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Your questions answered

Published May 5, 2022

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THIS FEATURE IS SPONSORED BY PSG WEALTH

Email your queries to [email protected]

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Investing offshore in these times

I’d like to invest money offshore, however, in this volatile market, it seems like too big a risk. What is the best route to take to ensure a safe return on investment?

Name withheld

Pierre Puren, PSG Wealth, Jeffrey’s Bay, replies: I’d suggest you start with the end in sight. Focus on your specific goal and add to that another factor you do have control over, time. By focusing on the uncontrollable factors (e.g. future growth, interest rates, politics etc.), you’ll lose focus and run the risk of falling victim to short term ‘noise’ and making emotionally driven decisions. It is well documented that certain asset classes outperform others, if one takes time into account. If your specific goal has a short term focus (less than 2 years) it’s best to consider investment into an asset class that will provide certainty, such as a money market fund. This means that when the time comes to withdraw your capital to address your need, you won’t be susceptible to market fluctuations.

Conversely, if your goal is to save for the long term (more than 7 years), you could consider an investment into equities because your money should have time to overcome any short term volatility. Much research exists that proves equities provide inflation beating returns over longer term periods.

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Once you have identified these factors, the decision whether to invest now or wait (in a volatile market) becomes more or less irrelevant as your investment returns will be relatively certain given your needs and time horizon.

Benefits for my new employees

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I’ve just started a company together with three other shareholders and we are currently mapping out the employee benefits. Has Covid-19 changed anything fundamental in this space? Given the current troubled health landscape of Covid-19, increasing mental illness rates and mounting financial pressure on staff, what are the key benefits that we should be focusing on to ensure a healthy, safe and productive environment?

Name withheld

John Cranke, PSG Wealth, Midlands, replies: Apart from the inclusion of vaccination, testing for and treatment of Covid-19 into the Prescribed Minimum Benefits for medical schemes, not much has changed from a legislative perspective for businesses wanting to extend employee benefits packages to their employees for the first time. However, the pandemic has definitely reinforced the importance of employee benefits, including the mental wellbeing and financial assistance/coaching aspects you mention.

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In order to craft a relevant employee benefits package for your company, we would need information relating to the type of business you are in, the number of employees and their occupations/incomes / demographics (gender/age) and geographical spread.

We would generally recommend including the following benefits;

• Health insurance (primary healthcare)

• Medical scheme cover

• Gap cover

• Employee assistance programme (EAP)

• Group risk cover (death, disability and funeral benefits)

• Retirement funding

The fact that medical schemes are obliged to cover the Prescribed Minimum Benefits as set out in the Medical Schemes Act, makes them unaffordable to many employees, and we therefore include health insurance cover to provide cover for primary healthcare (in a private setting) for those employees. The EAP offers cover to all employees for, among other benefits, the psychosocial wellness aspects that have become elevated during the pandemic. Depending on the size of the group, we would be able to negotiate favourable underwriting on your behalf with providers.

For the retirement fund and group risk benefits we usually propose a phased-in approach in order to build both of these up to pre-determined (often negotiated) levels, to ensure appropriate, meaningful funding in the event of retirement, death or disability.

There are also several other considerations for you as an employer, including but not limited to:

• Who qualifies for what benefit/s? (including dependants)

• Will cover be voluntary or compulsory?

• Will the company subsidise and by how much?

Everything of the best in your new venture!

A plan on entering retirement

I’m about to retire at age 67. I have a retirement fund that’s been growing over the last three decades, and I own the property which I live in. How best do I lay out the financial plan for this next chapter of my life to ensure it’s comfortable?

Name withheld

Richus Nel, PSG Wealth, Old Oak, replies: I encourage individuals to form a longstanding, trusted relationship with a financial adviser long before retirement. As with any successful sport or working career, there are skills and knowledge you have to master to be competitive and perform optimally.

Richard Branson said: “Manage your downside (risk), the upside will take care of itself.” In retirement you need to manage the following risks:

a) Longevity risk. This refers to the risk that you or your spouse run out of money during retirement. This can only be managed by frequently projecting your retirement capital vs lifestyle and other capital expenditure deemed necessary to enjoy a meaningful retirement.

b) Opportunity risk. Invest in asset classes that provide enough capital growth to sustain a full retirement cycle (30 years). As an example, cash and bonds provide peace of mind over the short-term but do not provide inflation-beating returns to live off of in the long term.

c) Diversification risk. This can be managed by investing in uncorrelated asset classes/investment instruments. As almost all assets are correlated to a greater or lesser degree, leave this to investment professionals by using a “fund of funds” unit trust portfolio construction.

d) Sequence/drawdown risk. This can be managed by ring-fencing retirement income needed for the next 2-3 years (depending on your risk profile). This portion of your portfolio can be maintained over time, topped up during market highs.

Lastly, it’s also a good idea to consider your monthly budget to distinguish between necessities (such as medical aid costs, household expenses and property maintenance) versus luxuries (holidays, new cars etc.) and adjust your budget accordingly. Importantly, you must be aware of what rand amount you will require to live comfortably within your means for a reasonable life expectancy (we live longer with improved medical technology) and whether your current capital will be sufficient to support your income needs.

Retirement is not a DIY project, as there is no room for mistakes. The best way to prepare for your retirement assignment is to find a trusted financial adviser and partner with him/her. It is never too late to do this!

Insurance cover in retirement

I’m turning 60 next year and approaching retirement. I’m thinking of downscaling to save costs on my monthly living expenses, but I’m worried that if I cut my insurance down, I won’t be covered for all my risks if something should go wrong. How can I reduce my insurance costs, but still make sure I have the right cover?

Name withheld

Joelinda Dimond, PSG Insure adviser, personal and commercial, replies: It’s important for older people to revisit their insurance portfolio and adjust their cover as they downscale their lives. If you are moving to a smaller property or to a retirement village your risk profile will change and your asset base should also be smaller, therefore you should pay a smaller monthly premium.

Similarly with vehicle insurance, if you drive less because you are no longer driving to work every day, you become less of a risk and your premium should come down. You can even opt for a higher excess to reduce your premium as your risk of accidental damage decreases by driving less. Some insurers waive the excess entirely for people over the age of 55 and many insurers now provide the option to pay only for the mileage you drive – this is a good option for older people who tend to drive less.

Value-added services such as 24-hour emergency assistance, road cover including license renewal services (which can be very beneficial to older people), free assessments, tyre and excess solutions can come in handy.

It’s best to talk to an adviser who can help structure an insurance portfolio to match your changing needs.

PERSONAL FINANCE

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