Financially Speaking September 2008

“Time is the most valuable asset you have got in a financial plan”

Dear Client,

I had an interesting call from a colleague this week. He does not use Marriott for his income-dependent and retired clients. He uses a good fund manager, one that I use for growth, inside a traditional living annuity that sees the administrator selling units to pay income. Due to the flat – and even negative – market returns over the past 6 months, he is now stressing about how to move his client’s funds around as the administrator has to sell more and more units each month due to declining values. The fund manager he is using is not focused on income. It is obsessed with good long term growth, which is fine. That’s it’s mandate. Even if a Marriott unit trust fund was used through this administrator, the administrator would sell the units of the Marriott fund to pay income. This colleague has not listened to me and will not change. I have told him; he must access Marriott directly to get the (quite logical) concept of living on income produced and capital not sold. In these times of markets going down, I continue to sleep well because I and my income dependent client knows that it does not matter how much the value of their capital changes or drops; they lose none of it as it is not being sold off and their income will not drop. It’s so simple. But most advisors won’t try and understand it and hence most retired investors do not get offered it…. Somehow I have to capitalize on that.

Investment issues: Timelines…

I selected the comments of two top investment professionals that I use, who were asked in a recent financial journal I receive, to give their opinion on where they would invest R100, (an arbitrary figure) assuming they had either no short term debt or manageable short and long term debt (i.e.: no liquidity requirements), for a 30 to 40-something year old with a medium risk tolerance and a 3 year investment horizon:

  1. Paul Cluer – Managing Director of Foord Unit Trusts: The choice to save is a wise decision because the compounding effect of investment returns will result in exponential growth over the very long-term. However, three years is a highly inappropriate investment horizon. This individual should rather be aiming to invest for the next thirty years.
  2. Simon Pearse – CEO of Marriott: I would put the R100 into mega cap stocks in the US, UK and Europe. I believe that these companies will do well over the next five years and can be purchased today at unusually high dividend yields. Some of the biggest companies in the world are on extraordinarily high dividend yields, some are at their highest level in 20 years and we really think that is a wonderful investment opportunity.

“Marriott have recently launched a fund called the First World Equity Fund. This is a pure equity fund in first world countries. This is what Simon would be talking about in his comment above. I am about to put USD5000 of my own money into this fund. I want to watch these extraordinarily high dividends come through that he is talking about.” – Ed

Until next time

Please note that all the views expressed in this publication are based on my opinion and no action or advice is implied or intended.