The Robert Group Blog

New Year. New Financial You.

2015-01-21T08:48:00.000+02:00

First and foremost Happy New Years! May 2015 be your best year yet!

As we start taking strides into the New Year we typically spend quite a bit of time setting ourselves goals or new year's resolutions relating to fitness or family matters. Very rarely though, do we pay REAL attention to goals relating to our personal finances.

Let's make 2015 that year. That year that we decided to take control of our personal finances and set ourselves up for success.

Here are a few steps you could take to achieve the above:

Step 1:

Draw up a budget.
A budget is one of the most important tools when it comes to taking control of your finances. Sit down, draw one up and you will soon start reaping the rewards.

Step 2:

Meet with a Financial Advisor.
It is not as daunting as one might think. A Financial Advisor will be able to help you identify pro's and con's in your current financial planning and could assist you with making decisions on how to improve this plan going forward.

Step 3:

Set yourself a goal.
No one has ever achieved anything without intention or without making the decision to try. The same will be true when it comes to your finances.

If you are in a situation whereby you are currently in debt, pick a credit card or loan that you are owing on and pay it off as quickly as possible. Don't allow yourself to spend recklessly or continuously but instead use that money to pay off the debt. Your future self will thank you!

Or if you are in a situation whereby you are looking to save or invest, do so and make sure you invest appropriately. This is something you could discuss when sitting with your Financial Advisor in Step 2 above.

Step 4:

Improve on your understanding of the Financial Industry or Economy.
There are a myriad of options available when it comes to books on the economy or relating to the financial industry. Spend some time finding one that will help you further educate yourself whether it be at beginner level or at the highest level.

If you are not an avid reader there are 1000's of videos available on the internet that will help you further your understanding and allow you to make more informed decisions regarding your finances in the years to come.

Step 5:

Commit to the New Financial You.
As with most new year's resolutions we are going to have the urge to, at some stage during the first half of the year more than likely, give up on these goals. But I am challenging you to not do that. Give your New Financial You a real opportunity to flourish and I can assure you that in the many years to come you will be glad you did.

Good Luck!

Yours in finance,
Travis

Houses - Transfer Trumps Intention

2014-10-08T13:19:00.001+02:00

“Experience is a hard teacher because she gives the test first, the lesson afterward” (Vernon Law)

Never assume that you have any rights to a property just because the owner says that he/she intends to give you ownership, even if a sale agreement is signed. Make sure that you actually do take ownership via registration in the Deeds Office.

That’s the hard lesson learnt recently by a mother and her children who will now be evicted from “their” home.

The relationship that soured

Mr A intended to marry Ms B, who lived with her children in a home owned by Mr A’s company
Mr A it seems intended to donate the home to Ms B and he accordingly signed a sale agreement (the “first agreement”) selling it from his own company to Ms B’s Company C (she being the sole director and shareholder)
Transfer was never effected to Company C
Mr A then left Ms B and married someone else instead
Mr A signed another sale agreement (the “second agreement”) in terms of which he sold the home from his company into his own personal name. The property was duly transferred into Mr A’s name
Mr A died, leaving the home in his will to his new wife
Ms B, still living in the home but threatened with eviction by the executor of Mr A’s deceased estate, asked the High Court to order transfer of the property to her Company C per the first agreement.

A hard lesson from the law

The High Court held against Ms B, confirming that ownership of immovable property only passes on registration of transfer in the Deeds Office.

The parties must both have had the intention of respectively passing and accepting ownership of the property from the seller to the buyer, and on the facts of this case Mr A’s intention was clearly that ownership pass in terms of the second agreement, i.e. into his personal name.

Moreover Ms B had failed to prove that the first agreement was in existence or enforceable (in cases of “double sale”, the second sale can be set aside if the second buyer is shown to have had prior knowledge of the first sale).

The mistake she made

Ms B should have pushed for transfer to her Company C as soon as the first sale agreement was signed. She seems to have assumed that the agreement itself was all she needed – a fatal mistake.

To Save Or To Invest - What is the difference?

2014-09-11T14:54:00.000+02:00

What does it mean to "save"?

(Verb) : "keep safe or rescue (someone or something) from harm or danger"

What does it mean to "invest"?

(Verb) : "to put (money) to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation in value"

As you will see there is a distinct difference between saving and investing. Although we might already know this do we actually take this into account when we are "investing" ?

I agree that there is definitely a need for an individual to have a savings account, e.g. for Capital Protection or an Emergency Fund. However I do not think it is possible for an individual to create real wealth if he / she had their monies in a savings account.

This is why:

Money Market funds (predominately used by banks when we save with them) generally speaking, provide returns that are BELOW our current inflation rate - CPI. To put it simply, lets take a look at the returns achieved by 4 prominent investment houses over 1 year.

