Personal Finance

Do you know why there is no decisive winner in the argument between buying or renting the property you live in? It is because there are pros and cons on both sides and the considerations that will swing it one way or the other for you, are based on your personal preferences. If you ask Artificial Intelligence for an answer, you will get a very vanilla answer, leaning toward buying rather than renting. Do yourself a favour and go try it. Go to your X app (Twitter) and on the bottom menu click on “XiGrok”, or go to your Google Search and type in the question. You will be surprised at how detailed the answer is; but be specific and ask about property in South Africa, because we are special.

You will get an answer that goes something like this:

• In South Africa, whether to buy or rent depends on your individual circumstances, financial situation, and long-term goals. Buying offers the potential for long-term financial benefits and equity building, while renting provides flexibility and lower initial costs.

If you want some more detailed number crunching, you should check out the following article in Daily Investor dated 28 January 2025: Their conclusion is that it is much better to buy than to rent but they do make a lot of assumptions that might differ from your personal circumstances. It is important to consider the following points before you make a decision:

• If you are not sure about how long you will be able to stay in the property, rather rent. There are a lot of costs involved in buying and selling properties.
• Buying property in the Western Cape has been a much better investment than buying property in the rest of the country, resulting in house prices as well as rental prices escalating dramatically. If this trend is to continue, it would be better to get into the property market by buying, even if the property is a bit smaller than you would have liked.
• If you pay attention, you will realise that points one and two are contradictory. This is where you will have to evaluate your circumstances very carefully.
• Property prices are cyclical. You might have to wait a year or two before you can sell your property at a fair price again if the cycle is against you.
• Be very careful if your reasoning is that you are going to buy a property and if you have to move somewhere else due to work or other personal requirements, you will rent out the property to avoid the costs associated with selling. Renting out a property comes with a whole host of other costs and risks, such as tenants damaging your property; legal costs to evict non-paying tenants; the constant admin hassle of micro-managing difficult tenants; etc.
• Something that will give the buying side of the argument some bonus points, is if you can convert a portion of the house into something that can create an income. It is astonishing to see how much people are prepared to pay for a small granny flat or a small workspace and because you are living in the house, maintenance is much easier.
• Most of us are houseproud and want to do a bit of renovating wherever we are living. If you own the house, those renovation costs will increase the value of the property (to a certain extent), and can be added to the base cost for future capital gains tax calculations. Only the first R2 million of any capital gain is tax-free when selling a residential property.
• Usually there will be a difference between the rental and mortgage payments. If you are renting but do not invest that difference in growth assets like shares, you will forfeit one of the strongest benefits of renting rather than buying. Paying a mortgage is a forced way of saving. It is very difficult to have the discipline to put that extra money into an investment, especially when you are young and have a flamboyant lifestyle.
• Do not consider your residential property an investment that you will be able to sell at a profit and downscale to something smaller when you grow older. Unless you move from the Western Cape to Gauteng, you will most likely make very little clean profit after costs and potential taxes, with which you can buy something smaller later in life. The point is: if you do decide to buy, then buy a home, not a house with future investment potential.

There are so many other factors to consider but personally I would encourage people to get into the property market with something small. Get your foot in the door. Buy something that you can perhaps fix up a little or create a space for some passive income. As you start getting more financially secure, upgrade without increasing your bond too much. Keep your property expenses the same percentage of your nett income as before. It will be important to start with an investment portfolio as soon as possible to get the benefit of diversification and compounding returns. Remember that property in South Africa will be your highest risk South African investment. If things go wrong, there will be no buyers.

When we talk about investments, we try to separate facts from emotion. We look at the returns, the risks, the opportunities and the valuations. We try to accumulate enough stuff to trade for a specific lifestyle until the day we die. A very important part of being human, is to create memories. These memories can be of anything and anywhere. As we grow older these memories become more important. For the more intrepid people, travelling to exotic destinations will create some of the best memories of their lives. So this is where we have to consider the affordability of travelling overseas.

To get an idea of what it will cost to go to different countries, let’s price the following items:

A Big Mac burger from McDonalds and tall cappuccino from Starbucks:

India R116.50
SA R91.25
USA R215.61
France R192.98

Standard double room at Hilton hotel:

India R2861
SA R1795
USA R7872
France R6582

You will be hard pressed to find something overseas that is cheaper in rands than it is locally. Even if you go to another developing country with a very weak currency like Argentina or Turkey, most of their touristy activities are priced in US$. Your argument might be that you don’t want to travel overseas, but most people have family members who live there and if you want to see them, you have no choice. We believe that there has to be a balance in everything we do. After Covid the perceptions of a lot of people changed. If you look at your portfolio at JWR, you will see a substantial portion thereof already invested in assets that generate returns in US$, pounds or euro. So if your next memory lies somewhere over the ocean, it might be more affordable than you think.

