Q: I am 56 years old, healthy, have a reasonable job and presume I can work for the next 10 years.
I have a home which is worth about R2.5 million, with a relatively small bond. However, apart from an annuity worth about R300 000 I have no other savings.
My youngest child is almost independent, and in a couple of months time I will be able to save R10 000 per month. This amount can increase to R20 000 in the next 18 months.
How should I invest this money and how much trouble am I in?
The really important question here is the last one. In our view, any investor currently requires approximately R1 million for every R4 200 of monthly income they want before tax and after costs.
This yield is specifically constructed to provide an escalating income that keeps up with inflation. We are aware that an investor can source a fixed yield that is higher, but that would mean that it doesn’t increase in the future and progressively becomes worth less.
This also assumes that your capital will be maintained and over occasional periods will
I am regularly asked for advice by younger people looking for a sure-fire way to build their wealth. They are often surprised when I tell them to invest more time and money in themselves and their human capital. Historically, people who do this are likely to create significantly more wealth over their lifetime than those who don’t. It is obvious that you need to accumulate investment assets but you also need to ensure that you earn income at an increasing rate over your career. The best way to do this is by investing in yourself.
What is human capital?
Human capital is the combination of skills, knowledge and abilities you have that will enable you to generate income over your working life. Nearly all of us have an ability to generate some income but very few people consistently invest in themselves so that they can increase their earning potential over time. According to the Federal Reserve of San Francisco, university graduates generate R16 million more income over their careers than non-graduates. This might give some context to the #feesmustfall campaign in South Africa.
If you choose to
Q: A lucky investment some years ago is bearing fruit. Last year, I effectively got a 13th cheque from dividends, and I expect similar this year.
Instead of blowing it again, I was hoping to put it somewhere that will pay me a monthly income, maybe over two years. What is available out there that can serve this purpose?
A lot of people who get a bonus or once off additional income for whatever reason, tend to ‘blow it’ as you have pointed out. It is therefore a very good idea to try to think of better things to do with the money. I would, however, suggest that you consider not only your immediate or short term needs but also the long term potential of any extra income you receive – no matter how small.
If you have a need for extra monthly income, which might be the case if you are currently using a credit card or overdraft because your expenses are close to or more than your current monthly income, then I support your idea of putting the money in a vehicle that will allow
Q: I am 39 years old and have worked for the public service for just over 11 years. I am considering resigning because I want to further my studies for the next three years.
My current retirement fund value is R947 113.
How much will they tax me if I take this out and how best can I invest it?
The short answer to your question is that you will be paying R191 820.51 tax on a retirement fund value of R947 113. In other words, 20.25% of your retirement benefit will be paid to the South African Revenue Service (Sars).
How this is calculated is that your capital will be taxed on a sliding scale. The first R25 000 is tax free, the next R635 000 will be taxed at 18% and the balance will be taxed at 27%. Although not relevant in this instance, any amount over R990 000 would be taxed at 36%.
However, you can avoid this tax entirely by transferring the benefit to a preservation fund. This is an option you should seriously consider.
A preservation fund works in the same way as a retirement fund, except that you don’t have to keep contributing to it. You will be able to
In this advice column Ronelle Kind from Liberty answers a question from a reader who is thinking of withdrawing his pension.
Q: I will retire at the end of October 2016 from government service. I have the option of a retirement gratuity of R1.2 million plus a monthly pension of R 27 414 for life, or a resignation benefit of R5 047 648.
The downsides of taking the annuity option are that when I die the monthly pension that will go to my wife will halve; and that when she dies, the pension stops altogether and nothing will go to our children. I’m also worried by the current political landscape in South Africa whether I can have peace of mind with regard to how the GEPF will be managed in future.
My question is this: If I rather take the resignation benefit of R5 047 648, can I obtain a monthly income comparable to the monthly pension of R27 000 plus the yield on the investment of the R1.2 million gratuity through investing this amount?
The reader belongs to the Government Employees Pension Fund (GEPF), which is what is called a defined benefit fund. The retirement benefits are therefore defined with regard to the
In the wake of the #DataMustFall campaign, it seems that the data revolution might have a valid and legitimate plea. The campaign founders made a presentation before the Parliamentary Communications and Postal Committee on September 21 on the costs of data in the country. According to the soon-to-be launched findings of the FinScope South Africa 2016 consumer survey, the results show that the average South African spends about 9% of their purse on airtime and data recharge, cellphone contracts, telephone lines and internet payments. The average person spends approximately R700 a month for communication-related expenses.
