Avoid typical mistakes In times of stress, the human impulse is to take action. When investment returns start to sink, this instinct could drive investors to do something – anything – just for the sake of taking action. This is precisely the wrong reaction in challenging times. There are many knee-jerk responses to short-term underperformance – all of which will ultimately detract from long term returns Switching to cheaper products In a low-return environment, clients typically consider cheaper managers or passive products to save on fees. However, this is precisely the time that outperforming the market becomes even more important. In a high-return environment, alpha is nice to have. When the market delivers 15%, it’s nice to achieve an outperformance of 2% or 3%. But in a low-return environment, outperformance really starts to matter. Outperformance of 2% to 3% on a base of 9% is a must-have: The difference between 9% and 12%, compounded over years, can transform your retirement. Skill in delivering strong outperformance becomes more valuable (not less) in challenging times. Investing with managers that have a demonstrable track-record of successful asset allocation will become even more important. Cutting exposure to risk assets When the investment outlook and market sentiment are poor, stressed investors often lose their tolerance for volatility. However, it is crucial that investors maintain appropriate exposure to growth assets, which are the only investments that will provide the real long-term growth investors require. Shortening your time horizon The temptation is to shorten your investment horizon – instead, it should be lengthened. Identify long-term winning managers and asset classes, and back them for the long run. Don’t fidget or lose faith at precisely the wrong time. Retirement investing In a low-return environment, it is key that your clients exact strict discipline in their draw-downs. The gains from reducing annual drawdowns is non-linear. A small reduction in the drawdown rate can add years of additional retirement income. It is also important to understand the place of underwritten annuities in the market. In times of low returns, it is tempting to buy an underwritten annuity. But investors should be sure that the product is suitable to their needs. Be very careful of annuities that escalate by a rate below inflation. Currently, a 65-year-old investor typically gets a 4.7% yield in an underwritten annuity, which escalates at 5% a year. This may feel like a low-risk option, but in fact it is actually a proposition that holds a lot of risk. Over a 30-year time horizon, the power of compounding will not be on your side. In 30 years, something that costs R1 today will cost R4.3 at 5% inflation (compounded), compared to R5.70 at 6% and R10.10 at 8%. No-one knows the future; South Africa is a volatile and uncertain place, and inflation could just as easily average 8% as 5%. Inflation protection is crucial, and we do not believe investors should consider anything less than an inflationary escalation. Source: Coronation “In these tough times we draw strength from the resilience and diverse capabilities of our people, our business sector, our unions and our social formations.”Pravin Gordhan, Budget Speech 22 February 2017 Personal tax
Business and trusts
Employers
Retirement reform
Other tax proposals
Discovery Invest has been around for about 10 years, it has grown in leaps and bounds, judging by its phenomenal growht in Assets Under Management (AUM). It has some interesting innovations, are they worth considering?
According to Discovery's brochure, they have three Classic products: Classic Preserver Plans: The Discovery Invest Classic Preserver Plans provide additional efficiency, improved performance and protection. Classic Retirement Plan: The Discovery Invest Classic Retirement Plan provides the ability to invest in a highly tax efficient product with improved performance and protection. Classic Offshore Endowment Plan: The Discovery Invest Classic Offshore Endowment Plan gives investors additional tax efficiency and protection against negative portfolio performance. Classic Preserver Plans has 6 unique benefits:
Clients should weigh up the cost against the benefits carefully, as these products require long-term commitment from clients. Question: I'm 42 years old and self-employed and I would like to have a retirement vehicle. Monthly I earn around R10 000 after my expenses and I would like to invest this money for retirement. Do you have any suggestion?
