A very interesting question almost every investor asks themselves is: "If I want to invest money, do I need to buy a property, keep my money in the bank to earn fixed interest rates or invest in stocks?" This is a difficult question to answer simply. All of us have an ambition to invest our hard-earned funds as optimally as possible to ensure we maximise returns. This question is particularly important considering that a one or two percent difference in annual returns significantly impacts the longer-term result. A look at the figures To try to answer this question, the figures should be thoroughly investigated. The following table shows the annual average returns of shares (measured by the FTSE / JSE All Share Index), money market yields (SteFI Composite Index) and direct residential real estate (average prices of South Africa). This draws a comparison between the potential returns that an investor in the stock market can earn in a bank account versus direct property. Once the figures are taken into account, it is clear that an investment in equities over the long term provides the highest yield. Also, we saw that direct property prices experienced a boom period during 2002-2007 with an average annual return of 18.2%, and began to show signs of slowing (2008-2016) by delivering an average return of 3.8%.
However, the choice is more complicated than simply considering returns over different time periods. Every South African knows that Cape Town property growth will be more attractive than property yields in smaller towns up-country. So geographical location must be taken into account. If the average annual return of the Eastern Cape (7.8%) is compared with that of the Western Cape (9.3%), it is clear that location plays an important role. This phenomenon is further accentuated with the stagnation of the overall residential property market compared to metropolitan areas, especially Cape Town which still experiences a boom in house prices. The impact of rental income It is also important to understand that the above figures exclude rental income. This component ensures, on average, 5% - 8% additional returns per year in rental yield. The issue of rental yields is more applicable if direct property is bought with cash as opposed to using bank financing. If the rental income is taken into account (at the lower limit of 5%), property falls into the same category of return as equities over the long term (14.65% vs. 14.79%). The choice of investment vehicle will depend on a set of additional factors. These factors are briefly highlighted below. If you would like to invest in a Unit Trust or find out more information, please contact Kevin or Thato, email: invest@daberistic.com tel no: (011 658-1333) Written by: Jan Vlok Source: Sanlam
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The primary objective in investing is to deliver the best risk-adjusted returns possible. Since return and risk are two sides of the same coin, an interrogation of one without a full understanding of the other is meaningless (and dangerous). How does coronation manage risk? Managing risk is not something that you should have to clear at the final hurdle in an investment process. We believe it needs to be woven into the DNA of the process, as we endeavour to do in ours. In the research process: Through a strong valuation discipline (i.e. paying less for assets than they are intrinsically worth) and a long-time horizon (i.e. looking through the cycle). Together, these are a great defence against the risk of getting sucked in at the top of the cycle, when prices are high and the risk of permanent capital loss is pronounced. Click here to Read FAQ. To find out more on the Coronation funds that we recommend, please contact Kevin or Thato, email: invest@daberistic.com tel no: (011 658-1333) Source: Coronation People often believe that if you gather significant assets during your lifetime and put enough into your retirement or pension fund during your career, you don't have to worry about living comfortably in your later years. But in an environment where medical costs are rising and markets are constantly fluctuating, is that really true? Here's a figure that might be surprising if you are planning to retire soon and haven't considered your health care costs. If you are 65 and retiring this year, you will need about R990 000 during retirement to keep up the same cover you currently enjoy. For a couple, that total is about R1 990 000. (assuming you are on the Discovery Health Medical Scheme, on the Classic Delta Comprehensive Plan, a contribution of R4059 to your plan, and that your retirement grows in line with medical inflation- currently CPI +4%). These numbers are based on the assumption that a man will live to be 85 and a woman 87, however with publications like the scientific research journal Nature reporting that children born in 2000 will live to be 100 years or older we may need even more retirement and medical savings in the future. With our longer life spans, financial planning for retirement has never been more important if we want to maintain your lifestyle over the long term. So how much is enough? It’s easy to miscalculate how much you’ll need in retirement. Underestimate what you will need and retire too soon and you could run out of money in your retirement years. Overestimate and you might keep working longer than is necessary or deprive yourself of trips, restaurant meals and other luxuries unnecessarily. Bottom