Parallel to the #DataMustFall campaign, which is gaining traction, is the #FeesMustFall (reloaded) campaign, which is also resurfacing in light of the announcement of an up to 8% fee increase made by the Higher Education Minister Blade Nzimande. While university students would like to see a 0% increase, universities are requesting increases to sustain operations and fund research.
Therefore, in light of these developments and expenses, how does the purse of the South African consumer fair? The preliminary results of the FinScope 2016 survey shows that South Africans spend R688 per month on average on education.
The FinScope findings further show that South Africa’s total personal monthly consumption (PMC) expenditure
Mounting financial burdens on consumers has led to a 54% increase in disputed debit order complaints over the past year, says the Ombudsman for Banking Services Clive Pillay.
“It is a worrying sign that so many people are cash-strapped and that so many people are over-indebted,” said Pillay.
According to data from the Payments Association of South Africa (Pasa), around 31 million debit orders amounting to R72 billion are processed per month, of which 1.2 million are unpaid and a further 170 000 are disputed.
There are two categories of debit orders: EFT debit orders, which are processed on the date chosen by consumers and mostly after normal business hours, and early debit orders, which are collected shortly after midnight and immediately after the processing of EFT credit payments such as salary payments, explained Pillay.
He said several complaints lodged with his office centre around non-authenticated early debit orders, whereby transactions are processed prior to the agreed date. Pasa data show that almost 14 million non-authenticated early debt orders worth R9 billion are processed each month, 4 million of which are unsuccessful, with 600 000 disputed.
An estimated 90% of disputed debit orders are for so-called ‘cash management’ reasons, Pillay said, citing Pasa data. “The Payments Association
Q: I’ve decided to sell my house, and I expect to realise just under R1 million. I would like to use this money to pay off our debts like our credit cards and possibly our cars. That will leave me with approximately R500 000.
My plan is not to buy another house just yet as we are not sure if we may move to a different province or even different country in the next couple of years. With all that is going on in the markets and considering that all of my other money is either in exchange-traded funds (ETFs), unit trusts, retirement annuities and another property that I own, would it be wise to invest my money in physical gold? Or would it be better to invest in a money market account where I can get 6.4%?
I want something safe, as it is not often in life you get a lump sum like this. We are also sacrificing having a nice big house in order to live in a smaller dwelling for the sake of being prudent and using this opportunity wisely.
As with many similar questions that I have been asked over the years, it is vital that you meet
Index-tracking product provider CoreShares has announced the launch of two new exchange-traded funds (ETFs) in the South African market. The CoreShares S&P 500 ETF and CoreShares S&P Global Property ETF will be available to local investors from early November.
Both products track indices that are not currently tracked by any other local funds. They therefore offer additional options to investors looking to make rand-based investments that track offshore markets.
It is particularly notable that CoreShares is the first to offer South African investors direct exposure to the S&P 500, which is the most referenced index in the world.
“The S&P 500 represents the very origins of index investing,” says CoreShares MD Gareth Stobie. “The very first index products ever put together were Vanguard’s S&P 500 funds.”
According to S&P Dow Jones Indices, over $7.8 trillion is benchmarked to the S&P 500, and more than $2.2 trillion is held in 73 different products tracking it.
While South African investors can already access the US market through the db x-trackers MSCI USA ETF, the S&P 500 does offer a slightly different exposure.
The MSCI USA index is slightly broader, with 620 constituents. Its largest sector exposures are to information technology (21.14%), financials (16.2%) and healthcare (14.64%).
The S&P 500
The first step one should take is to identify the investment objective. In this case that is a car, with an assumed cost of R300 000 at the end of a five-year term horizon. It is important to understand this time horizon as well as your appetite for risk to decide on the most suitable investment vehicle.
Some of the most popular after-tax investment vehicles include endowments, unit trusts and the tax free savings accounts. These vary in terms of accessibility and tax implications and we would need to know the clients full financial situation before recommending a suitable product.
For a client who wants to lock their investment for a five-year period, an endowment would be a vehicle to consider. We do, however, have to take into account their marginal tax rate when making this decision.
This is because endowments are taxed within the fund at a set rate of 30%. This benefits investors who have a marginal tax rate greater than that, but can be prejudicial if their tax rate is lower.
Because the money in an endowment is taxed within the fund, your withdrawals are tax free. In order to get this benefit, however, endowments have a minimum investment time horizon
Q: I bought a house in Pretoria in December 2011 for around R1.1 million. I lived there until October 2013 but then moved to Johannesburg and decided to rent it out.
