Fedgroup, a financial services group based in Sandton, Johannesburg, offers innovative endowment investment products that offer good after-tax returns while doing good for the environment. Fedgroup's endowment products have the following advantages: - Inflation protection: These portfolios consist of a diverse range of assets that span various geographic and industry parameters and that are unlinked from market sentiment, creating a natural hedge against inflation. - Anti-cyclical: Unlike many traditional asset classes which have performed poorly in recent times, many alternative investments are designed to be less susceptible to volatile markets. - Currency protection: Since most of the produce is sold internationally, the portfolio is shielded from volatility in the rand. - Do good without sacrificing returns: Rather than compromising between doing good and delivering great returns, the assets within these portfolios make a positive impact on people, planet, and profit while generating a market leading return. More information on the investment portfolios: Minimum investment lump-sum: R100,000 Investment term: 5 years Can nominate beneficiaries Impact Portfolio: This invests in green energy, smart agri, property finance and private capital fedgroup_impact_portfolio_f98d085b83.pdf Diversified Alternates Portfolio: This invests in the Fedgroup Participation Bond Fund, green energy, smart agri, property finance and private capital. fedgroup_diversified_alternates_c315d7468a.pdf Fixed Endowment: This invests in selected assets generating a fixed return. It provides an after-tax nett return of about 8% p.a. fedgroup_fixed_endowment_overview.pdf If you are interested in investing in these products or have any questions, please email to service@daberistic.com, a financial advisor will contact you.
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Last month we talked about setting long-term goals. This month we focus on the next step: Focus on building assets. This is a topic I am very passionate about, and I have helped many clients do this. The accounting definition of an asset is this: Things that are resources owned by a company and which have future economic value that can be measured and can be expressed in Rands. Examples include cash, investments, accounts receivable, inventory, supplies, land, buildings, equipment, and vehicles. I prefer Robert Kiyosaki's definition of an asset: An asset is something that puts money in your pocket. Examples are buy-to-let property, cash-generating businesses, shares, unit trusts, investments that pay you interest, gold, silver. You should spend your lifetime accumulating assets that put money in your pocket. Understanding assets and investing in good assets are a lifetime journey. Let’s unpack in some detail the type of assets that put money in your pocket. Bank deposits: This is an asset that is familiar to most people. The common types of bank deposits are call deposit, notice deposit, fixed deposit and money market account. Bank deposits quote an interest rate and pay you a monthly interest, as your money stays invested. The interest rate is linked to the Reserve Bank’s Repo rate. When the Repo rate goes up, the interest you receive increases. When the Repo rate goes down, the interest you receive decreases. Click here to watch the episode on bank savings and investment products RSA Retail Savings Bond: This is a type of government bond offered to the general public, the term is 2-, 3-, 5- and 10 years. The interest rate is between 7.25% and 9.5%. Participation bond: Fedgroup is famous for offering this type of investment. A participation bond is a regulated collective investment scheme, it offers you an attractive fixed interest rate in a five-year term investment. Click here to watch the episode on Fedgroup Participation Bond Unit trusts: This is popular among retail investors and institutional investors alike. Unit trusts are also known as collective investment schemes in South Africa. They are registered, approved and regulated by the financial conduct regulatory FSCA. There are over 2,000 unit trusts in South Africa and over 120,000 funds in the world. In North America and other parts of the world, unit trusts are known as mutual funds. Unit trusts are a convenient way to invest, offering investors many choices, ranging from local equities, offshore equities, property, bonds, income, money market, regions, industries such as technology, single country. Exchanged traded funds (ETFs): It has gained huge popularity and attracted a lot of money around the world over the last twenty years. It is also growing fast in South Africa. Exchanged traded funds are like unit trusts, the main differences are they are listed on a stock exchange, so it is freely traded throughout the day, its price fluctuates during the day, and it generally follows some type of benchmark. These funds are rules based, or passively managed, and they have lower fund management fees compared to actively managed unit trust funds. Shares: You can buy shares using a stockbroking account. When you buy shares in a company, you become a shareholder of that company, even if you only own one share. You are entitled to receive dividends declared and paid by the company. If the company does well and it share price rises, you benefit from the capital gain. Pension fund/provident fund: If your company or business has a pension/provident fund, your contributions