Besides the obvious routes of debt counseling and or liquidation, I think we all need to learn a big lesson from the current market down turn, and that is to always leave room in your budget for unforeseen expenses and never borrow more than 80% of the value of the property at date of purchase. The banks won’t let you anymore anyway, but who knows in the future again. Rather down scale on the size of the property or area, and live within your means. Pride and Status often cloud your judgment, but in times like this, those that have managed their money this way are definitely sleeping easy at night.

As a rule, build your budget first with your current essential expenses and entertainment spending, before you buy anything on credit. And in that budget, add in a 20% of Salary expense to allow for investing in an emergency cash type fund and also for room to allow for the expansion of variable expenses due to inflation. Once this is done, see what is left over, and use this figure to determine the amount you can spend. This will give you piece of mind that you haven’t over committed.

If you have never had a financial plan prepared for you, please go to the “contact us” section on the website and fill in your details, and we will contact you to explain the process.

Our Value proposition is the ability to provide a holistic financial plan for you, taking into consideration your personal and financial goals and objectives. We believe in the building of long-term relationships, with yourself, your family and any of the other professional advisors who may be servicing you.

Our Financial planning process consists of the following:

• Identification of your financial goals and objectives.
• Collection of relevant information.
• Analysis of your current financial situation.
• Development of a full financial plan, together with options and recommendations
• Implementation of agreed recommendations
• A regular review of the financial plan either bi-annually, annually or as the circumstances require.

The long–term investor is now in a position to benefit from the principle of Rand cost averaging, namely that the monthly investment is now buying more (cheaper) investment units than before. The smart move would be to ignore the ups and downs of the market and simply invest regularly through a volatile period. It has been shown time and time again that investors will build up significantly more capital if they continue buying when the markets are falling.

For e.g. the period between July 2002 and May 2003 where the JSE All share Index lost a third of its value before it turned and rose again. Two and a quarter years later the market was only 5.8% p.a. up on the pre-dip high, yet investors who had continued investing monthly gained 22.4% p.a.

Now is the time to return to the basics and allow the bear market to work for you as an investor.

If you have never had a financial plan prepared for you, please go to the “contact us” section on the website and fill in your details, and we will contact you to explain the process.

Our Value proposition is the ability to provide a holistic financial plan for you, taking into consideration your personal and financial goals and objectives. We believe in the building of long-term relationships, with yourself, your family and any of the other professional advisors who may be servicing you.

Our Financial planning process consists of the following:

• Identification of your financial goals and objectives.
• Collection of relevant information.
• Analysis of your current financial situation.
• Development of a full financial plan, together with options and recommendations
• Implementation of agreed recommendations
• A regular review of the financial plan either bi-annually, annually or as the circumstances require.

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.

The average South African needs to accumulate capital via a regular stream of investment contributions over time. The good news is that these investors have two basic investment principles working for them- time in the market and buying through the dip.

It’s time in the market that counts. No matter what the dream or goal, the sooner a person starts saving for it, the better. It is a fact based on the principle of compound interest, which basically means that interest is earned upon interest already earned, so that the effect is a dramatic snowballing of the money invested and the interest realized.

This effect only works over a long period- the longer the better. Which is why starting earlier with less can be so much more effective than starting later with more.

To prolong your retirement planning is foolish, because you increase the risk of not having sufficient monthly surplus at a later stage to reach your goal. So even if you start small at an early age, every bit counts and makes it that much easier later on in life. Get into the habit of setting at least 10% aside for retirement from the day you start work. Build it in as a non-negotiable expense like tax; the rewards will be worth it.

If you have never had a financial plan prepared for you, please go to the “contact us” section on the website and fill in your details, and we will contact you to explain the process.

Our Value proposition is the ability to provide a holistic financial plan for you, taking into consideration your personal and financial goals and objectives. We believe in the building of long-term relationships, with yourself, your family and any of the other professional advisors who may be servicing you.

Our Financial planning process consists of the following:

• Identification of your financial goals and objectives.
• Collection of relevant information.
• Analysis of your current financial situation.
• Development of a full financial plan, together with options and recommendations
• Implementation of agreed recommendations
• A regular review of the financial plan either bi-annually, annually or as the circumstances require.

Recent commentary in the financial media recommends that investors in living annuities take extreme caution, especially in the current market conditions.

This is based on the fact that, unlike life annuities issued by a life assurer which provide a guaranteed income for life, pensioners who elect to receive an income through a living annuity are exposed to three key risks:

• Longevity Risk: The risk of them outliving their capital (as there is no “pooling” of longevity risk with other pensioners), which will leave them without an income at some stage in their lives.
• Investment Risk: Pensioners who invest through a living annuity take the full investment risk, benefiting when returns are good but also seeing their “capital” reduce in periods of poor returns, which in turn impacts on the level of income they receive.
• Income variability risk: As the pensioner is bearing the investment risk in a living annuity, volatile investment returns from year to year means that their income from year to year is also volatile (assuming that they do not increase draw down rates to “adjust” for this impact which increases the risk that they will outlive their capital).

