Summer 2013

Exploring your world of investmentsHow much of your wealth should you

invest offshore? There is no simple formula, however two principles can help you decide on a figure appropriate to your personal circumstances.

principle #1: Matching investments with regional expenditure profile

Keeping your assets in the country where you expect to use them gives you greater certainty your investments will grow at a rate similar to that at which your future living costs will increase. So, if you intend to continue living in South Africa, technically the bulk of your assets should be invested here.

However, the more time you intend to spend outside the country, the greater the por-tion of your investments you should invest offshore.

Travel is an enticing option in retirement and many retirees have family living in far-flung places. If regular overseas travel forms part of your plans, you will be spending money in foreign countries and the matching principle comes into play again.

Future living costs in South Africa will also be affected by foreign exchange fluctuations, so it makes sense to reduce your vulner-ability there. Food and fuel costs are af-fected by forex shifts and have a knock-on effect throughout our economy. Even if you intend to live out your days here, it is prudent to invest offshore to compen-sate adequately for fluctuations in key foreign exchange rates.

principle #2: Benefiting from the global economy

Investing offshore lets you enjoy good returns from other regions or from in-dustries, asset classes and companies unavailable at home. Nestlé and BMW are examples of global brands not listed on the local market.

In addition, international stock markets may have more attractive opportunities because South African shares have per-

formed very well in recent years, with values rising to a point where it is hard to buy at a good price. South Africa has recently been down-graded by two investment rating agen-cies citing, among other things, political uncertainty. This is probably the biggest

driver of a portfolio being over-weighted offshore these days.

An important strategy in hedging against local uncertainties is access to foreign currencies. We hope that the SA Re-

serve Bank will continue to relax exchange controls, but there is no guarantee of that, or even that the status quo will remain unchanged. So you should set up access to foreign currency funds while you can.

Right now you can take R1 million out of the coun-try for investment, travel and certain other purposes with minimal formalities.

This is in addition to the R4 million annual invest-ment allowance. Effectively, a couple can invest R10 mil-lion a year outside South Africa.

Ian presented this topic as part of the acsis/Personal

Finance Financial Planning Club semi-nars held around the country recently. A more detailed summary is available via the Personal Finance website here: http://tinyurl.com/co3upzt.

ian Beere CA(SA) CFp® Financial planner of the year 2007

Netto Invest is among the first financial planning practices to be designated as an FPI Approved Professional Practice™

on the basis that all advisory staff are CERTIFIED FINANCIAL PLANNER® professionals.Apart from both Debbie and Ian being recipients of the Financial Planner of the Year award, everyone giving advice at Netto Invest has, more often than not, specialist degrees and all are CFP® professionals.

Investment planner Morné Bezuidenhout recently added an Advanced Diploma in Investments and Estate Planning to the letters behind his name. He, along with investment planners Ian Beere, Cameron McCallum and Richard Sparg, passed regulatory exams for discretionary financial services providers. Cameron also passed level 1 of the CFA programme and Ryan Winter passed the Postgraduate Diploma in Financial Planning.

QuAlity FinAnCiAl plAnning - rECognition

A trust is essential in your estate plan if you have dependents with

special needs, and may be beneficial if you have minor children.

There are two types of special trusts:

1. You can set up a special trust created solely for the benefit of someone suffering from a mental illness, as defined in the Mental Health Act, or who suffers a serious disability and can’t manage his or her own finances or support themselves.

The trustees may not pay out income or capital to anyone other than the named beneficiary. The South African Revenue Service must approve the trust deed as a Special Trust “Type A”. It must be registered while the founder is still alive.

2. You can opt for a testamentary trust, which is a trust created by your Will, that provides exclusively for your children under the age of 21 (Special Trust “Type B”).

The taxation benefits reduce once the youngest beneficiary turns 21.

Special trusts are taxed according to the rates applicable to natural persons (0% to 40%, depending on taxable income levels), whereas other trusts are taxed at a flat rate of 40%.

They can also make use of certain Capital Gains Tax exemptions avail-able to individuals.

richard Sparg CA(SA) CFp®

Summer 2013 .............2

R i c h a r d S p a r g

SpECiAl truStSfor special people

tAx CutS: MAxiMiSing SElF EMployMEnt

Stringent tax laws mean it is more

important than ever to keep your tax compliance on track. Ignorance is not a valid excuse in law, so help your accountant help you.

Running your own business is so ab-sorbing it is easy to neglect your personal financial affairs. A qualified investment plan-ner can help you build on your savings and plan a more certain future by identifying flex-ible investment options that don’t lock you in to set payments for a fixed period.

The government allows the self-employed to pay a substantial portion of income into a retirement savings vehicle instead of towards your tax bill.

