Keeping your financial plan on track – consider TRUSTS - Ultima Financial Planners & Wealth Management

Keeping your financial plan on track – consider TRUSTS

[vc_row][vc_column][vc_column_text]South Africans are experiencing the economic crunch in a real way. While the majority of citizens are increasingly struggling to put food on the table, more affluent individuals are re-evaluating financial plans and looking at different ways to secure savings and accumulated wealth.

In this challenging and uncertain economic and political climate that the country is undergoing currently, the first thing we should remind ourselves of is to remain calm. It is reason based on the right knowledge, and not emotion that should be our guide in decision-making. It is therefore important to examine financial options and make wise decisions to ensure that your financial plan stays on track. Being strategic in our planning for the future is increasingly important.

In this article, Ultima Financial Planners’ looks at TRUSTS as one of the options, and where it is still highly effective in long-term financial planning.

For many years trusts have been effectively used as wealth management and estate planning vehicles. Recent regulatory changes have threatened the existence of the trust as an independent legal entity due to the increased scrutiny into trusts from SARS and the onerous effect of the new legislation imposed.

Hugo van Zyl, chartered accountant and master tax practitioner at Breytenbachs Cross Border Advisory, says there is a real possibility that the number of trusts will drop considerably. This is not only the case for so-called active trusts but also for smaller trusts holding a single (for family use only) property, which may be regarded as inactive.

While one tax commentator at the recent 2016 Tax Indaba, suggested that up to 50% of all trusts might disappear as a result of clean-up efforts, Hanneke Farrand, director in ENSafrica’s Tax Department, says she does not necessarily agree with this view. Farrand says regulatory changes will improve compliance and create an awareness to keep proper records and pay attention to trust administration. However, Van Zyl says that taxpayers with low value trusts, serving no real commercial purpose “should probably get rid of it”.[/vc_column_text][vc_column_text]

What are the benefits of a trust?

[/vc_column_text][vc_column_text]There is no tax on the accumulation of wealth within the trust, unlike estate duty which has relevant tax associated. The combined effect of Capital Gains Tax (CGT) and death duty for an individual is still higher than the CGT rate within trusts. The conduit principle, for as long as it remains, provides a tax efficient option for distributing income and capital gains between various trust beneficiaries.

A trust provides a mechanism for trustees to distribute assets to beneficiaries without donations tax, an option which would not be available to a settlor directly without paying donations tax of 20% on the transfer of assets exceeding R100 000 p.a.

Trusts provide tax liquidity solutions on death. On death, CGT is payable on the growth of assets held by an individual, whether the asset is disposed of or not. In a trust, CGT is only triggered on distribution or sale of the asset, hence matching tax liability to cash flow. For example, a family holiday home intended to be held for multiple generations would be better held in a trust. CGT on the growth of the asset would only apply when the asset is sold. Conversely, if the holiday home is held in the parent’s name and transferred to the next generation of children upon death of the parent, CGT would apply to the growth of the property. Without cash flow being available to fund the CGT tax liability, the property might have to be sold instead of the intended transfer taking place. Another factor to take into consideration when held in the parent’s name is that the basic cost of the property increase with each transfer which also increase the CGT while within a trust the basic cost remain the same.

From a planning point of view, trusts continue to offer protection of assets against creditors and a structure for administering assets for beneficiaries who may not otherwise be competent enough to manage their own financial affairs.[/vc_column_text][vc_column_text]

Ten areas where trusts should be considered.

[/vc_column_text][vc_column_text]Ultima Financial Planners has evaluated the relevance of trusts and identified ten areas where these financial vehicles are still very relevant in terms of financial planning:

Provision for minor beneficiaries.
Provision for beneficiaries who suffer from a mental illness or physical disability.
Capital gains tax saving at death on assets held in a trust.
Protection of assets in divorce – this however is a sensitive area and the trust should be set up carefully to take all parties’ rights into account.
Protection of assets against creditors.
Reduction of executor’s fees and administration costs at death.
Provision of continuity and easy succession of interests in property.
Splitting of capital gains between beneficiaries in circumstances where the attribution rules contained in paragraphs 68 to 73 of the Eighth Schedule of the Income Tax Act (58/1962) are not applicable.
Income splitting between beneficiaries in circumstances where the attribution rules contained in section 7 of the Income Tax Act (58/1962) are not applicable
Offshore trusts, diversifying a client’s portfolio however only where legislation allows.

