Factors to consider when ceding your life policy

Article by Lee Bromfield, CEO of FNB Life.

Editor's note: Since publishing, Wealth Planning became aware that as of August 2017 changes have been made to the National Credit Act. The NCA has introduced new provisions when ceding a policy for credit insurance.  

Many consumers who are eager to finalise the house-buying process often rush into taking out and ceding life insurance without first doing their homework.

The ceding of a life policy involves legally transferring a portion of the cover amount to be used as collateral by a creditor in the event that the policy-holder is unable to meet their debt obligation.

When applying for a home loan, banks may require that you take out life cover as security if you do not meet certain earnings criteria. The life cover is then ceded and used as collateral against the home loan to ensure that your loved ones or beneficiaries still have a home in the unfortunate event that you pass away.

Key factors to consider when ceding a life policy:

Cover amount – when ceding an existing life policy, it is recommended that you increase the cover amount to avoid leaving your beneficiaries underinsured in the event that you pass away. This is because a portion of the cover amount will now be used to settle the home loan. You also have the option of taking out a new life policy or mortgage protection plan if you do not want to interfere with your existing policy. If you are taking out a life policy for the first time, consider a higher cover amount to ensure that your family or dependents are also protected financially in the event of death.

Inform beneficiaries about the cession – it is important for your beneficiaries to understand how this process works to avoid unnecessary complications should they have to claim.

Joint home loan – when applying for a joint home loan, the bank may require both parties to take out life cover to insure their respective portions of the loan, should one or both of them pass away before settlement.

Home loan settlement – when the home loan account has been settled and closed, it technically means the policy is no longer ceded. It is therefore important for you to immediately follow up with your lender and insurer to update the status of the policy.

Ceding conditions – before ceding, familiarise yourself with the terms and conditions stipulated by your lender, to understand how they impact your life policy.

Although home loan providers may make it mandatory for you to have life cover in place, it doesn’t mean you shouldn’t take your time to go through the policy wording or seek advice when you need clarity. At most, you will delay the process by a day or two, while making sure that you are adequately covered.

Value investing in a world of accelerating change

Article written by Steven Romick, NedGroup Investments

Accelerating change swirls around us, placing us in the middle of a vortex that is not without investment implications. In this new world of change, traditional value investing – buying a business or asset at a discount that offers the potential for upside appreciation while providing downside protection – is not what it used to be.

The existential risk to corporations is greater than it has ever been and businesses are either disappearing or facing shorter lifespans in the face of digitisation, technology and data availability.

In the 1960s, the vast majority of corporations listed on a stock exchange would be expected to remain in the index for at least five years before they were either acquired, bankrupt or overtaken in market capitalisation by other public companies. Now, those odds have fallen to the mid-60% range and are continuing to decline. Furthermore, where in the late 1970s and early 1980s, the average company had been in the S&P 500 for almost 40 years – a study by Innosight* suggests that the average lifespan of a company in the S&P 500 index is expected to hit a new low of 12-13 years.

A case in point is General Electric (GE). It is the only company currently listed in the Dow Jones Industrial Index that was included in the original 1896 index. One can only wonder if its Dow days are numbered.

The art of finding value today

When we model a company’s potential outcomes, we do not try to predict earnings this year or next, let alone this quarter. We build a low, base and high case. We make investments in those businesses that should offer a reasonable rate of return in our base case, have upside to the high case and the low case should not be too bad. Furthermore, we expect the base or high cases to be more likely than the low case.

A good investor must always understand the competitive pressures from existing and new businesses and technologies but we would argue that it holds even greater importance today. We have evolved to recognise that many of the better investment opportunities have seen the margin of safety shift from the balance sheet to the business. A business that can increase its free cash flow over time and appropriately reinvest or distribute that cash flow might afford greater downside protection than another business that could be liquidated at a premium to its current market price. This is because the business that could be liquidated at a premium to its current market price could have stagnant or shrinking cash flow in the face of new, more innovative competition.

We face the daily choice of change or decay. We opt for the former. Whereas we once might have been more willing to buy mediocre businesses at unbelievable prices, we are now committed to buying good businesses at great prices and great businesses at good prices.

How much you could make in a tax-free investment?

Original title: How much you could make in a tax-free investment account over 2, 4 and 10 years. 

Article written by Business Tech

As of 2015, the National Treasury has introduced a number of incentives for tax-free accounts in a bid to encourage long-term, disciplined saving.

With respect to the tax-free savings and investment limitations, an individual may currently contribute up to R33,000 per year with a lifetime contribution limit of R500,000.

According to Roenica Tyson, Investment Product Manager at Glacier by Sanlam, tax-free savings and investment accounts tick many positive boxes as part of a diversified financial plan.

She added that she would encourage every investor to consider including one in their portfolio, and take advantage of the opportunity to grow their savings without paying any tax on the interest, dividends or capital gains they earn.

All good things come to those who wait

“Life happens, and unforeseen events result in us sometimes having to dip into our savings, but I would encourage investors in this product to resist the temptation to withdraw from it to ensure disciplined, lucrative saving,” Tyson said.

In this way she said that investors should consider tax-free investment plans as complementary savings for your retirement investment.

As an example of why this money is best left alone for as long as possible, she provided the following example.

The table below demonstrates the sample values (including the tax savings relative to a normal investment plan) based on a monthly investment of R2,750 over a period of 2, 4, 6, 8 and 10 years, for an aggressive investor, and with intermediary fees of 0.50%.