and your employer’s contributions are invested in Regulation 28 compliant funds, to grow your retirement savings. Preservation fund: When you leave an employer, it is advisable to preserve your pension/provident fund money in a preservation fund, to preserve tax benefits and continue to invest your money, instead of cashing money out. Most product providers now require a minimum sum of R50,000. You can transfer your money from your pension/provident fund to a preservation fund. Tax-free investment: This is an investment vehicle that allows you to invest tax-free. You may invest up to R36,000 in a tax-free investment account in a tax year, all your growth within the account is tax free for life. This is what I recommend to most clients as their first investment building blocks. Click here to watch the episode on tax-free investment Retirement annuity: Retirement annuity allows you to contribute to a fund pre-retirement and enjoys tax deductions, to build up your retirement capital. All your investment growth before retirement age is tax free. Your contributions are invested in Regulation 28 compliant funds. Cick here to watch the episode on retirement annuity Endowment: This is an investment product with an initial five-year term. You take out an endowment with a life insurance company. Your investment growth is taxed within the product, the life insurance company will calculate the tax applicable and deduct the tax from your growth. When you withdraw or surrender your policy, you will receive the money tax free. Endowments have certain tax advantages for high-income individuals. It also offers protection against creditors. Click here to watch the episode on endowment Living annuity: When a member's pension fund, provident fund or retirement annuity fund reaches retirement age, he is obliged to use part of the proceeds (a minimum of two thirds) to invest in an annuity, to receive a monthly income. In a living annuity, an investor essentially has a retirement investment account. He can invest in a portfolio of unit trusts, and he can determine the level of drawdown to provide him with an income. The annual drawdown rate can be between 2.5% and 17.5%. Life annuity: With life annuity, a person enters into a contract with a life insurance company. In return for a lump sum paid to the life insurance company, the life insurance company pays the person (life assured) a monthly income. The life insurance company guarantees that income until the life assured's death. Certain options can be effected at the outset, to prolong the payment period to the beneficiary. Alternative investment: An alternative investment is a financial asset that does not fall into one of the conventional investment categories. Conventional categories include stocks, bonds, and cash. Alternative investments include private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts. Hedge funds: A hedge fund is an investment vehicle that caters to high-net-worth individuals, institutional investors, and other accredited investors. The term “hedge” is used because these funds historically focused on hedging risk by simultaneously buying and shorting assets in a long-short equity strategy. Section 12J investment: Section 12J of the Income Tax Act was introduced in 2009 by the South African Government to encourage South African taxpayers to invest in local companies and receive a 100% tax deduction of the value of their investment. The investor receives a share certificate and a tax certificate, allowing the invested amount to be deducted from the investor’s taxable income, in the year the investment is made. Gold and silver: Precious metals have been the store of value since the ancient of days. While it does not give you interest or pay you dividends, it protects you against inflation, or central banks unlimited money printing. You can buy gold and silver coins from reputable precious metals dealers online. Cash-generating business: Starting your own business can be scary, but also exciting. Businesses have proven a sure way for many people to generate wealth, for some generational wealth. By having your own business, working on it with your sweat, tears and grit, you benefit from the fruit of your Labour. There is no guarantee for success. In fact, statistics show that 95% of businesses fail within the first five years. With the right mindset, goal setting, planning, the right mentors and advisors, you can greatly improve your chance of success. REITS: REITs, or real estate investment trusts, are companies that own or finance income-producing real estate across a range of property sectors. These real estate companies have to meet a number of requirements to qualify as REITs. Most REITs trade on major stock exchanges, and they offer a number of benefits to investors. Buy-to-let property: Buy-to-let refers to the purchase of a property specifically to let out, that is to rent it out. A buy-to-let mortgage is a mortgage loan specifically designed for this purpose. Buy-to-let properties are usually residential but the term also encompasses student property investments and hotel room investments. Cryptocurrency: In this day and age, we have to consider cryptocurrency as a viable asset. While it is highly speculative, it is backed by a very useful Techonology called Blockchain. Given people’s suspicion of governments and central banks, there has been a move to decentralize currencies and financial