Trusts are still very relevant and especially within our current economically volatile environment, albeit to solve a specific challenge. We recommend to our customers, given the areas discussed, to consider trusts as wealth management or estate planning vehicles.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Sources:
http://today.moneyweb.co.za/article?id=615183#.WN5UDfmGMdU
http://www.thesait.org.za/news/308317/The-Future-of-Trusts.htm
https://www.bdo.co.za/en-za/news/articles/the-trust-as-a-planning-vehicle-not-dead-yet[/vc_column_text][/vc_column][/vc_row]

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Three Ways to Protect Your Finances Against Life’s Curveballs

Life happens. You can never know when something will disrupt your job or your health. But you can, at least, prepare to have the best chance of surviving a major event.

Here are three ways to protect your finances against some of the worst that life can throw at you.

1. Have an emergency savings account

No matter how secure you might feel in your job, things can change without warning. The shock of Covid-19 proved that this year. Many South Africans suddenly found themselves out of work when the country was locked down.

If the worst happens, you need to be able to sustain yourself for a while to give yourself a chance to find a new source of income. That is why it is so important to have enough money to cover at least three months of expenses in an account that you can access quickly, and easily.

2. Have disability and serious illness cover

Insuring yourself against the risk that you might not be able to work because of an injury or illness is one of the most important ways to protect your financial wellbeing. A car accident or a severe diagnosis can change your life in an instant, and it is best to have security in place.

Income protection that will pay you a monthly amount if you are unable to work, or lump-sum disability and serious illness cover are often overlooked because people think that the risk is small. Even if it is, the implications are huge, and if the worst were to happen you will be incredibly grateful that you thought ahead.

3. Have support

Any major life event will take an emotional toll. In these times you need not only the support of loved ones, but of professionals who can guide you through the difficult decisions you will have to make.

It is hard to make major decisions with your money at a time when you are emotionally stressed, so having a financial adviser to support you can be invaluable. A good adviser will also have relationships with other professionals, like lawyers and accountants, who can help you to take care of all aspects of a major life event.

To learn more about how to protect your finances against major life changes, speak to your financial adviser.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.

Evolving Wealth Part 3: Gen X, Risk Averse but Quick to Adapt

“If you want something done right, do it yourself” – (Unofficial motto of Gen X)

Gen X is the somewhat enigmatic generation group wedged between Baby Boomers and Millennials. Born from 1965 – 1980, they’re currently between 45 and 60 years old.

What’s in a name?

The term ‘Generation X’ was first used in a book of the same name, published in 1965 by British journalists Jane Deverson and Charles Hamblett. Its interviews with anti-establishment teenagers who spoke about their “hates, hopes and fears” made a real splash at the time. The term was revived in 1991 to refer to the group born after Baby Boomers.

Culture clash

As mentioned in our previous articles on Gen Z and Millennials, it’s dangerous to generalise about an entire generation. That said, lots of Gen Xers were shaped by the following trends:

Music videos, grunge, alternative rock and hip-hop
Low birth rates and the tendency to have children later in life
An increase in divorce rates
Realising that it’s OK to self-actualise/fulfil one’s potential
Women entering the workforce en masse
The emergence of ‘latchkey kids’
Needing to care for both growing children and ageing parents
The Aids epidemic and the end of apartheid

Financial experiences

If you’re a Gen Xer, your financial experience has included the dot-com bubble burst, the 2008 stock market crash and the 2007 – 2013 global recession. On average you’ve been working and investing during a period of lower returns than that experienced by Baby Boomers.

You may not be able to rely on traditional pension plans to assure you of a comfortable retirement. In fact, a study by JP Morgan Asset Management found that Gen X is the first generation to be worse-prepared for retirement than their parents.

You’re more likely to use ETFs (exchange-traded funds) than other generations and are prone to invest in balanced investments. Both reflections of a tendency to avoid risk.
As a Gen Xer, you’ve had to figure things out yourself and not take anything for granted – two useful life skills.

