Weekly Thoughts 25 October 2024

by

A bit of a heavy topic, maybe…. But real for everyone at some stage.

Working with four estates this year and seeing firsthand what people are spending over the time of the passing of their family member, I see the immediate and direct costs and processes that are required. Some of you will also have seen these yourselves, dealing with someone in the family.

The first and immediate requirement is to call a Funeral Home. After collection, they deal with your doctor’s signatures on the Death Notice and they deal with Home Affairs for you, to obtain the Death Certificate.

But they might want payment upfront, for everything: Their service, the above services, the cremation fee, and your choice of coffin. This I have seen to be between R19,000 and R23,000. Someone in the family has to come up with this amount of money before anything will continue. You can be refunded from the Estate for these costs – a typical practice – but that cash might not come back until the Estate is ready to be closed. Could take a year or three. But someone still has to have the money straight away.

Then, a memorial service can vary. You might get the church hall for free, or you might need to rent a venue. Platters of eats can be ordered from your local Spar, or people might donate food. You might be wanting an open tab for a Wake at the local pub…. The varied options might cost anywhere between R5,000 and R20,000. And again, someone has to have the ability to pay this within the first week or so of the passing of your loved one.

Does this look possible, in your own circle, that someone has the cash flow to pay up to R40,000?

I know a funeral policy will help here. However, the Death Certificate is required for that payout, and therefore funds still need to found upfront.

As I said, not a great topic. Sorry. But so real.

Weekly Thoughts 27 September 2024

by

The withdrawal activity within the first month of the now famous ‘Two-Pot’ retirement thing has been frenetic for administrators. The figure is something over 6 billion Rand withdrawal applications in the first three weeks. SARS wins, with on average probably 20 to 25% of that. Banks will get some loans reduced and then the economy will benefit hugely, because even though these withdrawals are supposed to be for emergencies, most of them will simply be for wanting to spend money. Yet it is not a lot of money that people can get out – on average about R3000 to R22,000, after tax. That’s what we’re seeing with our corporate employee members who have requested this. With the expectation of 50 to 80 billion Rand of withdrawals in the first year, SARS and the economy will smile. I wonder if the sell-off needed for all this from the stock market will put a downward pressure on market prices…

Staying with the subject, it has also already come to light how some withdrawal applications have discovered that member’s pension fund money is not actually there to withdraw. A couple of hundred million Rand of this has been unearthed already. This happens when an employer deducts funds from an employee and then does not pay the money across to the fund administrator, either due to inefficiency or to spending the funds itself. It can also happen when the fund administrator – who has received the money from the employer – does not pay it across to the asset manager or the insurance benefits provider.

When we used to help administer a couple of pension and provident funds (very long ago), we discovered a pattern of this. Adrienne began to record and date and track the movement of the relative portions of money from employer to middle-man administrator to the investment manager and the insurance provider. Then she would contact someone if they had not moved in time. But then we moved these corporate clients away from such spaces to a far better and cleaner and more efficient way of doing employee benefits with no middle-man administrator.

This matter of employee’s funds not being paid across is a problem. It will be a very interest story, which I should imagine will also result in some further industry and legal actions.

Weekly Thoughts 16 August 2024

by

You might have seen news or read about this new Two-Pot retirement system.

I don’t like it. It basically lets people access the 1/3rd of their retirement savings that they were only allowed to access at retirement, now during the years before retirement. With minimums and maximums and some rules.

Supposed to be for ‘emergencies’, so the reason behind it all states. But who determines or regulates what an emergency is…? No one can and no one will. I have one corporate client already wanting something for a holiday. This ruling is not going to fix or help people’s ability to retire independently.

Every withdrawal during these prior years is taxed. And SARS is looking forward to this: they already anticipate a 5 billion Rand revenue earnings from this tax over the next year or so.

So you reduce your retirement wealth, your funds have less time to grow, you pay income tax on every withdrawal, you do this every two or three years for a couple of thousand Rand, and then you’re worse off at retirement.

Not a great idea.

Weekly Thoughts 3 May 2024

by

Last week I gave a brief attempt at explaining what tracker funds are. Today I am going to give you some figures of a client’s returns in two of these funds vs. a couple of managed equity funds.

It was fifteen years ago now, back in 2008, when I helped a client invest a sum of money across five equity unit trust funds. An equity fund is a fund that is 100% invested in shares on the stock market, there is no property or bonds or cash owned in the fund. They are the most volatile asset class in terms of value, but also offering the greatest potential for capital growth. Two of these five equity funds are Satrix funds – which are tracker funds. Each of the Satrix funds follows a different sector of the market. We split the funds equally across all five funds, the two Satrix funds and then the three managed equity funds: Allan Gray, Ninety One and Foord.

I’ve often mentioned to the client that it has been an interesting example, because he has had this basket of funds for so long now that it has been a good test of equity returns, which should always be at least 10 years.

Over the past 15½ years, the two Satrix funds together have grown by 298%. The three managed equity funds together have grown by 359%. Both return numbers are good. But the result is interesting. In this case, the managed equity funds have done 60% more.