I did not buy a new place in Johannesburg as I intended to move back to Pretoria eventually. With the monthly rental income I received on my Pretoria property, I paid rates and levies of around R2 000 per month, although I did not pay any municipal rates.
In time, I realised that I was not going to move back to Pretoria again and decided in February 2015 that I wanted to sell my house and found a buyer for it.
My questions relate to how all of this should be reflected in my tax return.
For the last two years I have included the rental income in my return, whilst deducting items such as interest and levies. I paid the full outstanding municipal rates of around R30 000 when I sold my house in June 2015. For the 2016 tax year, can I deduct all of the rates for the period that I was renting out the property, which is about 18 months?
Secondly, when it comes to the proceeds of the sale,
Luthuli Capital was founded and structured as a Pan-African multi specialist company that offers a global approach to wealth management portfolios. The company offers investment advisory services to local and foreign individuals and multinationals, among others. I’m joined in the studio by one of the co-founders, Mduduzi Luthuli. Thank you so much for your time.
MDUDUZI LUTHULI: Thank you for the invitation. Glad to be here.
NASTASSIA ARENDSE: Let’s take it back to the beginning and start off with how Luthuli Capital came together.
MDUDUZI LUTHULI: I think if you are going to start a company it’s always something that’s there. It’s just a matter of acquiring the skills for you to be confident to run the company and wait for the circumstances to be there.
I’ve been in the corporate sector now – from banking into the financial advisory industry – for about seven years. My previous employer gave me a great opportunity in management and it’s really there where I got to cut my teeth and get to the point where I realised I think it’s time for me to go out there and do this on my own.
We’ve got two offices here
A friend was on holiday in a small town when her baby’s scheduled immunisation was due. After being directed to the local clinic who had the stock of the required vaccination, she duly fell in line with other patients to open a new clinic file. Although it seemed that many patients waiting in the queue could read, the clinic assistant in charge was adamant on reading the questions and completing the forms on their behalf.
“Do you have disabilities?” It would thunder through the room, and so forth. By the time it was my friend’s turn, she insisted on reading the questions herself. And to her surprise, the “disabilities” everybody was questioned about, turned out to be “diabetes”. None of those in front of her had disabilities, but should they have been questioned correctly, they could have confirmed their diabetic status.
Among the top five most prevalent chronic conditions
Diabetes is one of the world’s fastest growing lifestyle diseases. In 2015 South Africa had 2.28 million cases of diabetes according to the International Diabetes Federation (IDF). The problem is that for every diagnosed adult, there is an estimated one undiagnosed adult. The number of undiagnosed cases in South Africa is projected at around 1.39 million.
Old Mutual Investment Group sees domestic equities, property and bonds delivering higher returns in 2017, on the back of improving economic prospects.
It expects peaking interest rates and inflation in South Africa to create a positive environment for interest rate sensitive assets such as domestic property and bonds. It sees inflation averaging at 5.4% in 2017 compared with 6.3% in 2016 and the benchmark repurchase rates falling to 6.5% by the end of 2017, down from 7% currently.
According to Peter Brooke, head of Old Mutual Investment Group’s MacroSolutions Boutique the 13.5% return on domestic bonds year-to-date as at November 24 2016 is artificially high due to an oversold bond market.
Instead, he said SA cash – with a 6.8% return in rand terms – is the best performing local asset class thus far. SA listed property delivered returns of 4% and the FTSE-JSE Share Weighted Index (SWIX) returned 2.5% over the same period.
After starting the year with the highest level of cash in its fund ever, the group is seeing more opportunities in equities as the domestic equity market de-rates.
“We’re not at the stage where the JSE is cheap yet. It is on a 13x forward but it does offer a real
Relative to its peers in the SADC region, South Africa has a high percentage of people with formal bank accounts. While 94% of the adult population in the Seychelles has a bank account, and 85% do so in Mauritius, South Africa’s banked adult population stands at 77%.
This contrasts starkly with the likes of Madagascar or the Democratic Republic of Congo, where only 12% of adults have bank accounts. In Angola, the ratio is 20%.
These are figures produced by the Finmark Trust, an organisation set up more than a decade ago to promote financial inclusion. And at face value, they may appear to suggest that South Africa is measuring up reasonably well.
However, the Trusts’s Dr Prega Ramsamy says that there is a lot more to financial inclusion than whether or not someone has a bank account.
“It’s a multi-dimensional problem,” he told the Actuarial Society 2016 Convention in Cape Town. “There is an element of access, but there is also an element of affordability, an element of proximity, and most importantly an element of quality. We might have huge access in terms of people having bank accounts, but it doesn’t necessarily mean that they are financially included because the quality of such
There is a view among many South African consumers that applying for a bond at more than one bank will have negative consequences. The belief is that these enquiries will impact on your credit score and therefore hurt your chances of getting a loan or push up its cost if you are successful.