transactions. There are thousands of crypto currencies in the world, while many of them are just scams, the main ones like Bitcoin, Etherium, Binance Coin, Ripple and USD Coin look like they are here to stay. As you can see, there are a plethora of asset choices and investment options. Take time to do you research to properly understand an asset class. Work with a qualified financial advisor as your financial coach, to decide on which assets may be best for you to accumulate. It is not one size fits all. it is not one asset class fits all. For all clients, I advise them to diversify across a few asset classes. Last month I talked about Step 4 - Keep a record of your spend. Let's continue with Step 5 - Invest 15% of your earnings. Robert Kiyosaki, a leading personal finance and business coach of our time, advocates "Pay yourself first". People who choose to pay themselves first allocate money to the asset column of their balance sheet before they’ve paid their monthly expenses. Essentially, you set aside a specific amount of money right off the bat, and then live off what’s leftover. And that’s how wealth grows. In South Africa, this means putting 15% of your monthly pay into a retirement annuity, a tax-free investment, an offshore investment, or getting a business education or subscription. Let's unpack this. When I have my first meeting with new financial planning clients, one of the areas we cover is Personal Balance Sheet. Personal Balance Sheet essentially is a list of a person's assets and liabilities. At the end we calculate a person's Net Asset Value (NAV) by subtracting liabilities from assets. Many people have no ideas of what are assets, what are liabilities, and the differences between the two. They work hard, they try to get a better income. After many years, they wonder why they have little to show for it, and where money has gone to. They are busy paying everyone else, the taxman, banks, credit card companies, municipality, Eskom, DSTV, cellular providers. Then they have no money to pay themselves. So they go through their life, by the time they get to 40s or 50s, then realise they don't have enough saved up for retirement. It is important for us to instill in our teenage children, young adults the importance of savings, that they should start saving 15% of their income when they start their first job or business venture. Don't rely on what your employer would do for you. In the past, many corporates in South Africa would provide generous employee benefits, including a pension after retirement. Due to changes in accounting standards, increased competition and tougher economic environment, many corporates have cut back on employee benefits. Just about all have moved to Defined-Contribution arrangements, they no longer guarantee employees a pension after retirement. We need to educate our children (and ourselves) to create that financial nest egg ourselves. No one else is going to do it for us. Not the employer, not the government, not your parents. Starting early is key. If a young person in their twenties start their first job, and save 15% of their income every month, invest wisely, then by the time she gets to 65, she should have built up a retirement capital, a sum of money to draw an income from. What we call "comfortable retirement." Below is a chart illustrating a 25-year old earning R40,000 a month, saving 15% of her income per month (i.e. R6,000). Assume her income increases at 5% per annum, and she keeps her savings rate at 15%. Also assume she gets 8% return on her investments. At 65, the projected capital she will built up is R37 million. If she delays the decision to invest until age 35, i.e. she only starts saving 10 years later, then at 65, the projected capital she will build up is R23.4 million. See the chart below. While still significant, it is 37% less than if she had started at age 25. So a 10-year delay will cause her wealth at age 65 to reduce by 37%! Investment products for long-term investmentYou may consider using the following products for investing for long-term: Tax-free investment account: while limited to R3,000 per month or R36,000 per year contribution, you invest tax-free, and you can invest up to 100% offshore. Watch this video to get the basics of a Tax-Free Investment account: Retirement annuity: This is designed for saving for retirement, offers great tax benefits. Watch this video to understand the basics of a Retirement Annuity: Offshore investment: This allows you to invest in hard currencies such as the US Dollar, Euros and Pounds, by converting your Rands into these currencies and investing offshore. This is great for diversification, and accessing investment opportunities not available in South Africa. Unit trusts: This allows you to invest in a wide range of collective investment schemes. You should invest in a number of funds for diversification, and your portfolio should be suitable for your risk profile. Endowment policy: This forces you to invest for a minimum period of five years, investment growth is taxed within the policy, so when it pays out you receive the proceeds tax free. Watch this video to understand the basics of an endowment policy: Contact us today at service@daberistic.com if you would like to speak to a Financial Advisor, on how best you can invest 15% of your money, to create your wealth.
Hi everyone, this is Uncle Kevin. Today I would like to encourage you to start investing today.