3 top investment tips for Gen X

It may have been a rough ride, but you’ve still got time to ensure your retirement is happy and prosperous…

Review risk with your financial advisor
Too little risk could stunt the growth of your investments and put you in danger of running out of capital during retirement. But too much risk could expose you to potential financial loss. Your advisor can assist in getting the right balance of high and low-risk investments.
Get out of the debt trap
It’s important to get rid of any credit card debt and high-interest-rate personal loans. You may also want to pay off your mortgage, even if this means downsizing your home. That said, don’t fixate on eliminating debt to a point where it affects your ability to save for retirement. It is possible to tackle debt while remaining on track with other financial goals.
Plan for the unexpected
If you’re a Gen Xer, there’s the very real possibility that you need to expand your emergency fund. Older children cost more than younger ones and you may also have to assist your parents financially. Be prepared for events such as weddings, additional family cars and, sadly, even your parents’ funerals.

The way forward

As a Gen Xer you’re used to making your own way, and the second half of your life should be no different. Age is just a number and you can still adjust to a changing world and acquire new skills. You may need to switch careers to extend your working life and you’ll certainly need to focus on keeping up with technology. And remember: all the retirement planning in the world is worthless if you don’t keep healthy and remain active.

Speak to us if you have any questions about your financial plan.

Unlocking the Retirement Future: The Pros and Cons of Life Rights Properties

“Risk comes from not knowing what you are doing.” (Warren Buffett)

Choosing a retirement property involves considering location, cost, amenities, and healthcare services. Often, retirees prefer not to deal with the hassle of property maintenance and opt to stay in a property maintained by someone else. This also provides a sense of community.

Life Rights properties can achieve these objectives – but it is essential to understand the meaning of a Life Rights property. Life Rights ownership is reserved for retirees and involves purchasing the right to live in the property for the rest of your or your partner’s life. The actual owner of the property is the developer.

Why Life Rights properties could be a wise investment

The purchase price of a Life Rights property is generally lower than that of an individually owned property or lifestyle property. Current prices bear this out:

A one-bedroom apartment in a newly developed Life Rights village near Paarl in the Western Cape is currently on the market for R2.2m.
A very similar property in a gated community with similar facilities in the same area is for sale at R4.4m – a massive difference.

Be aware that developers often play on the fact that newly developed properties (including Life Rights properties) do not attract transfer duty, which is high in South Africa. But the reason transfer duty doesn’t apply is because the developer pays VAT – which still inflates the price of the property.

Other benefits of Life Rights properties

The most important benefits of Life Rights retirement properties are that they provide security, and a community of retirees. There are other perks: maintenance costs are included in the levy, and upon death, estate management is simplified, as the rights to the property are passed straight back to the developer, who must deal with the sale of the property. (The proceeds paid to you by the developer do form part of your estate.)

The cons of purchasing a Life Rights property

The biggest con is a financial one. Most contracts specify that the deceased’s estate will receive only the purchase price, not the actual sale amount. Some Life Rights property contracts offer less than the purchase price on death. For example, your estate may only receive 80% of the purchase price. If you buy the property before age 65, you may get even less than 80%. These are generalisations, so please ask us to review the contract before you sign it.

Other negatives include:

If you buy a Life Rights property, your estate and beneficiaries will not benefit from the capital growth from the property. (Property values are rising again in South Africa, especially in the Western Cape, making this a considerable con.)
Although levies cover maintenance, they can be high (and they do escalate annually) as the developer must provide for community occasions.
Life Rights Agreements offer little flexibility. Typically, only the surviving spouse may remain in the property if one spouse dies.

Does it offer High Care?

If you do decide to purchase a Life Rights property, it’s advisable to choose one that includes a high-care facility. We all tend to think we’re ‘invincible’ and will never need high care, but this is sadly not the case. Your children and other family members may live overseas or may not have the capacity to care for you, so it makes sense to live somewhere that can ease the burden for all concerned.

A word of warning

Remember that if you decide to purchase a Life Rights property, you should buy the rights from a well-established and reputable company. A recent court case questions the loss of purchase proceeds from an unreputable provider.

The bottom line

We’re here to help you lead a fulfilling and happy retirement. But before we can help you with your emotional well-being, we must crunch numbers and explain the pros and cons of different types of property ownership.

While each person’s situation is unique, generalisations can still be helpful: Life Rights ownership can work well for people with limited assets who purchase the property at a later age. It can also benefit those who don’t need to create generational wealth.

If you’re thinking about where to live in retirement, please don’t make the decision alone – discuss it with us and your beneficiaries.