The income draw down rate selected on a living annuity, together with the investment performance of the underlying assets over time (and hence the asset allocation decisions made), are the two critical areas that need to be actively managed under a living annuity in order to mitigate these risks. I believe that in the current volatile markets, it is important for you to review these two areas to ensure that they remain appropriate.

If you have never had a financial plan prepared for you, please go to the “contact us” section on the website and fill in your details, and we will contact you to explain the process.

Our Value proposition is the ability to provide a holistic financial plan for you, taking into consideration your personal and financial goals and objectives. We believe in the building of long-term relationships, with yourself, your family and any of the other professional advisors who may be servicing you.

Our Financial planning process consists of the following:

• Identification of your financial goals and objectives.
• Collection of relevant information.
• Analysis of your current financial situation.
• Development of a full financial plan, together with options and recommendations
• Implementation of agreed recommendations
• A regular review of the financial plan either bi-annually, annually or as the circumstances require.

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.

Recent legislative amendments have introduced the so-called clean break principle to retirement funds on divorce. This means that for all divorce orders, even those granted before 13 September 2007, the ex-spouse would be entitled to payment of his/her share of the benefit immediately. The idea is that s/he would be able to invest the money in their personal capacity and enjoy the growth thereon, which seems on the face of it to be more equitable than the old regime.

Further legislative amendments (The Revenue Laws Amendment Act 60 of 2008) have resulted in the tax on the benefit being treated differently depending on the date of the divorce.

a) Divorces effective before 1 March 2009, the benefit will still be taxable in the hands of the member spouse should the non-member spouse select to take the benefit as a cash lump–sum. The member spouse is however able to recover the tax payable from the ex spouse, but is not able to recover the “tax on tax”. (For a practical example please contact us.) The ex-spouse also has the option to transfer the benefit to a retirement annuity fund or to some sort of preservation fund, which has yet to be clearly defined and established, but this transfer occurs after the tax has been paid by the member spouse.

b) Divorces effective after 1 march 2009; the benefit will be taxed in the hands of the non-member ex-spouse if s/he takes the benefit in cash. If it is transferred to another retirement fund, the transfer will be tax-free.

These benefits will be taxed as if the recipient is a separate taxpayer in terms of the new tax dispensation on withdrawal benefits.

This seems to promote a fairer approach than the current one and in that context it may make more sense to transfer the benefit to another approved fund (RA or preservation fund).
If you have never had a financial plan prepared for you, please go to the “contact us” section on the website and fill in your details, and we will contact you to explain the process.

Our Value proposition is the ability to provide a holistic financial plan for you, taking into consideration your personal and financial goals and objectives. We believe in the building of long-term relationships, with yourself, your family and any of the other professional advisors who may be servicing you.

Our Financial planning process consists of the following:

• Identification of your financial goals and objectives.
• Collection of relevant information.
• Analysis of your current financial situation.
• Development of a full financial plan, together with options and recommendations
• Implementation of agreed recommendations
• A regular review of the financial plan either bi-annually, annually or as the circumstances require.

As a starting point you need to establish if the parties are eligible to claim against the respective funds, based on their marital regime.

Only when the parties are married in community of property or out of community of property with accrual is it possible to have a claim directly against the fund. If they are married out of community of property, excluding accrual then in terms of the divorce Act, 1979 they are not entitled to claim any benefits from the fund directly.

The next step is to establish if the divorce order is enforceable directly against the fund. In order to be enforceable it must meet all the requirements of section 7(8) of the divorce Act. Briefly, that means that:

1. The court must award to the non-member spouse a certain percentage of the member’s pension interest;
2. The retirement fund must be named or capable of being ascertained;
3. The retirement fund must be ordered to make an endorsement in its records to ensure that the awarded part of the pension interest is paid to the non-member ex-spouse.

It is important that the parties understand exactly what is meant by “Pension interest”.

Preservation funds are not included in the definition of pension interest and so divorce orders cannot be enforced against preservation funds unless they are registered in terms of the new definition of “pension interest” as per below.

With effect from 1 November 2008, certain changes were introduced to the old definitions.

1. Pension or provident funds- Pension interest is defined as basically the fund value at date of divorce (no growth after date of divorce included)
2. Retirement annuity funds- return of contributions plus annual simple interest at a rate determined by the minister from time to time, subject to the simple interest being limited to the actual fund growth (still no growth after date of divorce included)
3. Preservation funds- An attempt has been made to include preservation funds into the definition of pension interest. Section 37D(6) states that the value of the pension interest is the member’s value of the preservation fund as at the date of divorce.

Once it has been established that the divorce order is enforceable against the fund, we need to understand how and when payment is made and what the tax consequences are. This will be covered in next weeks article.

If you have never had a financial plan prepared for you, please go to the “contact us” section on the website and fill in your details, and we will contact you to explain the process.

Our Value proposition is the ability to provide a holistic financial plan for you, taking into consideration your personal and financial goals and objectives. We believe in the building of long-term relationships, with yourself, your family and any of the other professional advisors who may be servicing you.