As you can see the best performing fund only achieved a return of 5.54%. CPI over the same period was 6.3%. Therefore the actual purchasing power of your money , if invested in that fund, would have decreased by roughly 0.9%.

If you want to achieve real growth in your investments whereby the purchasing power of your money increases, you need to be exposed to risk in one way, shape or form. You need to invest.

Why should you invest rather than save?

Inter alia, (as mentioned above), inflation is sitting approx. on the 6% mark therefore in order to create wealth you need to achieve returns above 6%.

At a time where job stability is shaky at best, you need to create wealth to allow yourself the opportunity to start up your own business or to invest in other business's which could provide an additional or alternative income.

Education inflation is hovering around the 10% mark at the moment which further reinforces your need for higher returns.

As the graph above dictates the returns achieved over that same period are much higher when investing. If invested in these funds you would have realised returns that are well above CPI and therefore you would have made money in both nominal and real terms.

In order to be in the position to realise these returns you need to be exposed to risk. There is no way to get a high or profitable return on any investment or business without taking on some risk. If these returns were possible risk free then everybody would be investing and everybody would have accumulated significant wealth. Unfortunately this is the real world and that is not possible.

However there are many varying factors that must be taken into account when thinking about investing. There are also numerous ways that one could minimise their risk exposure and invest appropriately. It is here where you will find just how valuable the input of a Financial Advisor can be.

Yours in finance,

Paying For Medical Aid During Retirement

2014-06-25T16:59:00.001+02:00

Retirement. (n)

"the action or fact of leaving one's job and ceasing to work"

If you had to read the above again, what sticks out to you the most?

Personally, it is the fact that retirement is a (noun).

I disagree with that.

The reason I disagree is because as a Financial Advisor, to me retirement is a (verb). It is a "doing or action word". There is a massive amount of "doing" required in order to engage in retirement, i.e. Retirement Planning throughout your life, investing and so forth.

Not so long ago I was sitting in a bank and I overheard an elderly couple pleading with the bank teller to reduce their monthly debt repayment due to the fact that they simply can no longer afford it. On a humane level I felt sorry for them and it really got me thinking, "If they cannot afford to pay their monthly debt repayment, which was R 500, how can they afford to pay for their medical aid?." After all it is proven that it is during our retirement years, more than any other period in our life, that we spend the most on medical bills such as medication or hospital visits etc.

But on the other hand I thought about whether or not they had taken retirement planning seriously enough during their younger years. Or did they keep putting it off until a later age so they could fund a more lavish lifestyle?

Bearing this in mind I decided to do a few calculations. I planned for coverage for 2 different medical aid options, a "middle of the range" option and a "top of the range" option, both providing private hospital cover and a medical savings account.

I used the following parameters:

Retirement funding commencement age - 25
Actual retirement age - 65
Invested into moderately aggressive funds for the entire 40 years.
Funding for 2 members, i.e. Husband and Wife
Medical inflation of 9% ( don't forget your medical aid goes up by more than CPI on an annual basis )

Question:

"How much do I need to contribute on a monthly basis from now, age 25, until I retire, age 65, in order for my medical aid to be completely covered during retirement?"

Answer:

Middle Of The Range Medical Aid

- I need to contribute R 346 per month with an annual increase of 10% for the next 40 years.

Top Of The Range Medical Aid

- I need to contribute R 834 per month with an annual increase of 10% for the next 40 years.

I understand it is not always affordable for everyone to put away the required amount on a monthly basis and it seems difficult at times, but ask yourself this, "Would you rather sacrifice a little now so that you don't have to suffer during retirement, or are you happy to become that elderly couple I referenced above?"

Alternatively imagine this, you reach retirement and all of a sudden you do not have to contribute a cent towards your monthly medical aid contribution. Sounds good doesn't it? You will look back and be grateful that you, as a 25 year old, started that monthly contribution.

Yours in finance,

Travis

Emerging Markets - It's Our Turn

2014-05-08T15:10:00.000+02:00

My brother has just returned to South Africa after living in Geneva for 14 years. He is going to reside in Johannesburg and work for Discovery Health and he is deliriously happy.

What is exhausting, though, is the question (accompanied by a look of near disbelief) asked by almost every South African, from the travel agent to his friends to the real estate agent and the car salesman etc: “Why are you coming back? Especially now?”

What is it about us South Africans that makes us truly believe that we are “die vark in die verhaal” in every story? Whether it is the economy, politics, the currency, corruption, you name it – we really do seem to believe that this South Africa is the only country in the world with problems and that anything that goes wrong is directly self-inflicted.