Market Update: Expect the Unexpected in 2025 – And Plan for it

2024’s rally sets a high bar to beat

The S&P 500 last year experienced its best two-year stretch since 1998, surging 23% in 2024 alone and breaking above 6,000 points. However, momentum slowed considerably in the final quarter as Trump’s election victory and a more hawkish interest rate outlook introduced new uncertainties to the world stage. SA’s stock market performance was less impressive, with the JSE moving sideways for much of the year as investors adopted a wait-and-see approach to building emerging market exposure.

Early 2025 market moves reflect investor anxiety

The first week of 2025 has already provided glimpses of the volatility likely to lie ahead. While the JSE managed to firm slightly, global markets have displayed heightened anxiety. The VIX volatility index – the world’s so-called fear gauge – climbed for four out of five trading days, reflecting growing unease about policy uncertainty.

Key uncertainties ahead

Several critical factors are set to reshape the investment landscape in 2025:

Trump’s policy impact: The president-elect’s proposed 20% blanket tariff on imports (jumping to a possible 60% on Chinese goods) poses significant risks for global trade and inflation. While Treasury Secretary nominee Scott Bessent favours a more gradual approach, the final outcome remains uncertain.
Interest rate trajectory: Despite earlier optimism about rate cuts, a still strong US labour market and concerns that the fight against inflation is not over may result in fewer Federal Reserve rate cuts than initially expected. This could impact the SA Reserve Bank’s ability to cut rates, even with SA inflation reaching multi-year lows of 2.8% in October.
Global growth concerns: Europe faces energy challenges as Russian gas supplies via Ukraine have ceased. Elsewhere, China’s factory activity shows signs of slowing. These factors could taint the case for investing in emerging markets, including South Africa.
Market valuations: Current cross-asset valuations are historically stretched, with a Bloomberg model showing that valuation levels are higher than they have been for 88% of the time since 1962.

Navigating uncertainty

South African investors should consider the following to withstand the impact of expected volatility on their portfolios:

Portfolio diversification: With both bonds and equities trading at stretched valuations, diversification across asset classes is crucial to survive the likely twists and turns in the markets this year.
Consider defensive positioning: With volatility likely to increase, maintaining some defensive positions could help investors weather market turbulence.
Watch currency exposure: The rand faces potential pressure if the dollar strengthens due to fewer rate cuts (as predicted) and Trump’s protectionist policies.

The bottom line

While 2024’s strong performance may tempt investors to expect more of the same, the 2025 investment landscape looks set to be markedly different. South African investors should prepare for increased volatility by maintaining discipline and not overreacting to what could be significant market swings as various uncertainties play out through the year.

If you have any further questions about how all of this affects your investment portfolio, please give us a ring.

Burgernomics: Decoding Currency Values with the Big Mac Index

“The secret of Big Macs is that they’re not very good, but every one is not very good in exactly the same way.” (Joel Spolsky)

The concept is straightforward: in theory, the same things should cost the same globally. The Big Mac is a great product to compare because it’s sold in over 100 countries and is nearly identical worldwide. When there are price differences in Big Macs between countries, it can indicate potential discrepancies in currency value .

A tasty take on global currency values

The Big Mac Index compares the price of this burger in one country versus another. As of July 2024, Switzerland had the world’s most expensive Big Macs ($8.07) and Taiwan ($2.46) had the cheapest. But let’s explore how this concept works with the rand and the US Dollar.

A Big Mac currently costs $5.70 in the US and R60.50 in South Africa, meaning the PPP exchange rate is about R10.6 to $1. This is significantly different to the actual exchange rate (R1 is currently worth $17.45), suggesting that the rand may be undervalued relative to the dollar. (Calculations based on the exchange rate on 5 November 2024.)

Why is the rand so undervalued?

Several factors could explain why the rand seems undervalued when compared to the dollar:

Economic conditions: South Africa’s high inflation and unemployment rates tend to suppress the rand’s value.
Investor sentiment: Despite the recent election results, Global investors may still view South Africa as a higher-risk market, which can decrease demand for the rand.
Reliance on commodities: South Africa’s economy relies heavily on commodities like gold and platinum, and a drop in global commodity prices can weaken the rand.

A simple snapshot, not an economic tool

Despite its limitations, the Big Mac Index provides a helpful overview of currency values. Local costs, taxes, import duties, and competition all impact Big Mac prices, potentially compromising the index’s accuracy. In South Africa, for instance, the costs of ingredients and wages can vary significantly from those in the US.

