Enabling solutions crafted with care

Intasure Life exists in order to enable financial solutions for our clients.

Why do I pay my financial advisor?

New legislation is afoot which is going to reshape the way in which investors remunerate their advisors.  This is because there are still cases where advisors are paid an upfront commission which seems disproportionate to the amount of work done and also because there are instances where advisors receive an ongoing fee paid by product providers despite not continuing to see and advise their clients.

The FSB has been hounding life companies and others to get their affairs (commission structures) in order for some time now, but despite repeated promises from the industry to do so, they haven't all come to the party and the FSB has now had enough.  They have decided to go the route which the UK authorities took and that is to introduce Retail Distribution Review legislation.

The White Paper has just been made public this week and your advisor will be addressing the issues it covers with you in the coming months.

Pressure is mounting on the financial advisory sector and the end result will mean that advisors will charge for everything they do for clients from now on, but at least you will know why you are being billed.  

In other words, if you are receiving advice and acceptable service, you need to be willing to pay for it.  If you aren't, then don't agree to an automatic fee being levied off your investment.

 

 

  

 

Buying high and then holding those stocks is not a solid strategy

This is because the entry price and the exit or sale price are the two points which determine whether you make a profit or a loss or break even and how large the profit or loss will be.

The All Share or ALSI equity index is very high at the moment, meaning that many shares that make up the index are fully priced relatively to their historic prices.  The important thing to note is also that their price earnings or p/e ratios would be even higher if their earnings were not so high. So what's so bad about a strong current earnings or revenue stream? It can go down!

So, if we buy shares in most of the firms making up the ALSI now, the price will be relatively high. This means that if we wish to make a good return on our investment, the price obtained at the time of sale will need to be substantially higher and this is extremely unlikely in most cases, even over the medium to long term.

What to do?

Invest in investments and portfolios which contain under-valued shares as well as other assets which are not currently enjoying such popularity and you are far more likely to achieve a good return on your investment capital.

Cautiously managed portfolios investing in under-valued shares are one option, especially those that use their own proprietary research and which are able to invest according to their own philosophies and are not benchmark or index huggers. ETF investors beware, now is the time to consider taking profits and to diversify in mixed mandate funds.
 

The expected equity market correction has begun

We have clearly at last entered the anticipated stock market correction in recent days.

This isn't a reason to get out of the markets, but rather an opportunity to take stock of one's objectives in order to be secure in the knowledge that you are invested for a specific reason.

If you have medium and long term goals which require further growth in your capital, then you are invested in the stock market for good reason.

If you have short term goals requiring payment soon, then the capital you have allocated to that goal needs to be invested in less volatile assets right now even if you have not quite achieved the growth level that you had planned to.  You can then take capital from your cash fund to make up the difference required for that short term goal.

It is also a sound idea to reassess your whole portfolio now in order to determine whether rebalancing is required after the excellent returns achieved in the equity market since early 2009.  Rebalancing is required when one's asset mix has become skewed towards equities beyond the level which is required to achieve your financial goals and it may only be necessary in specific portions of your overall portfolio.

It is always a challenge to accept that a bull run is nearing its end.  But lest just be grateful for the excellent growth achieved over the last 5 years and lets use this opportunity to revisit our goals and our asset allocation spreads. 

 

 

 

 

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A few tips to remember when drafting a will

Ante-nuptial Contracts

Where the spouse who has deceased made donations to the surviving spouse in terms of the ante-nuptial contract, these assets (or replacement assets) must be delivered to the surviving spouse before the estate is distributed in terms of the will.  On the other hand, if the deceased spouse made donations to the surviving spouse, the estate may have a claim against the survivor. 

Divorce

After a divorce, the former spouses have three months during which to amend their wills.  Should one of them pass away after that period has elapsed and without amending their will, the former spouse will inherit.  

Suretyships

Where the deceased had signed surety during his/her lifetime and that surety remains valid at death, the executor of the estate may first need to find substitute sureties to free the estate of its obligations before the estate can be wound up.   

Maintenance Claims

Minor children have a common law right to claim maintenance against a parent's estate and a surviving spouse also has a claim for maintenance in terms of the Maintenance of Surviving Spouse's Act and these claims need to be satisfied before any benefits may flow to beneficiaries from the estate.

Collation

Descendants who are heirs and who benefitted from certain kinds of gifts from the deceased are obliged by law to account to the estate for the purposes of distribution.  However, a clause can be included in the will stating that heirs are not required to collate donations.  

 

 

  

The fallout from African Bank's collapse - side pockets in collective investment schemes or unit trust funds

One of the consequences of the collapse of ABIL is that certain fund managers who had exposure to African Bank in the form of either ABIL shares or ABIL debt, have decided to draw a distinction between those assets and the other assets in their unit trust funds which are affected by ABIL.  The net effect of this is that so called side pockets have been created within affected unit trust funds to house these illiquid Abil instruments.