Answer Johan Stadler from FNB Financial Advisory division: As a self-employed client, the most suitable retirement vehicle could be a retirement annuity. This is a tax efficient vehicle for investors who wish to enjoy a certain standard of living when they are no longer employed. Contributions to a retirement annuity could either be in the form of a lump sum amount or monthly contributions. We generally advise our clients to carefully consider their retirement goals and make financial contributions that will help them meet those goals. It is important to always consider your financial circumstances as an individual and to ensure the contribution is always affordable and in line with your goals.As a business owner, it is even more important to consider self-funding of your retirement savings due to the fact that you may not be contributing to a company pension fund. You probably see your business as part of your retirement plan in the sense that you can sell it at some stage to unlock your wealth. This is not always an easy option and very often, business transfers are complicated. The future value, provided you find a willing and able buyer, is not certain.Over and above simply considering retirement savings, we would suggest that you also consider succession planning and the impact of your business on your personal estate. Each and every situation is unique and your personal circumstances will influence the solution that is best suited to you. We strongly advise that you consult a financial planner who will conduct a thorough needs-analysis and provide advice according to your individual goals and current financial position. Please contact Kevin or Thato in our Life Department; email life@daberistic.com , to get a retirement annuity quote Source: Fin24 The end of the tax year is fast approaching – but there is still time to take advantage of some of the incentives the government has put in place to encourage savings. The introduction of the tax-free savings legislation last year has added an extra arrow to the quiver of tax-efficient options available to investors. Options are great, but having to choose often stops people from acting and can get in the way of our good intentions. If pressed to make a decision between a unit trust-based retirement annuity (RA) or a unit-trust based tax-free investment (TFI) product, which should you choose?
Begin with the end in mind At this time of the year maximising tax breaks is a common, top-of-mind goal. However, it is important to look at your portfolio holistically, either on your own or with the help of a good,independent financial adviser, to ensure your decisions fit in with the long-term plan. Let’s talk tax There has been much debate about the benefits of TFI products versus RAs. First, remember that both an RA account and a TFI savings product grow free of dividends tax, income tax on interest and capital gains tax. In our simple example1., because you are compounding all gains tax free, your investment value at the end of 30 years would end up roughly 45% higher than in a discretionary investment. The main difference between the two products is that an RA offers tax savings now, i.e. you pay less tax now because you make contributions with earnings on which you have not paid tax, but you will pay tax later, i.e. you defer paying tax. With TFI products, on the other hand, you use after-tax money to invest, but you pay no tax later; your withdrawals are completely tax free. So which offers the best deal tax-wise? Let’s consider the detail: Only 15% of non-retirement funding income is eligible for a tax deduction. This is set to change on 1 March 2016 to allow a tax deduction of up to the higher of 27.5% of taxable income or remuneration capped at R350 000 per year. This is a solid increase and will make the tax savings on an RA more relevant for higher income earners (albeit lower for the very high earners where the new annual rand cap is less than the previous 15% limit). Apart from deferring tax in an RA, the tax saving comes from paying a lower average tax rate on the benefits withdrawn from the RA at and after retirement, versus the tax saved on contributions. The first R500 000 of any lump sum you withdraw from your RA is currently tax-free (you can withdraw up to one-third, but this includes any pre-retirement withdrawals), and the rest of the benefit must be transferred to an income-providing product, such as a living annuity or a guaranteed life annuity. When income tax is paid on this benefit, you are likely to be taxed at a lower rate than when you were making contributions, which is where the additional tax savings comes in. Because of this, a disciplined investor paying income tax at marginal rate of 36% could pay more than 50% less tax on their retirement savings over their lifetime. This obviously varies depending on each investor’s personal circumstances, salary, age, how much and how long they have saved and any withdrawals made along the way. When comparing to a TFI product, the difference is that you have a future tax liability, whereas in a TFI your tax would already have been paid, but at a higher rate. What’s the catch? While the tax benefits of the RA and TFI are clear, it’s important to be aware of the restrictions before making a decision. RAs are governed by the retirement fund regulations, specifically Regulation 28 of the Pension Funds Act, which limits the exposure you can have to more risky asset classes, such