Your investments and insurance questions answers

I am 50-years old and spoke to a financial adviser recently who suggested that should not consider medium or high-risk investments however, I would like to ensure that I maximise my investments before retiring. Can you explain how an adviser assesses one’s risk appetite? Jonathan Fisher, Wealth Adviser, PSG Wealth, Sandton Grayston, Johannesburg

In financial planning, it is important to understand how different risk aspects may influence our decisions. There are three aspects that need to be considered:

• Risk tolerance – this is the degree of risk that you are willing to endure given the potential volatility in the value of your investment. 

• Risk capacity/appetite – this is the amount of financial risk you can comfortably take without jeopardising your financial stability or ability to meet your financial goals. 

• Risk required – this is the risk associated with the return required to achieve your investment goals. The level of risk is commensurate with the level of return. Put differently, the higher the risk, the higher the potential return and vice versa.

The investment return required to reasonably aim to achieve your investment goal implies the need for a certain mix of asset classes. The different asset classes within a portfolio each have their own level of investment risk and volatility.  Medium or high-risk investments refer to investment portfolios with more allocation to traditionally volatile asset classes like equities.

To stay the course and achieve your goals, it is important to understand, be comfortable with these risks, and not only to focus on the one-size-fits-all approach to asset allocation. Although lower-risk investments are prudent in the short-term, the investment horizon is not the only factor to consider.

A certified financial planner will be able to help you construct an investment portfolio that considers all these aspects to achieve your financial goals.

As someone who is currently experiencing steady income growth while becoming more financially literate, I’m looking to be more hands-on with my investments, how should my investment strategy evolve as my income and financial knowledge grow? Johann Strauss, Wealth Adviser, PSG Wealth, Centurion Midstream

Before making changes to your investment strategy, it is important to determine whether you are on track to achieve your long-term financial goals.

Step 1: Identify how much your shortfall at retirement is going to be by taking your existing investments, the number of years to retirement, the number of years in retirement, tax, and the rate above inflation that your investments will grow by into account. 

Step 2: Ascertain how much you have to save annually (level premium) or monthly (escalating with inflation) to cover the shortfall by retirement. I recommend speaking with a Certified Financial Planner (CFP) to assist you with the calculation. 

Your investment strategy should not change over time; you should keep your costs as low as possible and invest as aggressively as possible until retirement. See an example below: 

1. 75% in equities if you invest in compulsory funds that have to be regulation 28 compliant 
2. 100% in equities if you invest in discretionary investments, as equities generally beat inflation over the long term. 

The higher the return on your investments, the less you have to save for retirement, and vice versa.

Working with a Certified Financial Planner will help you align this approach with your personal goals and circumstances, including your financial knowledge.

As a first-time investor who is new to the market, what are the mistakes previous investors have made that I can learn from to ensure I don’t repeat them? Wendy Myers, Head of Securities, PSG Wealth

Before getting into the stock market, it is important to understand that the majority of individual stocks result in losses over the long term. First-time investors are especially vulnerable to underperforming stocks. Without a clear understanding of basic valuation metrics like P/E ratios and cash flow, it’s easy to fall victim to meme stocks, mistaking a “popular” brand for a “good” stock. Added to this is the dangerous belief that the market will deliver quick riches, leading new investors to take on extreme risks in hopes of instant outsized returns. 

Behavioural biases like FOMO (Fear of Missing Out) and herd mentality are also drivers that lead investors to buy into hot stocks at their peak simply because everyone else is doing it, locking in immediate downside risk when the hype fades.

Below are four common mistakes to look out for:

1. Lack of diversification. Putting too much capital into a single stock or a very narrow sector increases your risk significantly. If that specific company or sector underperforms, your portfolio takes a massive hit. Diversifying across various sectors, asset classes and geographies can help manage concentration risk and smooth out volatility.
2. Ignoring risk tolerance. Investing without understanding your personal risk profile often leads to portfolios that are either too aggressive or too conservative. If a portfolio’s volatility exceeds your psychological tolerance, you are much more likely to make panicked, irrational decisions.
3. Failing to factor in fees and expenses. Not paying enough attention to product and platform fees can erode returns over time. For example, in ETFs there are fund-level fees captured in the Total Investment Cost (TIC), as well as account or platform administration fees. Trading and brokerage costs also matter, including bid-ask spreads – the difference between the price you buy an ETF for and the price you can immediately sell it for. This is an invisible fee that acts as a cost to the investor upon entering or exiting a position.
4. Emotional decision-making. Panic selling during market downturns – or panic buying during market bubbles – are classic emotional traps. Selling during a dip lock in losses. Successful investing requires a long-term plan to ride out temporary market volatility.

As investments begin to perform well, it is important to systematically manage risk rather than reacting emotionally. Rebalancing across asset classes restores your portfolio to its target allocation by selling portions of assets that have outperformed and buying those that have lagged. As a rule of thumb, I would recommend holding no more than 5% per counter. 

This, however, does not mean selling out completely. If you have done your research and are confident in a share’s long-term growth potential, staying invested is often the better course of action. While there are many lessons beginner investors can learn from, I recommend speaking to a qualified financial adviser who can guide you in choosing a platform or a suitable approach to investing in securities to ensure you make appropriate investment decisions.

I have heard that workplace mental health issues affect my insurance risk. Is it true, and what should I be doing about it? Ryno de Kock, Head of Distribution at PSG Insure

Yes. Mental health is a business continuity, operational, and governance risk that requires deliberate attention and a clear mitigation plan. It is no longer only an HR or wellbeing issue. It can become a measurable business and insurance risk when stress, burnout, or poor mental health affects decision-making, concentration, or workplace performance.

For businesses, the consequences can be significant. A distracted employee who gives incorrect advice, misses an important deadline, or delivers flawed work could expose the business to professional indemnity claims. Lapses in concentration may also lead to accidents, equipment damage, or operational failures that trigger liability claims.

In regulated sectors such as financial services, healthcare, and law, impaired judgment can also result in regulatory sanctions or third-party losses. Employers also have a duty to provide a safe working environment, which includes psychological safety, not only physical safety.

The starting point is to treat mental health as a genuine risk-management issue. Regular mental health risk assessments, effective employee assistance programmes, manager training, and clear escalation pathways can help reduce exposure before a claim arises.

Insurance remains an important financial backstop when things go wrong despite those preventative measures. Businesses should work with their broker to review whether cover is aligned to their risk profile, especially across management liability, employers’ liability, professional indemnity, and employment practices liability.

No single policy covers all the risks, so businesses should view these policies as complementary layers of protection. 

PERSONAL FINANCE