The noteworthy point is that over a 10-year period, total contributions of R330,000 can grow to R536,048, which is R29,222 more than a similar plan without the tax savings.

*Table assumes return of 11% per annum and marginal tax rate of 35% on investment plan returns.      


Ten Rules for income investing

Article by Nedgroup Investments

In an environment where investment returns are becoming increasingly strained, many investors could be tempted to chase yield. This however is a very dangerous investment strategy as it often fails to take the associated risk into account.

Sean Segar, Head of Nedgroup Investments Cash Solutions, provides the following rules to guide investors to avoid potential investment traps:

Rule #1 Use the risk-free rate as the base reference point

The risk-free rate is the yield on government paper for the comparable period, and is efficiently determined by the market.  Therefore, once the risk-free rate has been established, it is easier for investors to assess if additional yield is worth the additional risk. Be wary of outliers on this spectrum and avoid investing where the risk appears disproportionate to the yield.

The main types of risk to consider are:

Credit risk: This is the risk that a borrower may not repay a loan and that the lender may lose the principal of the loan or the interest associated with it.

Liquidity risk: This risk occurs when an individual investor, business or financial institution cannot meet short-term debt obligations. For example, the investor or entity may be unable to convert an asset into cash without giving up capital and/or income due to a lack of buyers or an inefficient market.

Interest rate risk: This is the risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve, or in any other interest rate relationship.

Rule #2 Understand what you are investing in

-When investing in an interest paying instrument ensure you understand the following:

-A guarantee is only as good as the entity issuing the guarantee. Understanding the strength of the guarantee is crucial as certain guarantees are worth very little. A common mistake is to assume that nothing can go wrong simply because a deposit is guaranteed.

-Understand if the rate quoted is effective or nominal, and if it is net or gross of fees.

-Ensure costs are reasonable. Income type funds should typically be cheaper than equity and balanced funds.

-Ensure there are no once off costs to buy or sell income bearing investments.  These can distort net yields enormously, especially for shorter dated income investments. For example, a 1% fee to enter a six month investment yielding an annual rate of 8% results in a net annualised yield of only 6% over the period of the investment.

-Before investing in an income fund, review the investment mandate to ensure that this does not permit investment in instruments you are not comfortable with. For example some income funds are permitted to invest in property, preference shares, offshore currencies, non-investment grade credit, or very long dated bonds.  All of these instruments can offer generous yields - but they also come with a higher risk of capital fluctuations.

-Avoid fads and look beyond the marketing message. Rely on the data and talk to a financial advisor for guidance.

-Understand the regulatory environment of the product and the issuer and be clear that you are investing legally and ethically.

Rule #3 Make use of pooled income funds

-Pooled investment funds are convenient and offer the following advantages:

-Higher yields than call accounts, but access to funds is similar to being on call

-Spread of counterparty credit risk through diversification of investments held in the fund

-Ability to invest in longer dated instruments at higher yields but still having easy access to funds

-Unit trusts are regulated and in many cases rated by independent rating agencies, offering an additional level of comfort to investors

-Professional, specialist investment management

-Minimum investment amounts are relatively low, or even zero when the investor has no surplus cash to invest, unlike direct investments where the top interest rate is only earned by the largest of investors, or the interest rate is subject to a minimum balance or minimum term

-The scale that unit income unit trusts have keeps fees low and provides the fund with buying power with banks and other issuers. Small investors invest alongside large ones with the same benefits.


There are no transacting fees, low investment management fees, and fees are only applicable while funds are invested

Be comfortable with the investment mandate and the investment manager of any income fund. Ensure that they are reputable; credible, their investment philosophy is sound; they have a robust process; the team is suitably qualified and experienced with a good track record and finally; that the track record belongs to current team/individual manager.

Rule #4 Ensure that you have suitable access to your money

It is always tempting to earn higher yields by fixing investments for a set term. However, should you for some reason need to draw on such funds there are likely to be penalties. So the lesson is: If you make fixed term investments ensure that you will not require the funds over the life of that term and do not “lock up” your funds if you may need access to them. Fixing a deposit term for higher yield may backfire.

Rule #5 Match income receipt dates to your needs

Taking Rule #4 a step further, ensure that the frequency of the income distributions of the investment is in line with your needs. It will create unnecessary administration and even penalties should you have to tap into the investment’s capital to fund cash flow requirements.  Some investments only distribute every six months or at the end of the investment term. On the other hand, should an investment distribute income more frequently than you require, reinvest this income rather than draw it unnecessarily. This will allow for compounding of returns and ensure you are not tempted to waste these funds.  Always favour steady, predictable income streams.

Rule #6 Don’t leave cash on one-day call unless you really might need it in one day

Ensure potential yield is not being sacrificed for the luxury of having immediate access to funds, which in fact is not really needed. The yield on daily call monies is lower than that on funds placed for fixed term because it is immediately accessible. Unless funds are possibly required at short notice, cash should be put to work without forfeiting potential yield uplift until it is required to be deployed. This simple planning of future cash flow requirements enables funds to be better deployed. It is worth spending some time forecasting cash requirements to ensure optimal investing, and sweeping cash into funds from inefficient current or call accounts into appropriate higher yielding vehicles. The incremental interest adds up fast and the discipline of efficiency becomes entrenched behaviour.

Rule #7 Don’t be too conservative

There is such a thing as being too conservative. Most people can afford to take on an element of risk for which they should be appropriately rewarded through higher interest rates. Understand your level of risk tolerance and apply it. A financial advisor can provide valuable assistance in assessing your investment risk profile before you decide where and how to invest.

