Real women, real life investment blunders

22 Aug 2019

A recent survey conducted by the 2019 Old Mutual Savings and Investment Monitor revealed that 54% of South African mothers consider themselves single mothers, and only 20% of those single mothers are receiving regular financial support from the father of the children.

It is not surprising then, that additional research conducted by Old Mutual Unit Trusts among almost 500 South African women, highlighted a number of barriers to saving that women face in the country. The research revealed that 54% of respondents pointed to the constant increase of the cost of living in South Africa as the biggest barrier to saving, while debt is also considered a barrier to save for these women, with 40% noting that they cannot save because they are paying off debt like a house, car etc.

According to Pat Magadla, Senior Business Development Manager at Old Mutual Unit Trusts, the surveys highlight the pressures that South African women often find themselves under, often leading to misguided decisions about their finances. For example, 1 out of every 4 women who participated in the Old Mutual Unit Trusts survey, noted that they have invested money and lost it all. Below, Magadla investigates four of the most common mistakes made by South African women, and the mechanics behind these mistakes.

“I took out a loan to add to my salary.”

Personal loans, in general, have a bad reputation. Magadla points out that admittedly, there may be circumstances where a loan is unavoidable, but that is when you need to do your research and find a product that, for one, charges a reasonable interest rate. “You also need to investigate all the terms and conditions, as well as hidden costs. Interest rates on personal loans can be as high as 20 to 30%, making this one of most expensive forms of debt. Inadvertently, personal loans offer a short-term solution and potential longer-term strife. This is due to high repayments, thus adding additional pressure to the monthly budget.  Ideally, seek alternative ways to cut back on your budget in order to save money in an interest-bearing account for emergencies. An emergency savings fund should be easily accessible when an unexpected expense emerges, ultimately eliminating the need to seek out a personal loan.”

One way of ensuring that you make it out every month with your salary, is to follow the 50/30/20 rule. “This means that, from your income, 50% should go to your living expenses, 30% should be used to service debt and lastly, 20% should be allocated to formal savings and investments. This way, you won’t need to get a loan to increase your income, but you make your current income work for your circumstances,” she explains. Simply put, it ensures you lives within you financial means.

“I traded in Forex with little knowledge.”

You only need to google ‘trading Forex’ once to see how many beginner’s guides, easy steps and Forex for Dummies are available online. According to Magadla, this gives the false impression that trading Forex is easy, and anyone can do it. “On the contrary, trading in Forex requires years of learning and experience before seeing any positive results. Rather invest in vehicles that are provided through trusted financial services providers to ensure that you don’t fall victim to unscrupulous investment schemes, which will see you losing money in the long run,” she notes. It is not uncommon that people consider higher risk investment options, as part of their overall portfolio. However, any investment that is speculative, in nature, should be reduced to a minor allocation of your portfolio. 

“I lost my money due to a fly-by-night investment.”

A fly-by-night investment is any investment that guarantees fast, high returns with very little or no risk. Magadla states that no-one can guarantee a consistently high rate of return with absolutely no risk. “As the saying goes, if it sounds too good to be true – it usually is. Especially in the investment world. Get-rich quick schemes are often presented as pyramid schemes, work-from-home opportunities, stock market secrets or unregistered trading products, and the list goes on.” She highlights that it is important to always do your research before investing your hard-earned money and speak to a registered financial advisor to make sure that you’re giving your money to a reputable investment manager. “Big rewards come from investing over the long-term (five years plus) and letting compound interest work for you,” she says.

“I did not re-invest all my pension savings from the first companies that I resigned from.”

According to National Treasury, one of the primary causes of poverty in old age is the drawing of benefits in cash when changing jobs and the failure to re-invest this money for retirement. Magadla notes that the statistics on South Africans’ ability to retire comfortably paints a very dark picture. “Investing remains the best way to secure and grow your money. Whenever you receive a pay-out from an employer after you’ve resigned, it is advisable to preserve that money instead of spending it to allow your capital to continue to grow in order to fund your retirement life.

If you have already fallen for some of these financial mistakes, all is not lost. It is never too late to change your behaviour and turn your financial situation around, regardless of how dire you might think it is. Start by simply saving each salary increase you receive, as an initial starting point.

“Let us learn from each other’s’ mistakes instead of letting history repeat itself. Financial freedom and the security it brings is attainable by all women through the elimination of debt and lowering of your monthly expenses,” concludes Magadla.