How to invest Cradle to grave (almost)! A personal perspective!
Your Investment plan?
Investing - my way
This is another topic that I had some difficulty with seeing as I had recently done a hubmob hub on this very topic None the less it struck me that by chronicling my investment history, it may serve as a guide to others on what to do and certainly what not to do in the investment arena.
MY parents did not believe in insurance in any form. Come to think of it they did not believe in saving either. So I did not have a policy taken out at birth for future education or simply as a nest egg for a gap year as parents now do.
My first Policy
My first exposure to investment was when I stated working. I was approached by a smooth insurance salesman – literally the man from Pru. He convinced me that setting aside a small amount monthly (I was only 17 at the time) would provide handsomely for my retirement at age 65. Now putting in perspective I only earned about R90 per month (about $90 then) and hi should provide the princely sum of around R150,000 at retirement (illustrative value only mind). My father found out that I bought this policy and went ape shit. In my lifetime I rarely saw his lose his cool. This was one of those occasions He phoned the agent, cancelled the policy and demanded my R7.00 initial payment back as I was not 21. Two years later I go a letter from the insurance company saying that my initial two year advance payment was about to expire and asking me if I wanted to make another advance payment or pay monthly at R7.50. I was puzzled as I was sure this policy was cancelled. At any rate, I opted to continue paying, puzzled but happy I had insurance and Dad was none the wiser
I later read about my agent in the newspaper and found out he had been imprisoned for defrauding the Pru for a considerable amount of money. What he did was to sell low premium value policies to Students and young school leavers. Most being under age had these policies cancelled or et them lapse. He in the meanwhile would pay two years premium up front which then qualified the policy for commission on the estimated total value of he policy which by far exceeded the value of the premiums he had paid. The scam had come llight because of he inordinate number of policies lapsing after two years had expired.
At any rate I had my first investment and I subsequently took out additional endowment policies for low premiums a way of saving for the future.
I also started to put small monthly amounts into savings so that I would have some cash.
Once I had around R100 ( bear in mind this was the 60’s) I decided that I should buy a vacant plot of in a residential area. I bought a quarter acre in an outlying area of Johannesburg. The deal was that when the area was developed, the land would serve as a deposit in a development with the capital growth in the land to offset the building costs and serve as a deposit on the mortgage.
Marriage and children
At around 22 when I got married I had a reasonable bank balance and could afford a wedding with all the trimmings. Like My parents I did not buy policies as the children were born. The only policies at that time were educational policies. Life or endowment policies on children’s lives were illegal at that time. It has all changed now of course.
We moved into a one bed roomed apartment in Sandton which was fine until the children arrived. Now we needed something bigger. The nest egg with children and all was down to zero.
I thought now is the time to leverage my plot of land. But guess what the developers had gone bust. No development, no township, all I had was a piece of un-proclaimed land un-saleable and I could not build on it. It appeared that the ‘developers’ had no intention od of developing but just enjoyed the payments for the land and ultimately declared bankruptcy and enjoyed the fruits of my and others labour.
Our home and mortgage
In themeantime we were house hunting in earnest. We finally found what we wanted but did not have the deposit. It was a newly built house in a new development (which is what my investment should have been).
I pondered how to find the deposit. I offered the developers my undeveloped stand as a trade for the deposit. Surprisingly they accepted and lo and behold we had a new home and a mortgage.
The advantages (and disadvantages) of a mortgage.
Now having a mortgage meant we received all sorts of solicitations. We were of course now officially “credit worthy” We were flattered at being offered the dreaded “CREDIT CARD”.
Our lesson in how not to manage credit had begun. Kids need school shoes – credit card. a night out for dinner – credit card. Pretty soon the cards were maxed out. We had a couple of painful years paying back the credit card company. In future no credit!
Once we again qualified for credit cards, we always paid back the full amount every month. Extended purchases were done using the budget plan with a fixed repayment period and an ascertainable interest charge. If we had spare cash we paid up early. This was a tough lesson to be learned.
The Stock market
I invested small amounts into established companies on the stock market that paid regular dividends. I used the dividends to buy additional shares and built up a portfolio over the years. I only used surplus cash to invest in the market. I also paid amounts extra into credit cards as a means of savings and build up a credit balance which I use for holidays or unexpected expenses.
I sold off some of the share gains to buy vacant property (I lways ensured that no payments were due and the properties were fully paid up).These properties have appreciated over time. But bear in mind that these gains are only of value once you sell the properties. Likewise the stocks only have a real value when they are sold.
The current situation.
All my investments over time have diminished by half in the current scenario. The lesson here is not to sell. Hang in until things improve (If I live that long).
So this is a my particular scenario of how to build wealth over time (or not). Incidentally my biggest windfall was a credit insurance policy the ensured against death and dread disease, so the upside of getting cancer was a cash payout which paid for my car. So although I would hope you don’t get seriously ill or die, I would seriously recommend that you take credit insurance that covers these events when you buy a high priced item such as car on terms.