The people that thought they knew what they were doing
For the first time in my career as a financial advisor, I am now seeing the actual pitfalls of being financially over geared. We all fall prey to this when we buy cars, houses, businesses and second properties at over inflated prices, pushing our monthly expenses to the maximum, in the expectation that our incomes will obviously grow each year at the same rate. What a wake up call a lot of the so called high flyers have had this year, as cash flows have been knocked, future contracts have been postponed and businesses have failed. I am personally witnessing the lives of many affluent people being dramatically changed as cash flows contract and they cannot keep up with the monthly payments on all the properties, cars and businesses they have bought. They can’t sell them either, because they owe more than they are worth. It is not a nice situation to be in, so what now?
Buy through the dip and benefit from Rand cost averaging
Investors who are still building up capital are “net consumers” of investment units – i.e. they are accumulating investment units. They should thus be delighted when the cost of investment units goes down, which is exactly what has happened over the past year as markets have dropped off.
Bear market: working for smart investors
Over the past decade, many South Africans have fallen into the trap of increasing consumption at the expense of savings, and accumulating debt in the process. What is needed is a return to basic investment principles.
Between 1995 and 2007, the gross level of savings in South Africa, measured as the proportion of household revenue that is not spent, dropped from almost 4.5% to under 2%. This worked while money was cheap and asset prices were rising, but unfortunately the tide has now gone out and many people have been left exposed.
Living Annuities
Living annuities are popular investment vehicles that offer flexibility to retirees. However these types of investments require frequent servicing, to ensure that capital is not eroded. In light of current market conditions, clients run a greater risk of capital erosion and advisers are encouraged to review all clients currently invested in linked life annuities.
Recent commentary in the financial media recommends that investors in living annuities take extreme caution, especially in the current market conditions.
Divorce and the impact on retirement fund benefits
Continued…
When does payment to the ex-spouse occur and who pays the tax?
Until recently, the non-member ex-spouse had to wait until the benefit accrued to the member spouse before s/he received his/her part of the benefit under the divorce award. The effects of inflation and the fact that no growth was added to the defined pension interest often resulted in the amount ultimately received by the non-member ex spouse being less than expected. The member spouse paid the tax on the benefit and was permitted to attempt to recover the tax on the divorce award portion from the non-member ex-spouse.
Divorce and the Impact on Retirement Fund Benefits
Many people do not realize that their retirement fund benefits form part of the estate which is subject to divorce proceedings. The ex-spouse can actually claim an enforceable divorce award directly from that fund. This aspect of the law can be quite confusing, so we are going to attempt to unbundle it and set it out in a simple format.
As a starting point you need to establish if the parties are eligible to claim against the respective funds, based on their marital regime.
Interest rate reduction gives us a breath of fresh air.
Use this breath of fresh air to strengthen your personal financial balance sheet.
Tito Mboweni’s announcement on Tuesday 24/03/2009 that interest rates will be reduced by 100 bps came at just the right time for most people. On a million rand bond, your payments are roughly R700 / month less. So since the December 2008 rate cut, interest rates are down 2.5%. On a million rand bond, that is roughly R1750 / month.
Retirement Annuity: The ideal nest egg for retirement
If you want financial freedom in your retirement years, you have to start saving as early as possible. Although there are many possible investment vehicles available for this purpose, but there are strong arguments in favour of including retirement annuities in an investment portfolio.
Tear up those credit cards!
If credit is creating havoc in your budget, get rid of those credit cards and start living within your means. Financial freedom is being able to pay for something cash. Be free from all short-term debt, at 20 to 30% interest the financial institutions are robbing you blind.
Are you Tempted to Switch From Equities into Cash?
If the blood-letting on the stock market is tempting you to switch into cash, recent research on the negative effects of moving in and out of the market may convince you to stick with equities for the long haul.
It may be that some investors are able to time the markets successfully, but the truth is that most people who try to time the markets get it wrong.