 Hi everyone, it's MJ and in this video, we're going to discuss some things that you need to know before you invest in 2020 now quick disclaimer, even though I spent eight years becoming an actuary and I've got my fellowship in investment applications I'm not a registered financial advisor and thus this video is purely educational But with that said let's consider some of the things that you need to consider before you start investing And I think the very first thing that you need to do is you need to consider what are your investment objectives? So before discussing what stock you're gonna buy and how much you're gonna put into bonds and whether you're gonna play with derivatives Or not you need to actually think and say hold on, you know, what what are my personal goals? What do I actually want to accomplish up and in order to do that, you know you need to consider your liabilities your dependencies and Yeah, you got to be a little bit realistic You can't go out there and saying guys, I'm gonna 10x my investment in one year I mean if you can get 20% return in one year that is considered especially in today's economic Climate that is considered quite quite amazing. So have those realistic expectations at the start and when it comes to your investment objective What you want to do is you want to clearly define the following things, you know What is your time horizon? Are you investing for six months or are you investing for five years or something in between or maybe even a little bit longer? What is the timing of your cash flows? You need to consider your liquidity requirements, you know You might need money at the end of every month to pay for rent or various expenses So you can't just put all your money in a high yielding fixed account that you have absolutely no access to You know, you need to consider these things. You also want to look at, you know What are your total required returns? And again, it's difficult because you need to be Realistic, but you also don't want to just settle for, you know Any old low return because if you do look there are gonna be some interesting opportunities out there and then of course and I think this is where a lot of people may be struggle is You need to determine your risk tolerance now risk Especially coming from an actuarial point of view it can get a little bit confusing because when you're talking about risk Are you referring to volatility of return? Downside variance probability of ruin value at risk likelihood of shortfall Expected shortfall chance of failing to meet your liabilities tracking error I mean, there's so many different ways that we can consider risk So you need to get that understanding before you can actually figure out, you know, what is my risk tolerance? You don't need to say, oh, I'm you've got a high risk appetite and and leave it at that that statement means nothing Also, you need to understand that there's no such thing as a risk-free Investment I sometimes see other youtubers say oh put your money here because there's zero risk and I'm like But is it I mean even sovereign bonds have credit risk, you know, despite what the textbooks say You just look at history and you will see that countries have defaulted if you deal with any Institution no matter how large you will be taking on some counterparty risk Purchase any asset and you will be exposing yourself to various market related risk Use any currency and you have inflation and exchange rate risks. And I mean, we're barely scratching the surface I mean, this isn't even a comprehensive risk identification phase We haven't even looked at, you know, how to measure individual risks How do you aggregate them how to model them how to manage them how to monitor them? I mean Risk risk can get quite quite complicated It was one of the subjects that I specialized in was enterprise risk management So I don't know should we say if I don't like there's always one person who says okay Go make the video but I think if we get if we get a hundred comments So a hundred individual comments below saying hey, please make a video where you discuss risk Then I'll make that happen for you guys, but but let's let's game for a hundred. I think I think that's reasonable But coming back to investment objectives, I mean for me roughly I want to beat inflation That's just because I'm in South Africa and inflation is is a proper concern And that's gonna help me match my my personal liabilities, which are also going to be growing in line with inflation I'm more on the preserve capital, you know cautious side rather than the aggressive Grow capital side, but again, that's my personal preference And again, if you read a textbook it'll say someone at my age category should be more risk-aggressive than what I am But I don't know maybe maybe it's because I'm an actually, you know We tend to be more more cautious and risk adverse But I also want to be tax-efficient and that's that's probably the hardest thing to do Fortunately, my brother is a chartered accountant and he's got his master's in finance and his wife is very you know She's done a whole bunch of studying on tax herself. She's also a CA. So I get a little bit of help on that side But what I also want to do is minimize my investment costs and that's both directly So if I'm gonna, you know invest through an institution fees for me are very very important I mean, we don't understand that 1% per annum over a long period of time becomes a Substantial drain on your expected returns. So I want to look at institutional fees that are more like 0.3% Maybe even lower. Of course that does put me in the passive category rather than the active But passive and active, I think yeah, maybe we'll we'll do that in another video because that's another kind of worms that you can really really