Rule #8 Consider the implications of tax

Interest is taxable as are capital gains.  However, there are both annual interest and capital gains exemptions available to individual tax payers. Utilise such tax allowances before investing in tax structured products. Retirement fund wrappers like Retirement Annuities and Preservation funds offer a total shield against all taxes on interest and capital gains made within such structures. Use of Tax-Free investments is also a very attractive tool here and should also be maximised by individuals.

Rule #9 Remember the power of compounding, but also the effects of inflation

This applies both to the length of time that funds are invested and to the interest rate achieved which drives growth. To maximise the power of compounding re-invest distributions where possible. Of course inflation is the enemy of the investor, and also compounds. This can make investing feel like paddling upstream. If yields are lower than inflation then real returns are not being achieved and the investor is effectively going backwards in real terms.

Do not remain in income investments that do not generate inflation beating returns for too long. In volatile and uncertain times, even inflationary times, it may make sense to park funds in cash until normality resumes. Even though yields may not be above inflation, or returns potentially as high as other asset classes, at least the investment will be liquid, the capital is likely to remain intact, and a positive return should be achieved being the interest received.

Rule #10 Pay off high cost debt before investing for interest

Interest paid will almost always exceed interest earned, especially after tax. The best interest rate is therefore the saving that can be achieved by paying down debt. Always consider first paying off debt before beginning to invest for interest.

Investing is a marathon, not a sprint - ask an endurance runner

Article written by Marc Macsymon, Business Live

Arecent US survey showing that endurance athletes earn three times more than the average person came as no surprise to me. As a financial planner and a passionate trail runner, I have come to realise that investors and successful endurance athletes have much in common, including incredible reserves of discipline and courage.

Investing requires consistency, perspective and patience. It's a marathon, not a sprint.

These are the six most important attributes successful investors and endurance sports athletes share:

1. They set defined goals

Successful investors and endurance sports athletes are not afraid of setting specific and meaningful goals - visualising and thus owning their future.

This involves a precise allocation of daily energy, resources and time and includes making difficult trade-off decisions. Should you allocate your hard-earned cash to important short-term goals such as a stress-relieving holiday, or should you focus on the long-term dream of retiring comfortably, for example?

2. They pace themselves and avoid instant gratification

Investing requires consistency and a long-term strategy that is balanced enough to prevent burnout. There will be moments when you feel that the long-term goal is unattainable, but ongoing planning, time in the market and kilometres on the trails will support success.

3. They rely on 'coaches'

Just as top athletes listen to coaches, winning investors rely on professional advice that is not only objective and based on years of experience, but also appreciative of the emotions that go into our hard-earned savings - and investor biases which can lock in a permanent loss.

Financial coaches help their clients to filter out the economic and political noise and apply investment strategies with the highest probability of success.

Investing requires consistency, perspective and patience. It’s a marathon, not a sprint.

4. They embrace technology

Successful investors, like champion runners and cyclists, harness technology to their benefit and learn from online calculators and algorithm-driven applications.

What's more, they embrace the sophisticated financial planning software used by their advisers. They absorb and analyse the constant flow of information from digital platforms and have the confidence to rely on and discuss new concepts provided by their professional advisers.

5. They take a holistic view of life

In the same manner that successful endurance athletes balance training and rest, effective investors embrace a multidisciplinary approach that combines risk, liquidity, tax and estate planning. They appreciate the need to periodically realign their asset allocation to ensure it fits their financial goals and they value the efficient transfer of generational wealth.

6. They learn from their mistakes

There's no guarantee that you will win every race or ace every investment decision. In fact, life has a funny way of ensuring that some things don't go to plan.

Successful investors expect setbacks, are flexible in their decision-making and appreciate that how they respond to negativity plays a large role in their eventual success.

The finish line

As any marathon runner will tell you, with enough discipline and effort, human beings are capable of achieving anything we put our minds to. It all begins with breaking seemingly unattainable long-term goals up into manageable and achievable short-term objectives. To do this, you have to remain in the present by managing setbacks, fully commit to the process and trust that each seemingly insignificant step is one step closer to the end goal.

Provided you surround yourself with the right people and keep your eye on the prize by being goal-oriented, determined and consistent, you can finish the race we call life with flying colours. As they say in China, a journey of a thousand miles begins with a single step.

President Cyril Ramaphosa investment drive for the country

Article by Brand South Africa.

President Cyril Ramaphosa has successfully secured £50M (R857M) funding from the United Kingdom (UK) to help South Africa improve its business environment, making it more attractive to investors with the aim of creating jobs and opportunities. This agreement was reached between the President and the British Prime Minister Theresa May.

Points of discussion during the meeting included the potential for reinvigorating and revitalising the partnership between the UK and South Africa, where May said Britain was ready to support South Africa’s transformation and National Development Plan.

This investment by the UK follows the President’s announcement on Monday evening that South Africa would be hosting a major investment conference in August or September 2018, which aims to raise over R1trillion in new investments over five years.

“The investment conference, which will involve domestic and international investors in equal measure, is not intended merely as a forum to discuss the investment climate. Given the current rates of investment, this is an ambitious but realisable target that will provide a significant boost to our economy,” said Ramaphosa,

Ramaphosa also unveiled the names of four ‘special envoys on investment’, who he said would spend the next few months engaging both domestic and foreign investors around economic opportunities in SA.