It is time to revisit the importance of educating your children in the art of financial literacy. As with most other things in life, the secret to successful wealth creation is to start early and apply sound principles. We all know that the earlier you start your financial planning, the simpler you can keep the process and the less need there will be for complicated investment products to boost your nest egg in your later life. Most of us can become successful investors by applying only two simple principles: invest in a few good companies and hold on to them through the ups and the downs. Patience is an essential virtue in creating wealth.

Another benefit to longer-term success, is to hardwire the right behaviour at a young age. These ten ideas from Brian Feroldi can help children to obtain those crucial behavioural advantages:

On Thursday last week I was on my way back from a meeting when I became part of the less comfortable side of life. I was taking the slipway back onto the N2 highway when I was literally consumed by what seemed like two hundred slow-moving, angry and reckless taxi drivers. As there was nowhere else to go, all I could do was to become part of their strike. The trickiest part was negotiating my way across three lanes to get to the off-ramp a few hundred metres down the road.

I was lucky in the sense that my car was not damaged and I suffered no other financial loss, but that was not the case for many workers who could not get to work the following day. As I sat there in the maelstrom of taxis, I looked at the faces of some of the drivers and I am willing to bet that out of every one hundred, there would be ninety-nine who – if taken out of the specific situation – would be a pleasant person with a desire to just live a happy life with friends and family. But there will always be the instigators who incite others to be violent – and even to kill – rather than negotiate a fair outcome.

For most people the pursuit of happiness is their purpose in life. That happiness can be achieved by being healthy; being wealthy enough not to worry about money; and having a supportive family, good friends and a special love in your life. If you can actually tick all these boxes, you are probably one of the few. Because for most people, life is complicated.

I came across the following paragraph in a tweet by Evan Kirstel on Twitter recently:
Steve Jobs died a billionaire at the age of 56. Coming from a man with such vast wealth, his last words were quite an eye-opener about the real meaning of life. This is what he said: “After all, wealth is just another life experience I’ve had the opportunity to know. At this moment, as I lie sick in bed reminiscing about my life, I realize that the recognition and wealth I’ve achieved have become insignificant and meaningless in the face of impending death… So, take my advice and be courteous and considerate of others. As we grow older, we become smarter, and we gradually realize that a $30 watch and a $300 watch show the same time…”

As we grow older, we tend to scratch the surface more and more to see what lies beneath the normal day-to-day struggles. We try to distill the massive amount of things we have picked up during our lives into something simple, pure and comfortable. Where we once were active participants, we now tend to be very enthusiastic spectators.

The investment markets, however, will always be a day-to-day maelstrom of activity. We are at the start of the latest earnings season for companies in the USA; and with that comes great excitement and price movements as analysts try to re-price the shares they follow.

The (“Republic of the”) Western Cape is also a hive of activity as the semigration continues and thousands of families from other provinces settle here. We see the benefit of this influx if we look at the increase in property prices since 2010, with Cape Town leading the way with an increase of 141% compared to the average of 98% for other metros.

So, whether you are a $30 watch person or a $300 watch person, as long as you realise that wealth is just another life experience, you will be just fine.

There is a saying to the effect that: “When you are young it is important to know something about everything; but as you grow older it is important to know everything about something”. This is especially true if your ambition is to be the best in one specific field. If we look at supremely successful business people, many of them only started seeing the fruits of their labour after the age of thirty; such as Jeff Bezos of Amazon at 30, Oprah Winfrey at 32, Reed Hastings of Netflix at 36, Adi Dassler of Adidas at 48 and Charles Flint of IBM at 61.

For a lot of young people the problem is that they were not born with a natural passion for something, so when they matriculate, they do not really know what they want to do. The best thing for them is to get to know something about everything and in time they will develop an interest in which they excel and then they can get to know everything about that specific something. I know somebody who decided to become a lawyer only after catching a baby as a doctor for the first time. Just think of all the time wasted! Or was it?

If we turn this train of thought towards investments, we can argue that it is never too early to start, but also never too late. If you are young and do not really know how to invest or what you should invest in, just starting to invest in something general is not a bad idea. As you gather more information about the investment market and you develop a more specialized investment plan, you can focus your regular contributions into something that will provide you with a better risk/return ratio.

We have been told, countless times, that the average life expectancy of us humans continues to increase. The graph below shows this fact clearly and the implications affect us all materially. The biggest problem is that you may outlive your available retirement income.

