Category Archives: Blog

… Okay, but what are your parents’ retirement plans?

We often think about our own retirement plans, but these are actually not the ones most likely to hit you first. More urgent is the concept of knowing your parents’ retirement plans.

This is especially important if your parents are nearing the 65 years-old benchmark, but actually it’s vital to know at any time. Why? Because most of us, and especially the older generation, do not talk about money openly. So while you are living your life, there could be plans – or the lack of plans – that are going to majorly hit your finances once your folks retire.

The best thing to do is sit down and ask them plainly, getting as specific as possible. It can be an uncomfortable conversation to have, but forewarned is forearmed. Here are a couple of the most important questions:

When are you planning on retiring? Are you planning anything specific for then?
If your parents are planning to retire in just a few years or are in an industry with forced retirement and they don’t have enough savings… guess who’s going to fund that retirement? Best you know now.

Am I in your plans? Or am I the plan?
This is essentially the most crucial question. You need to know as soon as possible if you will need to take care of your parents. Until you have this conversation, you may have no idea that you’d subconsciously assumed your parents would give you their nest egg savings someday while they assumed they’d invest it on travel once they retired. That’s why these talks are so important.

Are there any debts?
This includes a home loan, medical bills, any existing student loans for you or your siblings that your parents took on and smaller things like cellphone contracts and clothing store accounts. Find out exactly what they owe and if they have the means to pay it back. This can also help you determine whether or not their ideas of retirement and if they have the funds are realistic. Again, try to seem helpful rather than probing as this is often a tough conversation for many parents.

Is there insurance and an updated Will?
Insurance gets a bad rap, but can be a huge relief if you know that your parents have adequate cover in place for the unforeseen ills of getting older, like sudden medical expenses, disability cover and even life insurance should they pass away. Check that both parents have adequate cover for all eventualities and, if they don’t, get them on it as soon as possible. Any retirement savings that are in place will get used to finance a crisis if there is no cover in place.

Also, unpleasant as it is to think about, if your parents are getting older you need to ensure that they each have a Last Will and Testament with up-to-date contents. It’s the only way for them to legally ensure their last wishes are complied with.

Do you understand that I’m asking these things because I care about you?
You’re probably thinking ‘this is a terrible idea’ at this point. Again, this conversation is uncomfortable for everyone 90 percent of the time. It’s natural for people to no want to talk about a time they’d be unable to feed themselves, and similarly you don’t want to feel cold-hearted. Just try broaching the subject lovingly and take it slow. It doesn’t need to all happen at once. It just needs to happen.

Can finances be a family affair?

Throughout the year there are clusters of holidays and long weekends when family comes to the fore. These moments are often an opportunity to step out of the frenetic hamster wheel of life, we now have long weekends and, for some, religious holidays to spend with those nearest and dearest to us. Which got us thinking – how much does your inner circle feature in your finances?

We often think of finances as a solitary thing, something for you to sort out alone – sometimes paying bills, sometimes lying awake worrying at 3am. You may nod your head thinking, ‘well that’s the way it has to be.’ But think about this: that is exactly what your parents, friends and family and sometimes even your spouse and children are going through, too. Do you want your sister lying awake worrying about her budget, all alone? Would she want that for you?

What if it didn’t have to be that way? Finances needn’t be a taboo subject and can be something the family can discuss all together. Share these conversations with those closest to you; your partner, your kids, your siblings, your parents, your grandparents and your grandchildren. Learn from their insight and teach them from yours. Then watch and see if you don’t all feel much closer by the end of the conversation.

Here’s one great place to start: at your next close family gathering, or long weekend, ask everyone to share a goal or a dream that they have. Then discuss how you can work together as a family to help that happen.

Not only could this be very useful for you in terms of financially planning for the future (like knowing your parents-in-law want to retire next year or your son has his eye on an expensive university) but it can also help ease the tension everyone typically feels about money all the time. The more you communicate and relate, the more you can dispel myths and fears about your future, your finances and the life you plan to live. You can plan for them, together, without the angst or the isolation that comes with how most people do it.

