APRIL / MAY 2018
PROFICIO NFB FINANCIAL UPDATE FROM THE CEO’s DESK
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n my previous editorial, I suggested the naysayers should pause and watch Cyril R take bold steps in changing the political and SOE landscape, opining that he did not have to get support from an apparently dysfunctional and 'hung' executive. I was spot on! What I didn't get right was the speed with which wholesale hiring and firing would happen in the Cabinet. The mega shuffle came remarkably quickly and whilst needing to consider ANC politics for the 2019 election, certainly made politicians, thieves and South Africa take note. Further afield, we saw a very positive take by global money managers and media. I have said this before and will probably have to say it again but, my, how we like to bring things back from the brink! We aren't out of jail, however, and still need to see the political will expressed, which puts many deserving crooks behind bars. The rot starts at the top, they say, and repairing our crippled economy and psyche needs brave and bold leadership. I think we might just have landed some! I have just finished reading an amazing but scary book, which is titled, “How to Steal a City”. It is a remarkable story of the Port Elizabeth metro and the incredible theft and corruption which went on for years, costing the metro and its people dearly. It is the story of Pravin Gordan appointing a brave team to 'fix' the problem and the web they uncover. It is but one story and remarkably shows a positive side to Mayor
Danny Jordaan, who was implicated in the Soccer World Cup shenanigans. It also displayed, for all to see, the sinister side of politics and business and the need to separate politics from the running of our country and its services. I grew up in PE and reading some of the names who had crossed into the “Dark Side” made the book very real. This also brings me to note Suzanne Daniels, the suspended Head of Legal at ESKOM. She was the very lonely and uber-brave whistle blower who stood up against the cronyism at this most critical SOE. The CCMA have re-appointed her. South Africa has many of these brave people. We have heard far too few of their stories and as civic society, tar all civil servants with the same brush, which includes rude, lazy, incompetent, uncaring… clearly this is simply not true of all. My office serves as a barometer of some sorts. Just like in the broader population, it exposes me to somewhat radical swings in sentiment. Six months ago, it was really doom and gloom. Last week, I was lectured about the trajectory of the Rand. The number 8 was mentioned and whilst this is certainly not impossible, it is unlikely. Not so for my bullish visitor. I have often noted NFB's lack of appetite for forecasting. This approach is indeed typical and is a core tenet of our Award-Winning Asset Management business. Here, I prefer to recognise my fallibility and rely on some technical help (see graph on the left). From the graph, you will see periods where radical volatility have prevailed. You will also note the trend to a weaker currency. Typically, the volatility is a result of an event, sometimes as a result of a local event (like the firing of a Finance Minister ¹, or the hiring of a new President), other times a global event ², from which SA is not insulated. The point is that whilst we could well go stronger, the trend is your long term friend and if you smooth the graph, weaker is the most probable trend. Our role as advisors and money managers is often the subject of discussion and review within NFB and our broader Group. With over R28 billion under management and advice, we have a role to serve both our direct customers, as well as the market and population at large. Human nature is tricky and having someone trusted to either assist in decision making, or indeed to make the decision, is taken very seriously in our corridors. Advice and service are what we are about and helping our clients, their families
Source: Thomson Reuters
continued on the third page
The point is that whilst we could well go stronger,
Mike Estment CFP®
the trend is your long term friend and if you smooth the
BA / Chief Executive Officer
graph, weaker is the most probable trend.
NFB Private Wealth Management JHB
INVESTMENTS TO FOCUS ON AT DIFFERENT LIFE STAGES L
ife brings about different life stages, thereby bringing a necessary shift in priorities.
good habits. Saving for this event can start at a minimum contribution of 10% of your monthly income. The effects of compound interest over the years will count significantly in your favour.
