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The final straw to junk status?

Dear All

The corrupt and devious president of our beautiful country has fired the much respected Minister of Finance, Nhlanhla Nene.

 

The reason for this move was not provided (this in itself worries investors tremendously) and an unknown replacement, David Van Rooyen, has been appointed in his place. 

 

Who is he? 

He was a member of the portfolio standing committee on finance in parliament.  He seems to toe the ANC line and has not made any profound contributions while being on that committee.

 

He apparently holds an Advanced Business Management Diploma, a Diploma in Municipal Governance and a Masters in Public Development and Management, amongst other certificates.  He has no provincial or central governance experience.

 

It is concerning in that these unexpected decisions, made by a man who seems to have very poor grasp on reality, unsettle global and local investors. 

Uncertainty as to what a government will do next is the enemy of the investor and therefore of the taxpayer and therefore of the nation as a whole. 

This president of ours is a very dangerous man.  He has stepped out of line deliberately, thereby making a statement to the world that he is in charge and he alone, while his ANC followers (I do not believe there is a leader among them) watch and dare not do anything to stop him.

 

We need to hope and pray that the global community does not downgrade our soverign bonds to junk status.  Were that to happen, our government’s funding programme would be put in jeopardy and unemployment, already huge, would explode.  Of course, ours is one of the most inept of all governments and their spending is one of the root causes of our reborn nation’s financial dilemma.

 

Our wonderful country was given a second chance in 1994.  The time has come for a different, racially diversified, government to take us forward before we collapse in a whirlpool of corruption and anarchy.  This is probably our last chance at radical, appropriate change.

 

Kind regards

The Intasure Life team

To save rather than to spend

Dear All

 

We are a nation of spenders.  We are ranked in the top ten countries who buy luxury German vehicles and we are also known for our penchant for expensive branded clothing and personal items such as jewelry, sunglasses and watches.

 

We are also pretty good at showing off the latest equipment around the house and on the golf course, despite many of these purchases not adding more value to our lives than would a better priced, quality product.

 

All this despite being one of the lowest ranked countries in terms of socio-economic standards, hygiene and education. 

 

What is it about us that makes us behave this way?  Probably the same thing that makes many people become disciples of the shopping mall, a dream created by Marketing departments and informal evocative images sent through social media, TV and the internet!  The same thing that is informing the poor (there have always been more poor people than rich people and they used to be happy in their less comfortable lifestyles) about how the rich live and making them want the same.  This is the same thing that is enticing the persecuted in the Middle East and North Africa to risk their lives in the hope of finding Utopia in Western Europe.   The attraction of a beautiful image when one only knows a world of hardship is virtually irresistible.  It offers a feeling of peace and safety to the persecuted or feelings of temporary financial security to those who are in financial distress. 

 

It is difficult to resist temptation for anyone.  Read the Bible or any other book on religion.  They discuss how best to resist temptation and some even claim to be able to offer a remedy for it!

 

If we were bombarded every day with images of sad, destitute people representing those who couldn’t resist temptation to buy the latest expensive items and were also shown images of financially comfortable and happy people representing those who were able to resist that temptation, then possibly more of us would save rather than spend.  Or try this comparison (a poor substitute for a glossy image, I accept):

 

The decision to keep your tried and trusted, but clearly adequate car and to rather save R7,500-00pm in an investment portfolio or to upgrade your car to a more sleek version and to use that amount as your installment for the next 60 months (i.e. you have a car at your disposal and you are therefore being presented with a real decision to either save or to spend).

 

This would enable you to buy a Honda CRV with a purchase price of R350,000 and to pay it off at a fixed 10% p.a. interest rate over 60 months.

 

I will assume that your investment portfolio would grow at 10% less the 1.5% combined annual platform and advisor fees = 8.5% p.a.

 

The value of the car after 5 years would be around R250,000 depending on the mileage and the value of your portfolio which was growing at 8.5% p.a. net of fees would be around R580,000.  After a further 5 years the difference is clearly even more astounding:  The car would be worth nothing, while the investment would be worth around R1,400,000.

