The biggest challenge facing investors and their advisors is structuring income in a way that will fund a lifestyle and the “nicer things in life” and which is sustainable over time.
How do you measure wealth?
If you measure wealth in rands, you are in for a hiding. You will be poorer each year and you will end up poor unless you earn enough annually to offset the self-destruction of the rand. In fact, it is a dumb game to play, the risks are huge, counting, and growing wealth in rands, a soft currency, is not the wisest thing to do. Enough has been said and written on the economic prospects of RSA Incorporated, it needs no repeating.
Some would say, if I only had a $1million dollars I would be wealthy, others say, “after I pay all my debts if I had a $1million I would be wealthy. The richest country by average GDP per capita is the US – $55 809pa. (Trading Economics) (The average individual gross income of citizens per annum) reckons wealth is $2 million-plus. Why? Because at 4% pa that’s $80 000pa income or $6 666pm an above-average standard of living! (RSA average GDP per capita $6 374pa)
Actually, though, its income that determines wealth
All the above is interesting but almost pointless. Wealth is measured by what you require to enjoy the life you want. The income needed to do the things you enjoy after paying for the necessities like food, tax, and other bills.
So why is this wealth discussion in dollars? Simply, as a country, we have been losing our capacity to manufacture as policies and political agendas force the brains of the country to seek greater opportunities for advancement abroad. In plain terms, to retain and maintain one’s lifestyle will require more and more hard currency.
Thus, wealth is measured by income exceeding expenses, leaving enough for the enjoyable pursuits of everyday life but in hard currency, repeat, hard currency!
Income in hard currency. What are the choices?
Traditional financial planning focuses on paper assets, shares, equities, bonds and their variations. Why is direct ownership in property often ignored? Ultimately the debate rages around the hassles of the tenant, and how they trash your property.
Nobody disputes that rental income plus capital growth has proven itself over decades. Or that the majority of the world’s wealth is in property or that the foundation of wealth is hard currency property income, commonly referred to as passive income in pounds, dollars and euros. You cannot eat $1 million in a bank/investment, but you can use passive income/rental to travel or buy bread. With millions of ATMs on the planet and credit cards, it matters not where or in which country the rental is generated or where you live or spend your passive income, it is always available, on-demand, with no red tape like Fica or AML (anti-money laundering controls).
The secret is in the tenant
There are property solutions that involve no landlord intervention. Translate that to mean hassle-free property ownership generating hard currency passive income and capital growth on resale. Income equities and bond income funds fall apart when the markets crash because of unexpected events like a global credit crunch or a pandemic. The dividend yield of a share directly relates to the share price of a company. If in trouble, this is reflected in the dividend yield. Yet if there is a recession or pandemic, the landlord as the owner can renegotiate terms, “lower the rent” and continue to receive a return as opposed to a corporate going out of business or taking years to return to profitability.
Irrespective of market conditions special-needs tenants like on-campus student accommodation will continue to earn passive income for landlords. Children emerge from school and parents want the best for them. The competitive global workplace does not carry passengers or suffer fools; you are either in the game or not. School leavers need every advantage to make it and parents will make sacrifices to achieve this. Universities only provide 20-25% of students with on-campus student accommodation ensuring 100% occupancy. Solutions must exceed hard currency inflation, 1%-2,5% pa (Money in a bank account is money under a mattress).
Income and retirement
Plan carefully, think long term, don’t confine yourself to country borders, ensure that future flexibility is available, and remember the importance of ensuring an income stream/annuity/passive income that is in hard currency or get ready to be poor!