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SA's No 1 Insurance Blog

When it comes to your money are you:

  • a) better at blowing it, or
  • b) growing it?

I’ll be honest with you. That question made me slightly uncomfortable. I can only imagine how it might have made you feel.
Man, I’ve invested in stupid things before. Like the time I cashed in my provident fund and opted out of the rate race in order to “find myself.”

Now we can all make a few mistakes in our lives, but there comes a time when we can’t afford any more of them. I mean look at me, I’m on the wrong side of forty with a successful track record of failed relationships. With Valentine’s coming up, can I afford another mistake?

But enough about me, let’s talk about you and your money.

How to make wise investment decisions?

In a previous article, I wrote about whether or not I should buy Joe’s fruit and veg shop from him. Turns out that Joe knew a few more things than I did. But for most of us, we’re not planning on buying a fruit and veg shop so I thought we could bring it even closer to home by comparing investing in shares to investing in property.

It’s apparently quite simple they say:

  • You look for a nice boomed off area,
  • close to the schools (if you have kids) and shops (and workplace),
  • attend a few open days,
  • find something you both like, and
  • then make an offer.

So did they end up buying a bargain?

“Ja, of course, we did. The houses in this area sell for R2 million. We got it for R1, 8 million.”

But even as the couple justifies their decision, at the back of their minds is the nagging question: “Twenty grand for twenty years. What if we lose our jobs?”

Why not take a page from used car salesmen?

In a head to head race between insurance brokers and used car salesmen, I think used car salesmen win the “I don’t trust him” category. But one thing about these guys is that they don’t get emotionally involved.

Isn’t this what usually happens?

  • You walk into a second-hand car dealership, check out a BMW with R80, 000 km’s on the clock and start kicking the tyres.
  • The sales guy walks up to you and offers a test drive
  • Then he shows you the book value and points out how much higher it is than the floor price (and that’s because no-one’s buying right now)
  • Then you start moaning about the motor plan which is expiring in 20,000 kilometres and straight away he cuts R10,000 off the floor price

Now he knows he can do this for two reasons:

  1. He bought the car at a bargain basement price from some guy who just wanted the latest and greatest, and
  2. because they have access to auction websites where they can see what cars are being bought and sold for. They know that they can’t sell that car for more than R200,000 anywhere else; so if they can get you to buy it for R210,000, they’ve made money.

But the guy selling his home isn’t a used car salesman, is he?

It’s his pride and joy. He’s sweated bullets making the repayments on his home over the past ten years and he ain’t willing to negotiate.
“If houses in the area are selling for R2 million, then I want R1,8 million!”

And often his estate agent isn’t a professional either

The estate agent rattles on about how:

  • “number so-and-so” is going for a song at R2,2 million.
  • It’s a corner stand,
  • has a heated swimming pool,
  • underfloor heating,
  • five bedrooms with bathrooms en suite,
  • plush suburb…blah, blah, blah.

What he doesn’t tell you is:

  • that there’s a rising damp problem which, based on conservative quotes, will cost an additional R120, 000 to sort out.
  • And the municipality has rezoned the area for a low-cost housing development on the other side of the highway.

“Far better to own a shack in the right suburb than a mansion in the wrong one”, the estate agent quips. But think five years down the road, when you still owe R2 million and no-one’s buying?

The same thing applies to investing.

Do you buy shares in a company because you read in the newspaper that it’s a bargain or because you’ve done your own market research and know it’s a bargain?
And what if the words ‘market research’ remind you of those old Wimpy ads which said: “I love it when you talk foreign.” Remember them?

Here is how one such company does it.

If their strategy makes sense to you – and you’re starting to get a tad worried about what your future holds, why not contact me and let’s see if I can assist.

Can we assist you with any financial planning queries? Leave your details below & we’ll contact you.

Leave us your thoughts in the comments section below.

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