Have you developed a savings habit? Are you saving money every month? Do you know that by consistently investing money every month, you are going to reap the rewards in the long term? Investing is not a short-term game like a 100 metre sprint, but rather a long-term game like a 42km marathon. I would like to use two real-life client examples to demonstrate how you will reap rewards in the long run. Zane is now 43 years old. 10 years ago when he was 33, he had a financial planning meeting with me. He wanted to invest for his child's education. At that time I advised him to take up a Discovery Invest Endowment Plan, R1,000 per month, with the contribution increasing at CPI inflation rate every year. He started the investment on the 1st of April 2011. He has continued with the investment plan without fail. In year 10, his monthly contribution was R1,639. Now 10 years later, at the beginning of April 2021, the investment plan value, after deducting income tax, is R 223,691. The internal rate of return, IRR is 8.39%. Now internal rate of return is the net return received by the investor, net of fees, charges and taxes. So over the 10-year period, Zane has received on average 8.39% return per annum. Which is a good return. The second client, Ken is now 49 years ago. 10 years ago when he was 39, he also had a financial planning meeting with me about the same time, and he wanted to invest for long-term. At that time I advised him to take up a Discovery Invest Endowment Plan, R1,000 per month, with the contribution increasing at CPI inflation rate every year. In year 10, his monthly contribution was R1,639. Now 10 years later, at the beginning of April 2021, the investment plan value, after deducting income tax, is R202,116. The internal rate of return, IRR is 7.13%. There are 3 points I would like to focus on:
Use this link to book a FREE Financial Planning session with Kevin, using Microsoft Teams Online Meeting: https://calendly.com/daberisti... Apart from estate planning benefits, the latest budget changes further strengthen the tax benefits of the endowment, which is encouraging investors to revisit the case for this often overlooked product.
To build a successful long-term investment portfolio, one must consider ways to enhance their capital whilst finding efficient mechanisms to reduce your taxes. Endowments remain a useful investment vehicle and offer a disciplined way of saving where you are committed for a certain period so that you can reach your goals. The tax benefits of endowment policies Endowments offer an attractive tax-efficient option for people who want to save more than the maximum annual limit for tax-free savings accounts, and those who have exhausted their annual tax allowances such as tax-free interest income. The recent increase in the CGT inclusion rate means: an 18% effective tax rate on capital gains for individuals in the highest income tax bracket, and 36% for trusts, for an endowment policy, the effective CGT rate for these individuals and trusts is just 12%. In addition, tax on income is 30% for endowments as opposed to 45% when these individuals are taxed according to their marginal tax rates in other investment vehicles. This tax treatment is also beneficial for other income categories as well (i.e. for everyone with a marginal tax rate above 30%). In addition to tax savings, an endowment offers the following advantages: Simplified tax administration as tax is recovered within the endowment and taken care of on behalf of the investor. Insolvency protection – the entire value of the policy will be protected against creditors three years after inception until five years after the maturity, or termination of the policy. Beneficiary nomination can lead to potential savings on executor’s fees (up to 3.99% of fund value). Where a beneficiary has been nominated, payment of the death benefit does not depend on the winding up of the estate and beneficiaries will receive the proceeds relatively quickly. Liquidity is created in the estate as payment of the death benefit does not depend on the winding up of the estate and beneficiaries will receive the proceeds relatively quickly. Advantages of staying invested in an endowment, even after maturity
Source: Sanlam The 2017-18 budget provided limited relief for fiscal drag and introduced a personal income tax of 45% for individuals earning R1.5m or more. The previous top bracket of 41% was set at an income of R701,301. Tax collections have fallen sharply in light of poor econo-mic growth and the Treasury has had its worst performance in collections since the 2009 recession. So the trend of increasing taxes seems likely to continue as the Treasury sets about on what it calls a "measured, prudent course of fiscal consolidation". In the light of this, it is now more important to plan your financial affairs effectively from a tax point of view. There are several structures you can employ legally, without much cost, that can be quite effective in reducing the amount of tax you pay on your investments. One such structure is an endowment, which has potential tax advantages for investors in higher tax brackets and can also be used for estate planning. There are typically two types of endowments: "traditional" and new-generation unit trust-based endowments. Traditional endowments tend to have an insurance element linked to the structure, usually in the form of life insurance. They are less flexible in that you don’t have control over the underlying investment and may be charged fees or penalties when changing the contribution amount or withdrawing early. New-generation endowments tend to be more flexible and give you choice over the underlying investment portfolio.
