Share investing is an important way of creating wealth over the long term. When you buy shares issued by a company, you become a shareholder. Owning shares gives you the right to vote in shareholder meetings, receive dividends (which are the company’s profits) if and when they are distributed, and it gives you the right to sell your shares to somebody else. The importance of being a shareholder is that you are entitled to a portion of the company's profits, which is the foundation of a share’s value. The more shares you own, the larger the portion of the profits you get. Many companies, however, do not pay out dividends, and instead reinvest profits back into growing the company. These retained earnings, however, are still reflected in the value of a stock. You can buy shares of companies listed on a stock exchange, such as JSE, through a reputable stockbroker. Your return from owning shares comes from two sources: dividends paid to you, and increase in share price (capital gains). Dividends received are subject to 20% Dividend Withholding Tax; capital gains are subject to Capital Gains Tax. Share price can go up or down. When share price goes up, you make a profit on paper. When share price goes down, you make a loss on paper. Before you invest in shares, you must do your research. You should identify the companies you would like to invest in, have a good understanding of their business, management, prospects and financials. You should have a good grasp of how to calculate the value of a share. After you have bought shares in a company, you need to continue to monitor its business activities, management changes and financial performance, to determine whether it is appropriate to stay invested. Working with an experienced stockbroker with good research capability will add value to your share investing process. Having a good understanding of technical analysis will help buying shares at better prices. Share investing is a long-term activity. It is NOT buying and selling shares regularly in the hope of making quick profits. If share investing looks like too much work for you, rather work with your trusted financial advisor to invest in a couple of good equity funds (High Growth Unit Trusts). Example: Siya invests R100,000 in the shares of a listed company, at a share price of R10 each. So she owns 10,000 shares. Every year the company declares and pays R1 dividend per share. 10 years later the share price rises to R40. Siya’s share portfolio is now worth R400,000. Over the 10-year period, Siya has profited from her investment as follows:
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This group of unit trusts has 100% of the money invested in offshore assets, predominantly in offshore equities. It may have some exposure to the listed property sector, as well as cash and bonds. Given the fact that South Africa only accounts for 0.5% of the world economy, and there are many excellent, well-known international companies not available for investing in South Africa, I encourage investors looking to maximise their returns over the long term to allocate a high percentage of their portfolio to Offshore Unit Trusts. You will also benefit from expected Rand depreciation against the US Dollar over the long term.
International giant brands not available for investing in South Africa include: Alphabet (parent company of Google) Amazon Apple Berkshire Hathaway Microsoft Nestle Samsung Unilever Return profile: Expected high returns over the long term (10 years plus), on average 12% to 16% per annum Volatilities: As stock markets fluctuate, reacting to news and market sentiments, offshore unit trusts also fluctuate daily. It goes up one day, down the next. It goes up one month, maybe down the next. In addition, there is also exchange rate fluctuation, which may magnify price movements if you invest in Rand-denominated Offshore Fund locally. Who is it suitable for:
You may have heard of a return on an investment, but have you heard of an investment measure called the internal rate of return (IRR)? The return on investment (ROI) – sometimes called the rate of return (ROR) – is the percentage by which an investment has increased or decreased over a certain period. By contrast, the IRR measures the actual return on an investor’s money in a portfolio. The IRR calculation takes into account all fees, the investment term, and additional investments and withdrawals, and calculates the growth of the investment in a meaningful way. This enables investors to determine whether their portfolio is on track to achieve the return they need to maintain their standard of living. The IRR calculation shows a portfolio’s return on an annualised (per year) basis. If, for example, you had R100 on January 1 and R110 on December 31, and you made no deposits or withdrawals between those two dates, your IRR would be 10% for the period. If, however, you made monthly deposits of R1 (or R12 in total) and your portfolio was worth R110 on December 31, you would have a negative IRR of –1.9%. After investing a total of R112, you would have less money (R110) than you invested. If, on the other hand, you withdrew R1 every month and you had R110 at the end of the year, your IRR would be 23.2%. Your cash flow during the year would have been R12, and you would have ended the year with an additional R10 in the investment. The IRR calculation is also referred to as the money-weighted return calculation. This is different from a traditional time-weighted return