Niki Giles, COO of Sygnia, talks to us about the difference between Active and Passive investing, and how to buy an index tracker.  Having been involved in the investment industry for many years, she shares why she believes that there are benefits of both Active and Passive Investing.  She also tells us how Passive investing can work for both New and Advanced investors.

Show notes

• The difference between Active and Passive investing

• How an index works

• Why Passive Investing is not actually passive

• How you judge performance of an index

• The pro's and cons of investing in either an active or passive fund

• Why you'd choose either an active or passive manager

• Why Warren Buffet wants his money to be invested in trackers after he dies

• Whether it's an either / or or both option

• How both new and experienced investors should invest

• The impact of fees over time on the amount of money you'll have in your back pocket when you retire

• How you choose your Tracker and actually buy it

• Understanding a Balanced Fund - for both Active and Passive investing

• What's a Robo Adviser and how do you use one

• What happens to a person when they invest in something that's more risky than they would like

• The most important things to consider when investing

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TRANSCRIPT

Lisa Linfield:       00:09     Hello everybody. Thank you for joining us again at Working Women's Wealth. Today I'm delighted to be joined by Niki Giles. She's the chief operating officer for a company called Sygnia, it's a financial services company based in South Africa and a pretty large one at that. So thank you for joining us, Niki.

Niki Giles:            00:39     Oh, thank you for having me, Lisa.

Lisa Linfield:       00:40     Great. Niki, you are the chief operating officer in an investment company. When I look for people to do podcast interviews, I find very few women in the investment industry. Why do you think that is so?

Niki Giles:            00:57     I think that's quite a hard question to answer. I mean there actually are quite a few women in the investment industry, I just think they're not in the positions that you see up front and center. So I mean at Sygnia we've got probably half our staff are female, but the positions that they occupy tend to be more on the administrative or compliance side rather than the investment side. We tend to find still today that investment teams are predominantly male and that's why there's this perception that in the investment industry it's very male dominated.

Lisa Linfield:       01:29     And do you think that's something about how we're brought up that men are spoken to more about investments and women not as much?

Niki Giles:            01:37     You know it probably has affected and played into it in the past. Hopefully that's changing now where women are taking more control of their finances and young children are being educated more on investments, and that's not just young boys but young girls as well. So hopefully as time goes by you will see more females enter into the front office side of the investment field, but it also could be a factor of just what women are more comfortable of doing. You know, the roles that they want to fulfill and I'm not sure whether we all want that stress of making those daily decisions on the asset management side. So that could play a factor into it as well.

Just how men and women are geared from a taking on of a risk and maybe not being as emotional about the decisions that you make because it is quite a stressful job I would assume from an investment side, making the decision on where to place potentially billions of rands with all of your clients money.

Lisa Linfield:       02:33     You've had a really long career in investments. What attracted you to the industry then?

Niki Giles:            02:38     I've always thought of being something in the investment industry, just never sure what. I started out at University of Cape Town and I did a business science degree majoring in finance, but also with the accounting option because I wasn't sure what exactly to do, but I ended up doing accounting. So I did the chartered accountancy with my three years of articles, but when I did my articles at Deloitte, I actually did it in the financial services industry. So all the clients that I audited were financial services, so I audited hedge funds, asset managers, pension funds, life insurance companies.

So I had a really great exposure to the financial services industry and then I think I was fairly fortunate in that I was actually invited out of the audit industry into the asset management industry by my now boss, Magda Wierzycka. So I went straight from auditing into a CFO role actually, so into the finance side of the company that was then African Harvest, which eventually we spun out Sygnia from.

And for me that was the area I think that I've enjoyed the most. I did do my CFA while I was doing my articles just in case I just changed my mind and wanted to be in the investment side, but I think for me I've been very comfortable in more the financial, administrative, compliance areas of the financial services industry and I really enjoyed it. This industry is an industry that grows, that changes, there's new legislation that comes in, new product innovation. No day is the same, it's never dull and there's always something new to learn. So I've had a great ride. I've been out of auditing and in actual financial services for just over 11 years and I can't say that I know all of it yet, there's still much to learn, but it's been a fantastic journey on the way.