Yeah, I'll spend a lot of time doing but I think the reason why I also kind of tend to favor passive investing is Because of also the indirect costs and that's like the time that I spend Managing my portfolio if you're gonna go the passive approach It's gonna require less time and effort and for me that just means more time to do fun things so unless active investing can prove that there's a substantial gain and like I said, it's it's not an easy question to answer because Depending on the economic conditions one strategy will be favored over the other and you need to do that investigation Particularly if you're managing other people's money, like if you're an asset manager and this is your day job Then, you know, I expect the investigation to be done But for us who are personally investing our money to do that investigation It's you got it. You go to I guess, you know balance the pros and cons of doing that I Mean we can talk more about liabilities, but they tend to be very personal So it's something that you would you should rather discuss with your financial advisor Like I say if if you've got children your investment strategy is going to be very different to someone who's single Like I said age is also a big thing as well when it comes to looking at liabilities dependencies, life stages and and all these other things We can also talk more about regulation and it is something that you should consider It is very boring though, and it is very region-specific and it's also always changing So it's something I don't like to talk about specifically now in South Africa We've changed from the FSB to the FSCA, you know, we just we've been changing a whole bunch of things And I mean if you'll notice from my earlier videos before I became a fellow actually it's very very cynical about regulation Although now that I'm maturing, I am sorry to see why it's important, but I think regulation Kind of needs a bit of an overhaul. We don't it's not that we don't need it It's just that we need to rethink it And they're speaking about things that are always changing like I said the economic factors are also saying that you want to Be familiar with and what their potential impact could be on your returns and again, that's that's another whole video You know on it, so But after you've done these things you can then go and consider Another fun thing to do is to consider the the available asset universe that you can potentially invest in I mean there are some really really fun products now and because we have the internet I mean this the universe is just growing me in the fact that you've got cryptocurrencies and various other blockchain things It's good to be aware of them I personally feel that they're not they're not viable for majority of people But there is a small class of people where blockchain and cryptocurrencies does make sense to add to your portfolio But like I said, we're getting a little bit into the specifics there and I want to keep this maybe a little bit more broad Once like y'all once you've considered your asset universe, you can then go to my favorite part, which is portfolio construction That's really where I guess the actuarial side comes in This is we develop your investment strategy and you kind of think okay How many bonds and how many you know what percentage of bonds what percentage of equities do I want? How am I going to be using derivatives and and all these these fun things then? I guess we're actuarial science that differs from let's say your CFA or your other investment degrees is As an actually we're trained to select a manager We're in those other degrees as to a CFA you're talked how to be that manager So I mean there's a lot of overlap with the material but Manager selection is something that we do like I say as as as actuaries when we want to invest You know money on a pension fund or something like that But it's also a very very powerful thing to do as an individual, you know when you're investing yourself And you say okay, I want to invest actively in the stocks and I understand that you know companies up there They know a lot more about this than I do. I want to You know pay them to do it for me the next question is well, how do I choose which one and And that could easily be an hour long video So that could also could be a nice nice video to to follow up on this one So, yeah, I mean if this video gets like a hundred likes then then yes I think I'll definitely consider making videos on the asset universe portfolio construction manager selection We can even look at monitoring Which a lot of people fail to do because it's it can get a bit get a little bit awkward You know, especially if your investments are going down But that's when you should be doing it and looking at you know, should we restructure or you know Is this just some short-term volatility that we can write through so I can say before you invest in 2020? There are a lot of things that you need to consider But hopefully this video introduced you to the idea of the investment objective, which is a very very important thing to do Then we also looked at how you want to be aware of your liabilities Regulation economic conditions Then like I said if this if we get a hundred comments down below We'll make we'll make a video where we explain risk in an easy to understand way and we'll look at its different dimensions and those things But like I said if this video gets also a hundred likes I will continue making the rest of these so that when we do go into 2020 We have a really good idea on on how to invest and how to Yeah, make sure that if we're gonna lose money We don't lose that much and if we're gonna make money we make the most in a responsible manner But until then I hope you guys have a great 2020 and I'll see you soon. Keep well. Cheers