NFB FINANCIAL UPDATE Issue 76 October 2014
FROM THE CEO’s DESK S ince we last chatted we have seen global equities move broadly forward, in some cases testing new highs. Where these markets go next is anyone's guess, and trying to call them is simply a waste of time. Part of NFB's mantra is that we are old, experienced and humble enough not to try to forecast. This, we believe, is an important part of the provision of great advice, and will most likely deliver sustainable real returns to our investors. We are all pretty fickle as humans. Eager to gain, but twice as averse to loss, we travel in a universe so oversupplied with information and noise, I am surprised that we find time to reflect and make savvy decisions. I don't know about how you feel, but I sometimes feel quite intimidated by the simple volume of “stuff”, printed and electronic, poked at me from the markets, partners, family members, friends and the like! My boys regularly chastise me for not responding to the latest “tweet” or Facebook chirp, not realizing that I cannot seem to remember the appropriate password, never mind
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Mike Estment CFP professional BA / CEO - NFB Financial Services Group
financial services group
each one's unique protocol. Then there is the critical aspect of time as well as relaxation. Trying to outfox the rest all the time is futile. There is, or will be, someone more informed, luckier, and perhaps just dumb enough, to put all their eggs in the same basket, which is with more than a little serendipity, timed to perfection. We will hear from these types about their good fortune too! Funny thing, but I always seem to meet winners at casinos. Where on earth do the losers go? I think part of Sol's amazing psychology is a back door through which all of these poor folk are ushered. My experience on walking in to one of these establishments has always been to the sound of coins dropping, bells ringing, corks popping and lights flashing. Perhaps like cigarette advertising, things should change where the consumer should see their credit card balances live on screen, and a clear percentage probability of losing their bread money. However, I digress, so lets get back to our reality. The JSE (or a short list of some extraordinary companies on the JSE) continues to test remarkable levels. This, however, is beginning to display quite some volatility. Together with this, we get regular explanations from pundits referencing Ukraine/Russia tension, the Middle East or some hawkish sentiment expressed in the USA. The very next day or week, the tension has abated, some shocking employment numbers are published, and the march to new highs resumes. As noted previously this is not a call by NFB to disinvest. It is, however, a further reminder that markets, securities, currency views and the like are destined to change trend, sometimes remarkably quickly and the markets do not offer an obviously inexpensive entry point right now. We also note an increasing trend of new listings and IPO's as they are called. These typically occur in the advanced stages of bull markets. As always, we suggest regular growth investments should continue unabated. Large new investments might benefit by smart deployment using a phasing in approach. The most key determinant of potential disinvestment would be where one has achieved returns beyond reason, and where the newly enhanced capital value needs protection, as the investor is either already needing to draw
income (perhaps in the form of a pension) or this change is imminent. Interest rates have begun to increase. This trend, likely to continue for the foreseeable future, does not support asset prices. These assets are typically equities and property. This represents a further reason to advise against speculative investment. Growth assets have always delivered superior results over the longer term. In any shorter period, history is littered with those gamblers whose stories are seldom, if ever, shared. NFB will be publishing a few distinct notes on a few important issues I would like to make readers aware of. Firstly, the fact that STC credits will become redundant at the end of the current tax year. The second issue concerns fairly important changes to the approach and rules governing retirement savings. Next March, interesting terms like P-Day and T-Day become very relevant. These are part of National Treasury's efforts to, firstly, standardize an industry fraught with confusion, and secondly, to promote a savings culture in a country where our national savings psyche is simply absent. All of this whilst not wanting to make the obvious political and social mistake of taking away peoples' (read voters') rights to spend their provident fund savings now! (A vested mistake in the old rules.) On both counts, I would advise clients to engage with accountants, your NFB advisors or your HR team to ensure these changes filter through to your organizations or personal plans, avoiding last minute stress. As noted, we have information and will be putting out a few understandable bulletins in the next while. Lastly, much has been said in previous editorials regarding the advantage of pension drawings being set off against what are called Disallowed Contributions to retirement savings. This little, but important development, was put into effect in March this year. Please ensure that should you have retirement savings (Pension and Retirement Annuity contributions), which haven't been deducted from taxable income, that this be noted in your tax record (E-file). The little piece of legislation is called Section 10C, and will prove very advantageous where applicable.
fortune favours the well advised