Even better, you can perhaps prioritise making someone else’s dream come true.

You see, love looks like something, and if you are able to splash out on horse-riding lessons for your child, it will send a powerful message that her dreams are important to you. So go on, try being someone else’s dream come true.

On the road: the best road trips for the long weekend season

It’s that time of year coming up again when the public holidays flow thick and fast for South Africa. With a country as beautiful as ours, the ideal solution could be a road trip.

Here are some of the best to get you out of the city and on the road.

Got three days? Enjoy the Garden Route
It’s an oldie but a goodie for a reason, especially if you stay on the coast. Even if you’ve done the Garden Route many times, there’s always a new wine farm to check out and side roads to take. Add horseback riding into the mix for some extra adventure.

Got four days? Hit the Midlands Meander
Durban is a holiday favourite but just a little too far away, for some, for a long weekend trip. The Natal Midlands, however, are a whole two hours closer to Johannesburg and boast some of the most extravagantly verdant greenery in the country. There are countless antique stores, cafes and curio shops to stop in and the prices are far lower than in Cape Town or Joburg.

Got nine days? Try Namibia
If you’ve never done a road trip to Namibia, you can’t possibly imagine how strikingly lovely the scenery is, how meditative the open, uncongested road and how friendly the people are once you get there. If you can fit in the extra drive, check out the Skeleton Coast – it’s on international tourists’ bucket lists for a reason.

Got ten days? Head to Botswana
In between the lush Okavango Delta and some of the best game reserves on the continent, Botswana is the ultimate road trip for a South African nature lover. Lush green bush, mighty rivers, striking sandy plains… Botswana has got it all. You’re unlikely to find cities as clean, unpretentious and well-run as Gaborone either.

There you have it, some of the best road trips to get your spirit of adventure without the exorbitant price of air tickets.

Teach your children well

It’s an overwhelming feeling most of us recall vividly – that first job, the first month of rent to pay and the exhilarating yet terrifying knowledge that we have to keep ourselves alive for the rest of the month for the very first time.

For those with children in school, a new experience awaits: watching your own child navigate those same hurdles. And yet, it doesn’t have to be a gauntlet for them like it was for us. In a few simple steps, you can set your child up to leave the nest more confident and wise than your own former self.

The younger they start, the better
You may feel that you want your children to grow up unencumbered by the stress of money. In fact, many parents who grew up in relatively poor circumstances want to lavish finances on their children to the point where they don’t even think about money…

Until they leave the house, that is.

It’s important to understand that the later a person starts to think about managing their own money, the scarier it is. Teaching your children the importance of rands and cents as early as possible is not only better for you, but significantly less stressful for them. As soon as your children are old enough to understand the value of money and the arithmetic behind counting coins, teach them how to draft a budget. Make it as fun as possible and empower them young with their pocket money.

… but don’t make it all about spending
Many savvy parents teach their children about money from a young age – but almost always with a mind to spending.

‘You can save up your R50 now instead of spending it on sweets today so that you can afford that game you want in two months’ time.’

While this does teach kids the vital importance of budgeting to an extent, it also tacitly enforces a zero-savings mindset. From as young as possible, teach kids that they should never spend all of their money and always have something in savings. For example, tell them that, if they save R5 in their piggy bank each month, you will give them R50 at the end of six months. If they leave that R50 where it is, they can get R100 at the end of the year. This alone will set your children up to succeed where many South Africans fail – having the benefit of compound interest from early on. Also offer your advice to help them pick out their first savings account and retirement or living annuity when they leave home.

Rainy day smarts
Also, emphasise the wisdom of having emergency savings separate to general savings. The benefits of a short-term safety net are numerous and ensure that, should something happen to you or to the economy, your child will able to weather the storm. This tip is often the hardest for parents to take because an important part of this with older children is letting them bump their heads a few times.

