Your questions answered
This feature is sponsored by PSG Wealth. Email your queries to [email protected] or fax them to 0214884119.
HOW SHOULD I INVEST MY BONUS?
It has been a tough year, but, amazingly, I am receiving three-quarters of my annual bonus. I don’t want to make any errors with this windfall. Should I put it into my retirement annuity (RA) as a top-up, or would it be better in a more accessible investment?
Richus Nel, a financial adviser from PSG Wealth Old Oak, responds:
Retirement savings should be a primary focus for all individuals after ensuring they have sufficient insurance against illness, disability or death. Many individuals find retirement capital irresistible when an opportunity to spend presents itself (for example, on a house, car, holiday or wedding), but it is encouraging that you would like to invest and that you are considering bolstering your retirement savings.
Holistic financial planning always focuses on optimising net returns (investment returns minus fees and taxes). What makes comparisons of different investment returns somewhat complicated is that some tax consequences compound over time or emerge only at the end of your life – for example, capital gains tax (CGT) or estate duty.
It is no secret that the South African equity market has severely underperformed other emerging markets and developed markets over the past five years. NinetyOne (formerly Investec Asset Management) recently conducted a study that found that discretionary investments required 2.5% outperformance over the past 30 years to be at the same closing value as retirement funds. This is due to the initial and ongoing tax benefit from retirement fund contributions. NinetyOne emphasises that generating an extra 2.5% a year over 30 years from alternative investments is more difficult than what is generally anticipated.
CGT, estate duty and executor’s fees can have a devastating impact on your net investment value. Discretionary investment portfolios require proper planning because of this risk, or wealth destruction will be repeated every time the investment is bequeathed over generations – for example, parent to child, child to grandchild.
Retirement funds therefore remain relevant. Obviously, each investor’s personal circumstances (for example, income tax rates and international diversification) need consideration, so it is important to work closely with a qualified adviser.
With the end of another tax year looming, it can be prudent to top up your RA. Remember that you can contribute up to 27.5% of your total taxable income or remuneration (capped at R350 000 a year) to a retirement investment product such as an RA while enjoying tax savings. Any contributions above these levels will benefit from tax deductions in future years.
HOW LONG SHOULD I INVEST IN EQUITIES?
How do I determine how long to spend invested in equities; how do you time the market?
Grant Meintjes, the head of securities at PSG Wealth, responds:
With time on your side, you don’t need to time the market. Your time horizon is one of the major considerations in deciding how best to invest your money. It is a key determinant in assessing the appropriate level of risk to take on and, consequently, the types of assets to hold in an investment portfolio.
If you have time, you can take on higher levels of risk and reap the rewards associated with those riskier assets. An investor with a short-term horizon, on the other hand, would be hesitant to invest in riskier assets such as equities, for fear that a pullback in the market would erode their wealth and that it would not recover before they have to withdraw their funds. When you have time on your side, short-term fluctuations in the market are less significant.
Working with a qualified wealth manager can guide you and help you to stomach the risky journey of investing.
I DON’T WANT MY LEGACY SQUANDERED
I’m concerned about my children, as they have a bad attitude towards spending money. They are in their 20s. Is it my responsibility to guide them? Any inheritance I am leaving can be spent as they like, as I will be gone, although it seems a shame.
Nirdev Desai, the head of sales at PSG Wealth, responds:
It’s often difficult when family members have different values on money. It is, however, essential to do all you can to better the picture for your children and for the legacy of the inheritance you leave behind. It can take years to align values within a family and transfer knowledge, but wealth taxes can also have a substantial impact on an estate if wealth transfer options are not considered in advance.
I suggest you employ a financial adviser to work with all of you together. We often have a relationship with money that is more emotional than pragmatic. Working with an experienced financial adviser will assist in creating the best outcomes for you and your family while facilitating more sustainable and higher net intergenerational wealth transfers.
Traditionally, wealth has passed from one generation to the next upon death. However, intergenerational financial planning looks at how a family can use their wealth more collaboratively to support each other during their lifetimes and beyond. This includes having legitimate estate planning and tax mitigation advice while finding ways to create wealth that can alleviate the financial burdens for multiple generations in the family.
Successful individuals work hard on communication with their family alongside trusted financial advice to create an understanding of what they are truly trying to achieve with their wealth as a collective.
WILL AN ALARM REDUCE PREMIUMS?
Will adding an alarm system to my home reduce my short-term insurance premium?
Jacqui Mayne, an insurance adviser from PSG Simbithi Office Park in Ballito, responds:
It will depend on where you live, as your suburb will have a risk factor based on crime activity in the area. In some cases, it could reduce your premium, so it’s worth finding out before you install. Keep in mind you will also need to ensure you always turn the alarm on, service it regularly and maintain its back-up battery, as your insurance is likely to be contingent on the alarm being in use. Whether it is connected to an armed response will be another factor that could influence your premium.
Working with an adviser can help you to identify cost-effective and safe ways to reduce your cover, in line with your unique circumstances.
PROVIDING MEDICAL BENEFITS TO STAFF
I am considering medical benefits for my staff. How do I get started?
Nerine Brink, the principal of PSG Wealth R21 Employee Benefits, responds:
It’s important to work with an employee benefits adviser who can help you to find the right scheme for your company’s needs.
They can provide guidance in managing affordability, selecting an option that offers the most comprehensive benefits, and ensuring sustainability for both the members of the medical scheme and you, as the employer.
Your staff will also deserve one-on-one consulting to properly understand their benefits, once these are determined, to get the most out of their membership.
The recent pandemic has highlighted again how important it is to have the right medical cover in place, so be sure to seek the right advice, ensuring your choice is optimally aligned to serve your employees’ needs in the year ahead.