A few points are worth noting.

Firstly, most of the pain we are feeling economically is currently being felt more or less similarly across all emerging markets (EMs). Very simply, it is our turn. For the first three years after the global financial collapse, former US Fed Chairman Ben Bernanke plumped up the global economy with billions of US dollars and EMs were a happy beneficiary of this liquidity. South Africans looked on in amazement as the developed world came close to collapse, companies slashed their workforces and these developed economies ground to a halt. Meanwhile, life in SA was good – we were still growing, retrenchments were there (but not widespread) and the sun was shining.

But then, inevitably and eventually, the developed world started healing. Today the US economy is recovering, economic numbers are improving and they’re fast becoming energy neutral. Producing all their own oil and gas will make them more competitive, improve their deficit and reduce their debt.

On the other hand, the European recovery – whilst nowhere near the US recovery – seems intact, and while they are hardly growing, they are at least no longer shrinking. Their risk now is deflation, although recent data has been encouraging and any signs of deflation will be doused quickly enough through monetary methods. Britain is almost booming with growth forecasts for 2014 being raised from 1.5% a year ago, to the current predictions from the Bank of England of over 3%.

So with all the good news coming out of the developed world, the quantitative easing drip is slowly being removed. Global investors, seeing the recovery, also decided they could generate decent returns closer to home.

Suddenly the rug was pulled out from underneath the feet of the EM currencies and stock markets. What was described in general economic parlance as the BRICS (a grouping to which we as South Africans felt unworthy, but delighted to be part of) quickly became referred to by many pundits as a Bloody Ridiculous Investment Concept.

From Argentina to Indonesia, via Turkey, economies are slowing, unemployment is growing and currencies have been smashed. But the time for the EMs is not over. Many are in far better shape than 1998, and in many cases, they are in better shape than the developed world. They have lower debt to GDP ratios, more reserves, better demographics, higher growth prospects, and are generally more resilient.

As members of this ‘club’ known as emerging markets, we benefit when times are good, but similarly we suffer when sentiment towards EMs sours. As South Africans, we sometimes delude ourselves that we are ‘first world’, yet whether we like it or not, we are just another EM. Interestingly, there was a time we experienced contagion as a result of our proximity to Zimbabwe and the rest of Africa. Today, SA will lift from our current growth impasse due to our preferred EM status. Preferred, ironically, due to our proximity to the rampant growth economies of Africa.

Key to psychological survival in SA is being able to see us the way foreign investors do, and comparing us to the countries against whom we compete for investment flows. Nobody asks whether they should invest in London or SA, or New York or SA. What they do say however, is should they invest in SA or should they rather invest in South America, the rest of Africa or Asia? And against those countries or continents we generally stack up (reasonably) well.

So, the SA economy isn’t alone in facing tough times. The Brazilian and Indian economies have also slowed significantly, as has foreign investment into these markets. Their currencies are at record lows and their deficits and unemployment levels are high. In fact, most EM economies have slowed considerably. The rand isn’t being punished because of our politics or strikes, for that matter. Despite ourselves, the rand has been punished along with most EM currencies, simply because massive inflows suddenly become massive outflows as sentiment towards EMs deteriorated.

We have enormous youth unemployment, but the levels are not dissimilar to that of many other Ems. For that matter, many European countries have similar youth unemployment levels. We grumble about our politics, but politicians across the world behave badly. ‘Gravy’ is not unique to SA; after all, was it not expedient politicians feeding tax breaks to voters in exchange for votes that led to the European collapse (and in many cases debt levels that will take generations to repay)? The French president’s approval rating is below 20%, less than half the level of our president.

From a corruption perspective we have much work to do, but we are by no means worse than other EMs. In fact, we are better than (or equal to) the majority of South America, the rest of Africa and most of Asia according to Transparency International’s 2013 Corruption Perceptions Index. On the list of 177 countries, we rank 72nd.

We have to continue to jealously guard our press freedom, for which the country has fought so hard. We also have to appreciate that we currently have of the freest press in the world. According to the World Press Freedom Index for 2014, we are in line with the UK and the US and once again freer than the majority of South America, the rest of Africa and Asia.

In short, we are not nearly as fascinating to the rest of the world as we think we are. Very simply, we are part of a grouping known as EMs, and when they are in vogue, so are we, and the reverse applies when they are not. As I have argued earlier, what we are going through at the moment will pass. Almost like winter eventually becomes spring and then summer, so too will the sun return to the EMs and indeed to SA. Then this phase will be forgotten, and my brother – along with the 359,000 other skilled South Africans who (according to Adcorp) have returned home since 2008 – will stop getting asked why they came home.

By Jeremy Gardiner, director, Investec Asset Management