where we exclude any client-generated cash flow in and out of the portfolio and look only at the initial value (R100) and the final value (R110) and get a return of 10%, which ignores how much money had been added or withdrawn over the period. Although these are very simple examples, they illustrate the importance of knowing a portfolio’s IRR. In reality, additional variables, such as fees, are taken into account, thereby providing a more realistic picture of your return. Knowing your portfolio’s IRR is important, because it enables you to monitor whether you are progressing towards achieving your financial goals. It indicates the actual return, including cash flows in and out of your portfolio, over the period. By comparing the IRR to your required rate of return – the rate that your portfolio needs to achieve in order to meet your lifestyle requirements, for example, inflation plus 2% – you will be able to assess your progress towards your goal. Interestingly, two people may be invested in the same portfolio but have a different IRR, because their deposit and withdrawal patterns are different. Let’s say, for example, that the market increases 10% over the year, but it first goes through a valley, falling 5% in the middle of the year. If Investor A added to her portfolio while the market was in the valley, whereas Investor B made a withdrawal, it means that Investor A bought at a discount, while Investor B realised a loss. In this example the portfolios’ overall performance was the same, but their individual IRRs will be different. If, during a financial planning exercise, calculations show that you need an annual return of 3% above inflation to achieve your lifestyle objectives, the calculation assumes that, as long as the money is invested in your portfolio, it is earning 3% above inflation. The IRR calculation is the most appropriate formula for checking whether you are actually earning what your financial plan says you need. To get advise on investment options with a track record of good returns, please contact Kevin or Thato, email: invest@daberistic.com tel no: (011 658-1333) Source: Business day live Today, if Bruce Wayne–aka Batman – was walking among us, he would be the 73rd richest man in the world, boasting an estimated net worth of around $11.6 billion, says Neo Kgantsi, Portfolio Manager at Sanlam Private Wealth.
“Batman’s considerable wealth was built up over a number of generations. The first generation of Wayne’s handed over their merchant house to the second which, by the 19thcentury, had become a formidable corporate company. Now, in the 21stcentury, under the watchful eye of Batman and following an excellent diversification strategy, it continues to achieve success in the financial sector and high-end technologies.” Back in the real world, the 2016 Wealth Report says two thirds of wealthy respondents were concerned about handing their wealth to the next generation as they didn’t believe their children would be able to build on that wealth. “And two thirds of the next generation were not inspired to join the family business because they were not excited by the business. They believed the business should be expanded, modernised or reinvented to make it more relevant and sustainable for the future,” says Kgantsi. There is no reason your family shouldn’t succeed in transferring wealth and success between generations. This level of success doesn’t take superhuman strength –it takes intelligence, courage and smarts. Kgantsi suggests we can learn some lessons from the achievements of the Batman clan. Lesson 1: Diversify. What Wayne Enterprises did right, it seems, is to ensure that its business interests withstood the challenges of change by evolving and remaining relevant. Its success lies in trust and in the transferring of trust and power from generation to generation. Your business may currently be booming and meeting the needs of your market, but if you are looking to retire soon and leave the business in the hands of the next generation, are you thinking ahead? If you are not diversifying and allowing fresh blood to evolve and introduce new ideas, your business may become stale. Would we even have heard of Batman if the Wayne’s had remained in hunting? Lesson 2: Collaborate. Wayne Enterprises includes more than 40 diverse umbrella companies that are well integrated in order to ensure the growth of the enterprise. It is vital that the various business units within a family ‘empire’ have some commonality – a shared mission statement for instance – so that they are not working as disjointed entities but rather collaborating for the greater good. Each business should have stated objectives that are measurable and the objectives for the each unit should be complementary. Lesson 3: Trust. Bruce Wayne relies heavily on his closest ally, Lucius Fox. He is perceptive, and an experienced businessman, entrepreneur and inventor, and is the mastermind behind returning Wayne Enterprises to its former glory. As a businessman, you cannot do it all –you need to allow experts to guide you and take control of areas they specialise in. To keep the family business growing, expose the next generation to your business model, teach them everything you know and don’t be afraid of the possibility of evolution. Click here to read more Please contact Kevin a certified Financial Planner; email invest@daberistic.com , for all wealth management queries. Source: FA News |
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