As mentioned last week, many coaches might not be good enough to create anything more than the average team, which will often be adequate. Above average coaches would be required to gain above average results.

I use Satrix funds here and there for clients for capital growth. But never for income, you need active management for that. I also sometimes use the Satrix Balanced Fund as part of the mix in Retirement Annuities.

Weekly Thoughts 26 April 2024

by

I’m going to talk about what tracker funds are, also known as index funds, or ETFs. While there is more that could be written into my explanation, I’m just going to take my usual poetic licence using a simple example.

A tracker fund is a unit trust investment in which the shares held always have to match the average value of a specified basket, or a specific part or group of a stock market. Companies are bought when they meet the specific rules of the group, likewise they are sold if and when they move outside of those parameters. The fund follows an average, a predefined grouping. No subjective input is required from the fund manager. I am going to paint a picture by using our beloved Springbok Rugby Team.

Let’s assume the team is selected on weight. Our coach Rassie has no subjective choice: the heaviest player by position in the country gets that position. Let’s further assume that our dancing man, Trevor Nyakane, is our tighthead prop because he is the heaviest number 3 in the land. He then decides that he needs to become more mobile around the park, so he stops eating those 7 cheeseburgers a week and joins the local Park Run. He sheds 10kg and becomes a faster man. But now he is no longer the heaviest #3 in the land – he now weighs less than Frans Malherbe. So Trevor goes out the team and Frans comes in. A simple objective process. No opinion allowed.

Likewise, our lightning wings in the form of Cheslin Kolbe and Kurt-Lee Arendse would not be in the team. They just don’t weigh enough.

Rassie gets given this team without choice and has to work with that. The team selection follows a pre-defined set of rules. SA Rugby can pay him a lower salary because he has less thinking to do.

There might be many occasions when this ‘heaviest team’ wins, or does well. But there are crucial occasions when they might not, times when the subjective coaching interference might create better results. Likewise with tracker funds. They represent an average investment and might often do better. Likewise they carry lower fees, because the fund manager simply follows rules and doesn’t have to do any real decision making.

There will be times when the shares of a couple of companies have to be held, that might actually not be good to continue holding, but they have to be held until they fall outside of the rules. I’ll use the share of British American Tobacco for an example. One fund manager I use told me earlier this year that they had sold what they held of this company quite a while ago. I asked him why. He said they do not expect it to be able to continue growing its dividend in the years to come, so they have taken profits and sold. BAT’s share price has indeed declined a fair amount over the past year. An active fund manager can choose to sell. The tracker fund cannot sell until BAT’s weighting falls outside the parameters and in some cases, carrying that permanent loss into the fund.

Many coaches might not be good enough to create anything more than an average team, that it the catch.

Weekly Thoughts 5 April 2024

by

I went for my annual medical on Wednesday this week. All the blood tests, the prostate physical, resting and effort ECG, blood pressure… the whole story. I’ve been doing this since the early forties. (age that is) It’s something we all need to do. Us men have our list of requirements; the ladies have theirs. My doctor told me this week that it’s time for a colonoscopy. Not happy. All that stuff to drink. Otherwise I seem to have passed.

Annually I get sent claim stats from one or more of the insurance companies that I use. Hollard sent me their figures last month covering claim figures for 2023. The most number of claims was for death. The second most was for dread disease, followed in third by disability income benefits.

Inside the dread disease category, the highest number was cardiac arrest, then heart attack, then stroke, then depression, followed by back issues, then motor vehicle accidents (which would have resulted in many of the disability income claims), then cancer. Putting all heart categories together, they had over 500 heart related claims. Disability related numbered over 170. I’m sure these numbers could be multiplied by 10 or 20 if the stats for all insurance companies were added together.

We obviously need to pay a lot of attention to things that look after our heart (note to self), including blood pressure, weight, diet, etc. The highest health issue facing the world is possibly overweight and obesity, which naturally contributes towards heart claims.

What we all need to be doing, is trying to fit three half-hour exercise sessions into our lives each week, during which we significantly raise our heart rates. Plus limit or stop our consumption of processed foods. These two things will make the most difference to most people.

And then go for your annual medical. If you’re old, like me.

Weekly Thoughts 23 March 2024

by

My Marriott consultant arranged lunch on Wednesday this week with one of the Marriott Investment Managers. Free lunch is always a good thing.

First we went over the offshore offerings managed out of the Isle of Man. Then he wanted to talk about Bond Funds, and this became very interesting. Bonds are lending instruments, and are used as a straight Bond Fund or as part of Income Funds. Money gets lent out to, hopefully, reputable government institutions or corporations or other, who promise to pay interest on the loan plus the capital back at a later date. The investor – the lender – would be enjoying an income from their money.

He told me of a South African Income Fund that has recently been awarded 1st place in the Income Funds category for 2023 in the Raging Bull awards. These are industry awards for the universe of unit trust funds and investment offerings registered for the South African investor. I don’t think I should name the fund in question, even though it’s public knowledge and in the press.

