NFB FINANCIAL UPDATE Issue 74 June 2014
FROM THE CEO’s DESK
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ell now. The ANC didn't lose too much ground, Helen's team progressed markedly, Juju preyed rather successfully on the downtrodden and Mamphele's bunch, showing so much early promise, paid the price for a failed merger! The elections have come and almost gone. Gladly we are through the horrid overt aggression and political gamesmanship, which typifies the pre-election space. We have an entrenched ANC, which can hopefully focus on its surprisingly pro-business agenda, agreed to at the highest level. As I noted recently, the departure from a very close alliance, along with the concomitant need to appease Cosatu's leadership and socialistic agenda, allows the government to tackle the next hurdle in 2019 with gusto, having realized the need to grow the economy, create jobs, meet the broad populations expectations and ensure they contain further losses to their political right and left. Hopefully they will deal with internal disciplinary and
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Mike Estment CFP professional BA / CEO - NFB Financial Services Group
financial services group
leadership issues and if this happens, we might be surprised with the vote of confidence financial markets, ratings agencies and investors afford Mzansi! Certainly the early signs in markets following almost final results from the regional and national polls are positive. Politics is a funny game. The impact of political decisions, sometimes more like experiments, can be materially constructive or quite the opposite. I certainly hope for all South Africans, that the ANC hierarchy accept the nations vote of confidence and make bold and brave changes which free the Rainbow Nation to re-assume its position as Africa's leading country, recently surrendered to Nigeria. The resourcefulness, patriotism, patience and belief, which our nation is richly endowed with, needs harvesting. Leadership is critical as the catalyst in our ongoing democracy. Here's hoping! So…on to markets, investments, currencies and tax. The JSE remains at levels never seen before. This, in our opinion, remains pretty frothy. I don't know how many of our readers have enjoyed a good body surf. Those that have will know the feeling of being “dumped”. You end up in something less than water, but not readily breathable. It doesn't faze the experienced surfer, but for those who have short memories, or haven't experienced this, it is scary and might result in us getting out of the water! Like investment markets, and more particularly equity markets, bumps and dumps are fairly regular occurrences. If you prefer less volatility and fewer unnerving corrections, perhaps a chat with your advisors is called for. For the seasoned and long term committed investors, we would, as always, maintain appropriate exposure to equity markets, paying attention to the fact that certain shares and sectors have over-delivered whilst others offer better value. A critical determinant of equity exposure should always be the likely need for an investor to have to liquidate (typically this happens at the perfectly wrong time according to Murphy's Law) either to meet a capital or income requirement. Shares mostly pay dividends and these can provide portfolios with required levels of tax efficient income. By rearranging stock
selection, one can reasonably easily enhance income, without compromising capital (though it should be kept in mind that potential capital returns may subsequently differ). By acquiring a portfolio of shares, which pay higher dividends, such as property stocks, preference shares and some banking and other stocks, one can materially increase the amount of income the portfolio generates. This is similarly possible via unit trust investments, where your advisor can tilt your portfolio towards funds which focus more on income and dividend generation, or by using NFB's own range of professionally managed Model Portfolios, which blend top funds to meet different client needs. So the idea here is to maintain long term exposure to the best performing, inflation beating asset class, but for those less inclined to short or even medium term “loss”, it allows an alternative. NFB remain focused on providing leading edge advice and service in an area of the economy experiencing significant change and regulation. I thought it appropriate to thank our clients for their patience and support in the important process of completing and meeting these FAIS and FICA requirements. Whilst perhaps unnecessary when dealing with leading and independent businesses like NFB, the experience by less sophisticated investors in the hands of unscrupulous advisors makes these regulations crucial in providing protection, and indeed recourse, should this become necessary. Thanks to you for bearing with us, and thanks to our compliance teams in all of our branches for making these processes as painless as possible. In closing a few words on the rand: “volatile” would sum it up in one word. “Vulnerable” would be another. But in the short term, following a year or so of material weakness, I'd hate to be asked to make a six month forecast. In the medium term, however, given our inclination as an emerging economy to suffer higher aggregate inflation, it is a reasonably safe bet to assume sustained weakness. What this means to us as investors, is that needing to make offshore investments is not really about timing, but rather about time.
fortune favours the well advised
A Letter to Our Clients Peter Armitage, from Anchor Capital, recently penned an article titled “A Letter to My Daughter�. The article discussed the financial, social and emotional tribulations a parent has when bringing up a child. With my son turning 1 in April, Peter's article resonated with me and got me thinking about my family's circumstances. This, in turn, led me to think about NFB's clients. I am going to cover some of Peter's thoughts and will expand this to include areas we should all pay attention to as they cover areas in our families we can control, namely, the financial planning aspects.
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here are a number of concerns I have for my son over the next 25 years or so, and probably his whole life, which are influenced by my career and my own upbringing. Will I be able to afford the best education? Will he be popular? Will he like soccer? Can we help buy him an apartment when he moves out of home (age 50 if his Mom has her say)? It goes without saying that he will also have a unique set of worries while he is growing up that are very different from mine. Before moving on to the practicalities of planning something more esoteric is the spending of two finite commodities: your time and your wealth. A concern I have is that I will miss a lot of my son's growing up as I'm too busy at the office trying to provide for my family. It is very difficult to put a price on time, but what is certain is that its worth goes beyond traditional currency. My decision is to do my best to make sure I get to some of his soccer games, school parties and concerts. Getting the right allocation between time and money is crucial as this in turn can provide its own rewards. Whilst we are strong proponents for saving it is also important to allocate money to things like holidays and family gatherings. We work very hard and, where possible, we need to enjoy the fruit of our labour - within reason.