The team includes;

Former Minister of Finance Trevor Manuel,

Former Deputy Minister of Finance Mcebisi Jonas,

Executive Chair of the Afropulse Group Phumzile Langeni,

Chair of the Liberty Group and former Standard Bank Head Jacko Maree.

“They will be travelling to major financial centres in Asia, Middle East, Europe and the Americas to meet with potential investors. A major part of their responsibility will be to seek out investors in other parts of Africa, from Nairobi to Lagos and from Dakar to Cairo,” he said.

The President also named businesswoman Trudi Makhaya as his Economic Advisor and the person who will coordinate the work of the four special envoys and arrange a series of investment roadshows in preparation for the conference.

Makhaya holds a number of degrees in Business and Economics, including from Oxford University and the University of the Witwatersrand, she has vast experience in the financial sector.

“Our task, as South Africans, is to seize this moment of hope and renewal, and to work together to ensure that it makes a meaningful difference in the lives of our people,” said Ramaphosa.

“This requires tough decisions to be made to close the fiscal gap, stabilise debt and restore the health of state-owned enterprises”, he said

Earlier in the year Team South Africa attended the annual meeting of World Economic Forum held in Davos, Switzerland led by President Cyril Ramaphosa. South Africa’s theme for was “Reigniting Growth Momentum”.

Upon return from the forum, President Cyril Ramaphosa said “the South African delegation returned with a “bag full of investment commitments”,

This means that the investment drive announced by the President then now being implemented.

“Many of the business leaders I have met here have said they are buoyed by this new mood in the country. We want to hear the investing world saying that your message is clear, positive and forward-looking It is the type of message that you can have confidence in and correct some of the missteps in the past,” said Ramaphosa.

The success of the investment will be one that positively impacts South Africa and paints the Nation Brand with strokes of a better brighter economy.

Investing on your own takes preparation

Article by 702

Original headline: Investing on your own takes preparation says certified financial planner. 

Taking the option to invest alone takes some serious work. The financial universe is huge and understanding it needs a lot of research and study.

Certified financial planner Paul Roelofse says that it’s very difficult to find a high yield on your investments in the financial market because the economy is flat-lined.

The stock market at the moment is delivering low yields and the only place you can get a certain return is in the money market space he adds.

“In investing you want the highest return you can possibly get over the longest period of time because we understand that compound interest is the way you make money,” says Roelofse.

Roelofse says that fees are starting to become a question because if you are taking 3% off your investment and it’s tracking poorly, then it’s probably not worth paying those fees so people tend to opt to do it alone.

Listen to the full interview below:

Understanding the retirement fund death benefit

Article written by 10x Investments

The award of the retirement fund death benefit is a controversial, complicated and slow process, that is not well-understood by fund members and their dependants. The inevitable fear, frustration and financial hardship that follow from long payment delays add to the emotional strain of losing a loved one.

Below, we explain how the process works, the issues trustees must take into account, and what you, as the fund member, can do, to expedite the process.

Process regulated by Pension Funds Act

The payment of death benefits from a Pension, Provident or Retirement annuity fund is regulated by section 37C of the Pension Funds Act 24 of 1956. When a member dies and a claim is made, the trustees of the fund must follow the requirements as set out in the Act and cannot merely follow the beneficiary nomination which was made by the member.

In determining who will receive the benefit on the death of a member, the trustees are granted 12 months from the date of death to search for any dependents of the deceased member. This must be done despite the presence of a beneficiary nomination.

The trustees have the final say with regards to the distribution of the death benefit; however, they must ensure that there is equitable distribution.

The beneficiary nomination acts merely as a guideline to the trustees as to the wishes of the member and will be taken into consideration when investigating the claim.

The trustees need to take the following matters into consideration:

  • The age of the parties involved
  • Their relationship with the deceased
  • The extent of their dependency on the deceased, if any (did the deceased provide any money to them)
  • The financial status and affairs of the dependants (employment, capability of managing money)
  • The future earning potential of the dependants (are they likely to find employment if unemployed; are they students; are they disabled etc.)

In addition, the trustees also need to take into consideration:

  • Parties the deceased had a legal duty to support (spouses, children, parents, grandparents, unborn children etc.)
  • ·Factual dependants (common law spouses, same-sex partners, step children, foster   children)
  • Customary law spouses
  • Major children who the deceased had a legal responsibility to support

    The way that the death benefit is paid is also regulated by section 37C and currently allows for the following options:
  • Payment directly to the dependent or nominee
  • ·Payment to a trust
  • Payment to a guardian or caregiver
  • ·Payment to a beneficiary fund.

Other considerations

When a death benefit is payable to a minor then the trustees may only pay the benefit to the guardian of the minor or to a beneficiary fund. As a guardian has the right in terms of law to administer the financial affairs of the minor, the trustees cannot, without applying their minds to the facts, pay the benefit into a beneficiary fund and not the guardian.

Should the trustees not find a dependent within the 12 month period following the death of the member and a beneficiary was nominated by the member then the trustees may pay the benefit to the nominated beneficiary. If no beneficiary was nominated then the benefit will be paid into the deceased’s estate.

The most effective way to speed up the process is to ensure that, as a fund member, your beneficiary nomination form is kept up to date all the time and lists ALL your financial dependants. This helps the Fund trustees greatly in their investigation, and therefore minimises the delay.