People have made provision for their old age in various ways, some linked to cultural traditions such as having a lot of children to take care of their parents when they are too old to work and fend for themselves. Two other popular methods are to work very hard for 65 years during which you contribute to a retirement plan which is supposed to take care of you once you retire; or to build up a business which will continue operating long after you have passed away.

All of these methods have advantages and disadvantages. If you have a lot of children, you may struggle really hard to provide for and educate all of them and in a country with a very high unemployment rate like South Africa, they will most likely be unable to help you financially in your old age after all.  If you slave away for decades, saving every cent you earn, you may have no time to enjoy the best years of your life and when you eventually retire, neither your body nor your spirit may be strong and healthy enough to enjoy the spoils of your efforts. The same scenario can happen if you build up a business during your life, and circumstances beyond your control may even cause you to lose it all at a very crucial stage later in life.

The scenario of everyone’s dreams is to find a passionate interest early on in life that generates tons of money and still provides you with unlimited free time – and that has no retirement date. But that is, unfortunately, not the prevalent or default scenario and most of us simply have to find some workable middle ground. It is human nature to want to be productive, active and relevant. That is why most of us felt ourselves going slightly insane during the first level 5 lockdown in 2020. Having to work is, therefore, not the problem. Most people want to be out there, doing something that keeps them busy and generates an income that can support their lifestyle.

Perhaps the best alternative for the majority of us, therefore, is to spread our bets. We know we may live for a very long time; so working hard for the first forty years of our lives, establishing ourselves and creating a habit of saving a healthy portion of our earnings, may be a good start. During this time, it is critical to adopt a lifestyle where your income always exceeds your expenditure and to avoid falling into the debt trap like the proverbial plague. During this period of forty years you will sacrifice your free time in favour of your employer or your business. Perhaps you will then be able to start spreading your wings a little between forty and fifty by putting a plan into place which will provide you with a passive income for your later years. This could be a tailor-made investment portfolio; renovating your house to create a rental space for Airbnb clients; or perhaps you have a hobby that you can monetize.

Between fifty and sixty you have to achieve a balance between work and play. By this time you are usually well-established in what you do for a living, which can translate into high-income years – the final push to guarantee a lifestyle in which you will be comfortable for the rest of your life. It will be a mistake to not start enjoying these productive years by sharing them with friends and family and ticking off some of those bucket list items. It will also be a mistake to not re-evaluate your financial plan. We have to ensure that you have reached a stage of financial independence before you make plans for your years after sixty. As we have said before, working is in our DNA and we all want to remain relevant until the day we die, which means the concept of retirement from all income-generating activities is not cast in stone.

For most of our clients their journey on the yellow brick road starts with a disciplined savings plan; followed by a lifestyle where income exceeds expenditure; and finally the implementation of a personalized investment plan instead of the more traditional business that will carry on long after they have gone.

It is that time of year when thousands of matriculants are writing their final exams and will soon have to enter the world of personal choice regarding what to study or where to work. It is also that time of year when parents have to consider what Christmas presents to buy their children. At JWR we understand that an 18-year-old does not want to get advice about their financial future, especially from their parents. They consider themselves to be bullet-proof and they are confident that they will be the best at whatever they do. But there are some very basic truths which they can take to heart if they wish to ensure a very solid foundation on which to build their future financial lives.

With this in mind, I approached my girlfriend’s son last Christmas and told him my present to him would not be something cool, but something valuable. I told him I would invest an amount of R20 000 in any share he chose and after twelve months he could have any profit earned. To cut a long story short, I bought him shares in a pharmaceutical company in the USA and when the rand dropped to almost R20/$ in April and the company profited from Covid, I sold the shares at a R5 000 profit.

It is important to note, however, that the gift I wanted to give him was not the fact that trading in shares could be very profitable, because more often than not it can be very destructive. The valuable lesson he had to learn was to respect the power of investing. For many people it is very easy to make a lot of money and even easier to spend it all on their lifestyle. As a parent, you cannot expect a teenager to appreciate the fact that making a lot of money by working hard is not necessarily going to guarantee them a financially independent  future. They have to understand that they must ensure that the money they earn, continue to earn them even more money while they are just getting on with their lives.

When I matriculated, my parents gave me only two pieces of financial advice, both of which proved to be invaluable in my life so far. The first one was to pay off any debt I had to incur to buy big-ticket items like a car and a house as soon as possible and to remain debt-free after that, unless it was tax-deductible. And the second piece of advice was to start investing early in life to benefit from the effect of compound interest, or getting a return on returns.

These days there are many ways for a young person to start their investment portfolio. If you want more ideas or information, you are welcome to ask your financial advisor at JWR.