There are no asset class restrictions on endowments (unlike retirement funds investments). This means that you are free to invest in any allocation of equities, bonds, property and cash (including the offshore version of each). Endowments present valuable tax arbitrage opportunities. Tax on income is levied at a flat rate of 30% within the endowment. This is attractive when you compare it to the 45% applicable to investors in the highest tax bracket. Capital gains tax is levied within endowments and varies according to the legal nature of the owner. Within an endowment, investors in the top tax bracket will pay capital gains tax at an effective rate of 12% (40% inclusion rate multiplied by 30% tax within the endowment). In a unit trust, the same investor could pay an effective rate of 18% on capital gains (40% inclusion rate multiplied by 45% marginal tax rate). If you are an individual with a tax rate of less than 30%, investing in endowments for tax reasons alone, probably does not make sense. Endowments can also be a useful estate planning tool as they allow you to nominate beneficiaries The tax arbitrage opportunities within an endowment can be explained by comparing the after-tax return to that of a unit trust. Assume Steve is in the top tax bracket and under the age of 65. He has already used the interest exemptions (R23,800) and capital gains tax exemptions (R40,000). Steve has the choice to invest R1m in either a unit trust or an endowment with the same underlying investment portfolio. The investment is in a typical balanced fund with a blend of asset classes returning 10.8% over the period. At the end of the 10-year term the endowment will be worth R2,383,048 and the unit trust will be worth R2,788,673. However, in the unit trust, the tax on the interest (payable annually) and capital gains tax on withdrawal at the end of the term amount to R587,806 and reduces the proceeds to R2,200,867. The after-tax return of the endowment beats the after-tax return of the unit trust by 0.86% over the period. Steve would be better off opting for the endowment. Endowments can also be a useful estate planning tool as they allow you to nominate beneficiaries. That is, a nominated person can receive direct ownership of, or payment from, your endowment in the event of your death. This means that the beneficiary receives the value of the endowment without having to wait for the estate to be wound up first. What’s more, no executor fees (which can be as high as 3.99%) are charged on the value of endowments received by beneficiaries. There are some other subtle-ties to bear in mind. An endowment is a long-term investment vehicle by nature, with the minimum investment term being five years. It is possible to access some funds before the five-year period in the event of an emergency, but there are limits imposed as to how much you can withdraw. If you are unsure whether an endowment is appropriate for your circumstances contact our Financial advisor, please contact Kevin or Ray, email: invest@daberistic.com tel no: (011 658-1333) Source: Businesslive An endowment is a type of investment plan that can hold a variety of underlying investment options, including unit trusts and a share portfolio. It requires an investor to invest for a minimum period of five years. It provides investors with full access to their money after five years or when the policyholder dies. In South Africa, endowment plans are taxed at reduced rates (compared to the typical tax rate of an individual in the highest income tax brackets). When you do decide to withdraw your money, you won’t have to pay any further tax on your investment.
There are two main considerations around endowments: tax and estate planning benefits. Income received in an endowment is taxed at a flat rate of 30% for individuals and trusts, while capital gains is taxed at 12%. 20% dividend withholding tax also applies. Tax on returns is deducted and administered by the product provider. The Long-term Insurance Act that regulates endowments imposes a few restrictions: During the first five years of your investment, known as the restriction period, you may only make one withdrawal. The maximum withdrawal during this period is limited to the amount invested plus interest at 5%. The balance may be withdrawn after five years However, when you are not in a restriction period, you may withdraw from your investment at any time, or schedule regular withdrawals. Your five-year restriction period may be extended if you invest more over one year than 120% of your investments over either of the past two years. Most life insurance companies and investment platforms offer endowments. In the event of your death, your beneficiaries can receive your investment immediately and there are no executor's fees. This amounts to a saving of up to 3.99% of fund value. Tax administration is taken care of on your behalf (the insurance company calculates, deducts and pays the taxman). The entire value of the endowment will be protected against creditors after three years. This protection will continue until five years after the termination of the endowment. You are not restricted to maximum levels of equities and offshore investments, as in the case of retirement annuity. You can also use an endowment to draw income upon retirement, as long as the five-year restricted period has passed. You can do this on an ad-hoc basis, without being forced to draw income at specific intervals. Return profile: It will depend on the type of unit trust you invest in. If your underlying investments are income unit trusts, you may expect a net annualised return of 4% after fees and tax. If your underlying investments are high growth unit trusts, you may expect a net annualised return of 6.5% to 9% after fees and tax. Who is it suitable for:
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