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Sharetrackin 26 Okt 16

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Sharetrackin 28 Sept 16

ShareTrackin investigates SAVINGS VEHICLES [Part 4]

BECOME YOUR OWN FUND MANAGER
26 September 2016
By Karien Oosthuizen

If you have read through this article, you probably would have noted that all the savings vehicles discussed during the course of these articles have some involvement with the Equity Market.

There are the few who risk investing themselves, but I do need to remind you, you need some experience and tools to monitor fluctuating share prices. Warren Buffett, one of the richest men in the world, built his fortune by investing wisely.

JSE INVESTMENTS
The Johannesburg Stock Exchange represents the main sectors of the economy: gold, other mining, mining houses and industry. Share prices of listed Companies will generally rise in a healthy economy. A drop in the economy, will lead to a decrease in prices, and thereby creating opportunities for investors to obtain otherwise expensive shares.

It is important to differentiate between a trader and an investor. A trader normally buys and sells shares for capital profit, whereas an investor retains his shares for a longer period to receive annual dividend payments.

Tax savings are comparable to the other savings vehicles, with the first R40,000 profit being exempted. Thereafter, 40 % of income received should be reflected as part of your taxable income. Dividends are subject to 15 % withholding tax by the company paying the dividend.

You need an account with a stockbroker, who will facilitate your buy and sell transactions, which normally occurs through an on-line trading platform. When selecting a broker you are spoiled for choice. With services and fees differing from one broker to the next, your bank would be a logical, and competitive, suggestion with service and pricing. If you want to be in control of your own money, you need a non-discretionary account, which is more affordable than paying for advice in a discretionary account, and not knowing if your R100,000 investment is quite as important as “the other guy” with his R1,000,000 investment!

You will also need a technical analysis tool (charting software) to plot your entrance and exit points and gauge proper timing of your transactions. Some knowledge and experience in reading graphs and understanding fundamentals are always beneficial, and investor’s clubs discussing fundamental analysis a big plus.

Warren Buffett has created a certain set of rules which guides his investment strategies (as summarized by Phil Town):

Buffett has TWO RULES for investing: “Rule 1: Never lose money; Rule 2: Never forget rule 1”!

The Market can price things wrong: “Price is what you pay, value is what you get”;

High returns with low risk is key: “Risk comes from not knowing what you are doing”;

Buy wonderful companies: “It is far better to buy a wonderful company at a fair price, than a fair company at a wonderful price”;

Invest for the Long Term, buy it thinking you will hold it forever: “Our favorite holding period is forever”;

People make investing seem more difficult than it is: “The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective”;

Doing nothing is often the right thing to do: “You do things when opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing”;

Don’t make investing difficult: “There seems to be some stubborn human characteristic that likes to make easy things difficult”;

Make your own forecasts: “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future”;

Invest only in companies you know and trust: “An investor should act as though he had a lifetime decision card with just twenty punches on it”;

Great investors don’t diversity: “Diversification is protection against ignorance. It makes little sense if you know what you are doing”;

Seize great opportunities and load up the truck: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”;

History doesn’t dictate the future: “If past history was all that is needed to play the game of money, the richest people would be librarians”;

Don’t be greedy: “… not doing what we love in the name of greed is very poor management of our lives”.

Buffett turned $100 into $30 billion! It is not about the money you have, it is about passion, the knowledge, the willingness you have to work hard and learn.

Please visit our website, www.sharetrackin.co.za, if you are serious about getting your money to start working for you!

DISCLAIMER: ShareTrackin and associated Companies are NOT financial service providers, nor are we financial advisors. Our services are merely for educational purposes. ShareTrackin cannot be held liable for any decisions made based on this article, which has been published purely for your information. Under the ECT Act and to the fullest extent possible under the applicable law, ShareTrackin disclaims all responsibility or liability for any damages whatsoever resulting from the use of the information provided herewith. It is strongly recommended that you obtain advice from a qualified financial advisor when making any financial decisions.

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Sharetrackin 21 Sept 16

ShareTrackin investigates SAVINGS VEHICLES [Part 3]

ENDOWMENTS EXPOUNDED
8 September 2016
By Karien Oosthuizen

Warren Buffett said: “Price is what you pay; value is what you get…whether you are talking about socks or stocks”.

