at the lower occupational levels. Although this makes sense from an economic (supply and demand) point of view, the consequence of this is that it causes increased levels of income inequality in the economy and can result in a group of ‘working poor’ at the lowest occupational level.

In contrast to the private sector, the public sector is not only profit-motivated and, as a result, does not adhere to the same pay principles as the private sector. The public sector focuses on service delivery and the welfare of its citizens. This focus on welfare extends to its employees as well and is evident in the higher levels of pay (including benefits) earned at the lowest occupational levels. Although this is a noble ideal (paying liveable wages), the tax payer is the one who ultimately provides the means to pay these salaries and, as a result, these salaries need to be reviewed regularly to ensure that they do not become excessive.

You’ll Spend Money and Time, For a Successful Financial Plan

On the surface, the cost of a financial plan is simple: generally between $2,000 and $4,000, depending on its complexity and where you live.

But dig deeper and you’ll find that the plan’s success also depends on you spending time to implement it.

Consider the case of a young physician who recently came to my office inquiring about a financial plan. His primary issues were cash flow with tax considerations, debt service and investment advice. I suggested he would also need an insurance review and estate planning, since he had none. At the conclusion of our getting-acquainted meeting, my colleagues and I quoted a fee for the financial plan and what it would include. He decided to work with us.

Next we had a goal-setting meeting and collected his pertinent financial documents such as his tax return, investment statements, debt statements and more. We provided risk-tolerance questions and discussed his short- and long-term goals in greater detail. Then there was an interim meeting where we reviewed his goals — to be sure we prioritized them correctly — his risk-tolerance results and his investment analysis.

A couple of weeks later, we had a plan-delivery meeting, where we reviewed the recommendations in all the areas of his financial plan. He took the binder home to review and start implementing the plan.

He returned in a month for a progress meeting. He had made some headway on our list of recommendations, but not as much as I had hoped for. At the conclusion of that meeting he told me: “You were very clear as to what the plan would cost me in dollars. What I did not know was the time it would take me to collect the information on which the plan is based, to meet with you, to read and study your recommendations and then to finally implement them.”

He was correct: It costs both time and money to enact a financial plan that will really help you. Eight months later, I received an email from the doctor, letting me know he’d completed all the recommendations. In the end he said the total cost, in terms of dollars and time, was well worth it.

Beware of additional costs

Keep in mind that with some financial service providers, there could be huge additional costs in the form of fees or commissions. This could also be a conflict of interest if your advisor recommends products that pay him more, rather than the ones that are best for you. So be sure you know exactly what fees are involved when you start working with an advisor.

While my recommendations in the doctor’s plan included specific changes to his insurance and investment holdings, I did not sell him any of the coverage plans that I recommended, nor did I sell him the investment products he needed. That’s because I am a fee-only advisor. I want my clients to know that I have no vested interest in the implementation of the insurance or investment part of the plan.

This is not the case for advisors who provide both a plan for a fee and then sell you the investments or insurance products as well. All too often, the insurance recommendations made by those who sell the products, too, include more and larger policies than what I would recommend. It is a sad fact that the commission may be driving the plan recommendations, rather than what is best for the client.

When you are looking for a financial plan, be sure that you use the services of a Certified Financial Planner and that the planner does not sell any products. To find such an advisor near you, contact Garrett Planning Network or the National Association of Personal Financial Advisors.

Plant Power Investing

Evidence increases by the day that more consumers are moving towards a plant-based diet. How can the average investor take advantage of this trend?

Low-cost index investing has become a popular approach to achieve market returns and will continue to be used by more individual and institutional investors. On the other hand, sustainable investing is also a growing trend, as more investors recognize that an “all-of-the-above” index investing strategy conflicts with their worldview. Index investors are accepting the status quo by owning companies as they are. Sustainable investors are driving change by using fund managers who engage with companies to adopt positive changes or by simple divestment (i.e. avoid investment in the company or sector).

I envision three groups of individuals who would find plant power investing attractive – vegans, vegetarians and advocates of a healthy eating / living lifestyle (ironically, HE/LL for short). The majority of individuals in this category, however, are not in a position to take on an extraordinary amount of investment risk. Investing in “pure play” meat or egg substitute start-up companies is beyond their financial reach.

The growth in the number of mutual funds that divest from fossil fuels provides an example that plant-based investors might want to follow. Why not simply avoid companies that are in obvious conflict with your worldview? Truth is, there are sufficient large, established companies to choose from in order to develop an investment portfolio that may satisfy both financial and personal goals.

As I point out in my book, Low Fee Vegan Investing, there are currently no mutual funds targeted to plant-based investors. This is unfortunate since, without this option, most investors are not in a position to take on the effort or cost to implement a strategy that would otherwise meet their needs.

I believe there are two easy steps plant-centered investors can take to encourage the development of a suitable investment tool (e.g., mutual fund, plant-based index fund). The first step would be to contact their investment professional and state an interest in having a portfolio which reflects their worldview.

If sufficient demand develops, this will be noticed by financial service providers (again, recall what happened with fossil fuel divestment – many mutual funds and ETFs options were developed in a fairly short amount of time). Second, participate in the short “Plant Power Survey” that I developed to start counting the number of plant-based investors interested in this concept and, equally importantly, develop a consumer preference data set that might help the community of portfolio managers generate a set of filters for use until investor demand warrants the expense of more rigorous research.