Lisa Linfield:       04:25     It has been and I'm sure for those of you who know the company, it's a really dynamic company and it's growing fast, which always provides great learning lessons for anybody who's employed there. You mentioned just in the beginning something about the risk and the decisions that are involved. What difference do you think it makes having a woman as a manager of money versus a man? Are there any studies? Is there any stuff that shows the differences between them from how they manage money?

Niki Giles:            04:56     I'm not sure about studies and I'd probably be generalizing so I'll get into a bit of trouble and generalize it anyway. But as I said earlier, I think on the general side, women tend to be more emotional about the decisions that they make. So when looking at investing, their emotions are involved in selecting a share, in how that share does, whereas I think generalization on the men's side, they'll make the decision and move on and won't be as emotionally attached to it. So tend to see that women tend to be more conservative when investing versus their male counterparts and now maybe that's more not in the investment space, but just the general public.

If you had to ask a female client versus a male client where they would like to invest, I think most of the time you'll see that the female client wants to invest in something a little bit more conservative. They don't really want to lose their money. If you ask them how much they're prepared to gamble with or lose on any one day as the stock market goes up or down, I think you'll come up with a much more conservative response from them than you will from say a male client, and I think that's where the differences come in.

And I don't think it's wrong or right, I think there's a place for both and from an investment manager perspective, I think you definitely want people who are prepared to take those more aggressive decisions in their investments, but obviously that's a more high risk type fund that you'd be going into versus somebody who may be more conservative in their investment style.

Lisa Linfield:       06:16     I think the research points to both. I think you're absolutely correct that women are generally more conservative as managers. Obviously that's a generalization and not specific in investment managers, but the research also shows that they trade less often. And because they trade less often the costs that are passed onto clients are less and so the clients generally do slightly better in terms of that particular aspect of costs. But the theory of investing over long terms is not to trade and get out when things are at the top, or at the bottom, or trying to time the market, but to be much more steady in your investment approach, because if you miss the few days when the market moves significantly, you generally tend to lose much of the value.

So it does point to women being a lot more moderate in their approach and not taking as much risk with client's money and not trading as much which has a better impact often for clients at the end of the day. But it always comes down to matching the client's investment risk appetite to the things that they're invested in. So if your clients are aggressive, then a more aggressive approach is needed, but if your clients are more moderate, then actually an aggressive approach is not correct. So I think you're absolutely correct that there tends to be more conservatism in women as managers, but at the end of the day it comes down to matching the style of the investment manager to the style of your clients in order for a great result.

So we hear often about this active investing verse passive investing. What is active investing and what is passive investing?

Niki Giles:            07:57     Well first of all, let me just say that I think all investing takes some form of active decision. So as an investor you have to choose between putting your money into an active managed fund or a passive fund when you're making that decision. So the investor's always going to have some form of active decision that they have to make, but just looking at active asset managers, I mean they do exactly as their name suggests. They actively take decisions on a daily basis on which equities, or bonds, or other investments that they want to invest into and active asset managers tend to have quite large teams of analysts who do ongoing research into the various companies in which they're wanting to make their investments.

And from that research, they'll then make the decision as to what to include or exclude in their portfolios, and I mean, typically these active managers will have a benchmark that they will set for their fund. That benchmark can either be an index that they've chosen or it could be the return of all other large active managers that they want to benchmark themselves against.

Because they're making these active decisions, those active managers tend to also charge slightly higher fees than passive managers or significantly higher fees depending on the active manager. So they'll charge a basic fee for the work that they're doing, but then they'll also charge generally a performance fee because the idea of an active asset managers is that once they have set the benchmark, that's the benchmark that they are wanting to outperform. So anything where they outperform the benchmark, they will then charge an additional fee through a performance fee on that performance above their benchmark. Whereas your passive managers really don't make any decisions, so all the passive manager does initially is decide which index they are going to track. So you have a whole number of index providers, so you've got S&P, you've got MCI, FTSE, et cetera, the JSC. These index providers create rules around what is included in the index, so what makes up how many bonds, how many equities, for instance, are included in that index. It's quite mathematical. It says what happens when an event takes place, should an equity be removed or put back into that index, and those indices are calculated mostly on a quarterly basis.