In your 20's – At this stage most people are starting employment, earning an income and starting their journey as active participants in the financial world. The proper way to get started is to get into good habits from the first salary you receive by putting money away for savings and investments for your future. Avoid debt where possible and if you must get into debt, make sure it is settled as soon as possible, and try to avoid lifestyle fuelled debt. This is the most ideal time to shop around for insurance for death, disability and severe illness as one is still young and healthy. Your starting premium will be based on the healthiest you will ever be. You are less likely to encounter loadings and exclusions at this stage, as your body has not gone through the poundings of stress and will not yet show the damage of an unhealthy lifestyle. It is, however, quite important to lead a 'clean' life as certain recreational habits could affect your Risk Assurance application. Saving for retirement may seem an unnecessary task at this life stage, but the aim is to get into Fin24.com
In your 30's – These years will present different obligations as life progresses differently for each individual. You may be working your way up career-wise, with increased disposable income that may tempt some to conspicuous consumption, where one may buy things in order to be seen to be doing well financially - the faster, better car, bigger apartment or new home in the posh suburb, better gadgets and more expensive clothes etc. Some may have settled down or may be planning to do so in the near future. Planned and unplanned children will need you to re-evaluate your financial obligations and future plans. The areas that require attention include relooking at the insurance you have in place. If no plan is in place, make sure to get a comprehensive cover for personal and business risks. As you acquire assets, and expand the family, dependants brought into your life need to be taken care of both when you are alive and afterwards. One therefore needs to ensure existing cover is still relevant and sufficient to cover your needs as well as those that depend on the income you bring home even when you are no longer able to do so or there to do so. The next area is that of your retirement savings – this stage is a good time to check on your retirement savings. Spotting shortfalls now will give you ample time to catch up and make provision for a comfortable retirement for yourself and for a spouse that is not formally employed. Your dependants, i.e. your children - are another area that cannot be ignored. Children need food, clothes, education, babysitting/aftercare. Their extramural activities come at an extra cost. This requires you to put funds aside for schooling and/or tertiary education. A will is something to give serious consideration to at this life stage as well, as any dependants left behind will require maintenance. With a valid will in place, any assets accumulated, as well as risk benefits set to pay out at your death, will be distributed as you wish.
In your 40's – Most people reach peaking earnings at this stage. Retirement savings should definitely be amongst the main focus areas of your finances at this life stage. If you have not yet consulted a financial advisor as this life stage, it is a good idea to check if you are on track with your investments, estate planning, tax planning, risk assurance, and to get your will in order. If you haven't started saving towards retirement, you still have 20-25 years in which to focus on saving up the amount needed to replace your income during retirement. You should be taking a stand to manage debt at this stage in order to ensure you attack it while you are earning an income. A 20 year bond taken out at age 40 will only come to the end of its term when you reach the age of 60. In order to eliminate monthly debt repayments from your retirement budget, it is best to pay off the house before retirement and have the property available as an asset that can be sold off at a good price if need be. Old age often requires one to
The proper way to get started is to get into good habits from the first salary you receive by putting money away for savings and investments for your future.
downgrade to a smaller home than when the kids were still around, so a well-kept, paid off home will be a great financial asset that could give you excess funds to contribute towards your retirement income. Should you anticipate putting kids through university during your retirement years, make sure to have funds saved up. It may seem simple to use the equity in your home to acquire certain items or pay for family trips and holidays, but this will only delay your financial progress, so avoid this at all costs. Rather save up for those outings.
In your 50's - You have been working hard for practically half your life. Depending on your work environment, you may be counting down the days when you can actually leave the place for good. The amount you've built up can seem like enough to keep you comfortable for as long as your eyes can see, and putting up with workplace related frustrations might not entice you to get up in the mornings anymore. Your health may also not be playing along, and removing the work stress factor may seem the only sensible solution. An early retirement application to HR is all it takes. Depending on your retirement fund rules, please be aware that there may be penalties to your retirement lump sum if taken before the official retirement age. A seven figure retirement value might look like a large sum today, but over time, and many medical expenses later, it may be used up sooner than you thought. We therefore advise that one keeps working for as long as your company and health allows, and make early retirement your last resort. Explore other ways of easing yourself out of the work place like reducing your working hours or seeking a more flexible type of role if you can, just to keep the income flowing in until you can truly afford to retire comfortably. Once you leave employment, it may be difficult to re-enter the job market at a more mature age. It's important to watch your investments closely in this last decade as an income earner, to ensure the nest egg you have saved up is protected and growing steadily. You cannot afford risky investments, nor to put the funds in underperforming asset classes that will have inflation eroding the value of the investment. Make sure you understand the investments you are in, and that you are comfortable with the risk being taken with your funds at this stage. You do not have the luxury of time to overcome financial setbacks at this stage, so it is important to be comfortable with where your money is invested at all times during these years.