Line Personal asked retirement-planning professor, Michael Finke, what he sees as the top 3 most common mistakes made by people when planning for retirement. Number one, he says is that people often overestimate the amount medical aid and insurance will cover, number two, that they underestimate health-care inflation and the third mistake that they do not consider or factor in the possibility that they could need long-term care in retirement. On how to more accurately estimate medical expenses in retirement Finke suggested that you start with what you currently spend on health care annually, or if that figure has fluctuated greatly, take the average you have spent over the past five years. Then also factor in that the Consumer Price Inflation (CPI) in South Africa has increased by 6.3% a year on average since 2008, and medical scheme contributions are increasing by at least CPI 3-5% annually. What can we do to plan better for the future? It is important to engage in a healthy lifestyle. 60% of diseases afflicting people worldwide are lifestyle diseases. To help aid in a happy, active retirement, protect your health by embarking on regular exercise, a balanced diet and maintaining a weight that is correct for your body type. The healthier you keep your body; the better the chances are that you would not need to spend as much money on healthcare bills as you age. Of course, there are will always be unforeseen illnesses which will catch you off guard but it is important to make provisions where you can, so that medical bills will be one less thing that you would need to worry about as you enter into retirement. Invest in yourself and pick the right plan Government care may be sufficient for many pensioners; however, many may require immediate or specialised levels of care that are not readily available at state facilities. Some medical schemes may also impose substantial late joiner penalties, waiting periods and exclusion if a pensioner joins for the first time. Having adequate retirement funds to cover medical cost will ensure you get the care and treatment you need when you need it. Covering your medical expenses in retirement requires planning and Discovery Invest has created funds that help you fund your healthcare expenses in retirement. They also give you up to 15% more money for your retirement savings. To get us to review so as to ensure sufficient retirement savings, please contact Kevin or Thato, email: invest@daberistic.com tel no: (011 658-1333) Source: Finance24 Allan Gray launched an umbrella retirement fund in March, adding another player to the increasingly competitive retirement market space. Umbrella retirement funds are funds that serve multiple employers, unlike traditional stand-alone employer-sponsored funds. More and more employers are going the umbrella route, largely because of the increasing burden of administering a retirement fund and having to comply with burgeoning regulation. Saleem Sonday, the head of group savings and investments at Allan Gray, says the South African retirement industry today (excluding the government pension fund) manages assets of around R1.8 trillion. Of this, around 49 percent is in non-commercial funds, 17 percent in commercial umbrella funds and about 34 percent in individual retirement annuity accounts and preservation funds. Over the last four years, the market share of commercial umbrella funds has increased by 70 percent, according to Credit Suisse, at the expense of stand-alone employer funds. “This should be a good thing. Since an umbrella fund clubs together multiple employers and its employees in a single fund with standardised rules and a single board of trustees, it is more efficient to govern and administer than a stand-alone employer fund,” Sonday says. The commercial umbrella fund market is dominated by the large life companies, which make up 85% of the market. “Although there are some funds that offer super-efficient administration and simple products that sell themselves, mostly umbrella funds today have a reputation for high costs, poor transparency and complexity. “We think this is an industry that could do with more competition. A new entrant using technology to provide better service than the incumbents at a competitive and more transparent price could win over clients,” Sonday says“The recently-launched Allan Gray Umbrella Retirement Fund aims to give employers and members a transparent and easy-to-understand retirement saving solution. It has a simple product and fee structure, which means that employers and their employees have clear sight of contributions, returns and charges. “Members benefit from superior service, competitive administration and investment management fees and there are no hidden costs,” he says. “The product makes things simple for employers and puts member needs at the centre by offering an unbiased, limited range of high-quality investment managers, fair and transparent pricing and great service.” If you would like to get a quote for an Umbrella Fund, please contact Kevin or Thato, email: invest@daberistic.com tel no: (011 658-1333) Source: Allan Gray Employees' health, financial security and safety is important to any Employer. By introducing Assistere which covers Accidental Death Temporary Total Disability (TTD) /Income Replacement (accident), Serious Illness and Accidental Permanent Disability you can protect your employees against the costs associated with unexpected injuries and