If you are in the 40% tax bracket, for every R1000 invested you will effectively receive R400 back from the South African Revenue Service.

ryan winterB.Com CFp®

Ryan Winter

If you have a bonus coming your way soon, think twice before you blow it on a holiday:

the more money you keep aside now, the more you’ll have to play with later when you retire.

To give you an idea how delayed gratification can pay off for you, we compared three strate-gies taking the example of a 35-year-old earn-ing an annual salary of about R720 000 and who has monthly deductions into a company provident fund.

This person’s contributions come to about R144 000 a year, or about 20% of salary, and produce a return of in-flation plus 6%.

Scenario 1: Funding family fun. Spending the entire 13th cheque on an overseas trip for the family each year, rather than investing some or part of it in retirement savings, will leave Mr X with a provident fund value of about R11.3m by the time he turns 65, and an after-tax retirement income of R430 000 in today’s money.

Scenario 2: Half now, half later. Using only half the bonus for a holiday, and saving the rest in the provident fund, pushes Mr X’s in-

vestment portfolio to over R13m. He can retire on an income of more than R500 000 by the time he reach-es 65.

Scenario 3:Squirreling it all away. Saving the en-tire bonus for retire-ment each year dra-matically boosts Mr X’s retirement fund value to almost R14.5m.

He can retire on an income of about R550 000 a year, or R120 000 more than if he’d opted for Sce-nario 1 and R50 000 more than choosing Scenario 2.

At Netto Invest we are never prescriptive to clients about ho w much of a bonus you should save. Our pro-

cess allows you to see for yourself the effect of saving rather than spending a bonus, so you can make an informed decision when it comes to your financial strategy.

Cameron McCallum CA(SA) CFp®

wiSE wAyS to BooSt your AnnuAl BonuS

Cameron McCallum

M o r n é B e z u i d e n h o u t

invESting AgAinSt tHE HErd: it’s a mind game

Summer 2013 .............3

We all know following the herd is a bad investment strategy, yet so many people do it. Exactly why investors follow one another like lemmings

to the edge of a cliff is the focus of much hotly contested research in the burgeoning field of behavioural finance, and there are no firm answers.

What has emerged, though, are some common characteristics that stymie investors. Here is a selection worth thinking about when you next reshuffle your investment portfolio:

1. Blind belief in ourselves. We tend to inflate our investment abilities. Ask yourself if you are over-optimistic about your ability to forecast where a share price is likely to head before you place your buy order.

2. Reading too much into patterns. We like order, so we have a tendency to try to identify patterns and piece them together out of random events. Often we see links where there aren’t any, and then trade on these im-aginary patterns.

3. Finding long shots very appealing. We can get more excited about gam-bles than sure-things. So, we are more likely to invest R10 on a remote chance of winning R1000 than we are to invest R10 for a R20 return.

4. Tunnel vision. We often take investment decisions one at a time, in-stead of looking at the bigger picture of our finances. We might save for our children’s education, for example, yet borrow money to buy a car — with the interest on our debt amounting to far more than the interest on our saving.

5. Loss aversion. It’s good to be wary of losses, but we often mistakenly hold on to dud investments in the hope that they will show an improve-ment.

6. Staying at the party for too long. We often wait for too long before taking a profit. We should have exit rules and keep to them rather than running the risk of getting out too late.

7. Assuming that bigger is better. High-profile companies are often past their prime, yet many investors assume they will be good share invest-ments. Often the best investment opportunities lie in the shares of com-panies that are still growing.

8. Being a know-it-all. The psychological term for the discomfort we ex-perience when trying to process new information that is in conflict with what we think we know is “cognitive dissonance”. Humans like to avoid this feeling and so we try to avoid new information — which is obviously hazardous when you are dealing with your investments.

Your investment planner can help you cut out emotional noise that could distract you from making sound investment decisions. Adhering to rigorous financial planning steps may keep irrational thinking at bay.

Morné Bezuidenhout BCom llB CFp®

With cyber scams ever more sophisticated, it is not surprising people are still getting

hoodwinked into giving strangers access to their bank accounts. It is essential to take extra security precautions, or you run the danger of losing money.

Technology experts emphasise the importance of choosing your secret passwords with care.

Include numbers and letters, upper case and lower case. Don’t go for anything obvious. Birth dates, addresses, children’s names, surnames, street names, pets’ names and any password based on information that can be found on your Facebook account are risky.

Have more than one password, and change these regularly, as sophisticated fraud methods can easily pick up what you type regularly into security code boxes.

Keep your anti-virus software up-to-date, not

just on your PC or laptop but on your smartphone too. Last but not least, treat every request for personal information and for you to access a website with great suspicion.