Still, the index can help us to spot currency trends over time and it is included in many economics textbooks. A consistently undervalued rand might indicate more considerable economic challenges, such as inflation or low investor confidence.

Last bite

The Big Mac Index makes it a little easier for the ordinary folk to understand currency valuations. It reminds us that everyday prices and financial markets influence exchange rates.

It also explains why South Africans visiting the US often find their money doesn’t go that far. And why Americans travelling to South Africa will probably find that their dollars go much further in Mzansi than they do back home.

While the Big Mac Index isn’t a tool for serious financial decisions, it offers a unique and accessible perspective on international economics, making complex currency concepts easier to digest — perhaps with a side of fries.

When Investing, Focus on What You Can Control

“Some things are up to us and some things are not up to us.” (Epictetus)

Investing can often feel hard. The keys to success may seem daunting.

Is your fund manager making the right decisions? Is the market going up or down? Is the rand strong or weak? These things often play on our thoughts and cause us to worry about our investment plan, particularly because they’re not things we can do anything about (and they’re often the same for everyone).

But the truth is that success in investing doesn’t really rest on any of them. What really matters in the long run are three simple things that are actually in your control – how much you’re paying in fees, how much you invest, and how long you stay invested.

These are far more significant than the worries that tend to grab our attention as investors, and here’s why:

1. Control costs: Small savings add up

Investment costs are one of the few predictable aspects of investing, making them an easy win. Whether you’re investing in a retirement annuity, a unit trust, or a tax-free savings account, every fee that you pay effectively comes out of your return, reducing the effect of compounding. And while fees might seem negligible on a yearly basis, they add up significantly.

Take, for example, two investors, both of whom invest R100,000 for 20 years. One investor pays annual fees of 2%, while the other finds a lower-cost option charging just 0.5%. At an average annual growth rate of 8%, the low-cost investment grows to R466,000, while the higher-fee investment only reaches around R377,000. The extra 1.5% in fees ends up costing over R90,000 – nearly the initial investment amount!

Simply put: by keeping your costs low, you keep a more significant share of your returns, which is crucial for long-term growth.

2. How much you invest: Build wealth through consistency

Another major factor within your control is the amount you save and invest. It’s simple: the more you invest, the more capital you have working for you, compounding over time. Regular contributions, even during market downturns, help you capitalise on periods when asset prices are low, giving you better returns in the long run.

Consider the experience of two investors over a 20-year period. The first invests R1,000 every month, and the second R1,200. This may sound like a small difference, but if both investors receive the same 8% annual return, the first will reach R589,000. The second will have R707,000 – over R100,000 more!

For South Africans, starting early and saving regularly is particularly important given our relatively high inflation rate. The power of a disciplined saving habit helps counteract the effects of inflation, ensuring you’re steadily building wealth.

3. Time: The magic ingredient for compounding

The single most powerful force in investing is time. The longer you stay invested, the more your returns can compound, creating exponential growth. Even modest returns grow substantially when given enough time.

Let’s look at the case of two investors, each investing R50,000. Investor A leaves their money invested for 10 years at an average annual growth rate of 7%, while Investor B stays invested for 20 years. Investor A’s money grows to R111,000, while Investor B’s grows to more than double that – R246,000. By simply remaining invested longer, Investor B achieves significantly better returns.

In the South African context, where markets can be volatile, committing to a long-term view is even more crucial. Short-term currency fluctuations and economic shifts may tempt investors to pull out during rough patches. However, staying invested allows time for the market to recover, smooth out short-term losses, and capitalise on periods of growth.

The benefits of focusing on what you can control

By concentrating on costs, savings, and time, you avoid the distractions of market predictions and news cycles. Trying to time the market can lead to missed opportunities and losses. A consistent strategy is far more reliable, as it is built around principles that remain effective even as conditions change.

Consider the tumultuous year of 2020, when markets initially plummeted due to the Covid-19 pandemic, but rebounded within months. Investors who tried to “time the bottom” often missed the rapid recovery that followed, while those who simply continued their regular contributions benefited from the rebound.

Focusing on costs, savings, and time helps you build resilience into your investment strategy, setting you up for consistent growth rather than reactive decisions. While it’s normal to feel anxious about market movements, focusing on these factors that are within your control provides a much more stable foundation for building wealth.

