My bullet proof investment strategy – It’s not easy, it’s not quick, but it works
By Magnus Heystek
It dawned on me the other day that I have been giving financial advice for more than 40 years – 44 to be exact.
It all started in 1980 when I was appointed as the financial editor of a daily newspaper—Die Transvaler—and the editor asked me to start writing an advice column on financial matters.
Some years later I moved across in the same position at The Star, then the largest daily newspaper in the country, where I convinced the editor Harvey Tyson that I should do the same for his newspaper.
The column in the Star started with a small article, tucked away next to the obituary column, asking readers to write to me with their financial questions. A few days later, security called me from downstairs saying I had some post.
Much was my surprise when my secretary returned with a whole box of letters from readers, all asking for help with their finances. And thus, the era of personal finance in the media was born.
I trotted down the corridor to the editor’s office, showing him the box of letters, saying we have hit a mother-load – judging from the response from readers – and we must capitalize on this.
Tyson immediately agreed, and not only did we start dedicating much more space to personal financial matters, but we also started The Star Investors Club in 1988.
We had more than 800 people at our first meeting at the Johannesburg Southern Sun Hotel, which is now long gone.
I ran the club for 6 years until I left to start my own investment advisory business in 1994.
At about the same time I approached Ilana Surat at Radio 702, suggesting that they do something on personal finance on the air.
After a couple of weeks where I appeared as a guest on the John Berks Show in the mornings, I was given a weekly slot on air, called Financially Speaking, every Wednesday evening.
I will never forget how I arrived at the 702 studio dressed in my best suit and tie for my first show, only to be introduced to LJB, sitting in shorts and slops, who started the live conversation on air by asking; “So what’s your story, Magnus…?”.
It was a case of swimming or sinking. And I have been swimming ever since…
Such was the success of this programme, which included specialist guests from the industry, that it was extended to 2 hours every Wednesday plus another hour on Fridays.
It wasn’t long thereafter that almost every newspaper and radio station started their own shows on personal finance and investments, including the Alec Hogg Show during drive time on Radio 702.
My focus on personal finance resulted in 3 or 4 books on this issue. The first one, called “Don’t Say You Haven’t Been Warned,” led to a 52-part television programme in SABC 1 called Money Matters, which was sponsored by the Allied Bank – now part of the greater ABSA Group.
I chose that title – which I would do again today if I wrote another book – as I saw then, as I still do today, that management of your personal finances is vital, especially for people after retirement.
Toxic investment products
When reading countless letters initially, and later doing live interviews with people, I realized several things.
Firstly, most people had no clue when it came to investments.
Secondly, people didn’t fully understand the investments they made, which created a fertile breeding ground for unscrupulous insurance companies to sell the highest commission-paying products to unsuspecting investors.
All of them, without exception.
All the large insurance companies of the day were selling the same toxic investment products, almost without fail.
The most egregious practice was the sale of 30-year endowments and back-to-back investment products.
These products were created by actuaries not to improve investment outcomes, but to extract the maximum commission possible from an investment.
There was a joke in those days that any investment return earned by the client was totally accidental! Talk about the wild west.
It also became clear, after the Masterbond scandal, that regulation was urgently required to prevent financial scams as much as possible.
In those days, investment advisors were on par with horse tipsters and second-hand car salespeople, as FAIS ombud John Simpson recently commented and as reported by Moneyweb.
I think such a comment – if it was reported correctly – is brutally unfair, if one considers the regulatory environment today.
Perhaps Simpson should consider explaining his comments to the broader investment planning community, which totals more than 100,000 in South Africa today.
My bulletproof strategy
What would my number one piece of general advice be, after spending so much time and years dealing with thousands upon thousands of individual investors?
I often call this strategy “Making Yourself Financially Bulletproof”.
We all know what “bulletproof” means, but how does this apply to individuals, all with different backgrounds, incomes and personal experiences?
Surely, one strategy cannot be effective across the board?
In fact, it can, as the strategy is relative to one’s income. I have been preaching this “Bulletproof” strategy to almost everyone and it has been the cornerstone of my own personal investment journey.
I was forced to create this strategy for myself when I, due to some unforeseen circumstances, was jobless (when Die Transvaler closed down), in debt and a month away from insolvency with 3 kids to feed.
I took an oath that this would never happen to me again. I became the ultimate hustler – part time jobs, free-lancing, radio and TV shows and speculating in property – all done with one objective in mind: create an income equal to my income from my formal employment.
Gone were the new cars or bi-annual holidays and all the other trappings of debt, so common amongst my fellow colleagues.
When they left work to have some drinks at the pub, I headed to my second or part time job, or translation gig I had. For years I even coached squash at the Hillbrow squash courts for extra money.
That near-bankrupt experience, still lurking deep inside my subconscious mind, explains why I have been living in the same house for more than 30 years and drive a 13-year-old car.
I cannot get it over myself to splurge and buy a new car (plus higher insurance costs), which depreciates by almost 30% in the first year.
In short, everyone should, from their first salary cheque, start building an investment portfolio with one objective in mind: it must produce an income, if needed, that equates to your monthly salary.
This strategy has only two variables: your income and your investments.
Over time I learnt that a secure income is actually more important than capital growth. Capital growth, for most investors, can be uncertain and many people cannot deal with this uncertainty. An income is a far better gauge of wealth for most people.
That also explains why it is better for the lottery winners to take a monthly income for life rather than a lump sum, when they have that choice. Most people who suddenly inherit a large sum of capital end up broke within 5 years.
I cannot recall exactly when I became “Bulletproof”, but I can still recall the feeling of utter satisfaction. If I became ill or lost my job or business, I could still survive and not suffer a dramatic decline in living standards.
To me that should be the number one investment objective for everyone. Your income is your starting point. Let’s assume it is R50,000 per month or R600,000 per annum.
Therefore, your investment target should be (assuming a yield of 10%) of R6 million.
How you try and reach that target can differ widely.
You can follow a conservative wealth-building strategy by investing in the money market or enhanced income funds (10%) or you can try and hit for the stands by investing in technology shares (25%+).
But you cannot, and most probably will not, reach that target if you fall for the siren calls of new cars, bigger houses and upgrades, which are all very expensive and not great investments.
And don’t gamble.
Right now, my recommended investment strategy would be regular investments into a product such as the Sygnia S&P 500 ETF or unit trust.
It has a very long and successful track record of building after-inflation wealth in USD. See here a chart of the S&P 500 versus inflation in the USA.
Most middle-class people don’t build wealth because they are too deep in debt, either short term or car/property debt.
They are in fact working for two bosses almost all their lives: their bosses at work and also the banks and insurance companies.
My strategy is not easy, especially when everyone around seemingly is having a great time.
And it also takes time – I would guess on average about 15 years. But your time of enjoyment will come when you are financially independent while your friends or colleagues, maybe early retired or jobless, are scrambling to find an income, with the memories of a new car or overseas trip now a long distant memory.
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* Magnus Heystek is a director and investment strategist at Brenthurst Wealth
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