If they haven’t got emergency savings or insurance and they’re in a bumper bashing, for example, don’t just rush in to save the day. Ask them about what steps they had taken to safeguard against misfortune and let them see that it’s up to them and no one else to ensure that they thrive financially without getting crippled by twists of fate.

And remember: the better you teach your children financially now, the better they’ll be able to look after themselves – and you – later.

What Comrades runners can teach you about how to lead at work

In our modern world of convenience, there is something about marathons. People choosing the hard road, putting their physical and mental endurance to the test, is increasingly rare. With the Comrades season coming up soon, a few surprising parallels emerge for leaders. Read on to see what you can learn about excelling at your business from experienced marathon runners.

There’s no such thing as a quick win
Perhaps you could put it down to our easy 21st-century existence, but we all want success yesterday, not ten years from now. But for those of us who aren’t Bruce Fordyce, slow and steady really does win the race, in leadership and in life.

Many leaders want to impress shareholders, loved-ones and clients by being a rapidly rising star and getting enormous successes right out the gate. Unfortunately, those who pursue this usually neglect family, run roughshod over colleagues or staff who don’t want to work fifteen-hour days and even sacrifice their own health and sanity to achieve a hollow prize.

Marathon runners know that any true victory is made in the long haul over months and years of training without any recognition. Good leaders know it too.

Fortune favours the well-prepared
It seems counter-intuitive, but many otherwise rational leaders start a new project or a new business without ever really planning for the possibility that it might fail. It seems like negative, counterproductive thinking, right?

But ultramarathon runners have been doing this for years with one simple tool: visualisation. An experienced runner will not only physically prepare for an arduous race, but mentally will imagine in detail the exact moment when it seems their legs are about to give way or they think of quitting.

They then prepare a strategy of exactly how they’re going to keep themselves going. It’s a great lesson for business leaders too. Don’t just imagine the day when the champagne and bouquets are passed around, imagine the 4am worries and the crippling doubts and get a strategy to deal with it before it happens.

Uncommon leadership advice: be here
Forward thinking can only rake you so far, and many marathon runners will tell you that it’s not always the best idea. Think about it – you’re on the starting line, the gun goes… and you envision the hours and hours of hell ahead of you. It’s enough to make anyone turn around and go home.

Instead, Comrades runners need to learn to plan for the worst but, once they’re in the race, just focus on putting one foot in front of the other. How do you climb a mountain? One step at a time. Same with marathons, same with leadership.

Another benefit of being present as a leader is being more engaged with your team. It’s tough for someone thinking of 11 months’ time to ask themselves how their staff are doing right now and what they need to put in their best performance. Be present, but also think about others’ present states. A happy team is a productive one, after all.

Have a great week and remember – life is about the journey and not the destination. Focus on running well, leading well, and you’ll be just fine.

Keeping the lights on: how to keep overheads down in an unfair environment

There’s no doubt about it, businesses are getting squeezed from every side like never before. With load shedding back, the rand weakening, land expropriation casting uncertainty on the property scene and the price of electricity increasing, it’s tough to try and keep costs down.

While you can certainly hope for Eskom to get their comeuppance, it’s best to try and work with what we do have. Here’s how to keep the lights on in an uncertain time:

Skimp on the small and unnecessary:
The first port of call is the least painful – try and cut down on what’s not absolutely vital. If your company does beer and pizza each Friday, level with your staff and tell them that you’re trying to spend money on them where it counts, like an awesome end of year party. Limit entertainment expense budgets for your sales staff and executives and see if there are any non-essential stationery items, like post-its or highlighters, you can buy every second or third month only. Funnel this freed-up cash straight into your overheads such as water and lights.

Keep your eyes on the road
Petrol is another expense that has been unforgiving lately, so another real way to reduce costs is with company vehicles and transport. Ask frequent travellers like sales reps to try combine trips and keep fuel spend low and, if new vehicles are required, try the pre-owned route and ensure you look at fuel-efficient makes. If you’re able, try to have out-of-office meetings over Zoom or Skype, saving you travel and time!

