Your questions answered

By Readers' letters Time of article published Aug 5, 2019

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Email your queries to [email protected] or fax them to 021 488 4119. This feature is sponsored by PSG Wealth.

Investing in direct shares

I’ve inherited a tidy sum and am considering investing in direct shares. What do I need to think about?

Name withheld

Struan Campbell, a financial adviser from PSG Wealth Umhlanga Stockbroking responds:

I am sorry for your loss and think it wise to consider direct shares thoroughly before you begin. Here are some factors:

Your time frame should be long term: Hoping to “get-rich-quick” isn’t suited to direct share investing as losses in the short term can be extreme. 

Costs and liquidity: The biggest mistakes we see novice investors make are those centred around trading the “penny stock” portion of the market, with trading amounts that are simply too small.  Brokerage costs will eat significantly into returns, and small, illiquid shares can take weeks or months to exit. A decent size position, in a larger cap stock, will reduce trading fees and generally provide the liquidity required, should you need to close the position in a hurry.

Local vs Offshore: Depending on the sum inherited, an offshore share portfolio can be considered.  As the offshore investment universe is overwhelmingly large, for this option it is recommended to get assistance from a professional.  There are many factors to consider: direct investment vs “asset-swap”, should the portfolio be wrapped in an endowment, which market/s to access, differing time zones and currencies, and then simply making sure you press the correct button when making a trade.  However, with SA making up less than 1% of the global economy, offshore investment must be considered.

Stock selection: Further to the above, choosing a basket of diverse, well-managed companies with proven track records, offering steady growth with constant dividend payout profiles, that are reasonably priced, will yield the best long-term results.  Making use of an investment professional is the wisest move. You will pay a fee for the service, but this is likely to be more than offset by the potential losses you could make while trading on your own.

Timing: According to Sir John Templeton, the best time to invest is when you have the money.  Start now and you will reap the rewards years from now.

Appointing a guardian for my kids

What do I need to consider when appointing a guardian for my minor children? They are 6 and 12.  

Name withheld

Richus Nel, a financial adviser at PSG Wealth Old Oak responds:

When it comes to appointing a guardian of minor children in your will, there are many practical aspects to consider from schooling to tertiary education practicalities, lifestyle requirements and even where your pets might go.  But the single non-negotiable factor for a guardian appointment, should be sufficient financial provision. Most families already have enormous financial obligations just providing for their own children. Additional financial burden for your chosen guardian (to look after your children), can lead to unnecessary tension in this already sensitive relationship. 

I recommend that the financial provision is absolute, without any contingencies or strings attached (e.g. financial support from a going-concern business or selling of assets), as these carry additional risk to your guardian and children. You might plan to sell property for financial support, but in the absence of a willing buyer, this plan fails. Contingencies like these can push your children’s guardians into financial misery. 

Appointing guardians is a rather complicated matter as no one is “you”.  It can, however, be simplified by discussions (perhaps in writing) between parents and guardians. You can even include older children in this conversation, where age appropriate. Determine sooner, rather than later, how you are leaving your children behind and consult an estate planning specialist to ensure nothing is missed. 

Where should I invest next?

I’ve built up 8 months’ worth of monthly expenses in a Money Market Fund and I’m contributing 10% to my employer’s pension fund. What should I do next? 

Name withheld

Riaan Strydom, a financial adviser at PSG Wealth Port Elizabeth, responds: 

Financial planning is about identifying risks, prioritising them and allocating resources accordingly. You have clearly started this process and a proper financial needs analysis would identify what is most appropriate for you, but here are some guidelines: 

Now that you have an emergency fund, you could allocate discretionary savings to a Tax-Free Savings Account (contributing to the limits of R33 000 per year, or R500 000 over your lifetime).   

If you have financial dependents, or any financial obligations or debt, you need to protect against what would happen if you could no longer earn an income and put measures in place, as appropriate. Consider risk benefits including life, disability and dread disease cover.   

Contributions to retirement funds are tax deductible up to 27.5% of your salary or taxable income, whichever is the greater (capped at R350 000 per annum), so you may consider increasing your contribution to your employer’s pension fund, or starting your own retirement annuity in order to maximise your annual tax deduction.  Any further savings can be invested in an appropriate unit trust portfolio, tailored to your risk profile and investment horizon. Chat to an adviser to be sure what is best for you. 

Passing on wealth 

I’ve accumulated significant wealth in my estate and have two grandchildren as my beneficiaries. How do I make sure everything I’ve earned reaches them so they can build their own wealth? I’m concerned they are frivolous spenders. 

Name withheld

Willie Fourie, Head of Trusts and Estates at PSG Wealth, responds:

Passing on wealth and possessions to a generation where instant gratification is the order of the day can be a concern.  A properly drafted estate plan will take the needs of family members into consideration to ensure alignment with your intention to transfer your own financial freedom to the next generation. This is the end result of a structured process where a proper analysis of the goals of the estate planning exercise is the focus. 

Many a well-structured estate plan has failed because, although very tax-efficient, it neglected the needs of family members. Be practical and ask your children what they want as well, taking cognisance of any existing trusts or other estate planning vehicles they may already have.  

Can saving ever be the wrong decision?

Should I reduce my monthly expenses to free up some income to save?

Name withheld

Nirdev Desai, Head of Sales at PSG Wealth responds:

Reducing spending on unnecessary luxuries or nice-to-haves can help you to save, however, saving by cutting down in the wrong areas is not advised. If your income depends on your ability to work (i.e. if you earn a salary), you want to ensure you (or your dependants) can continue earning an income even if you do not work. This means it’s simply too risky to save by cutting your spending on life cover, dread disease cover, medical aid or retirement savings. Similarly, trying to save on home or car insurance can be disastrous to your finances if the unexpected happens. A qualified financial adviser can help you weigh the options, and decide smartly about the trade-offs you can, and cannot, make.


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