Banks: Long-term value outweighs the risks
Despite the meaningful risks looming over South Africa’s banking sector, the current combination of attractive dividend yields and relatively cheap valuations presents attractive prospective medium-term returns for investors in local bank shares, despite fairly muted earnings growth expectations in the low- to mid-single digits, according to Craig Butters, equity portfolio manager and banking sector analyst at Prudential Investment Managers. Banking stocks fell sharply in December 2015 on the back of the large jump in bond yields in reaction to the surprise firing of Finance Minister Nene, to levels well below their historic valuations. They have remained under pressure due to the increased risk of a downgrade of South Africa’s sovereign foreign currency credit rating to non-investm
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How to avoid wiping out your equity gains
With high levels of uncertainty both globally and in South Africa keeping market volatility high this year, it’s important for equity investors to recognise that they could be their own worst enemies if they decide to sell out of the market or switch to a different investment after a substantial downturn. By doing this they risk erasing valuable long-term gains they have built up, and not benefiting fully from their existing investment strategy. Over the long term, it has been shown that most investors are not reaping the full benefit of their equity returns. An eye-opening study covering the entire US mutual fund industry, Dalbar’s Quantitative Analysis of Investor Behaviour, has demonstrated how the average US equity investor experienced a return of only 3.79% p.a. over 30 years (
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Tapping into your investments as an income
Whether you’re saving to pay for your children’s education, take a break from work, or even to have more spending money in retirement, setting a plan in motion so you can draw an income from your investments could make that goal a reality. What type of funds should you be looking at that will help you generate an income that’s higher than a simple bank deposit over time? “Enhanced income”-type funds are those that aim to deliver a high level of regular income that will beat a cash or money market return over two to three years. How do they do this? These funds invest in a combination of assets that give you both 1) a steady income stream, and 2) some capital growth over time. This comprises a high proportion of assets like cash and bonds for income, as well as a smaller amou
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Saving for something special?
With so many short-term investment options to choose from, saving for something special like a new car, dream wedding or overseas holiday can be daunting. Leaving your savings in a bank account may feel like the safest and easiest choice, but leaving it there for too long without earning any (or very little) interest can result in it losing its purchasing power over time. How can my savings lose its purchasing power? Each year the cost of goods and services increases by a certain rate, also referred to as inflation. For your money to retain its purchasing power, it will need to grow by inflation or more over the same period. To put this into perspective, if you are saving towards a 10% deposit on a car that costs R240 000, putting aside R2 000 a month over the next 12 months would
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How to have a baby and still reach your investment goals
The happy news needn’t be bad news for your pocket Once the excitement of the news of your baby-to-be has worn off, the practicalities kick in. Where will the baby sleep? (Cue desperate call to architect for plans for an additional room). Where will they go to school? (Whopping deposit to be paid to your private school of choice to go on the waiting list). And, then there’s the consideration of that designer pram you covet, a “baby moon” holiday in Mauritius before your life changes… the list of wants goes on. Before your baby is even born, the bills rack up. Follow this advice to avoid putting your future financial health at risk. #1 Don’t cut back on your investments You’ve projected your savings and investment needs with your financial adviser, and this doesn’t
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Choose your executor with care
You will need to appoint an executor in your will. This person must have the technical expertise to administer the estate. If no executor is nominated in your will, the Master will appoint someone at their discretion. Estate administration is very complex and it is better to involve a professional person or institution to handle the matter on your behalf. The duty of the executor is vast and the more complex the estate, the more responsibility rests on the executor’s shoulders. What are the services of an executor? All admin regarding the estate. The distribution of your estate, according to your wishes. Protection of your business interests. Value assets and family heirlooms. The distribution of assets must be in exact accordance with the terms
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Understanding the ups and downs of a Will
What is the difference between a joint will and a living will? What exactly is a will? And what can make it invalid? We answer your frequently asked questions about wills. What is a will? A will is a written instrument that contains instructions to ensure your wishes are carried out legally and your loved ones are taken care of, and items of monetary and sentimental value are properly protected and distributed on your death. Anyone over the age of 16 years may make a will. The loss of a loved one is a very traumatic experience. It is at this time that one needs the love and support of family and friends. It is also a time when a multitude of tasks are presented and must be attended to. It is a time when professional assistance is a comfort and a must. If you pass away
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Wills 101
Ensuring you have a valid will can make all the difference to your family when you pass away. Without it, the laws of intestate succession come into play. This means your estate will be divided according to a specified formula by law. A will is a crucial part of your estate and financial planning, as it stipulates how you want your assets to be dealt with on your death. Proper estate planning will ensure your estate is set up in a tax-efficient way that not only benefits you during your lifetime, but also your beneficiaries after your death. It is worthwhile to get professional advice whilst drawing one up. Things to remember when drafting a will: • Keep the wording simple. • When referring to a person, use their full name and a short description, for example 'my n
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Awesome tips for effective and stress-free budgeting
We've hit the half-year mark and this is a good time to stop for a moment and reflect on your spending habits. Is your budgeting still on track? This article by Rob Berger shares five tips to keep that budget effective and stress-free. We've highlighted the key points. Spending less than we make is often cited as the most important personal finance goal. It helps us get out of debt, save for emergencies and stash money away for retirement. It’s the primary habit that enables us to achieve some level of financial freedom. It can also be really difficult to accomplish. In some cases, it’s lack of income that creates the financial strain. In many cases, however, the problem is overspending. With those who overspend in mind, here are some tips for more effective and stress-free bud
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How inflation affects your buying power
Let’s assume you are currently 35 years old and want to retire in 20 years time at the age of 55. You believe that, based on your monthly budget, you could easily survive on R10 000 per month. However, we understand that you will not 'buy' the same value for your R10 000 when you do retire in 20 years time, at age 55. Let’s assume that we have an average inflation rate of 8% per annum over the next 30 years. The million dollar question you need to ask yourself is: How much income will you need to maintain a reasonable standard of living in retirement? YEAR AGE TODAY'S INCOME REQUIRED INCOME 20 55 R10 000/m R47 000/m 30 65 R10 000/m R100 000/m 40 75 R10 000/m R218 000/m 45 80 R10 000/m R506 000/m To put the above
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The magic of compound interest
This is how big corporate companies, banks and wealthy people make their money: they let their money work for them by earning interest on interest. Otherwise known as 'compound interest'. The illustration below gives you an idea of how effective this is. If you were to pay yourself 1 cent today and double it each day for 31 days, what will you have at the end of the month? The sooner you start, and the longer you stay in any investment, the better the results become over the longer term. It is like a snowball. It eventually runs away with itself. So, start saving NOW and don’t stop for anything. Set yourself goals and go for it. Let's look at another scenario. If you invested R100 000 today at 10% compounded interest, how much will it be worth after 31 years?
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Ready to retire
My story starts at the end, rather than the beginning. Here I am, it's 2016 and I am finally heading towards 'retirement'. That means I can start to focus on everything I love the most: art, photography and travel. I initially set myself an objective to retire at the age of 55. However, at age 45 – 10 years before that determined date – it became obvious that it was not financially achievable. So I readjusted my retirement date and postponed my exit for age 60. From age 42, I became obsessed with saving and preparing for retirement. Every spare rand was invested and I did whatever I could to consolidate or downscale my life. To simplify it through a range of committed disciplines over the ensuing years. At around age 22, I met a senior and extremely successful businessman,
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