 

You would have had the use of the vehicle during that 5 year period, but the investment portfolio on the other hand would have provided you with peace of mind and (because) it has offered you readily available liquidity for use in emergencies, etc.

            

Of course, if you do not have a reliable car, you will clearly need to buy one.  However, a new vehicle may not be the best option.

 

This simple exercise illustrates how much more we can achieve by using some restraint when the next new (or very expensive used) vehicle looks enticing.

 

Restraint is what we will all need as interest rates slowly move upwards over the next several years and a lower (good) entry point will be reached on the stock market before long.

 

Best wishes from the team at Intasure Life

Tax Free Savings Plan

For those of us who enjoy a freebie, here is one which you should consider despite the maximum investment limits being relatively small

 

The Treasury announced the launch of its Tax Free Savings Plan initiative in March and financial institutions have been working hard on their TFSP offerings

 

Who is a suitable investor? Those who pay too much tax and who wish to invest for the long term (the tax benefits eventually add up to enhance your return after several years – the longer the better)

 

What is it not? A bank account

 

What can one invest in? Various collective investment scheme / unit trust funds (each investment house has its own selection of funds which have been made available for the TFSP)   

 

Some of the Features:

 

No tax payable on interest, dividends or on the capital gain

 

R30,000 per tax year (equates to a R2,500 monthly investment)

 

R500,000 lifetime limit

 

 

If you make withdrawals you cannot replace the capital

 

NB Point:  While this investment is liquid, it is not for those who wish to access their capital from time to time in the short term as this will erode the compound tax-free growth

 

This is a freebie from the taxman (he is not giving us tax payers many) – most of us can therefore use this offer to assist us to grow our capital for retirement or a long term goal.

 

Take advantage of this concession and do so every year!

 

 

Are you retiring this year?

If you are reaching your retirement age later this year, you will be faced with various decisions which could influence the rest of your life.

A few of these decisions are:

Do I have the option of converting any group life cover without underwriting

If yes, do I need this cover and can I afford it all or should I take a reduced amount  

Whether to take your full 1/3 cash lumpsum or less if it is not totally free of tax

How much income you require from your retirement benefit, be it only from your 2/3’s pension or from a portion of your reinvested 1/3 cash lumpsum too

Whether to invest the remaining 2/3’s of your retirement fund in the form of a traditional annuity (with your employer or an outside issuer) or in the form of a fund-linked living annuity

What sort of traditional annuity to opt for.  One with a guaranteed term or a nil guaranteed term.  One with a spouse’s pension after your death or no spouse’s pension.  What % of your full pension should the spouse's pension be

Which unit trust funds, wrap funds or direct instruments should you use in your living annuity portfolio, if you go that route, in order to achieve your income and capital growth goals.      

What level of income to start with at the outset of retirement.  As much as you wish, or as much as your financial advisor advises you to opt for after taking the Actuarial Society of SA’s calculations into consideration.

How do I utilise my discretionary investments to augment my retirement lifestyle

The amount of time and the depth of the discussions you have with your advisor as well as with your spouse several years before reaching retirement age, which should deal with your retirement goals and objectives, will determine the degree of satisfaction that you will glean later in life from your hard-earned retirement savings.   

Don’t delay to make an appointment with your financial advisor to discuss what your lifestyle in retirement should look like.  Give yourself time to shape your lifestyle after employment, otherwise you may not be able to look forward to a comfortable retirement when you deserve one.             

 

Foreign Capital Allowance Increases and Curbs on the use of Retirement Annuities to Reduce Estate Duty later in life

The R4 million which South African taxpayers are allowed to invest offshore in your lifetime will be increased to R10 million per taxpayer or R20 million per family in terms of the Budget proposals.

This foreign capital allowance also applies to the amount you can take out on emigration.  In addition to this lifetime limit, you are entitled to take R1 million a year overseas as a discretionary allowance meaning that you don’t have to apply for a tax clearance for this amount.  This amount has not been changed.

 

Later this year changes to the Estate Duty Act will be proposed in order to prevent you from making large lump sum contributions to a retirement annuity in order to reduce or avoid estate duty. 