as equities and offshore investments. In TFI products, there are no restrictions on asset classes but you can only invest in investments that charge fixed fees, which limits your selection. We have recently launched afixed-fee version of our flagship Balanced Fund to accommodate investors who would like to invest in our Tax-Free Investment Account. Another critical point, is that you can only invest R30 000 per year in TFI products. This is the maximum limit for all TFI accounts in your name, across product providers. If your goal is to save for retirement, the maximum annual contribution of R30 000 in a tax-free savings account may not be enough to sustain your lifestyle, and if you over-contribute SARS will hit you with a hefty 40% tax penalty. Access to cash may be another deal breaker: your investments in an RA cannot be accessed before the age of 55. You can access your TFI investment at any time. However, withdrawing from a TFI account impacts negatively on your lifetime investment limit of R500 000 – you cannot replace money that you have withdrawn. Other distinguishing features Both the Allan Gray RA and TFI2 are protected against the claims of creditors and do not form part of your insolvent estate. This feature is not applicable to all TFI products but it is applicable to the Allan Gray TFI, which is a life policy. You may nominate beneficiaries for an RA, although the trustees determine the allocation between your dependants and nominees. You may nominate beneficiaries when the TFI is a life policy. RAs are exempt from estate duty, whereas TFIs forms part of your estate and attract duty, although there are no executor fees if beneficiaries have been nominated. Which product wins? From a retirement savings perspective, in most cases RAs offer the best tax deal. However you need to be able to live with the restrictions described above. For long-term discretionary investments, it probably makes sense to put your first R30 000 into a TFI product. Remember, however, that you will need to be disciplined and resist the temptation of withdrawing from your TFI account. You only get to enjoy the long-term compounding benefits if you don’t dip your hands into the cookie jar along the way. Source: Allan Gray Please contact Kevin or Thato, email: invest@daberistic.com, if you have any queries about Retirement Annuity or Tax Free Investments Around this time of the year, we would like to remind you to consider topping up your retirement annuity fund. According to the current legislation, you may contribute up to 15% of your taxable income (strictly speaking, non-retirement funding income) to a retirement annuity fund and enjoy tax deductions. As 28 February is the end of the tax year, you must calculate and pay the additional amount to your retirement annuity prior to this date, in order to qualify for tax deductions and tax refunds.
Below is an example of topping up your retirement annuity: Mr Thomas has a monthly salary of R50,000. In December he received a bonus of R100,000. Every month he contributes R3,000 to a personal retirement annuity fund. His annual income is then R50,000*12 + R100,000 = R700,000. The maximum tax-deductible contribution to retirement annuity is R700,000 * 15% = R105,000. Over the year he has contributed the following to retirement annuity: R3,000 * 12 = R36,000 The additional amount he may top up in his retirement annuity (RA) is R105,000 Less R36,000 R69,000 He can expect a tax refund of R105,000*39% = R40,950 from his retirement annuity contributions. Should you have any queries on retirement annuity , please contact Kevin or Thato , tel 011-658-133, or email invest@daberistic.com Website: www.daberistic.com Email: info@daberistic.com Tel: 011 658 1333/1391 Happy New Year, dear Client/Business Associate, We hope you all enjoyed a nice, relaxing summer break and are ready for an exciting and successful 2016! This year is going to be the best for Daberistic, as we celebrate a 10 years in Business. It is hard to believe that it has been 10 years since we first signed our first policy. We are a company that still values the ownership mentality in its workers and still believes the best way to keep an existing client happy and to earn the trust of a new one is to reach out and give our best. In our first Newsletter for 2016 we look at resolutions to assist you in making 2016 an even better financial than 2015 in the article 5 money resolutions to make in 2016 this will help a better financial life. Another thing to look at is to look at ways to save and get rewards for spending; in our article on Get to Gold on Vitality in 2016 you have a clearer picture on how vitality can be of greater benefit to you. Having a healthy financial lifestyle it is important that everyone in the home is able to understand the importance of saving and learning how to plan finances, our article on Teaching your children sound financial habits helps guide parents how to guide children with finances. With the budget speech nearby it is known that the popular guy in the news will be Finance Minister Pravin Gordhan, luckily for us this time he is not a bearer of bad news as he explains to us in this article SA not heading for recession we will be glad to know that for those who have New Year’s resolution that they want a new car it will be possible. Our article on Car-buying tips for the New Year will help our clients in making sound and wise financial decisions when buying a car. As we start this New Year on the last lap of our first decade, we do so with great excitement as we anticipate what lies ahead. We appreciate you, our existing clients and friends being a part of our intertwined lives. We pledge to continue giving you the best we have to offer and great service you deserve. 