Taxation of benefits

The beneficiaries who will receive a share of the death benefit can choose to receive their benefit either as a cash lump sum or as an annuity (or as a combination of the two). The annuity income will be taxed in the hands of the recipient per the prevailing income tax tables. Cash lump sums are taxed according to the retirement lump sum tax table, as though they had been received by the deceased on the day before their passing.


New Act broadens access to insurance

Article written by Personal Finance

The Insurance Act, which was signed into law earlier this year, aims, among other things, to increase low-income earners’ ability to access insurance products and foster transformation in the insurance sector.

The Act, which was approved by Parliament in December last year, aims to bring smaller players into the fold under the auspices of the regulator, the new Prudential Authority, which will fall under the South African Reserve Bank.

“Not only will the new law make it easier for low-income consumers to access insurance products that cater to their needs, but it also gives small businesses the opportunity to enter the insurance industry,” says Vera Nagtegaal, the Executive Head of Hippo.co.za.

Nagtegaal says the Act seeks to link licensing with the sector’s overall transformation targets as set out in the financial sector code. “This will empower the [regulator] to push for development targets, financial inclusion and transformation objectives.”

The framework’s transformation component is linked to the Broad-based Black Economic Empowerment Act and the financial sector code, which have made transformation in the insurance industry a priority.

The inclusion of smaller businesses is a great way to foster innovation, Nagtegaal says. “It means insurers can think out of the box and look to accessible insurance product solutions that have worked in many African countries.”

For example, Sanlam and MTN have partnered to launch a micro-insurance joint venture called aYo. With aYo, people will be able to apply for and buy insurance from their mobile phones using their airtime balance.

Nagtegaal says that making insurance products accessible to a wider consumer base means that more people can protect their assets and themselves.

“Outlets such as Jet and Pep have started selling life cover products at point-of-sale. Much like the growth of mobile money wallets in South Africa, and what’s being done by aYo, we can expect easy-to-use products that are made available through cellphones.”

To ensure that consumers are protected, insurers will have to invest in consumer education, she says. 

“It’s important for insurers to inform the public about changes in the financial services sector, such as the introduction of the Twin Peaks system, aimed at reinforcing consumer protection.” 

“Twin Peaks”, to be introduced this year, will see financial regulation split between the Prudential Authority, responsible for the financial stability of providers, and the Financial Services Conduct Authority, responsible for market conduct.

The new law introduces a legal framework for micro-insurance, and amends and replaces certain parts of the Long Term Insurance Act and the Short Term Insurance Act. It has three broad objectives, which are to:

• Broaden consumer access to adequate insurance products;

• Strengthen the insurance frameworks to maintain financial soundness in the industry; and

• Align with international standards. 

Big change to tax-free savings accounts in SA

Article written by Business Tech.

While there was very little in the 2018 National Budget indicating an impact on long-term savings – positive or negative – a National Treasury regulation that kicked in on 1 March 2018 provides South Africans with added flexibility when it comes to Tax-free Savings Accounts (TFSAs).

This is according to René Grobler, Head of Cash Investments at Investec Bank, who said that as of 1 March 2018, South Africans will be able to switch part of or their entire TFSA’s from one financial service provider to another at no cost – at a maximum of twice a year.

This will enable investors to re-evaluate their tax-free investments and adjust it to their personal circumstances, if required, said Grobler.

“Three years ago on 1 March 2015, the South African Government introduced Tax-free Savings Accounts as an incentive for South Africans to save more,” she said.

“With tax-free investments, investors are allowed to invest up to R33,000 per year with a lifetime limit of R500,000, taking advantage of the medium- to long-term benefits of compounding, without paying any tax on interest, dividends or capital gains tax (CGT).

“The additional tax savings these investments offer can also add up and compound over time growing into a substantial investment,” she said.

Tips to get the most out of your TFSA

To maximise the tax benefits and returns of a TFSA at a bank, investors are encouraged to keep their funds invested for as long as possible to benefit from compound interest over the investment period, Grobler said

This is because notice deposits normally have lower interest rates attached to them than fixed deposits, but allow for greater flexibility in terms of withdrawals, she said.

“You should carefully weigh up what would be most beneficial – a notice deposit or a fixed deposit, for the investment period you have chosen. For example, you could ask your bank to provide you with a preferential rate if you choose a 12 month fixed deposit option.”

Grobler added that before holders of TFSAs choose an investment product (i.e. cash at a bank, unit trust-based or equity based investments) they should consider the following:

  • Investment horizon or investment goal: Are you investing for the long or short term?
  • Risk profile and return requirements: Given the state of the financial markets at a particular time – stable or volatile – are you seeking a capital guarantee or wish to place the funds higher risk/return investments?
  • Who will be the beneficiary or beneficiaries should you want to leave the product as a legacy and not make withdrawals in your lifetime?
  • How important is it to you to access the cash as and when required? Are you prepared to leave the cash within the investment for several years?
  • Tax considerations, in relation to the asset class, such as whether the full interest tax exemption has been utilised.
  • It is recommended that you discuss these considerations with your financial adviser who will be able to assist in selecting the appropriate product and asset class based on your risk profile and the rest of your investment portfolio.


The rand last looked this good 10 years ago

Article written by Business Tech

It’s been a good few months for emerging-market currencies, and none more so the rand.

South Africa’s currency has had its best three-month run in almost 10 years as it rides a wave of optimism following deputy president Cyril Ramaphosa’s election as the leader of the ruling African National Congress. The 19% gain in the period ended January 31 is more than double that of the next-best emerging-market currency, Poland’s zloty.