Many people only apply at their own bank for just this reason. They think that they are taking a risk if they shop around.
This raises some obvious concerns. After all, you are only exercising your rights as a consumer to compare prices, so why should you be penalised for it?
What is a given is that every time you apply for a loan of any sort, this will be recorded on your credit profile. This is called footprinting, and credit providers may use this information to assess you.
“Credit providers consider a multitude of factors when vetting applications for credit, one of which would be demand for certain types of credit,” explains David Coleman, the head of analytics at Experian South Africa. “A sudden surge in demand for unsecured or short term credit, linked with signs of stress building on indebtedness and repayment capacity of the consumer, would result in
In South Africa’s somewhat peculiar banking system, monthly charges for transactional accounts are a given. But is the few hundred rand you’re paying per month (if you’re lucky!) the best possible deal?
The first question you need to answer is whether you value having a ‘platinum’ or ‘private clients’ account with all the “value-adds” these offer?
Things like lounge access, bundled credit cards and a ‘personal’ banker are must-haves for some in the upper middle market. On the other end of the scale are basic, no-frills bank accounts (like Capitec’s Global One (and the clones from the other major banks)), but the truth is that most people need something a little more comprehensive than that. There’s likely a home loan, almost certainly vehicle finance and definitely a credit card.
So, do you need a ‘platinum’ (Premier/Prestige/Savvy Bundle)-type account? Do you actually use or need those value-adds? Or, do you enjoy the ‘status’ of having a platinum or black credit card? (Here, emotion – and ego – comes into the equation….)
This is an important question to answer, because the difference in bank charges between a more vanilla bundle account and ‘platinum’ is easily 50%!
While banks try to shoehorn you into product categories based on
With the start of 2017 looming, many parents may have started to consider the cost of their children’s school and tuition fees for the next school year. While families have a number of financial commitments to attend to every month, this is the time of year where school funds are often moved to the top priority to ensure that the family is financially prepared for the expenses that accompany a new school year.
Saving for a child’s education requires careful consideration and proper planning.
Here are some tips below for parents to ensure that they have planned appropriately for their children’s education costs:
Parents should start saving for their children’s education as soon as they possibly can. Many people do not consider, or are not aware of, the great advantages of compound interest, and how accumulated savings grow over several years when invested properly. By investing from an early age, parents will eliminate the financial worry of not having sufficient funds to give their children the best education possible, as the funds in their investment will grow every year.
The best way for parents to ensure they are regularly contributing towards their children’s education is to open a dedicated savings account and
This time of year sees both children and adults preparing their wish-lists for the upcoming festive season. But as many South Africans continue to grapple with rising debt, now is a good time to shift the focus from giving material items to providing future financial well-being.
Giving a child an investment as a gift will not only promote a culture of saving from a young age, but will also show them how you can make money grow.
There’s a powerful story of one customer’s commitment to leave a legacy for his family, and the value of sound financial advice. In November 1968, a customer made an initial deposit of R400 into the Old Mutual Investors’ Fund and 48 years later, his investment is today worth over R600 000.
More precious than the value of his money, however, was the culture of saving and the legacy that he passed on to his children and grandchildren. On special occasions such as Christmas and birthdays, he invested a set amount of money on his children’s or grandchildren’s behalf. With this investment, his daughter was able to provide for her daughter’s schooling.
If South Africa is to develop a generation of financially savvy adults, it is crucial to not just talk
However, there are some simple ways to save some money without taking the enjoyment out of the season. Some of these may even make your Christmas even better.
Here are four simple ideas to curtail your Christmas budget:
- Make your own crackers
Who isn’t tired of paying up for expensive crackers with the same gifts, the party hats that make you sweat, and the same lame jokes every year? (What’s Santa’s favourite pizza? One that’s deep pan, crisp and even.)
Making your own crackers might sound like an awful effort, but it can really be quite simple and extremely cost effective. A number of craft shops sell the cracker bodies that just need to be folded into shape, together with the ‘snaps’ that deliver the necessary bang when they are pulled. (You could download the template from the internet and cut some patterned cardboard or wrapping paper yourself, but this would be a lot more time consuming.)
Easy, cheap and always popular fillings, include luxury chocolate balls, mini soaps or lip gloss. Tiny bottles of whisky or liqueur also go down well, depending on the company.
Making Christmas crackers can also be a fun activity for your children to keep them busy for a few hours