However, this fund is now in trouble. Why… because nearly 9% of its capital was lent out to the taxi industry, for the taxi groups to finance taxis. I said to him; “But who lends other people’s money to the taxi industry?” Anyway, the taxi associations have for a while now been defaulting in paying back on the loans. This has resulted in around 1 billion Rand of this Income Fund – that’s the 9% – being ringfenced, they also call it side-pocketing, where the capital cannot be redeemed or paid back at this stage and no interest is being paid from this portion anymore. (Remember, interest we receive, from anywhere, is because our money has been lent out to someone else who has to pay a higher interest rate on it.)

Because the loan to the taxi people would have been at an expensive interest rate, the interest from this portion of the fund was very high, paying a rate of 16% per annum. I suppose that helped it get an award. (The award process does not take into account the underlying security of the debt instruments.)

Then, as soon as the news broke about this portion of the fund being in trouble, institutions withdrew their capital very quickly. 700 Million Rand left the first day, 500 million the next day. 40% of the fund, excluding the taxi portion, left the fund in a short space of time.

My investment guy wasn’t finished yet. We were half way through our very good wraps. He told me that the first bond instruments that would have been sold – to cover the withdrawals – would have been the quality stuff, (he means high quality debt) because that would have been the most tradeable, the easiest to sell, carrying the highest buyer demand. That has left the remaining 60% of the fund made up of not the best quality debt. And the ringfenced Taxi funds are still untouchable.

What is my point for writing about this today? I’m not sure. Maybe just a conversation around good custodianship of your money being far more than just an award or performance.

Weekly Thoughts 1st March 2024

by

Maybe we should say ‘Happy Financial New Year’ to each other on this day. The rush of many varied transactions needing to be finished by yesterday, either made it in time or they didn’t. Either way, we can now relax and breathe because what’s done is done and what’s not is not.

Remember that odometer at year end. If you run a record of travel for your tax return and didn’t make a note of it yesterday, go out to your car and take a photo of your odometer. Note to self….

I thought a while ago about doing this: writing brief points on various things and tasks that I do in my daily activities in this job. Tasks for you or tasks to keep the business going. These are a random sample from anywhere over the past few weeks.

  • Sitting and talking with a client at home living on disability income protection
  • Spending full days researching and preparing technical investment explanations for a couple of clients
  • Phoning a financial service provider in another country regarding a client’s needs
  • Delivering three Death Certificates and original Wills to the Executors I use. Yes, that means…..
  • Getting a senior claims person on the line at an insurance company to argue that another client on disability benefits wasn’t being looked after well enough
  • Spending time with a whole family to plan and enhance their risk benefits
  • An hour on the phone personally with a Fund Manager for questions and debate
  • 17 hours of listening to different investment company presentations
  • A session with my compliance officer
  • Checking that changes in client portfolios reflect correctly a couple of days later
  • Nagging clients for FICA documents
  • Do my VAT return
  • Helping many of you calculate addition contributions into retirement funding for the tax year

A never ending variety of tasks.

9 February 2024

by

February is the month that those of us who are provisional taxpayers have to pay our second payment of the 2024 tax year. To avoid a penalty we are supposed to be within 80% of what your total income will end up being. And then of course you hopefully kept the cash aside to pay the state coffers.

It is also the month to add a lump sum to your retirement annuity if you have not taken full advantage of your 27% allowance against your taxable income during the year. It’s a worthwhile thing to do because you will reduce your taxable income and be saving more. If you are a monthly paye earner, you will get a present in the form of a refund later in the year when you do your tax return. But again, you will need the cash hanging around somewhere to do it.

This is also the month for those of you who make use of a travel log for SARS – we must remember to write down the odometer reading on the 29th. (I see we’re having a leap year this year)

So it’s a bookkeeping month for some of us.

All the best to anyone swimming the Midmar Mile this weekend. There is a road around the dam that can be used…. or you could take a canoe…. or sail a boat. Says he who has swum about eight of them.

26 January 2024

by

A couple of weeks ago I wrote about the modest houses that Warren Buffett and his business partner Charlie Munger, had lived in for most of their lives. (Just in case there is a reader who is not sure, these men have been highly successful investors for decades and are two of the wealthiest men in the world)

Today I have some snippets of advice that I found from their comments, regarding good saving and spending habits for us simple men in the street.

  • Avoid debt for depreciating assets (That’s basically everything except a house)
  • Be careful of buying too many things you don’t need
  • Avoid costly habits, like dining out and designer clothes
  • Do not save what is left after spending; spend what is left after saving
  • Live below your means
  • Maintain a frugal mindset
  • “Someone is sitting in the shade today, because someone planted a tree long ago.” (Ignoring the power of compounding. i.e. Time for your investments)
  • Invest in assets that generate income
  • Track your expenses: know where your money goes

I think they are saying: Save first, then live a simple lifestyle on what you have left.

Food for thought.