South Africa’s ruling African National Congress wants a speedy transition of power following its election of a new leadership and will discuss the matter with president Jacob Zuma this week, a top party official said. The rand gained.

“We are aware there are a lot of people who want the new leader of the ANC taking power,” Paul Mashatile, the party’s treasurer-general, said Wednesday at a conference in Cape Town. “It is going to happen. It is not a matter of booting him out.”

Ramaphosa was elected leader of the ANC last month, replacing Zuma. While Zuma’s second and final term as president is due to end around mid-2019, his immersion in a succession of scandals has eroded support for the ANC and led to calls from within the party’s ranks for his early removal.

The rand surged to its strongest level since May 2015, advancing as much as 1.1% to R11.8335 per dollar. Yields on benchmark government bonds due December 2026 dropped seven basis points to 8.49%.

“The rand will continue to remain sensitive to the headlines surrounding political news,” Zaakirah Ismail, a fixed income analyst at Standard Bank Group, said by phone. “It certainly looks like there is pressure building for a plan for president Zuma’s removal.”

Mashatile said he couldn’t say whether Zuma will be removed before the February 8 state-of-the-nation address.

“There has to be a very smooth and quick transfer of power now there is a new leader,” he said. “The question is how we will handle this.”

Mashtile’s comments contrast with those of ANC Secretary-General Ace Magashule, who said no decision had been taken to remove Zuma, and those of Jessie Duarte, Magashule’s deputy, who told Johannesburg’s City Press newspaper that he would only step down next year.

Effects of early withdrawals on retirement saving

Article written by Denver Keswell, Senior Legal Advisor, Old Mutual.

The goal of saving for retirement is to provide an income in retirement. There are however instances when a retirement fund member can access all or a portion of their retirement benefits before retirement. Many people access these options without fully understanding the effects “early withdrawals” will have on their financial position in retirement. Not only are they reducing the fund benefits they’ll have available at retirement, but many retirement fund members are also unaware of the severity of the tax consequences.

A retirement fund member may exercise an option to withdraw from a retirement fund in the following instances:

- Resignation or dismissal from employment

- Retrenchment (though compulsory retrenchment is now taxed as a retirement benefit)

- One allowable withdrawal from a preservation fund

- Withdrawal from a retirement annuity (RA) on formal emigration

- Full withdrawal if an RA’s fund value is less than R7000

The most common types of early withdrawals are when retirement fund members resign from work, and when preservation fund members exercise their option to take their one allowable preservation fund withdrawal.


The tax impact of early withdrawals

Most people are aware that any withdrawal taken will be taxed, but not everyone fully understands the impact of the withdrawal on tax at retirement. All lump sums* received from a retirement fund are either taxed as a “withdrawal benefit” or “retirement benefit”. The following tables are used to tax retirement fund lump sums:

Withdrawal benefits taken in cash after 1 March 2009 have the net effect of reducing your tax benefits at retirement and so too do retirement benefits taken in cash after 1 October 2007.

There will be times when we are all tempted to take an early withdrawal, but it is imperative to talk to a financial planner first to understand the full implications and tax involved.

The following examples show that a fund member can pay more than double the necessary amount of tax by taking an early withdrawal from a retirement fund.


Example 1

Chris resigns in October 2010 and has a pension fund worth R600 000. He decides to take R450 000 in cash and transfers the remainder to his new employer’s pension fund. Chris retires in March 2014 and his pension fund is again worth R600 000. He decides to take his allowable one third lump sum (R200 000) and purchases an annuity with the remainder.


How much tax does Chris pay on his lump sum?

Assuming Chris has no previously disallowed contributions, he will apply the rates as set out in the retirement lump sum taxation table on page 18 to his lump sum of R200 000. Instead of the first R500 000 of his lump sum being tax-free, however, Chris’s tax-free portion has been reduced by his previous withdrawal in October 2010. This means Chris has:


R500 000 less R450 000 (his previous withdrawal)

= R50 000 tax-free

The remaining R150 000 of his lump sum will be taxed at 18%

= R27 000 tax payable


What if Chris transferred his full fund value of R600 000 when he changed jobs, instead of taking a withdrawal of

R450 000?


Fund value = R600 000 + R450 000 (accumulated between October 2010 and his retirement in February 2014, assuming no previous withdrawals and ignoring potential returns)

= R1 050 000


One third lump sum = R1 050 000/3

= R350 000

R500 000 tax-free allowance means there is R0 tax payable.


Chris has therefore paid R27 000 more tax on retirement because of his early withdrawal. In addition, Chris would have already paid tax on this withdrawal at the time.


Example 2

Jabu resigns in June 2009 and decides to take R400 000 cash from his pension fund. He transfers the remainder of his fund value (R500 000) to a preservation fund.

In August 2011 Jabu takes a full withdrawal from his preservation fund which has by then grown to R650 000.

Jabu plans to retire in November 2014 and wants to take R1 100 000 as a lump sum from the pension fund he holds with his current employer.


How much tax will Jabu pay on his lump sum?

Jabu has taken two withdrawals after 1 March 2009 which will reduce his tax benefits at retirement. The R1 050 000 combined withdrawal (R400 000 + R650 000) will eradicate his R500 000 tax-free allowance, as well as his R200 000 @ 18% and his R350 000 @ 27%. This means that Jabu’s entire lump sum at retirement will be taxed at 36%.


R1 100 000 taxed at 36%

= R396 000 tax payable


What if Jabu transferred his full fund value of R900 000 when he changed jobs and did not withdraw his preservation fund before retirement?