Many scamsters ask you to click on a link that looks official, but redirect you to a false site where you will unwittingly reveal information that gives them the keys to get into your accounts.

Remember, financial insti-tutions will never request sensitive or confidential details via email.

If you are unsure, call the company first to confirm the request is genuine.

gareth leonardCA(SA) CFp®

BEwArE oF pHiSHy tAlES

Gareth Leonard

Summer 2013 .............4

wHy woMEn nEEd MorE MonEy

Statistics SA recently revealed that women are expected to live, on average, four years longer than men. This is a double-edged sword:

it’s good news if you have lots of activities planned for your retirement years, but it also means you need vastly more set aside in savings to cover all your costs.

Women run the very real risk of living in penury in their old age. They are already at a huge financial disadvantage compared to men for several reasons, starting with• the fact that they tend to earn less than men • the trend of women taking several years out of their careers to

take care of children• the option of only returning to work part time so that they can jug-

gle motherhood with their professional careers.

Money vs motherhoodit is a fact that someone has to look after the children, and even if car-ers are involved with some of the duties, at least one parent — usually the mother —inevitably spends a fair chunk of their time involved in the children’s lives.

Single mothers have a more serious dilemma in that they are left to raise children. For a variety of reasons, it is common to hear of fathers not contributing adequately to child maintenance. These single women have less money available for investment as they need to divert much of their hard-earned income towards the welfare of their children.

Making a planIt is clear that more women should be more proactive about saving for retirement. They need to set aside more than they think is necessary because it is going to take a significant lump sum to provide income during years when they are no longer involved the workforce.

Where women have the advantage over men in the financial stakes is that we tend to be better investors. Women feel more comfort-able getting advice and asking questions and are less inclined to assume that they know enough already.

There is also a view that a man may think it is “macho” to expose himself to higher-risk investments whereas a woman will understand that the higher the risk, the greater the pain of the loss you may experience.

Although we women can be emotional creatures, when it comes to investing we may be better at steeling ourselves against making im-pulsive financial decisions.

These opinions on the differences between female and male investors are, of course, generalisations and many may disagree with them.What is not up for debate, however, is that most women do not save enough and thus reach retirement age with far fewer assets than men.

There is only one way that women can solve this problem and that is by ensuring they develop a financial plan through putting an investment strategy into place as early as possible. Unfortunately, many women set aside too little or leave financial planning too late.

Women need more money for two reasons: the age gap, because they live longer than men; and the earnings gap, if they are the main home-maker. Financial planning is not the sole responsibility of the breadwinner. Families that embrace financial planning together retire well together.

debbie netto-Jonker, CFp® Financial planner of the year 2001

Recent financial scandals have underscored the

importance of conducting a thorough due diligence on all your investment options before signing over funds.

A retired couple came to us in April with an amount of roughly R700 000 earmarked for invest-ment in a high return scheme. They decided against it after we gave our opinion that it was not clear how the alleged returns were being generated.

“We investigated the portfolio but couldn’t get a good understanding of exactly what the underlying investment was.

“We noted that returns had been good, but told them we could not take responsibility for a portfolio invest-

ed in such a scheme,” says Debbie Netto-Jonker.

The couple opted for the Netto Invest in-vestment house view, instead — a move that saved them from financial disaster because a few months later the opaque multi-million-rand scheme collapsed. Af-terwards, the relieved couple sent Netto Invest this note: “We have heard that the person who would have had our money is in debt to millions. How fortunate we are to be out of it. We really feel safe with Netto.”

Says Debbie: “Our investment philosophy has always been to ensure that we have a good understanding of the investment fun-

damentals.”

Want to share your views with us, or tell others about your experiences as a Netto Invest client? Drop us a line at invest@netto.co.za.

nEtto HElpS rEtirEd CliEntS AvErt FinAnCiAl ruin

Para-planner Jennifer Nedzamba recently returned from maternity leave after having baby Natalie. Jennifer, who has a Bachelor of

Commerce in economics and finance and a Postgraduate Diploma in Financial Planning, is enjoying

being a first-time Mom but says she is glad to be back at work.

“I find the research aspect of my job particularly stimulating and

rewarding,” she says.

D e b b i e N e t t o - J o n k e r

About usYou are advised to consult us for individual assistance before basing a decision on any information in this publication. Let’s talk Money is distributed to clients of Netto Invest CC (CK 1989/018205/23), which is registered as an Authorised Financial Services Provider by the Financial Services Board, License No. 17699. Members: Ian Beere CA (SA) CFP®, Debbie Netto-Jonker CFP®. Every effort is taken to ensure the accuracy and soundness of this publication; however we cannot accept any responsibility for consequences of any actions based on information or recommendations contained herein.