People pleaser
In any business, the most expensive and valuable asset is people. During tough times, it helps to cut back on recruiting new staff and rather focus on cross-training the people you already have instead. This is also likely to save you valuable time as these existing employees already understand the company culture and you already know they’ll gel with the rest of your workforce. However, don’t skimp on training these transplants – you’ll really want them as upskilled as possible. Invest time in them and be sure to explain how this will be valuable work experience for their futures in the company and beyond.

Take out insurance
Specifically, regarding load shedding and the chaos it causes, a great purchase can be business interruption insurance. For those who can afford it, business interruption insurance the overheads that your business continues to incur despite the drop in income that things like load shedding might bring. Remember, some policies will cover load shedding while others won’t, so be sure you check before settling on one.

Tracking wheels and meals: have a less stressful tax season next year

Personal Income Tax (PIT) season is often a nightmare rush of catch-up, trying to capture and find invoices, mileage and other expenses! Now that we’re approaching March, start good habits that will make your next tax return that much easier and more rewarding in terms of returns.

You’ll be grateful you did…

Why everyone hates tax so much
Imagine yourself digging through a haystack to find a specific needle ten times in a row… that’s most people’s experience of filing tax returns. Because your information is not organised with your next tax return in mind every day or week, it’s that much harder eleven months on. Try to reduce the amount of needles lost in the haystack – or avoid the haystack entirely. Here are some tips to help you record the correct information – but please note that these are general guides. For proper tax advice, please get in touch.

Start a travel log now
This is one of the real pet peeves and where most people throw good money that they could’ve had in rebates away – their work-driving mileage. Keep a little A5 notebook in the car with you as a logbook and, each day, track your kilometres.

Another option for those of us more paperless is to take a screenshot of your odometer at the start and end of each work day and save these in a special folder on your phone.

Remember, you are not required to pay any tax on business travel expenses. That can get you a healthy rebate, as can declaring your amount of travel allowance given to you by an employer, as long as you’re not reimbursed more than 355 cents per kilometre which, let’s face it, most of us aren’t. That’s good money spent that you can get back from the taxman, as long as you keep a good record of it being for work-related travel.

Start tracking receipts now
If you’re going to track your work driving for tax, you’re going to need to keep your petrol purchase slips. So, while we’re at it, let’s talk about receipt-keeping.

Another good practice is to keep a folder in your office and car for every single receipt you accrue for work. Put everything in and use as this folder as a backup reference. Then, ask for your receipt to be emailed to you and keep that digital copy of the receipt as well. A good way to do this is simply to create a folder in your email purely for tax receipts and file things in there as soon as they come in.

Remember – do it that moment; it’s amazing how quickly we can forget. A bonus is that you’ll accrue much less paper clutter in your wallet, your car, laptop bag, handbag… definitely a win.

Because things slip through the gaps, it may also be good to set aside 20 minutes once a week – book it in your diary as if it were a meeting – and go over your work expenses for the week and check whether all of them are accounted for.

Think about using a tax professional, and keep them in the loop
A good accountant is with worth their weight in… well, tax rebates. However, handing over a mountain of receipts and logbooks once a year, just before tax deadline, is stressful for both you and them. A better way? Have a shared system where you can put stuff in immediately – a shared folder on Google Drive is a neat solution – so that your meeting the month you need to file your return is painless or, better yet, not even necessary. One less thing to do!

All these tips sound miniscule and so obvious, but that’s exactly the point: small changes do add up and, if you look after the pennies, the pounds really do look after themselves.

Try it and see. You’ll thank us next tax season, promise.

What you need to know to set yourself up for offshore

All offshore who are going offshore…

Beginning to invest offshore is increasingly looking good for worried South Africans amidst geopolitical turmoil. Depending on your risk appetite investment expectations, it can work for you and need not be an overwhelming or intimidating experience. Here’s what you need to know:

Professional help is essential
Everyone can invest offshore, it’s not only for the Oppenheimers… That being said, you cannot go it alone. Every country has its own nuanced rules and best practices; did you know that succession planning in Mauritius is completely different to here and estates don’t automatically go to spouses, or that there is no capital gains tax in Namibia?

