Goals-based investing and financial planning need to take account of the fact that unexpected events can ruin even the best-laid plans. Multi-year lows in consumer and economic confidence are only adding to the dire need for South Africans to ensure that their nest eggs are secure when life throws a curveball in their direction.
Felix Kagura, the head of long-term insurance propositions at Standard Bank, says a fresh approach to planning is needed to protect your finances when times get tough.
“Goals-based planning is linked to what you want to achieve with your income and savings in the future – what is your goal with your money? Part of the issue is that investment strategies often don't include the greatest risk when you’re saving for retirement: not having enough income when something unexpected happens to upset those plans.
“It is imperative that goals-based planning is not destroyed by an event that affects the financial futures of individuals and families forever. There could not be a more important time than the present for South Africans to secure their goals by taking the risk of these unfortunate events out of the equation,” says Kagura.
“Recessions come and go, but things always come together again, even for those who get retrenched. However, it is important that cover to protect against an event such as retrenchment is linked to an astute financial plan,” says Kagura.
“Individuals must have the discipline to ensure their priorities can be met, but also that the risks that may prevent them occurring do not derail those plans. De-risking requires one to go beyond traditional risk profiling, which is no longer sufficient in the modern marketplace. A holistic solution that covers for risk events is needed to ensure that the journey to financial independence is achieved,” says Kagura.
And as conditions change, the plan must be flexible enough to adapt. “Each component of risk must be managed. The main problems that anyone may face must be covered, and the cover tailored to his or her needs,” Kagura says.
These solutions range from ensuring that life cover is in place and is reviewed regularly to taking out critical illness and disability cover. “If a saver gets ill, there must be enough income at that point to look after his or her health, while also ensuring the nest egg is not hit,” says Kagura.
A shift in thinking and behaviour is needed. “That change need not be hard, but the first step is being aware that,without adequate risk cover, future goals will not be achievable,” Kagura says.