Tax payable on his lump sum of R1 100 000 at retirement (as per retirement lump sum tax table on page 18):

R130 500 + R18 000 (36% of R50 000)

= R148 500 tax payable


Jabu has therefore paid R247 500 (R396 000 – R148 500) more tax on retirement because of his early withdrawals. Remember that Jabu would have also paid tax on these withdrawals at the time.


Lump sum in this article refers to any cash amount that a retirement fund member is allowed to take from their retirement fund instead of purchasing an annuity

Setting Financial Goals in the New Year

Article written by Phil Town, One Rule Investing.

Original article title: 7 Tips For Setting Financial Goals In The New Year.

Now that the new year is here, many of us have committed ourselves to changing the way we live for the better. Some of the most important things people focus on, especially in the new year, are personal finance, saving, and investing.

Achieving financial independence is an admirable goal, but very few people know where to start. If you’re starting to take steps towards financial freedom this year, here are seven tips you should follow to set financial goals for the new year.

Assess Where You Are

Setting financial goals is crucial, but before you can set any goals, you need to know where you currently are. Look through your savings, debts, and investments. Assessing your financial status may feel stressful, but gaining this knowledge will allow you to set realistic goals for the year.

Set a Budget and Stick to it

One of the best things you can do for your finances is set a budget. The budget should be achievable. Make sure that your housing, food, and utility costs are around what you usually pay.

Now is the perfect time to plan your retirement savings as well. More on that in a minute…

Pay Off Your Debt

Debt is a significant burden and can prevent you from achieving your financial dreams. Start paying off your debts now. Interest is stealing your money from you. If you’re making 15% in the stock market, but paying 18% in interest, you’re losing money.

Commit to paying off debts now, and you’ll be able to keep the money that you invest in the future.

Plan for Retirement

Retirement is coming, and you should be preparing for it. You need to discover exactly how much you need to retire. Thankfully, I have a calculator on my website to find the exact number that you need to retire. Knowing your number will help put your savings into perspective.

Planning for retirement is always an excellent financial goal, and the new year is the best time to focus on it.

Stay Organized

Setting budgets and goals are great, but these efforts are futile if you do not have a plan to stay on track.  Staying organized is a critical step to meeting your financial goals this year. There are several tools and budgeting apps out there that can help you remain on track. When it comes to your personal budget, the more organized you are the better.

Establish an Emergency Fund

Everyone is vulnerable to unforeseen emergencies. Without proper planning, your budget could fall apart should one arise. If you haven’t already done so, it’s important to establish an emergency fund. This will protect you if you experience any sort of unexpected emergency without breaking the bank.

Your fund should be at least 2 to 3 months worth of expenses. This fund may take a while to establish, but the personal financial freedom you gain from having it is worth the wait.

Review Your Investment Accounts

If you’re already investing, you’re on the right track. However, if you have a financial advisor, you’re probably not making the returns that you could be making. Most advisors will put your money in funds with high fees and high commissions. You need to be aware of where your money is going so you don’t lose it due to lack of knowledge.

Now is a great time to get a little education in investing and start making some changes. You could commit to learning Rule #1 right now and start getting greater returns with less risk than your financial advisor is taking with your money right now.

Does that sound like a good New Year’s resolution?

The best investment lies between your ears

Article written by Arin Ruttenburg, Brenthurst Wealth. Article from Biz News.

To achieve great investment results as opposed to acceptable it is critical to understand what long term means. So many investors, especially in recent times, are treating long term investing as up to five years because of market noise, resulting in switching in and out of funds instead of remaining invested for at least seven years or longer. This happens particularly with retirement investments, with bad results.

Since 1994, Dalbar’s Quantitative Analysis of Investor Behaviour has measured the effects of investor decisions to buy, sell and switch into and out of mutual funds (the international term for unit trusts) over short and long-term timeframes. The results consistently show that the average investor earns less – in many cases well below – what mutual fund performance reports would suggest.

The report constantly examines real investor returns in equity, fixed income and asset allocation funds, which are funds that have a blend of equity, bonds, property and cash. The analysis covers a 30-year period, encompassing the crash of 1987, the drop at the turn of the millennium, the 2008 financial crisis, plus recovery periods of 2009, 2010 and 2012 and examines the results of investor behaviour on the average investor and poses the question as to whether an investor’s “best interest” should include investor behaviour.

Key findings of Dalbar reports of the past 20 years:

In 2016, the average equity mutual fund investor underperformed the S&P 500 by a margin of 3.66%. In other words, had an investor remained invested as opposed to switching in and out of equity funds, or chasing the best performing equity fund, this statistic would be different today with upside for the mutual fund.

In 2016, the average fixed income mutual fund investor underperformed the Barclays Aggregate Bond Index by a margin of 3.66%.

Equity fund retention rates (the time an investor holds on to their equity fund) which is typically associated with long term investing decreased slightly in 2016 from 4.19 years to 4.10 years. Nowhere near seven years!

In 2016, the 20-year annualized S&P return was approximately 8.19% while the 20-year annualized return for the average equity mutual fund investor was only 4.67%, a gap of 3.52%.

Money Market assets, as a percentage of all mutual fund assets, tend to increase substantially during periods of market downturn but is only reinvested into the market slowly during market recoveries.

Investors seem to chase the best performing funds, which may not end up being a great strategy as this year’s best funds can also be next year’s worst funds.