There isn’t just one way of investing offshore
Whilst higher net-worth individuals often use bespoke investment options, average earners can invest offshore in a few different ways. The most common ways are to either invest in a foreign currency unit trust or to go large and hire a portfolio manager, through your bank usually, to set up a personal international brokerage account.

For tax reasons, many higher net-worth investors will set up an offshore trust into which they can deposit money as an investment to earn interest. If you choose this route you need to be aware of tax laws both locally and abroad. There are other options too, so again, speak to a professional advisor before you take the leap.

Relax – you don’t need a foreign bank account
Unless you’ve lived abroad and opened an account while in that country, chances are you don’t have a US or UK bank account. And that’s okay. Things like PayPal and Bitcoin are changing the game with cross-border payments and transaction and, in any case, you don’t need a foreign bank account to earn that offshore capital. You can transfer the money directly from a South African bank account in much the same way as you would transfer money from a local account to another local one.

Investing has never been a ‘one size fits all’ exercise, it’s built on a behaviour that is able to stand firm in shaky markets, is supported by a trusted advisor relationship and finds wealth in diversity.

Should I stay or should I go?

After the dismal performance of investment markets in 2018, investors cannot be blamed for feeling anxious. We have experienced one of the worst 5-year periods in the local equity market, going back 25 years. At the same time, cash provided investors with a safe return of 6.8% over the last year, and an average return of 6.5% over the last 5 years. The uncertainty of what investment markets will do in the next few years, and the safety of money market investments, raises the question for many investors: Should I stay, or should I go?

Looking in the rear-view mirror

In evaluating past performance, it is important not to fall into the trap of the so-called recency bias. Human beings tend to put more emphasis on what happened most recently, extrapolating this into the future. It is therefore important to create context with regards to investment performance.

The graph below shows the returns of the different asset classes over the last 10, 5, 3 and 1 years. Although money market investments and bonds delivered the best returns over the last 1 to 3 years, it shows the importance of other asset classes like equities, property and offshore assets in providing investors with longer-term inflation-beating returns.

"The investor of today does not profit from yesterday’s growth."

– Warren Buffet

Over 5- and 10-year periods various asset classes outperformed money market investments. Over the last 5 years, offshore investments delivered the best returns, whilst local equity and property investments contributed good returns over a 10-year period.

Proof - don’t keep all your eggs in one basket!

The low and medium equity portfolios in the graph above, both delivered returns that beat money market instruments over investment terms 5 years and longer. This shows how important it is to have a well-diversified basket of assets in one’s portfolio.

If one held a low or medium equity multi-asset portfolio over the last 10 years, the portfolio would have outperformed cash by 41.89% and 61.85% respectively.

The above graph indicates that, over the last 10 years, a medium equity portfolio would have given the investor a return of 209.39% while a low equity portfolio would have returned 171.20%. During the same period, a money market investment would have provided the investor with a return of 91.16%. This takes into account the dismal performance of the equity markets in 2008 and the bad performance over the last few years. This proves that investors were much better off holding a portfolio diversified between different asset classes.

Looking forward

Unfortunately, just like driving a car, investment decisions cannot be made looking in the rear-view mirror and therefore one cannot help but wonder; What does the future hold?

“Life can only be understood backwards; but it must be lived forwards.”

– Soren Kierkegaard

Although there are many geopolitical risks like trade wars, Brexit and the South African election that could potentially derail any investment strategy in the short term, the consensus is that the world economy is still in an expansionary phase and is expected to grow by 3.5% in 2019 (IMF 21 Jan 2019).

Some of the key factors to keep an eye on this year will be the economic trends of the world’s two largest economies. The US is expected to keep growing above the long-term average in 2019, and the Chinese government has taken steps to stimulate its economy and boost economic growth. These include a lowering of interest rates, tax cuts and infrastructure spending, which is expected to enhance economic growth substantially in 2019. The central banks of the world have also taken proactive steps to contain inflation and the consensus is that interest rates will stabilise over the next year. These factors could all support the investment markets in 2019.