So every quarter those indices rebalance and all the passive manager, I say all, my passive managers that work here at Sygnia would probably give me a kick, is that they just have to track that index. So they have to make sure that what they invest in reflects what that index is holding and when it rebalances on a quarterly basis, they then need to rebalance what they're holding in that portfolio to match that index.

And then the only other time they potentially would trade as well is if there is a flow of money into their fund. So if there is a large contribution coming in, then they would obviously need to buy, but there's no decision as to should I buy this share or that share. That decision's already made for them because all they have to do is reflect what is in the index. So they take that money and they buy the shares that are sitting in that index.

But because of the lower intensity of management that's needed, you know, there's no need for a whole team of research analysts that are now looking into each share and seeing whether or not you should make it. So really the cost involved in index tracking, obviously you've got to pay your index provider, and then you've got to pay your portfolio manager, or maybe one or two points analysts who are assisting them. So you tend to find in the passive space that there's a basic fee, which is less than what the active managers are charging. And there's no performance fee because the whole concept of an index or passive manager is that they need to track the index, not our performance.

So when you are looking at how well a passive manager has done, you just need to look at have they managed to track the index and how closely have they done that. Not whether they've over performed or underperformed it. Does that answer the question?

Lisa Linfield:       11:43     Absolutely it does. If I hear you correctly, there are all these different stock exchanges around the world and they develop a tracker, or companies develop a tracker, or a passive fund that tracks either all of the shares on that stock exchange or a certain portion of them such as a property index, or a consumables index, or a resources index? Is that what an index is?

Niki Giles:            12:14     Yeah, that's true. So there are thousands of indices that you can actually track and what these companies do is either you can track one that's specific to a country. So it might be that you're looking at the U.S. and you want to track the S&P 500. So there'll be 500 shares listed in the U.S. that form part of the S&P 500 index and those are the shares, if you are tracking that index, that you will hold within your fund.

But you may also want to track a worldwide index, so you could have the MSCI World Index for example, and there you're looking at a couple of thousand shares that sit within their portfolio and basically what they've done is they've looked at each of the large exchanges around the world, including in the emerging markets and they've picked the shares that are really at the top, so your kind of top 40 type shares.

In South Africa you may want to track a bond index and then you'll maybe look at the all bond index, which includes mainly government bonds. So you can have various indices and they get quite specialized as well. So yes, passive management and choosing to invest in passive management sounds fairly simple. The real issue comes in is once you've decided you want to go passive, then your big decision is which index do you really want to track or invest in? Because there are just so many around to choose from.

Lisa Linfield:       13:31     And what are the pros and cons of either active investing or passive investing for me, the investor?

Niki Giles:            13:38     Well, I suppose I mean the obvious one on active investing is that the reason you choose an active manager is you think they can outperform a benchmark. So your hope in choosing that manager is that if their benchmark is SWIX, that they are going to outperform that, so they're going to give you a better return than if you had invested in the SWIX index. That's why you pay them more money because the theory is they're putting a whole lot of effort into trying to outperform that index. So there's your choice for your active manager.

The other thing with an active manager, and we've seen it recently with say a Steinhoff, is that they can move very quickly to remove things out of their portfolio if they see an issue coming. So if they identify an equity within their portfolio that they think there might be a problem with, they can sell it tomorrow. There's nothing stopping them. Whereas a passive manager has to hold what's in the index and they can only remove that share when the index rebalances on a quarterly basis, for instance.

The pros of using a passive manager is that they're cheaper than using an active asset manager and research has shown that there are not many active managers who in the longterm can outperform consistently their benchmarks. So you're paying quite a lot of money for an active manager and you're really hoping that you've chosen that active manager who can outperform their benchmark over the longterm rather than investing with the passive manager who you know is going to hit the benchmark every year.