No evidence has been found to link predictably poor investment recommendations to average investor underperformance. Analysis of the underperformance shows that investor behaviour is the number one cause, with fees being the second leading cause.

The role of a financial planner:

Just as professional athletes can accredit some of their performance to their coaches; it is ultimately the professional who executes the movement. The same goes for the financial planner advising an investor, but it is the investor who ultimately builds wealth!

Over and over, it emerged in Dalbar’s report that the leading cause of the diminished return investors experience is their own behaviour. No evidence was found that poor investment recommendations were a material factor.

Analysis of underperformance shows the following are the primary causes over the last 20 years.

Lack of availability of cash represents the investor return that is lost by delaying the investment.

Need for cash represents the percentage of investor return that is lost or gained by withdrawing the investment before the end of the period being measured.

Voluntary investor behaviour generally represents panic selling, excessively exuberant buying and attempts at market timing.

Key finding to note from the report is this: “No matter what the state of the mutual fund industry, boom or bust: Investment results are more dependent on investor behaviour than on fund performance. Mutual fund investors who hold on to their investments have been more successful than those who try to time the market.”

Similar to a coach guiding an athlete to be on top of his/her game, so should a financial advisor be a coach making sure investors stick with the plan; that portfolios selected are  in line with the investor’s goals and objectives; provide guidance when the market is falling and making sure changes to a portfolio are made when appropriate.

My golf coach once told me that the most important club in my bag is between my ears. Not that it made me a pro golfer, but the message was clear. What separates the good from the great is the ability to stick to the advice of their coach and remain committed to their goal.

Money Conversations with your children

Article written by Sarah Winfrey, Wise Bread.

It's hard for many of us to talk about money. Money conversations can be stressful and awkward, and you may be tempted to just stay mum on the subject. However, it's vital that you pass financial wisdom on to your kids, even when they're adults. It's important to teach them about money growing up, but there are some things better discussed when they are older. Here are the money conversations you should be having with your adult children.

1. Financial boundaries

If you are supporting your adult children and you'd like to stop, or if you want to avoid it altogether, it's important to set up some financial boundaries. If you don't want to support them financially at all, tell them that up front and stick to it. That way, you won't end up paying for things and resenting it.

If your adult kids are relying on you for part or all of their financial support, sit down together and form a plan. Cutting them off entirely probably won't work for either of you, but you can start slow; back off on payments over the course of six months to a year, and set up concrete steps along the way. For instance, you may decide to stop giving them "fun" money right away, but be willing to cover their cellphone plan for six more months.

Make sure you go about having this conversation compassionately. Tell your child that you love them and that you want this for them as well as for you. Offer to help them along the way, to be available to answer questions or aid in budgeting, and let them know that you will always be there for them in other ways.

2. Financial values

Have a conversation with your adult child about what they want in life and how much those things will realistically cost. This is the time to talk about the financials behind car ownership, homeownership, traveling the world, and more. Make sure they have an understanding of how much money they'll need to have in order to afford the lifestyle they want, and how much they need to make in a week, a month, and a year to achieve that.

Talk to them, also, about what is really important in life. Tell them that fancy cars, big houses, and lavish vacations aren't the keys to happiness. Ask them to think about what they would pursue if they were dying or what they would miss most if they suffered a serious injury. This can help them figure out what is important to them and what they may not be willing to trade their time and money for.

3. What it means to live within your means

Your adult kids need to understand the importance of spending less than they earn. Show them how to calculate this so they can determine for themselves when to spend their money and when it would be better to save or invest it. Your kids need to figure out how to sacrifice spending on superfluous things in order to live a financially secure life.

4. How to make a budget

Along the same lines, your adult children need to know how to make a budget. You can actually begin teaching this in childhood by giving your kid a weekly allowance and helping them break down how they want to spend their money. Even if you wait until they're older, though, you need to sit down with them and make sure your kids understand what they need to spend money on, what they want to spend money on, and how to allocate those dollars accordingly.

5. The benefits and dangers of loans and credit cards

In a culture where credit is readily available, your kids need to know how to evaluate different credit opportunities based on benefits and drawbacks, as well as how to wisely use credit. As soon as they are old enough to obtain financing of their own, you need to talk with your kids about credit cards, educational loans, personal loans, and home loans.

It will help to tell stories from your own life. Whether you've made financial mistakes or have been wise with your money, walking your kids through how you made your financial decisions and how they ultimately affected you will make the principles real, rather than keep them so abstract.

6. Saving for retirement

It can be hard for people in their late teens and 20s to think about saving for retirement, because it all feels so far away. But it's critical you talk with your adult children about how much they may need for retirement, and walk through some compound interest calculations with them so they see the benefit of saving early.

7. Your financial plan

As your kids get older, they also need to know about your financial plan, before they find themselves trying to figure it out without you. This can be an especially difficult conversation to have, because on top of talking about money, you're also talking about serious injury, illness, or death.

Still, it's important for your kids to know what types of insurance you have, because knowing whether you have long-term care coverage, for instance, may help them make better decisions later on. Talk to them, too, about how you plan to divide up your estate. This can keep conflicts to a minimum after you are gone, so they can grieve instead of fight.

If one of your adult children is the executor of your will, make sure they understand that responsibility and that they have all the relevant information. They should have access to the location of your accounts, the account numbers, and any identification information, as well as contact information for your lawyer. You can write all of this out for them so they can simply file it away until they need it.

Talking about money can be hard, but it's also important. Speaking with your adult children about these topics will ensure they have a better chance at a financially healthy life.