After the pullback in the second half of 2018, the investment markets are priced as if the world will go into a recession, and for a negative outcome on trade negotiations between the US and China. Any hint of economic growth above expectations and a positive or neutral outcome on the trade negotiations will also be positive for investment markets.

Valuations of equities and property shares are also positive. Although companies worldwide were able to grow their profits over the last few years, their share prices retracted and currently present good value. Companies like British American Tobacco, Naspers, Aspen and many others are trading at half their price-to-earnings (P/E) compared to three years ago.

Although there are many risk factors that could have a negative impact on markets over the coming years, it will not take a lot to ensure a positive outcome in the investment markets, given the expectations for economic growth and attractive valuations of equities and property both locally and globally. That is why many of the leading asset managers in South Africa are expecting returns of between 9 and 12% per annum from equities and property over the next decade.

Stick to time-tested investment principles

Investment decisions should not be made based on emotion. Research shows that more value is destroyed by investors moving in and out of investment markets at the wrong time than by any other factor. At the same time, it is impossible to predict the future. So, what is an investor to do?

“Don’t try and predict rain, build an ark.”

– Warren Buffet

The answer is to build an ark. Make sure that the investment strategy is based on time tested investment principles and then stick to the strategy.

One such principle is to ensure that the portfolio is constructed appropriately for the investment horizon. Money that is needed in the near future should be invested in lower risk asset classes with more predictable returns whilst portfolios with investment horizons of 5 years and longer should have sufficient growth assets to protect the capital against long-term inflation.

There is a saying amongst the investment fraternity that the only free lunch is diversification. This principle serves to manage risk. Risk is reduced by ensuring that the portfolio is well diversified between different asset classes and geographical areas. Implementing the investment strategy by using a range of funds with different styles and investment views also contribute to reducing risk.

Another important investment principle is to make sure that the portfolio is invested in assets that offer value. This ensures that, over time, there is a high probability of getting a good return.

Investors should take care in times of uncertainty not to make decisions based on emotion and fear. The best chance of achieving long term investment success is to ensure your portfolio is designed based on sound, time tested investment principles, and then not to allow the short-term noise to derail the strategy.

How retirement savings could be saving you tax

For decades retirement savings have formed the foundation of a financial plan, and for good reason – but did you know that retirement savings can not only help finance your older years, they can save you money on tax right now?

It’s a common mistake, but many people forget to declare contributions to their retirement annuity (RA) in their tax return. The SA Revenue Service (SARS) allows tax deductions for contributions to your RA, a pension fund or provident fund up to the value of 27.5% of the greater of your taxable income or remuneration.

This is a mistake – Sars is all for your retirement savings! The amount you can get back was increased dramatically by Sars in 2016 from 15 percent to 27.5 for precisely the reason that they wanted to encourage more people to save and save for retirement.

So, let’s say Judy does not earn very much and has no pension fund at work that she contributes to. Of the R100,000 taxable income she earns a year, she puts R1,000 into her RA each month. Because this is less than 27.5 percent of her annual income, she can claim back the full amount of R12,000.

However, don’t start going crazy on the RA contributions – this deduction is also limited to an annual ceiling of R350 000 per annum, even if that is less than 27.5 percent of your taxable income. If Judy were contributing R35,000 per month instead of R1,000 she would only be able to claim back for R350,000 even though she actually saved R420,000 – a whole R70,000 more than she’s able to claim.

If you’re in the position of being able to invest more than R29,000 in retirement savings contributions in any form each month, you need to be exploring different options. For example, you could leverage the benefit of a discretionary savings portfolio, which not only diversifies your money but is also far less heftily taxed when you hit retiring age and withdraw (capital gains tax as opposed to the far larger personal income tax).

These kinds of decisions are best made with a professional financial advisor, so come in and have a chat. It’s possible to save for your future and have that retirement money save you tax in the short term.