When discussing endowments with the adviser consultant for these research articles, I was amazed that their actual purposes could be summed up in three lines:

1. It is tax effective for higher tax payers;
2. Offshore investments become easier as the administrators take care of the various taxes payable; and
3. An endowment falls outside your estate.

ENDOWMENTS
Seen as expensive, this very specific investment vehicle focuses on tax and estate planning.

Consisting of Unit Trusts and share portfolios, endowment contributions are taxed at a flat rate of 30 % withholdings tax for both individuals and trusts. If you are a higher income earner, it might be a tax saving, as capital gains are taxed at 10 % compared to the standard 26.64 %, and 15 % dividend tax is applicable.

Withdrawals are highly limited and penalized at a maximum, with only one withdrawal, restricted to contributions made, plus 5 % (accumulated per annum) and one surrender permitted in the first 5 years.

Proceeds from your endowment will be included in your estate, and, should your total estate be above R3,500,000, normal estate duty taxes will apply. You will however save on executor’s fee if you nominated a beneficiary. Death benefit payments to beneficiaries are not dependent on the winding up of the estate, and proceed payments are done relatively quickly.

As with a RA, the entire value of your endowment will be protected from personal financial loss, but only after three years, and continues for five years after termination of the policy.

An endowment only makes sense if your marginal tax rate is over 30 %, and it is worth remembering the George Soros words, “I‘m only rich because I know when I’m wrong”.

DISCLAIMER: ShareTrackin and associated Companies are NOT financial service providers, nor are we financial advisors. Our services are merely for educational purposes. ShareTrackin cannot be held liable for any decisions made based on this article, which has been published purely for your information. Under the ECT Act and to the fullest extent possible under the applicable law, ShareTrackin disclaims all responsibility or liability for any damages whatsoever resulting from the use of the information provided herewith. It is strongly recommended that you obtain advice from a qualified financial advisor when making any financial decisions.

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Sharetrackin 31 Aug 16

ShareTrackin investigates SAVINGS VEHICLES [Part 2]

UNDERSTAND UNIT TRUSTS
31 August 2016
By Karien Oosthuizen

What is the difference between saving and investing? When you earn a salary, which is sufficient to cover all your expenses, you are in a position to save a portion of your income. On your savings, you earn interest. There are no risks, as your money sits safely in a bank account.

With enough saved, most people will start considering investments. An example would be to buy a property, on which you will receive rental income and, as the value of the property increases, the value of your capital will grow (hence, capital gains tax). Your money will no longer be sitting in the bank – you have entered a risk environment.

Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.
- Dave Ramsey

UNIT TRUSTS
Similar to Retirement Annuities, Unit Trusts are managed by fund managers, and comprise of a selection of local and offshore stocks and/or bonds listed on the Equity Exchange, or invested in more complicated security types.

Resources from various investors are pooled, and called the fund’s assets. Frequently amounting to billions, the fund manager has the power to invest in blue chip shares: stable and constant, in demand, and expensive. A simple comparison would be a Stokvel, which gives the administrator the power to negotiate prices for mass purchases.

The total portfolio is divided into many equal units, which can easily be bought or sold individually by investors.

With a unit trust you have total contribution and withdrawal freedom. You can invest once off, or monthly. You can stop or restart contributions at any time and will not be penalized. You can sell your units at any time, but take into consideration that this can play havoc with your tax savings, and might take longer to liquidate than other types of investments.

Tax Implications
- Unit Trusts are not considered retirement savings, and the same tax savings than on Annuities do not apply;
- Contributions are not tax deductible;
- Growth on investment is not taxable; and
- Capital gains tax is payable on withdrawals.

Disadvantages
There are more Unit Trusts than listed stocks! It is often difficult to find a well-managed, stable fund, which does not swallow all the returns with fees.

In general, Unit Trusts are a good savings vehicle and a great alternative to a normal bank savings account. It offers you stability, and allows you to choose conservative to aggressive risk levels. Remember, high risk yields high returns – calculate your risk! Robert Kiyosaki said “It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for”.