Our Financial planning process consists of the following:

• Identification of your financial goals and objectives.
• Collection of relevant information.
• Analysis of your current financial situation.
• Development of a full financial plan, together with options and recommendations
• Implementation of agreed recommendations
• A regular review of the financial plan either bi-annually, annually or as the circumstances require.

The question now is, what are you doing with this saving? Are you like the herd and using it to satisfy your immediate worldly desires that you have been deprived of over the last two years, or are you being smart and putting it to good use.

First thing to do, would be to settle all that credit card debt and start to build up an emergency fund of at least 3 times net salary. Put it into something accessible like a money market fund, or into your credit card, some offer good interest on positive balances.

Secondly, revisit the financial plan your broker left with you the last time you met, or have him update it if your circumstances have changed. Start to implement the recommendations that were made.

If you have never had a financial plan prepared for you, please go to the “contact us” section on the website and fill in your details, and we will contact you to explain the process.

Our Value proposition is the ability to provide a holistic financial plan for you, taking into consideration your personal and financial goals and objectives. We believe in the building of long-term relationships, with yourself, your family and any of the other professional advisors who may be servicing you.

Our Financial planning process consists of the following:

•    Identification of your financial goals and objectives.
•    Collection of relevant information.
•    Analysis of your current financial situation.
•    Development of a full financial plan, together with options and recommendations
•    Implementation of agreed recommendations
•    A regular review of the financial plan either bi-annually, annually or as the circumstances require.

RA’s offer an excellent and disciplined savings method as the client enters into a long term savings contract

· Contributions are flexible. They can be made on a recurring premium basis or as a lump sum and on an ad hoc  basis

· There are different investment fund options to suit the risk profiles of clients and switches can be done

· RA’s are paid out at the age of 55 or later by choice of the client, or at an earlier stage in case of disability

· It is an ideal way to ensure that the owner does not use savings intended for retirement prematurely for other purposes. It effectively safeguards the owner against him/her self

· RA’s are protected against creditors, which means that in the event of insolvency, the value of the RA is safeguarded for the benefit of the client

· RA’s cannot be used as security for any finance, which also protects the value for the client

· Should a client encounter financial difficulties that make it difficult to keep up recurring premiums, the RA can be made paid up. The investment keeps on growing until maturity.

· At maturity up to one third of the value of the RA can be taken in cash, while it is compulsory to buy a life annuity with the balance, to provide a lifelong pension. Today there are various options of annuities

· There are attractive tax advantages for RA’s:

o Contributions are deductible from taxable income up to 15% of non-pension providing income, which could be a significant amount, especially for self-employed persons who do not belong to other retirement funds

o Returns generated by RA funds are exempt of tax, which means that they grow faster than endowment investments invested in the same assets

o The tax dispensation on lump sums was recently reviewed and is now an attractive incentive to provide for retirement investments in registered retirement funds. The first R300 000 of the one third lump sum is tax free. The next R300 000 is taxable at 18%, the next R300 000 at 27% and the next at 36%

o Contributions disallowed for tax deductions during the lifetime of the RA, can be added to the statutory tax free amount at retirement, provided that proof of such payments is provided

o When a person changes from one employer to another, retirement fund credits can be transferred to a RA free of tax

o Another application for a RA is that it can be a tax efficient way of prefunding medical aid contributions after retirement

o RA’s can be taken out at any time from birth

A budget is such a simple yet effective tool, which very few people seem to use. It is one of the first things you start with in developing a financial plan. You will not believe the amount of people I see who have no idea what there exact monthly expenses are.

You need to start looking at yourself as a moneymaking machine, with your salary as your turnover and your personal expenses as your running costs. The whole purpose of the moneymaking machine should be to make a profit i.e. your monthly income should exceed all your expenses. If it doesn’t, that money making machine is making a loss and is currently worthless. You need to get into profit, so those profits can be re-invested into other “money making machines”, such as property and other long term retirement investments, and to also build up an emergency savings pot, to cover any unforeseen events. Credit Cards should not be seen as emergency funds.

For more advice on how to structure a sensible budget, go to the contact us section and fill in your details and we will get back to you.

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.

Prudential recently did some research that shows just how often attempts to time the markets erode your returns and deliver a lower long-term return than earned by an investor who stays invested for the long road.

Acsis Chief executive Andrew Bradley says there is no pattern in the way that asset classes move from high to low returns

His graphs and research not only support the argument that it is difficult to time the markets, but also shows that because you can never be sure which asset class will return the best returns in any year, it is best to diversify across asset classes rather than put all your eggs in one asset class basket.

In the 2 years following the 1970 fall in the market, which is on par with last years market fall, the market return was just over 60% for both years. This would bring your p.a. return back to about 12% for the 3 years including the year the market fell. If you had moved to cash it would have taken about 6 years.

Although the economic environment is very different now, the powers that be are actively involved in bringing about stability in the markets, and I believe they will succeed. However, nobody knows how long the recovery will take.  I believe that if you have a time horizon of less than 3 years, you shouldn’t be in the equity markets.