Image credit: 123RF Stock Photo
What can you influence? A good starting point is to, very early on in your childrens' lives, put money away every month
which can be used for education, or alternatively, something less thought of, due to the long time horizon, a deposit on a home. If you can save R4 000 per month and this grows at 12% per annum for 25 years the money will grow to R7.6m (or R1.7m in today's terms). Saving for education, or any other goal such as retirement, does not have to be done through a specific
product. The product can be chosen to suit your circumstances. It is disciplined and continuous savings that are important. As individuals we are allowed to make tax free donations of up to R100 000 per annum; or R200 000 per married couple. Regular use of the donation, via a lump sum or recurring payment, either to kids or a Trust is a great way to set aside assets for current and future generations and also moves those assets out of your Estate. Please remember that this type of donation is in addition to donations to public benefit organisations which are tax exempt. In families where there is an insufficient capital base or income stream to support dependants in the event that the bread winner dies, life cover is an important consideration. With life cover you pay a relatively small premium per month which covers you in the event of your death for a pre-specified lump sum. This lump sum can then be invested and can provide beneficiaries with a monthly income. Beyond that, life cover can fill a few other voids: = You may have sufficient capital, but it may take a while for it be realised when you die. Life cover can provide liquidity and cash flow in an Estate as it should pay out more quickly to the nominated beneficiary/ies; = Pay off any debt; and = Fund death costs (Estate Duty, Capital Gains Tax, Executor Fees) so assets do not need to be sold off to cover these. While we are on the subject of death, it is important to, firstly, ensure that you have a will and, secondly, that it is valid and current. Your will should include things like the provision for simultaneous death of parents and guardianship where minors are involved. Consideration also needs to be given to the formation of a Testamentary Trust to hold your assets. Within a portfolio certain assets may be contractual and others are not. Where an asset is contractual, such as an endowment, the nominated beneficiary will receive the asset irrelevant of the will. Shares, for example, do not have a contractual beneficiary and will be dealt with as part of your will.
The crux of this article is to assist our clients in obtaining a degree of peace of mind around the financial aspects of their family's affairs. The formation of a Trust, under the correct circumstances, be it Testamentary or InterVivos, can help direct the management of your affairs during and after your life. A Trust is administered based on the content of the Trust deed, or will, which is in turn affected by the Trustees. You can be involved in the drafting of the Trust deed which will determine how money will be invested, who will receive the money and under what circumstances. The advantages of a trust can be offset by a number of disadvantages so careful consideration needs to be applied before going down this path.
What can we influence? As financial advisors our input needs to go beyond that of purely investing your funds or assisting with implementing a risk policy. It is critical that your goals, ambitions, fears and anxieties are all properly reflected through the construction of your portfolio. NFB will enjoy its 30th birthday next year and this wealth of experience positions our business and its advisors well to assist you, your family, your business and your Trust to create a considered plan for you. Furthermore, NFB's annual review process is a good opportunity to make sure the constituents of your plan remain relevant. I believe I have the above bases considered for my family. Please chat to your NFB financial advisor who will be able to guide you through a process that will allow you time and peace of mind.
Article written by Stephen Katzenellenbogen CFP
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professional
B.Com (Hons), Adv PDFP
Director/Private Wealth Manager NFB Gauteng
DO I REALLY NEED A
FINANCIAL PLANNER?
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eeking professional advice is something we do easily when it comes to our health, building our homes and even getting a haircut. When it comes to money matters, however, many of us often forge ahead with our own strategies, which often lead to delays in reaching the intended financial goals, and the mistakes along the way usually cost us dearly. Only after our own methods fail do we consider consulting a financial advisor to help steer us on the correct and shorter path towards our financial goals. Here are some reasons why even the most disciplined saver and investor should consider seeking professional financial advice sooner rather than later: = Human behaviour is an interesting element that inevitably influences the decisions we make. The emotions money evokes within us impact greatly on the investments we make and the returns we are able to enjoy from these investments. The subject of behavioural finance has come to show that people often act irrationally when it comes to their financial decisions due to emotions of greed and fear which at times compel investors to act against their best interests. A trained and experienced financial advisor becomes essential in neutralising these emotions by providing facts and objective guidance to guard against human behaviour interfering with investment goals. = Too much information: an informed investor armed with the latest issues of investment magazines and market updates on his cellphone may think he is in control and has the advantage to act swiftly on market updates impacting on the performance of his investments. Reacting to short term market glitches is often what derails many individuals off the path towards their financial goals. Correct investment choice applied consistently over the long term will serve
the goal of having enough funds for your children's education far better than keeping up with market announcements. In this instance, a financial advisor can help identify the appropriate investment structure; align the risk of the structure to your tolerance for risk; manage the investment over time; and take note to act on only fundamental market changes. Applying this approach brings about far less anxiety and less effort is exerted towards the path to investment goals. = Over confidence: with the benefit of hindsight, it comes to mind that most world market crashes, are closely linked to key market players being overconfident about their ability to continue making gains, and acting boldly by taking on more and more risk. These highly educated and highly qualified pioneers in their field are not the only people prone to this trait. Many individuals on a winning streak at the casino often show similar behaviour before losing it all to the house. It takes a skilled and level-headed individual to apply rational restraint and make decisions in the investor's best interest. Financial planners should be seen as professionals that we can hire to walk us through the discipline of personal financial management. Their services should not only be considered when needing to address retirement savings shortfalls, and structuring up tax efficient estate planning solutions.
Financial advisors can add great value by merely protecting our most basic saving and investment plan from ourselves. Should you wish to avail yourself of the services of one of our financial advisors, please call one of the NFB offices in Johannesburg, East London, Port Elizabeth, Stellenbosch or Cape Town.
Article written by Zukiswa Sonjica B.Com (Hons)
Financial Paraplanner NFB East London
A licensed Financial Services Provider
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