Lisa Linfield:       15:07     I was reading that Warren Buffett believes that there are less than 10 active managers in the world who he would trust and given that he has way more knowledge about all of this than any of us, it's quite an interesting challenge and he also, when he passes away, wants his money invested in trackers. Is that quite a controversial view? How do you see his approach to this?

Niki Giles:            15:32     I think that's a sensible view. I don't think it's the right view for everyone, and I think if you're investing your own money, passive seems to be the obvious choice because if you're just a gentleman in the street, you don't have a huge amount of knowledge on the financial markets, and you are making the choice of where to put your money. It's very, very difficult to select that right active manager. You know, there's a lot of research needed in the styles of the active asset managers and knowing that active manager really well.

So for the general man in the street, passive management seems to be the easy choice if they are not using the financial advisor, because that's the job of the financial advisor. The financial advisor is up there, is researching managers, researching where people should put their money and if you look at a Warren Buffett on a daily basis, he's making investment decisions, he's looking at companies, he's researching. So he is an active manager. That's what he does, but he's decided that for his heirs who are not necessarily in that space, that passive management is the safer option to go with, and it is a safer option.

The big issue with passive management, however, is that you've got to pick the right index and that is also where some of the skill comes in. So you know in one year in South Africa if you'd picked the [inaudible 00:16:44] versus the top 40, there was quite a few percentage points between the returns on those two indices, and in the next year it might switch around.

So there's no right or wrong answer on whether you should go passive or active, but on the whole I think passive is a safer choice for people who don't have a lot of industry knowledge.

Lisa Linfield:       17:03     And is it an either or, or is it that you only use trackers, or you only use active management or is there a middle option, or a both option?

Niki Giles:            17:13     I definitely don't think it's an either or. As a starting investor, I think the idea of passive is probably where you want to start looking and you want to start putting away money and putting small amounts away in passive funds that are tracking an index. I think as you get more understanding of the markets, as you start researching, as you start maybe learning more about active managers, there's a place for combining the two. So having a core investment strategy possibly that sits with passive in it and then maybe adding one or two active managers as you get more comfortable with making those kinds of decisions, and as you see the performance track records of those managers.

But always be conscious of the fact, I think that for every active manager that you put into your portfolio, you are going to be paying a higher fee and at the end of the day fees can make a substantial difference in the returns that you get on your portfolios. But I definitely think there's a place for both.

Lisa Linfield:       18:09     I did my research topic was on the impact of fees on investment performance and for every 1% of fees charged over a whole lifetime period of savings, so if you started saving when you had your first job, it impacted around 30 to 40% of your end value. So for every 1% you'll have roughly 30 to 40% less money at the end when you retire in hardcore stuff in your hand, than you would if you didn't have that extra 1%. So managing fees is obviously a hugely important part of an investment management strategy.

Niki Giles:            18:47     Yeah, I'd agree with that. It's very important. I think you need to know what you are paying and that information should be available. In South Africa we've got quite strong regulation that requires these to be disclosed and people should have a look at that and make sure that they understand what they are paying and how they are paying it. And I think that's quite an important part in the industry because different fees are taken in different ways.

So if you are investing via say a LISP platform, that LISP platform might be charging administration fees and then you're paying your asset management fees within the product. And often what happens is people see their statement and they see a fee coming off and they think, "Oh, that's the whole fee I've paid." What they don't realize is that's just the administration fee that they've paid and that the asset management fee is actually coming off within the unit trust, for instance, that they've invested into. So that's why it's quite important to look at things like your total expense ratios that are disclosed on those unit trust fund fact sheets so that you understand exactly how much you are paying away to the various asset managers for the performance that you're enjoying.

Lisa Linfield:       19:52     I find that a really tough thing because as a financial advisor in my other life, I really am frustrated by the amount of money that people are paying and that they don't know they were paying. I had a client recently who thought that on a very large amount of money he was only paying a thousand rand a month, and I said to him, "No, that's just the administration fee."