serious illnesses. Premium starts from as little as R33 per month, per employee depending on the option you take it. To get a quote done please contact Jan in our Short-Term Department email shortterm@daberistic.com, tel (011)658 -1333 Source: Guardrisk Starting a business is a huge achievement, while the greatest challenge is to sustain and develop it. One of the most important business conversations an entrepreneur can have is with a professional risk advisor who can objectively interrogate the nature of your business, its unique needs, reliance on its supply chain, the range of likely risks and how to mitigate the impact of such in a worst case scenario. Many businesses have the usual property and assets cover for their buildings, vehicles and other essential equipment. All good and well if you have an accident, theft or fire and your policy is able to take care of the replacement of the physical assets, but what happens if you are also unable to trade for weeks, even months and your revenue declines or even stops altogether as a result? If the only road to your luxury B&B in the Drakensberg is blocked off for a month due to a landslide or sinkhole, how would you recoup the lost income of no guest bookings? If your fast-food franchise burnt down and it took three months to rehabilitate the site and rebuild the store, how would you pay staff, rent, taxes, franchise fees and so on? If a multimillion Rand, imported machine in your component factory explodes and the replacement from overseas is three months down the line, how will you pay your creditors? None of these costs stop simply because you’re unable to trade due to a physical disaster or force majeure. Businesses can purchase contingent business interruption coverage, an aspect of business interruption insurance, where the insurance is triggered by property damage at the premises of a supplier or customer, or other trigger such as loss of utility, denial of access or the act of a local authority which results in a financial loss you may suffer. The intention of Business Interruption insurance is to restore the business to the same financial position as if the loss had not occurred as well as to cater for additional increased costs/ expenses incurred to minimise further loss of revenue and lessen the time to do so, subject always to the terms and conditions of the policy. Business interruption claims are normally linked to material damage/property damage. While your property or assets insurance covers the damage to physical property or equipment and replaces the actual assets, business interruption is vitally important to tide your business over in terms of the lost income as a result of physical damage, until you get back to operating your business as usual. What does Business interruption insurance cover? Although the specifics of cover vary from one insurer to another, the basic tenets of BI are:
Finally, it’s important to engage with a qualified, expert broker who can assess how your different business insurance covers mesh together to create a veritable safety net against the many challenges besetting SMES. Business Interruption cover is simply one of a number of important risk products that businesses need to safeguard their continuity. A clear description of a business and its operational environment is central to the drafting of a well-conceived insurance strategy. A comprehensive risk assessment will greatly aid in identifying the potential hazards, in addition to determining what physical precautions and management processes should be in place. It’s also very important to have an accurate assessment of the replacement costs of buildings, contents, vehicles, IT, stock and other assets, particularly in the event of a catastrophic loss. By linking professional advice to an aligned insurance program that covers virtually all the ‘what if’ scenarios of not only physical damage, but the knockon implications for business continuity, Aon clients get to experience the real depth of value of a comprehensive risk analysis backed with professional advice and expertise. Let us assist you do a risk assessment for you or your business contact Jan in our Short-Term Department; email shortterm@daberistic.com, tel (011)658 -1333 Source: Cover magazine City Press spoke to Lesedi Seforo, tax project manager at the SA Institute of Chartered Accountants, about the best tax practices for freelancers. Should you form a company or register as a sole proprietor? Seforo says the decision over what legal form you should use should not only be determined by tax, but also by other commercial concerns such as limitations of personal liability. In the case of a sole proprietor, you are the legal entity; in the case of a company, the company would be the legal entity and would hold the liability. From a tax perspective, however, it may not make sense for a one-person consultancy to register as a company. Seforo says the main consideration as far as income tax is concerned has to do with the rate of tax levied on a company versus a sole trader. Most freelancers use the fees they charge as their income and do not necessarily reinvest in the business because the nature of their business does not require capital. For any of your Tax queries please contact Su-Chin or Su-Lan, email finance@daberistic.com, tel 011 658 1333 Source: Finance 24 |
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January 2025
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