Prepare yourself in case of a property fire

About two weeks ago my father suffered the loss of his house through a fire. Through the experience I realized some things that I have never thought about before, but which were key for us. Let me share these with you:

1. Insurance

You have to insure yourself, both for the structure and contents. Think you have a bunch of junk in your house that’s not worth anything? That may well be true, but you still need to replace the items when they are lost or damaged. To save money on premiums, it may be worth your while to only insure the items that are expensive to replace, such as furniture, big appliances and computers. The balance for replacement purchases will then have to come from your emergency fund.Property Fire

2. Have an escape plan

Here in South Africa, we have a lot of crime. Most houses have burglar bars on every opening that someone can possibly come into the house. The drawback is that if you need to get out for some reason, you won’t be able to. Always make sure to know exactly how to get out in an emergency.

3. Keep all your keys in one place

When my dad ran out the door, he just scooped up all the keys from the side table as he was leaving the house. He could move the vehicles and open doors of buildings that were not affected.

4. Keep copies of important documents off-property

Wills, copies of identity documents, bank account numbers etc. can all be kept at a safety deposit box at your bank, for example. Also, if at all possible, scan your old pictures and store them electronically. A good way is to use a service such as Dropbox.

5. Let your loved ones know of neighbour’s telephone numbers

You may not have any interaction with the neighbours where you live, but it may be important if you need to find out what is going on. In our instance, we only had the house number and my dad’s celphone number on hand, both of which were in the fire. We suffered through a long, anxious period between when we heard about the fire to when we actually could get hold of someone to find out if my dad was okay.

6. Have some idea of what your insurance contract covers and relevant telephone numbers

One of my dad’s vehicles was damaged as it was moved out of harm’s way. We were calling towing companies to find out how to get the vehicle to the dealer to get it fixed. Halfway through the exercise my sister remembered that the vehicle was insured! After one call to the insurance company everything was organized.

During a traumatic experience like this one, it is very difficult to think rationally. Make it easy on yourself and your family by being prepared.

Do you have any things that you can recommend to get prepared for this kind of traumatic experience? Comments are always welcome…

Kevin Mzansi

Image by: Bruce Berrien

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Always remember what is important

It’s been a crazy two weeks in the Mzansi household. Firstly, my dad’s house burned to the ground, then my little sister wrote off the car in a car accident. The day after, my mom celebrated her 60th birthday.

I count myself very lucky: both my dad and my little sister are fine, physically, although my dad had to get a couple of stitches on his hand. The birthday party went well and was enjoyed by the 100+ guests at the party.

During times like these you really get a sense of what is important in this life. Stuff comes and goes – people are all that matter.What Is Important

My dad actually built our house himself, over 7 years. During that time we lived on the property in a granny flat that was built first. Lucky for us, the granny flat had no fire damage, so my dad could move straight into there, although it took a couple of days to have the water and electricity rerouted away from the main house.

I cannot stress enough the amazing support he received from neighbours, friends and family. Within a couple of hours, a neighbour had given him some cash, without being asked, to get a temporary ID and celphone. Another neighbour had driven with him to the regional Home Affairs office, around 45 minutes away, to go apply for a temporary ID and some family and friends had given him a bed, bedding, a microwave, kettle and other appliances and food.

We are all still very sad about the loss of the house. Especially poignant for us was the piano, which always provided us with endless entertainment over 25 years. The property was insured, so the insurance is doing its thing, but we all know that it will never be the same.

Above all, I was just grateful that my father was okay. All the “stuff” would not have mattered a bit if he was not. We managed to recover some photos and clothing, but it is just a bonus, after all.

In my next post I will chat a little bit about the car accident and the party.

Kevin Mzansi

Not putting your eggs in one basket is only the first step…

In the world of Personal Finance, “diversifying your portfolio” forms part of the basics of investing. Diversifying your portfolio is only the first step, however. To effectively manage risk you have to rebalance your portfolio periodically to maintain the diversification benefits. Let me explain why:

There are three main benefits to rebalancing.eggs 1 basket

Let’s suppose that you have decided to diversify your portfolio by dividing it between 5 different sectors: Technology, Industrials, Pharmaceuticals, Banks and Oil.

For your pharmaceutical position, you have picked a highly speculative company that is in the process of conducting clinical trials.  The trials can either be successful and multiply the value of the company or prove dangerous and make your shares worthless. Let’s suppose they are successful and the company quadruples in value. Your pharmaceutical stock now makes up 50% of your portfolio.

The problem is that the pharmaceutical company is still high risk. When you decided on the allocation, you knew that 20% of your portfolio would be at risk if things were to go wrong with the company. Now, 50% of your portfolio is at risk. The overall risk of the portfolio is now much higher. If you rebalance back to the 20% allocation, you will control the overall risk in your portfolio, which is the first benefit of rebalancing.

When you rebalance, you sell positions that have gains and buy positions that have losses to get back to the allocation that you chose. This forces you to sell high and buy low– the essence of making money in the stock market. This is the second benefit of rebalancing.

The third benefit of rebalancing is that it maintains your desired sector exposures. Let’s say you don’t rebalance and your oil company does well. It now comprises 33% of your overall portfolio. A third or your portfolio is now vulnerable to the price of oil dropping, where you only wanted 20% of your portfolio to be at risk. Rebalancing would have kept your risk to the level desired.

Rebalancing does have costs, however. Every time you trade there will be transaction costs and normally taxes that have to be paid on capital gains. To control costs you have to decide on when and how often to rebalance.

In my next post I will talk about two rebalancing methods: “calendar” rebalancing and “percentage-of-portfolio” rebalancing and their benefits and disadvantages.

Kevin Mzansi