When you take the fact that there is a fee, for example, for employee benefits, if you've got a company scheme, then there's a fee that the manager of all of the funds in the multi manager, and then there's a fee for the actual unit trust that they're invested in, and then there's a fee underneath it for the building blocks. It was quite a shock to him how much money he was actually paying and I find it hugely frustrating because for clients they have no idea that they are paying so much money because only the very, very last fee which is the administration fee for the technology platform that it's sitting on, that's the last amount that they see and that's what they think they're paying. When in actual fact they're not.

Niki Giles:            20:58     No, I think the biggest issue in our industry is just educating clients on where the fees are and where to look for them. The fees should be available. You should be able to find them out, but they're not always as obvious as you'd like to [inaudible 00:21:12].

Lisa Linfield:       21:12     Why are the fees overseas so much cheaper than the fees over here in South Africa?

Niki Giles:            21:18     I don't know if the fees overseas are that much cheaper than over here and I think it depends on what you're looking at. So I mean we've been doing a little bit of research into the UK for instance, and there there are layers of fees that are not disclosed very well either. If you go to a LISP in the UK, you'll be paying as much if not more than you are paying in South Africa for accessing managers.

What you do see overseas, which is a lot cheaper than in South Africa, is the passive management fees and I think that's because passive management has taken off a lot more in the overseas markets than it has in South Africa. In South Africa, it's still quite a small portion of the market and obviously as your passive funds get larger and larger, they can afford to charge a lower and lower fee for the management of those funds. So I mean you are seeing your Vanguards, and your BlackRocks overseas charging less than 10 basis points for the management of some of their very large index trackers.

And you must remember when everybody says, "Oh, Vanguard and BlackRock are so cheap," it's only their flagship products that are so cheap. If you start going into their specialist index tracking funds, those get a lot more expensive, but I think it's the bulk of the money that's being managed in a fund which can bring down those fees quite significantly. So as funds grow and as passive grows in South Africa, I think you will see the fees coming down that are being charged.

Lisa Linfield:       22:36     And why is so much money in overseas going into passives? Why are customers and advisors switching heavily into passives overseas?

Niki Giles:            22:46     I think it's been a longer journey for them. I think passive has been promoted much more aggressively overseas. I think people are seeing the benefits of it. I also think it's kind of a chicken and an egg. There's a lot more exchange traded funds that are listed overseas. In South Africa we only have about 70 on our Johannesburg Stock Exchange. There are thousands of exchange traded funds offshore and I think it's also how investors are investing offshore. Especially in the exchange traded funds and that's what you're seeing a lot of the passive coming through. Those are accessed by having the stockbroking accounts, a lot of them.

In South Africa, the general public don't tend to invest by stockbrokers. They tend to invest by LISPs and LISPs tend to have unit trusts on their platforms, not exchange traded funds generally. And most unit trusts in South Africa are not passive. So I think it's an education issue first of all. It's an understanding of fees and performance of funds and asset managers versus passive managers, but you are seeing slowly the money starting to flow into passive funds in South Africa. I think give it a few years and that industry will be a lot bigger than it currently is.

Lisa Linfield:       23:59     So if I'm a brand new invest, and I have 500 rand a month, you talk about these things called LISPs, and I have no idea what you're talking about. How would I physically set up a monthly payment of 500 rand into one of these trackers?

Niki Giles:            24:14     Okay. So sorry. I do tend to talk in jargon. My husband tells me I must stop it because he's not in the financial services world either. So a LISP, it stands for a linked investment service provider and basically what a LISP is, it's a platform where you can access a whole lot of mutual funds or unit trusts. Some LISPs, like our LISP, will also offer you access to exchange traded funds, potentially also pooled funds on life licenses. Underneath the LISPs sits a whole lot of these funds that you can invest into. The LISP then offers wrappers on top of that.

So the way that you save money, you need to look at it from a tax perspective. Are you saving optimally currently for your retirement with your employer? If you are, that's great, but if you aren't, you might want to access a retirement annuity fund. So you might want to take your Sars allowance and invest some of that money into a retirement annuity so that that is before tax investing, which is obviously always the best way to go.