5 money resolutions to make in 2016 While the top two resolutions of "save more" and "spend less" seem pretty straight forward, they're easier said than done. "Give yourself a chance to succeed by making sure the goals are meaningful, specific and actionable," said Neil Krishnaswamy, a certified financial planner at Exencial Wealth Advisors in Texas. "And set deadlines." Here are more money moves experts recommend adding to your resolution list: 1. Pay off debt With raising interest rates, 2016 is the year to commit to reducing consumer debt. Many credit card interest rates are variable, which means the annual percentage rate (APR) will likely rise as the central bank continues to raise rates."Those debts are going to get more and more expensive as rates rise," said Christopher Krell, a certified financial planner at Cassaday & Company. If you have several outstanding debts, he recommended prioritizing in order of highest to lowest interest rates when making payments. 2. Create an emergency fund Part of the "saving more" resolution should include putting money aside to cover unexpected expenses or to help make ends meets in the event of a job loss.Experts recommend stashing away three to six months of costs. "Where in that range you fall depends on your personal situation," said Stuart Ritter, senior financial planner and vice president of T. Rowe Price Investment Services. "If you are single and/or at a job that might be more at risk, you want to be at the higher end of that. If you are in a dual-income household ... you can be in the smaller range."Be sure to keep the money easily accessible. 3. Increase your retirement savings Experts generally recommend contributing at least 10% of your income into retirement accounts.If you can't quite swing that much, don't worry, you don't have to make the leap all at once. "Every three months, increase your contributions by 1% to 2%," suggested Kimberly Foss, certified financial planner and founder of Empyrion Wealth Management. 4. Assess your investment strategy It's also a good idea to start the new year by taking stock of your investments and making sure they align with your goals and risk tolerance. Make sure you know exactly what you're invested in. If you choose an asset allocation when you first started investing, you should review and reallocate at least once a year to stay on track. Krell said he recently worked with a couple who thought they were diversified only to realize the various mutual funds and ETFs they chose were all invested in the same stocks. 5. Review your insurance coverage If 2015 brought major life changes like marriage, divorce or a child, it's time to assess your insurance plans and beneficiaries.Life insurance needs tend to increase when there are more dependents on your salary. "Make sure you have two times your salary," said Krell. Also review the beneficiaries of an insurance or retirement plan -- they're likely to change following a marriage or divorce. Source:CNN Money Get to Gold on Vitality in 2016 It is possible for you to reach Gold Vitality status. All you’ll need is a good dose of motivation to get healthier, and these easy steps as your guide. For your benefit, I have attached a number of links below.You may be asking what is the benefit of being Blue or Gold well the higher your Vitality status the more benefits(travel, lifestyle and shopping), savings and cash back rewards for you. How you can get to Gold Vitality status Remember, there isn’t a set order for these activities. This is the recommended path you can take to get healthier:
Source: Discovery Please contact Namhla or Judy in our Health Department, email health@daberistic.com , if you have any queries about Vitality or Medical Aid Teaching your children sound financial habits It is important to instill the value of money in your children from an early age. If no one teaches your child, how do you expect them to handle their money later in life? Children learn from example, and if they are not taught about debt, compound interest and the like from an early age, they’ll be on the back foot when compared to their peers once they’re in their twenties, and will have to teach themselves good financial habits.Unfortunately, some people do not manage this and soon find themselves facing an insurmountable pile of debt. Don’t dismiss the importance of teaching your children good financial habits. Research by the Money Advice Service has found that money habits, particularly adult money management habits, are formed in children by the age of seven.