Because of the exemption on proceeds from a retirement annuity and living annuity from estate duty after death and because of the removal some years ago of the age limit after which one may not contribute to a retirement annuity, many taxpayers were being advised to make large contributions to their RA’s late in life to save their families estate duty. 

Revenue has now become aware of this trend had has decided to close this loophole later this year.

Teach your kids about money

Here are a few tips to help you teach your kids how to manage their money – by setting a good example ourselves

Having a household budget and a financial plan, with the family involved, is a great way to teach children how to manage finances. As a family you can set some healthy money rules, such as:

·         Save 10% of your net income for emergencies

·         Donate to a cause that is close to your heart

·         Invest an additional 10% of your net income in growth assets to start creating real wealth  

·         Pay your kids pocket money and set some ground rules

·         Understand the difference between needs and wants

·         Pay for all needs on time and only consider buying wants if there is money left over

·         Never buy wants (frivolous items) on credit

·          

POCKET MONEY GROUND RULES

The sooner children start handling money, the sooner they can start learning to manage it. Link their pocket money to chores they do around the house so that they learn that money has a value, and that you work for the money you earn.

For older children rather than buying them their toiletries, air time and clothes, give them the money you would spend on these items each month and make them budget and allocate it. The first month they may blow it all on airtime, but within a few months they’ll have learnt how to find a balance. Never give your children money “in advance” – that will only teach them to live in debt!

Encourage your child to put money away for savings, especially when they receive birthday money or money from a holiday job.

Let them create a goal that they can save towards – for younger children it may be an expensive toy. Older kids may want to start saving towards a car. A goal gives them motivation to save.

Children are by nature very entrepreneurial – they don’t have the fears that their parents may have.

If your child has an idea on how to make money – selling cookies to their friends every Friday, perhaps - help them write up a business plan so they may better understand the costs versus the income.

Children are also community-focused and tend to want to help those less fortunate. Chat to your child about a charity they may like to assist – either financially or through their own time.

 

What will the equity markets produce for us this year?

An increasingly “nervous” international investment environment this year will lead to political risk becoming an even more important factor to consider in 2015.  This is because analysts and investors are no longer as calm as they were last year and bad news is more likely to lead to a negative reaction than it was last year.  

 

These are some of the main reasons for the current nervous investment environment:

 

China’s growth has slowed to around 0.9%, which is at a 24-year low

 

The 17 percentage point outperformance of US stocks over their European counterparts in 2014 - the largest for 40 years

 

The 25% gain by the Swiss Franc against the Euro last week after the currency peg to the Euro was removed

 

The prospect of anti-bailout party Syriza triumphing in Greek elections scheduled for later this month has raised fresh concerns over the implications of a possible Greek exit from the eurozone

 

The UK general election scheduled to take place in May which is seen as the foremost political risk for UK investors

 

ISIS and Boko Haram and other related and unrelated terror activities around the globe

 

 

Of course, there are also reasons why equity markets may benefit:

 

European equities start to attract investment, leading to price appreciation

 

The lower oil price reduces inflation around the world without the UK and Europe sliding into a deflationary spiral

 

Greece remains in the Euro group of countries

 

Either the Tory’s win the UK general election in May or the Labour Party win but do not carry our Ed Milliband’s threats to cut up large banks, put the breaks on insurance companies and pension providers, etc

 

The violence sown by Isis and Boko Haram slows

 

We will also have to see if the new quantitative easing package announced by the ECB today will lift especially European equities - the timing couldn't have been better for this announcement

 

Federal Reserve takes an investor friendly stance towards interest rates

The US Fed has decided to keep interest rates unchanged at least through the first quarter of next year. 

This has been well received by investors and market commentators alike as most stock markets, including the JSE ALSI, have taken a tumble in recent days and such an accommodative stance by the Fed should instil some confidence back into the equity markets over the festive season to arrest further wholesale sentiment- driven selling. 

Of course, this does not provide a guarantee of any sort and company fundamentals should still be a factor in determining the direction of share prices to a degree (they may go up and they may go down), although during this time of year, emotions tend to drive prices more than facts and figures and trading becomes thin allowing prices to move more easily even on small trades. 