You may want to have a tax-free savings wrapper, which all LISPs will provide. You may just want to invest directly, so you just want to put that money into a unit trust, you want to have it accessible at any stage. You don't really want to worry about the tax element to it, you'll pay your the CGT, et cetera, and there you would be able to be a direct investor on that LISP platform.

What you would do is you would shop around. So there are numerous LISPs in South Africa. If you type in LISP South Africa, I'm sure you'd get a list of them. You could go do Sygnia Financial Services, that's our LISP and then you need to look at the fees. So before you pick your LISP, look at what the LISPs are charging, So to access a LISP, to invest file a LISP, and remember this is just an administration expense that the LISP is charging you because you're going to give them money, they then need to pass that onto the various asset managers. They will report back to you how your portfolio is doing on a monthly basis. Most of them will have some kind of online access that you can look on a daily basis how your investments are doing.

So they're going to charge you something for that potentially. So have a look at what the administration fees are. Generally their administration fees are tiered depending on how much money you put with them. Some may not charge you money if you put money in certain products and then once you've picked your LISP, so you've looked at the fees, you need to look and see what is available on that LISP platform. So they will all have a menu of what assets you could potentially invest into, so they'll have a list of trust funds with various asset managers, those would be potentially passive ones.

There would be some actives, there might be ones that are class specific, so you'll have equities, bonds, cash, money market portfolios that you can go into and you've got to make that decision what you want to do. Now, if you've got 500 rand a month and this is your first investment that you're making, that's going to be a debit order. So you would sign up with a LISP that they would take that money out of your accounts on a monthly basis. Most LISPs will have one or two days in the month where you can pick where you would like that money to be taken off. So obviously most people generally tend to pick a date closest to just after when their salaries come in so that they know the money is there for the LISP intake.

So the LSIO will take the money on a monthly basis out of your account. They'll take your 500 rand and you need to tell the LISP where to invest that money. Now you can select an equity passive fund. You can try and play it safe and say you just want to go into say the top 40 or the [inaudible 00:27:36], but really it comes down to how risk averse you are and how comfortable you are choosing an index. So that's not always the easiest thing to do.

Now, if you have already got savings somewhere and you are fairly happy that your savings that you want to put away, this 500 rand can go up or down over time, you really are looking at a very longterm for your investments, then putting it into an equity passive fund is probably not a bad idea.

But what is also quite a nice concept is a balanced fund. Now in the active space in South Africa, we've had a significantly large number of balanced funds. They've become quite popular with the investing public with the high fares as well, and what a balanced fund is, is where a fund manager takes your money and instead of just investing in equity, or bonds, or cash, they will invest it in a combination of all of those. So they will look at all the different asset classes and say we are going to run a high risk, or a moderate, or a conservative portfolio for you that commingles investments in equity, bonds, cash, potentially offshore assets, and there the asset managers will manage not only the allocation to the underlying equity or bond, but the allocation between those asset classes. So you get a much more diversified product where you're just putting one investment into, instead of you having to decide yourself whether you want to put x amount into bonds, cash or equity.

Now in the passive space you actually do get balanced funds as well. So the passive manager here takes a more active role in deciding how to allocate the money to the different asset classes. So how much to put into equity, how much to put into bonds, how much to put into cash, but when it comes to where that is invested in the equity bonds or cash, there they just select an index.

So for instance you might say they're going to put 50% into equity, they will then put that 50% into a SWIX tracking fund within this fund and the 20% to bonds, they might put that into an ALBI tracking fund. Then they might say okay 25% into offshore assets and there they might select an MSCI or world index to track. That is quite a nice product for a first time investor who's not sure whether they want to go into bonds, equity or cash. They can look for a balanced fund which is doing that asset allocation for them, but really they can put their 500 rand into that on a monthly basis and it's more diverse in how their risk is spread and somebody else is making those more difficult decisions for them.