“Most young children grasp all main aspects of how money works and form core behaviours which they take into adulthood and which will affect financial decisions they make for the rest of their lives,” it stated. Says Danelle van Heerde, head of advice processes at Sanlam Personal Finance: “The best way to teach your children anything is by example. Money habits are no different. Your own attitudes towards money will rub off on your children, so daily life presents a wonderful opportunity to teach children good money habits.” Remember, it’s not what you say but what you do that often has a lasting impact on young children. If you contradict what you say, children will often fall back on following your example, therefore it is pivotal to ensure that you practice what you preach.Says Charl Nel, head of communications at Capitec: “Children learn from imitation from an early age. They also learn by picking up patterns in their own daily experiences – called inductive learning – so involve them in age appropriate money activates as often as you can. Getting the basics right will help your child to build a strong financial base.”Unfortunately, one of the most common mistakes that parents make is trying to keep up with what other parents offer their children. This may be hard when your child comes up to you complaining that their friend has just received the latest gadget. Click here to read more Source: Finweek SA not heading for recession Finance Minister Pravin Gordhan said on 14th January 2016 that South Africa's economy would not slip into recession, rejecting predictions by some economists that sharp falls in the rand pointed to a contraction this year. "We are growing as an economy; we are not going into a recession. But we are not growing fast enough," Gordhan told a media briefing after a cabinet meeting. The rand, among the most volatile of major emerging market currencies, slumped to a record low of R17.9950 to the dollar during Asian trade on Monday on fears that China wanted to weaken its currency aggressively, though it has since recovered some ground. The depreciation has, however, helped SA’s export prospects and, combined with a sharply lower global oil price, has helped to alleviate pressure on South Africa's current account. Gordhan, who returned as finance minister in December, said he would be meeting with the Reserve Bank to discuss how to deal with the challenges of growth. In 2010, Gordhan wrote a letter to then-Reserve Bank governor Gill Marcus asking the Reserve Bank to be mindful of employment and growth alongside its price stability and inflation mandate. "We will certainly be meeting regularly with the Reserve Bank and look at the current environment to see how we approach challenges," Gordhan said. The National Treasury has set a growth target of 1.5% for 2015, though quarterly data suggest this may be hard to achieve. Source: News24 Please contact Kevin Yeh, email invest@daberistic.com , if you have any queries about Financial Planning Car buying tips for the New Year Many car buyers delayed their car purchases to have a car registered in the new year, but it does have its drawbacks, cautions Rudolf Mahoney, head of brand and communication at WesBank. Often a car purchased in January would have been subject to a price increase and it may require careful budgeting to ensure you can keep up with the monthly instalments. “Buying a car is not just a new year’s resolution, it’s a five- or six-year-long commitment,” says Mahoney. “Plan correctly from the outset, and not only will your first year of car ownership go smoothly, but your personal finances will benefit in the years to follow.” In the view of Debt Rescue CEO Neil Roets, it is better to save and buy cash and vitally important to live within your means. "Loans should not be used for day-to-day living. They should only be utilised for buying expensive assets like properties and vehicles," said Roets. “When buying a vehicle, don’t fall into the trap of buying something beyond your means. Rather buy an economy class vehicle than an expensive luxury car.”Roets said it is vital to make financial provision for unforeseen circumstances, for example car repairs or a health crisis that might not be covered by medical aid. “Distinguish between what you need and what you want – do not try and keep up with the Joneses,” he warned. The most important part of the car-buying journey is compiling a list of all current expenses and income. It is important to shop around and compare car prices to find a sensible and affordable car that fits within your budget. On average, a young professional that buys a first car at around the age of 25 and replaces the car every five or so years would have financed around eight cars in his or her car-buying lifespan. As a first-time car buyer, you need to decide wisely. The first car you buy and the way you manage your funds shape your financial future and determine whether you will be stuck in cycle of debt till you retire. Buyers should take note of every amount they have to pay - no matter how small - and subtract those costs from your total income. Click here to read more Source: Fin24 Please contact Thomas in our Short Term Department; email shortterm@daberistic.com , for all car insurance query Contact details Kindly note the following to ensure you get the correct person to assist you with your insurance and investment queries. Life insurance and investments: Kevin Yeh, Thato Merementsi, Nicole Smith Tel 011 658 1333/1391, email life@daberistic.com Medical aid / gap cover:Namhla Zwane, Sophie Su Tel 011 658 1333/1391, email health@daberistic.com Short-term insurance (Personal and Business): Thomas Mooke, Jonavon Theron, Tel 011 658-1333/1391, email shortterm@daberistic.com Retirement funds: Kevin Yeh, Tel 011 658 1333/1391, email employeebenefits@daberistic.com Tax, Accountancy and Auditors: Su-Lan Chen or Su-Chin Chen, Tel 011 658 1333/1391, email finance@daberistic.com 24-hour emergency cellphone number: 076 200 5488. |
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