Hopefully then, we may see our share portfolios coming out of the festive season in mid-January a little higher than they are right now. 

The Changing Oil Environment

In recent weeks the oil price has dropped substantially.

Is this a good thing for the world or is it not?  

It depends whether you are an oil producer or not and if so, whether you are in a position to find oil in your territory through hydraulic fracturing or not. 

The oil price has lost more ground than it did during the 2008 financial crisis.  With the oil producing countries voting earlier this month to let the market decide where the oil price will go, those producers who have high input costs, e.g.  Nigeria and Iran amongst others,  are becoming concerned about the sustainability of their oil industries. 

Russia, the world’s largest oil producer needs the revenue from a strong oil price to keep its ailing economy going.  Both Iran and Russia are struggling under US and EU sanctions and a sustained lower oil price could bring them to their knees.

Why has the oil price lost ground?  The US has started to bring even larger amounts of oil onto the world market than before, due to the benefits of through hydraulic fracturing.  This new technology enables miners to free up huge amounts of oil which were not previously available.  This means that with the current Brent crude price at around US$64 per barrel, the average Opec member is forced to sell their oil at a discount of 33% to their cost price.

This situation could lead to large scale suffering amongst those oil producing nations who haven’t positioned themselves to participate in the benefits of the new technology.  This could have dire socio-economic consequences for their people and potentially for their neighbours and trading partners.

For non-oil producing countries, this sudden fall in price means some relief as they go through the northern hemisphere winter and the festive season.

Ironically, if this developing situation is allowed to unfold without intervention by Opec, it could lead to a surge in the oil price as high cost producers fall away and the demand/supply situation becomes skewed.  

In the interim, analysts watch and wait as they prepare for their holidays with more anxiety than they would like.  By the last week in January after analysts have returned to their Reuters screens, we will have a better idea of where this situation is going to lead markets in 2015.  

 

High Yielding Tranche Investment from Fedbond

Dear All

This is a brief information bulletin about Fedgroup’s Participation Bonds for those who seek a good yield to consider carefully.

FedGroup, the largest privately owned financial services provider in South Africa, have recently notified me that their new limited Participation Bond tranche is available.

There are two options to choose from. These investments fall within the ambit of the Collective Investment Schemes Act.

Both options allow for a monthly income from the interest earned by the investment capital or one can chose to reinvest the interest earned and take advantage of the power of compounding interest by  enjoying a larger yield from your investment.

Fixed Option

Provides capital preservation with certainty of yield regardless of market fluctuations within a 5 year period.

The 5 year effective rate for this option is 10,55%.

Investment Option

Vehicle to invest where one has access to the initial  capital invested in emergencies. Here the interest earned fluctuates  in line with the market.  The rate as at the 1st of November is 6.75% per annum.  

Feature

Fixed Option

Investment Option

Term

Initial Capital to remain invested for 5 years

Initial capital can be withdrawn (with penalty) within 5 years

Interest

Can be paid out monthly or reinvested

Can be paid out monthly or reinvested

Rate

Fixed at 8.5% nominal rate, 10.55% for 5 year

6.75% nominal rate that fluctuates relative to market rate

 

There is a once-off upfront fee paid by Fedbond to the advisor of the equivalent of 2% of the capital amount invested.  This fee is not taken off the capital sum invested.

There no ongoing fees and there are also no platform fees involved.

The minimum investment size is R5,000-00.

The interest income is taxed at marginal rates after the annual exemption has been taken into consideration.

 

A few more details about Fedgroup:

The Property portfolio encompasses commercial, industrial and retail properties of varying size and their value ranges between R30m and R50m.

They investigate the sustainability of  the business within the property to ensure they are able to sustain the bond.

They utilise FSB approved property valuators that evaluate the properties in additional to their own expertise from their property division.

Their business operations are regulated by the Consumer Protection Act and is audited annually.

They do not loan more than 75% of the value of the property.

If you have any comments or questions, please contact me so that we can perform a full financial needs analysis in order to ascertain the suitability of such an instrument to your financial circumstances.

 

The Intasure Life Team