So you'd sign up with a LISP, pick the LISP with the fees that you're comfortable in paying, decide on the product or wrapper that you potentially might need to go in, whether you want to get an IR, direct, et cetera. Choose the underlying fund, sign your forms, send them in and on a monthly basis that money should come out of your bank account and be invested automatically for you.

Then obviously you need to just monitor it. So I wouldn't suggest monitoring on a daily basis. Investments should never be looked at, I think, daily if you are relying on an asset manager to do the investments for you, but I do think you should keep an eye on it. So every now and again, monthly, if you really want to weekly, log into your platform, have a look and see how things are going. You may want to change your mind if you've put your money into a more aggressive fund, maybe you decide you wanted it to be slightly more conservative and the LISP platform will allow you to switch between managers. Some LISP platforms might charge you to switch, others won't. So check that upfront as well before you decide on the LISP platform that you want to go into. Then yeah. I think the next step is maybe trying to up that 500 rand to a little bit more as you are able to save more.

Lisa Linfield:       31:23     Sounds great. So help me, I'm thinking of an analogy in my head. This LISP is like a supermarket and like any supermarket, you get expensive supermarkets and you get cheaper supermarkets. So the first thing you've got to do is decide which supermarket you're going to walk into and know that either you're going to pay a little bit more or pay a little bit less. The next step is you want supper, so you can either choose ... You've never cooked in your life before, so you hope that there is going to be something that you can walk in and choose one of the ingredients and hope that it's gonna work well.

The other choice is that you can choose three or four ingredients and hope that you can cook up a great meal or you can choose an already made prepacked meal. So that could be the thing of trying to choose all the different either shares or equities or choose the difference between shares and bonds and all these different asset classes. Or I can go and get a balanced fund where someone has already made the meal for me and I can just buy one of them and know that it's got some of each portion of assets that I need. And then I can buy that and set up my direct debit. So the supermarket sends it to me every single month, what I need to eat and basically then start learning and tracking more. How am I doing?

Niki Giles:            32:43     That's brilliant. I liked your analogy. I think I'm going to use it going forward. Yeah. There's also some other things that you can find on some of these platforms and that is a Robo-advisor for people who have only got 500 rand a month. And that would be in your supermarket analogy, maybe more like a clothing store where you get somebody to come and help you pick out your clothing based on say your body shape or your color preference. So the Robo-advisors is still in the infancy stages by asking a few questions so they're not replacing your financial advisor who really is going to go a lot more in depth. But for the person who's only got 500 rand a month to look at a Robo-advisor where they might say, "Really what is your risk preference," and they'll give you a few questions just to understand where your risk tolerance is.

It also maybe how you are currently saving and then maybe provide you with some advice as to where possibly you should be putting that 500 rand. So it just guides you as well. So somebody may be pushing your trolley around just to help you in which aisle you need to be.

Lisa Linfield:       33:47     Absolutely. So what happens when you choose something that's not aligned to your risk tolerance? If I'm quite a moderate or conservative person and I choose something that's quite risky because I don't know. I mean I'm a brand new investor. I have no idea. Someone said that I should get a Satrix or some fund that tracks the stock exchange. I just heard it over a dinner table. What happens when I go and buy something that is more risky than I'm actually innately comfortable with?

Niki Giles:            34:16     I think what's going to happen is you are going to start feeling more and more uncomfortable with it, especially if the markets turn in the short period of time. I think as a first time investor you're going to make mistakes probably, and you almost need to let yourself make mistakes to start with. As long as it's not millions of rands that you're investing as a first time investor, but be prepared to change if necessary. Also, I think start doing some research. There's lots of articles on the internet. If you're looking at what to invest into, and you know there's a Satrix top 40, and there's a Sygnia top 40, and there's a coronation balanced fund. Each of those funds, if you go onto the website of those managers, will have a marketing document that goes with it. It will tell you what the risk allocation is for that fund. Read those fund fact sheets, or the non disclosure documents and get comfortable with what it is that you are investing into.

It's all very well to say, "I'm going to put my portfolio around away and forget it," but I think as an investor you almost need to take a little bit more control yourself and start educating yourself. There's a lot of information out there that you can start reading up on, and you might find that you initially consider yourself to be quite conservative, but as you understand more and more about the market, you may be prepared to take more and more risk or be more moderate or aggressive in your investment style.