It is important to limit risk, calculated it – you worked hard for your money, and you do not want to gamble with your savings…

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Sharetrackin 24 Aug 16

ShareTrackin investigates SAVINGS VEHICLES for RETIREMENT

RETIREMENT ANNUITIES SIMPLIFIED
24 August 2016
By Karien Oosthuizen

Is saving for retirement on your list of priorities? Which savings vehicle should you use? Who can you trust to give you proper advice?

South Africans, the worst savers in the world, are according to SA government statistics borrowing more money every year. Only a quarter of people aged between 18 and 30 are saving for retirement, with 31 % saving for emergencies, 35 % for a car and 26 % to pay off debt, says Old Mutual.

Retirement Annuities are a frequently used savings vehicle. Contributions are calculated by a financial planner by working “backwards”. In other words, by analyzing your retirement “vision” – how much would you need monthly – and by taking your current age and the years remaining to retirement into account, he will calculate how much you should contribute monthly.

The standard rule is that if you save 15 % of your salary over 35 years, you will receive 75 % of your salary as a pension, but there are no guarantees - investments are market performance related. You will however benefit from compound interest, which means if you saved consistently for 30 years, less than 35 cents of each Rand of your pension will come from your physical contributions.

Upon retirement, you can withdraw up to one third of your savings as lump sum. The wise use this to settle debt. The rest? Well, they go on holiday-tours, do home improvements, and buy that long desired sports car! The balance, from which your monthly income will be paid, will still accumulate interest.

Your savings are safeguarded from any personal financial loss; therefore, even if you are declared insolvent, you will still receive monthly payments.

There are clear tax advantages to a Retirement Annuity, as the government encourages saving for retirement.
- You can deduct your monthly contribution from your taxable income. This is currently capped at 27.5 % of your total salary, or R350,000 per year;
- The capital growth on your investment is tax free;
- The lump sum payment is tax free up to R500,000;
- Regular pension payments are taxable, but you will save as the tax thresholds change at age 65 and again at 75;

How will my money grow?
A fund manager invests your money into one of various, or a combination, of vehicles, which may include money markets; government bonds; properties or equities; to name but a few.

Retirement Annuities are governed by “Regulation 28 to the Pension Funds act” as members are directly exposed to losses suffered or low returns earned by the fund. Trustees are not required to consult anyone, and there are no independent checks on whether they are using appropriate strategies. Therefore, Regulation 28 guide trustees by prescribing maxima for the types of investments that may be made:

• A maximum of 75 % in equities;
• A maximum of 25 % in property;
• A maximum of 90 % in a combination of equities and property;
• A maximum of 5 % in the sponsoring employer;
• A maximum of 15 % in a large capitalization listed equity, and no more than 10 % in any single equity;
• A maximum of 20 % with a single bank;
• A maximum of 15 % off-shore; and
• A maximum of 2.5 % in “other assets” (including derivative instruments).

Up to what age can I expect payments?
With a Living Annuity, you can withdraw between 2.5 and 17.5 % of your investment per annum after age 55, until the investment is exhausted. Should you pass away, the remainder of your investment will be paid to your elected beneficiary, and is exempted from estate tax

With a Life Annuity, your fund manager will “buy” the annuity from you. You will receive guaranteed monthly payments and annual inflation related increases up to the day you pass away, but your beneficiaries will not receive any remainder payment upon your death.

There are various types of annuities available: Fixed-; with-profit-; inflation-linked and various specialized annuities. When choosing a specific product, ensure that you will not outlive your investment, that you have flexibility and that your income will not leave you – literally – in the dark!

DISCLAIMER: ShareTrackin and associated Companies are NOT financial service providers, nor are we financial advisors. Our services are merely for educational purposes. ShareTrackin cannot be held liable for any decisions made based on this article, which has been published purely for your information. Under the ECT Act and to the fullest extent possible under the applicable law, ShareTrackin disclaims all responsibility or liability for any damages whatsoever resulting from the use of the information provided herewith. It is strongly recommended that you obtain advice from a qualified financial advisor when making any financial decisions.