To discuss your investment plan, speak to us.

Evolving Wealth Part 2: Millennials, a Fresh Take on Values, Habits, and Aspirations

“Life is what happens to you while you’re busy making other plans” (John Lennon)

Millennials comprise 25 to 35% of SA’s population, representing various interests, backgrounds, and lifestyles. It’s also helpful to distinguish between older Millennials and younger ones. The older cohort grew up with PCs and video games, while the younger Millennials were raised on smartphones and apps.

Inside your Millennial mindset

Millennials are a values-driven generation that prioritises family, community, and creativity. As digital natives (especially the younger half of the cohort), you’ve grown up alongside rapidly evolving technology and embrace new forms of communication, enjoying how they allow you to connect with the global village. Your generation also values environmentally conscious practices, often opting for eco-friendly products and sustainable living choices.

Millennials invest heavily in human capital, prioritising education and self-improvement more than previous generations. Although many gravitate towards STEM fields — science, technology, engineering, and mathematics — there’s a growing interest in social sciences and applied arts. Millennials are also known for their willingness to take risks in the workplace. Many pursue passion-driven careers, dream jobs, and side gigs while also emphasising a healthy work-life balance.

Travel is another major priority. Millennials tend to explore the world frequently, often choosing experiences over material possessions. Unlike previous generations, they are more likely to rent than buy, finding flexibility and mobility preferable to traditional homeownership.

Millennials and money

Millennials tend to be cautious investors and are often more focused on avoiding losses than chasing gains. After seeing their parents’ or grandparents’ financial struggles, they typically save more than previous generations (some studies show they save around 18% of their income, compared to Baby Boomers’ 11%).

Many Millennials are risk averse, sometimes to their detriment, as they know about economic downturns. This conservative approach can result in missed opportunities for long-term growth through compounding and equity gains. Quick to adjust based on current data, Millennials sometimes make rapid changes that might impact their investments’ long-term potential.

Millennials use social media, financial apps, and online calculators to find investment insights. They prefer digital interactions and can make investment choices with just a few taps on a smartphone. They are known to dedicate time to tracking their investments (some up to seven hours a month) and are faithful to brands that offer seamless tech experiences. Some Millennials are “crypto-curious” or drawn to robo advisers.

Living longer, planning smarter

Humans are living longer than ever before. Already, global life expectancy stands at over 70 years for men and over 75 years for women. And these figures are expected to increase rapidly due to advancements in healthcare, nutrition, and wellness practices.

A recent study suggests the maximum human lifespan could extend to 150 over the next three centuries. This calls for investing more in equity for retirement.

Navigating your financial future with smart tools

Many Millennials find online calculators and tools valuable for guiding their financial decisions. You can find all kinds of calculators online, including:

Retirement calculators: Estimate how much to save monthly for a comfortable retirement.
Goal calculators: Use this tool to determine monthly contributions to achieve specific goals, such as paying for Junior’s varsity education or taking an overseas trip.
Investment selector tools: Like Tinder for investments: match with investment options that align with your risk tolerance and timeline.
Tax-free investment calculators: See how much tax you can save over time by investing in tax-free funds.

These tools are designed to inform and educate but don’t replace professional advice. Consider them a learning resource to help you understand your financial possibilities.

The power of a personal financial guide

While relying on digital tools alone is tempting, it’s worth putting in the time to build a relationship with a trusted financial advisor. Digital tools and robo-advisors lack the personal context essential for complex financial decisions.

A good advisor knows what makes you tick. And they can use their experience to help you ride out market fluctuations and keep your investment strategy on track for the long haul.

By all means, use those apps and calculators for quick insights – but remember that nothing beats the human touch. Investing doesn’t have to be intimidating. Take it one step at a time, leverage the resources available, and consider the balance that best suits your values and goals.

Contact us if you’d like to discuss any aspect of this article. And please feel free to share it with any Millennials in your circle.

Market Update: The Good, Bad and Ugly of Trump’s Return

While initial enthusiasm surrounding Trump’s likely market-friendly economic policies drove the S&P 500 index above 6,000 points for the first time, investors are now carefully weighing the opportunities and risks ahead. South Africa’s JSE All Share Index fell behind, moving sideways during the month.