These side pockets do not mean that investors' market values have dropped, but rather that the interests of investors are being protected.  This is being achieved by keeping "infected" ABIL assets away from those assets within a unit trust fund which are not at risk.

Clients will therefore be issued with two separate valuations, one for the side pocketed ABIL assets and one for the other assets for the foreseeable future until such time as the ABIL debacle has been satisfactorily resolved between the Reserve bank and those commercial banks which the SARB have appointed to assist with the takeover of ABIL.

Investors will continue to transact as normal in the affected funds, however, no transactions will be allowed in respect of the side pocketed or retention fund assets until liquidity in Abil assets returns to the market and the relevant management company realises (sells) these assets.

 

Are South African Bonds due for a hit?

Warning signs are emerging that South African bonds are vulnerable to a sell-off should bond market liquidity remain at its recent low levels.

 

Average monthly turnover for South African bonds slid 25 % in the first half to R452.8bn Rand, while Emerging Market currencies eperienced a high degree of volatility relative to hard currencies.  This could indicate that traders are becoming skittish and therefore becoming more aware of the short term risks of holding exposure to Emerging Market currencies.

 

Falling liquidity obviously raises the risk that it will be more difficult to sell the bonds in the event of any deterioration in sentiment. Rising U.S. interest rates or a slowdown in China, South Africa’s biggest trading partner, could lead to investors coming out of their rather entrenched state of complacency.  Emerging or Developing Market government debt dropped in recent weeks as sanctions were imposed on Russia for their involvement in the Ukraine crisis and also after Argentina missed a debt payment.

 

Also worrying is that fact that Rand denominated SA government bonds have been underperforming their Emerging Market peers this year and foreign investors were net sellers of our government debt for 10 straight days from the 21st to the July 31. This means that net purchases of our bonds by foreigners this year are down to R11.3bn Rand, compared with R26bn Rand in the comparable period last year.

Equities in South Africa are expensive. How do I decide whether to invest into them now or not?

According to most asset managers in South Africa, equities are currently trading at very high levels relative to historic levels.

 

This may seem to indicate that investors should be wary of investing in this asset class, or does it?  How do I know what I should do to save successfully?

 

With increasing life expectancy as well as increasing costs in many spheres of life in South Africa, we need to remember that not only must we invest carefully in order to protect our capital from permanent loss of value, but we should also invest it wisely in assets which will grow its value over time in order to allow it to retain its value after the effects of increasing inflation.

 

The two main investment challenges which therefore face investors in South Africa are different, but equally important to deal with.

Where to for the Stockmarkets in the short term?

It seems as though we are starting to reach levels on most major stockmarkets which are stretched.

 

Long Term Investors such as Warren Buffett are starting to put out comments that seem to be a gentle warning to those who feel that many major international equity markets are

going to climb for the foreseeable future.

 

On the one hand these comments may be designed to cover him should markets tumble unexpectedly soon and on the other hand he might be seriously concerned.  

 

It has been a good five and a half year bull run since equity markets bottomed out in February 2009 and this makes it a relatively long almost uninterrupted upward trend.

 

HOW TO PLAN FOR YOUR CHILD'S EDUCATION

Your child's high school and tertiary education could cost anywhere between R500,000 and R2million.  It's easy to see then that it would be a difficult task to attempt to save that money in a few short years.  

 

The idea behind an education fund is to allow you to fund the gap between your salary increases and the increase in school fees, which tend to increase faster than inflation.  While you may be able to afford your child's primary school fees, by the time they reach high school those fees will very likely be a lot more than you ahd anticipated.  This is due to the high demand for quality high schools.

 

The best way to provide for your child's education is to start saving from the day he/she is born.  To boost those savings you could ask family members to add money to their education fund rather than buying birthday presents.  Children need an education more than they need toys.  They'll thank you in the long run.

 

Many of us complain about the cost of education, yet we have no qualms about spending R5,000pm on a new luxury car.  Your child's education is far more valuable and it does not depreciate in value over time.  When you buy a house, a car or take on any form of debt, make sure that you don't do so at the expense of your child's education.

Gold Bullion jumps as investors bet on monetary policy remaining loose

The MSCI World Equity index neared its record high as investors expected the US Federal Reserve to keep interest rates at their multi-year lows to allow recent ecnomic growth to continue.

 

Investors feel that this loose stance by the Fed will remain in place despite the possibility of inflation increasing because they feel that the Fed is more concerned about stimulating the economy than they are about rising inflation. 

 

This led investors to buy gold bullion and to sell government debt because with inflation comes rising interest rates and with rising interest rates come lower yields and lower market prices for government bonds.  This led to gold experiencing its largest one-day rise in nine months.

 

Traders in a major hedge fund also cut back their large short position in gold tipping it above the US$1,300-00 per ounce mark which, in turn, led to plenty of stop-loss buy orders.

 

This revival in appetite for risk followed the Fed's decision to recommit to keeping interest rates near zero for some time to come.