At retirement - When you decide to retire, seek professional advice. There are various products, options and tax implications that need to be considered, and these are not designed for the untrained person to understand without consulting the experts in the field.
Zukiswa Sonjica B.Com (Hons) Financial Paraplanner NFB Private Wealth Management EL
FROM THE CEO’s DESK and businesses develop a sound plan, which allows for flexibility and peace of mind. Leadership is critical in all aspects of civil society. Each of us need to be a leader in our own special way. It might be at very different levels, some national, municipal, in businesses, in communities, in sports
teams or in homes. They are all critical as they inform the behaviour and habits of forthcoming generations. I certainly owe my value system and character to great parents, an awesome school in PE, the Navy and the greater Financial Services Industry, which has adopted, taught, rewarded and recognised myself, my colleagues and our business. Now it's our turn!
HOW COULD THE UPDATED REGULATION 28 CHANGES AFFECT YOU?
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n the recent Budget Speech, exFinance Minister, Malusi Gigaba, stated that the offshore investment allocations for institutional investors would be increased. The Association for Savings and Investment in South Africa (ASISA) states that all funds will be able to officially implement these changes from 1st April 2018. These increases also apply to Retirement Funds and are governed by Regulation 28 of the Pension Funds Act. An important reason for imposing the various limits in Regulation 28 was to create a means to invest the likes of retirement funds responsibly without undertaking substantial currency risk.
Prior to this, Regulation 28 was last revised in July 2011. At a basic level it meant that investments had the following restrictions: = Maximum local equity 75%, maximum local property 25% and maximum offshore assets 25%, with another 5% for “Rest of Africa” investments. These limits restricted offshore investment significantly.
The latest budget recommended that these limits be increased in the following manner: = The offshore investments allowance by 5% to a new maximum of 30% in total. The Africa limit has been increased from 5% to 10%. A few years ago, it was perceived that investing offshore was riskier than local markets. This might be true if fund managers only invested in emerging markets. However, recently, investors have achieved better returns without taking on more risk due to offshore diversification in the correct places. Diversification, however, can be seen as a double-edged sword. Although you might reduce your political risk by investing offshore, you remain vulnerable to currency risk.
WHAT DOES A HIGHER LIMIT MEAN? Essentially the increased limits give fund managers more flexibility. No one is suggesting that they immediately take up the offer of the full 30% offshore exposure, or the full 10% Africa exposure, but the perception is that most of them will raise their overall nonSA exposure over time.
There are two reasons why this should be so: = The JSE All Share Index is skewed in favour of a few large capitalisation stocks such as Naspers, Richemont and large financial services companies which make up a substantial portion of the index. = Certain investment opportunities are scarce in South Africa: these are in sectors such as IT, Pharmaceuticals and Biotechnology. Over the last few years these sectors have thrived worldwide. Overall, these changes have been positively received by the market due to the fact that fund managers now have increased flexibility for offshore diversification. Investment managers could opt to increase their offshore holdings for cautious funds or balanced funds, and that could affect your retirement plan. There are risk-averse investors that might feel that they “can't afford” the higher risk of currency fluctuation. Once these changes are in force, investors might want to consider looking at the resultant overall allocation and see how much it impacts them. There could be a case that due to these changes they now, unknowingly, become over-exposed in some areas against a longer-term plan that has been agreed upon, and the portfolio may need to be rebalanced.
An important reason for imposing the various limits in Regulation
Mohamed Hassain B.Comm (Hons), PGDFP Financial Paraplanner NFB Private Wealth Management JHB
28 was to create a means to invest the likes of retirement funds responsibly without undertaking substantial currency risk.
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