YOUR QUESTIONS ANSWERED
Nirdev Desai, the head of sales at PSG Wealth, responds: It isn’t always clear when you should assess your financial plan and the products that form part of it. The Covid-19 pandemic has been daunting for investors as they watch the markets fall sharply. Although it’s good to schedule regular check-ins regarding the progress on your financial plan, fear-driven responses to market turmoil are unlikely to deliver your desired outcome.
A detailed review should take place once a year as a matter of habit, so you can assess whether everything is still on track and aligned to your goals. If something changes in your circumstances, it might be different (such as a significant income shift or having a baby). There may be new obligations, or your goals may change and require more thinking. Whatever the case, when your life changes materially, so should your plan.
If the pandemic has made you realise that your plan is lacking or outdated (even if your circumstances are much the same), don’t lose the impetus to act, and contact your adviser. The urge to act and “protect” yourself can be overwhelming. This is precisely where a structured review of your plan can add to your sense of security. If your portfolio is aligned to your needs and objectives, the best advice may be to sit it out. Your financial adviser can help you with an objective approach, so you can consistently see the bigger picture.
I’ve seen that some share prices are falling quite a bit. Does this mean now is a good time to get into the market?
Antoinette Naude, a wealth manager at PSG Wealth Hermanus Portfolio Management & Stockbroking, responds: Between February 17 and March 19, the JSE All Share Index declined by 35%. Since then it has recovered substantially, clawing back about 80% of these losses as at April 20. This doesn’t mean that most of the buying opportunities have disappeared.
The uncertainty about the impact that Covid-19 will have on companies’ earnings will most likely lead to continued volatility in share prices, both locally and abroad.
Investors should focus on companies that have proven management, modest debt levels, strong cash flow, solid distribution channels and resilient business models. Particularly in the current economic climate, it is advisable to build a well-diversified share portfolio with companies that span a range of sectors. With these guidelines in mind, investors should be rewarded with above-average returns if they are prepared to be patient.
The merit of buying shares and the timing thereof are rarely made in isolation. It is advisable to evaluate your portfolio as a whole and determine whether you have the capacity to increase your exposure to listed equities given your existing equity exposure, investment horizon and risk appetite.
Covid-19 makes me very anxious about being able to retire. Is there a solid solution?
Magdeleen Cornelissen, a financial adviser from PSG Wealth Menlyn, responds: No one can deny that Covid-19 is the cause of stress for many investors. Being faced with the reality that your retirement savings have reduced dramatically within a short period will cause sleepless nights. The biggest asset you have in difficult times like these is your financial plan. Do not react to fear before speaking to your financial adviser.
Although there are a multitude of opinions on how to gain financial wealth, many of these are flawed, with promises of unrealistic returns, setting the scene for capital losses, from which you will not be able to recover. A few of these small losses add up over the years, creating a hole in your retirement assets, which becomes visible only once in retirement. Most people do not have the ability to earn an additional income at this point, making the hole a permanent fixture in their finances.
Although the world will most likely look a bit different in the years to come, the same principles with regards to financial planning still apply. If possible, saving patterns must be continued. Many people now realise that they can afford only the necessities, and your retirement plan should be regarded as one. Altering your course of action, unless necessary, can lead to an adverse long-term result. Working with a financial adviser will help during this time of uncertainty.
I won’t be receiving my full salary in the next month or two. Can I stop my retirement annuity (RA) contributions?
Shreekanth Sing, a financial adviser from PSG Wealth Northcliff, responds: This can be done, but the impact of doing so depends on the type of RA in which you are invested. There are typically two types of RAs: Lisp (investment platform) and life-based.
If you invested via a Lisp, you could easily decrease, stop and later increase your contribution. This is a key benefit of Lisps.
Life-based RAs are typically offered by traditional life insurers, where your monthly premiums and any escalations are agreed when the policy is taken out. You’ll need to check with the life insurer whether they’ll allow you to stop contributing to your RA. Due to the current crisis, some insurers are offering premium holidays, depending on, for example, how long the policy has been in place. Other insurers may request that you make your RA paid-up, which could result in early surrender penalties for unrecouped costs.
You will need to decide after carefully evaluating your personal circumstances, and after checking in with the product provider. Retirement savings will ultimately allow you to provide for yourself when you are no longer working, so you should check with a financial adviser about the long-term impact of stopping your contributions.
I’ve remarried and have children from my previous marriage. What should I consider when it comes to estate planning so that everyone can benefit from my estate?
Madelein Marais, a legal specialist in PSG’s Technical Advisory Services, responds: Divorces and second marriages can complicate the process of estate planning and present several challenges. Poor planning can easily lead to unintended consequences that create tension between a spouse and children.
A simple will won’t suffice for blended families if you want to protect your biological children’s ability to inherit. A will that leaves everything to your new spouse can result in your children from your previous marriage inheriting nothing, as there is no obligation on your surviving spouse to give these children anything, even if that was the agreement between you and your spouse.
Trusts are a practical way to ensure that both your spouse and your children from your previous marriage are looked after. There are different options with various levels of flexibility available. It is important that an independent trustee is appointed to avoid any conflicts between your current spouse and your children.
Working with a qualified fiduciary adviser or fiduciary specialist ensures your wishes will be carried out without unintended consequences.