I think it's understanding how investments work. If it's a short term investment, then you should never be aggressive. You should generally always be conservative. If you're looking to save that money on a longer term basis, then maybe aggressive is the way that you want to go because you can earn more money over the longer period of time and take on that risk or that volatility of the market because you know that you don't need to access that money straight away.

Lisa Linfield:       36:03     And I think that's the key. How long you want to invest for is seriously a major factor in how you invest, because what people don't realize is that over longer periods of time, five years plus, the market generally tends to be less risky because it generally tends to give you a good performance. But in the short term it is volatile and then you see people who have loved the shares that they've invested in, or the tracker that they've invested in because they're always going up, and the minute they go down, they get very anxious and then they pull their money out and make a loss. Whereas if they had just left it in over time, it would have come back, and they would have made a solid return over time if there were enough years.

You know, and when you talk about this thing of educating yourself, I read that people in general spend three hours a year on their finances and things to do with their finances. Now the challenge is your money is the foundation of everything in your life. So it's your food, it's your clothes, it's how you enjoy your life, it's how you educate your children, et cetera. And if you're only spending three hours a year on it, there's no way that you're going to be able to make your money work hard for you. Because the reality is you can either work hard for your money, or your money can work hard for you and it's for most of us a thing of both. But the quicker your money works hard for you, the less you have to work hard for your money.

So what I generally tell people is commit to reading one article, listening to one podcast, reading one thing a week, and by the end of the year you've read 52 things. An article on the web generally takes three and a half to five minutes to read. So if you spend three and a half to five minutes reading one article a week, you're going to significantly increase your education, and you're going to start understanding. In the beginning you're going to understand absolutely nothing about what anybody's talking about and over time you're going to start growing the vocabulary. It's like learning a new language, and you will learn the language, and you'll understand what it is that people are talking about. But it is quite amazing that people do spend so little time learning about ways that their money can earn money for them. So what would be the one most important thing that people should watch out for or know, in your mind, when it comes to investing?

Niki Giles:            38:23     I'm not sure if I have the one most important thing, but I think it needs to start with a goal. So no one's going to save if they don't have a goal that they're saving for. There's always something else that you could buy with your money. So I think you need to first start off with why are you saving? What are you saving for? And understanding what it is that you're saving for will hopefully help you to save better. So you need to almost look at paying your future self first. Making sure you have a goal, put aside some money for that for saving.

Then I think the second thing that I think is quite important and we've discussed this quite at length, is looking at fees. Understand what fees you are paying, ask the questions. If you're investing by a LISP, ask the call center, phone in, email them, say, "I'm wanting to invest in this. Please can you tell me how much it's going to cost in total. Not just administration fees. What is the underlying asset manager charging you? Where are some of the other costs I'm not aware of," and I think it all comes down to education and asking questions. But understanding what you're paying your investment manager, and your LISP, and your savings provider is very important in a long term savings plan. But you need to have a longterm savings plan and for that I think you need to have a goal that you're saving towards.

Lisa Linfield:       39:37     Niki, thank you so much for joining us. I really appreciate you taking the time to educate our listeners on this investing and I really appreciate the insight that you've shared so freely with us. We wish you well and we thank you for coming on our show.

Niki Giles:            39:54     Thank you very much, Lisa.

Lisa Linfield:       39:56     That was Niki Giles, the Chief Operating Officer of Sygnia Financial Services chatting to us about why one would invest in passive or trackers versus active or actively managed funds. I think the bottom line that both of us agree on is make sure that your why is so clear that you will save that extra bit of money every single day. Then go out and start saving and have a perspective of time. The longer that you keep your money invested, the longer it will grow and recover from any short temporary setbacks. I'm Lisa Linfield and this is Working Women's Wealth. Please visit our website or like us on Facebook in Working Women's Wealth because I think there you'll find lots more information to help you take the steps you need to start investing. Take care and have a great day.