Treasury pick calms some market nerves

Markets generally welcomed Trump’s selection of hedge fund manager Scott Bessent as Treasury secretary – one of the few moderate Cabinet nominees. He’s expected to have a moderating influence on some of Trump’s more extreme economic policies and is regarded as a “safe pair of hands” by strategists.

Bessent is expected to advocate for:

A softer, more gradual approach to implementing tariffs
Regulatory reform to boost growth
A “3-3-3” strategy aiming for 3% economic growth, a reduction in the US budget deficit to 3% of GDP and increasing oil production by 3 million barrels a day.

The positive reaction to Bessent’s nomination was evident in currency markets, with the dollar index declining 0.8%.

Key policy concerns

Significant uncertainties remain around several aspects of Trump’s economic agenda. All of these have the potential to impact both the global economy and the South African one.

Trump’s tariff plans: Trump’s proposed blanket 20% tariff on imports, possibly climbing to 60% on Chinese goods, remains a major concern. While Bessent supports tariffs as a policy tool, his preference for a “layered” approach may help moderate their inflationary impact.
US government debt challenges: The debt service burden presents a significant hurdle for Trump’s tax cut plans. With annual debt service costs projected to exceed $1 trillion next year (surpassing defence spending) the administration faces tough choices in balancing growth initiatives with fiscal responsibility.
US monetary policy: The relationship between the Trump administration and the Federal Reserve will be closely watched, particularly as the central bank navigates potential inflation pressures from tariffs and fiscal policy.

Implications for SA markets

South African financial markets face both opportunities and challenges in this environment:

Near-term volatility: The SA market has already shown sensitivity to US policy uncertainty, with the JSE All Share Index underperforming the S&P 500’s November gains.
Rate cut trajectory: Despite SA inflation falling to 2.8% in October 2024 (its lowest level since June 2020) the SARB may be cautious about further rate cuts if US policies fuel global inflation pressures.

Investment outlook

Markets are likely entering a period of increased volatility as Trump’s policy agenda takes shape. While Bessent’s appointment as Treasury secretary provides some reassurance, investors should prepare for:

Potential inflation pressures from trade policies
Higher bond yields as markets price in fiscal risks
Currency volatility, particularly in emerging markets
Sector rotation (changes in which sectors of the economy are performing well) as policy priorities become clearer.

Bottom line

South African investors should remain patient and level-headed while Trump beds down his Cabinet and economic policies and the market transitions to a new reality. .

If you have any questions about how all of this affects your investment portfolio, please give us a ring.

The Importance of Income Protection Cover

“Your greatest asset is your earning ability” (Author Brian Tracy)

Two beliefs common to almost all South Africans are the feeling that we are pretty much immune from injury and illness which will prevent us from earning an income, and that our most valuable asset is our home followed by any vehicles.

The belief that nothing can happen to you is a dangerously and frighteningly inappropriate one, especially when you consider that it has been extensively reported that a person’s most valuable asset is their ability to earn an income. The scarcity of jobs in South Africa puts additional pressure on those who are already earning an income.

Life insurance cover is a vitally important discussion that takes place between you and your financial advisor. Equally important is purchasing income protection. But what do you ask your financial advisor during these conversations?

Shocking statistics

Let’s start at the beginning by putting income protection into context. As much as we would like to be like the superheroes in the Marvel movies, we simply are not. We are made of flesh and bone. Injuries and illnesses that alter the whole course of a person’s life can manifest in an instant and indeed they do occur on a daily basis.

This is the reality faced every day on our roads. South Africa does not have an effective public transport system, so travelling in your own transport is a reality for almost all South Africans. This means that they place themselves at high risk and face the devastating statistics when it comes to road accidents. Statistics show that some 65 000 people sustain major injuries on South African roads every year.

The statistics when it comes to critical illness are also frightening. In 2018, just one life insurer paid claims to the value of R4.69 billion to 28,453 individuals and their beneficiaries. Cancer accounted for 27.9% of all claims, cardiovascular disorders 24.3%, respiratory disease 6%, and cerebrovascular disorders (strokes) 5.7% of all claims.

All of these illnesses showed an increased incidence when compared to 2017. Longevity has increased the chances of you surviving these illnesses. However, many people are never the same after surviving cancer or a stroke.

The importance of income protection

Every financial plan or discussion needs to begin with an analysis about how a client’s current and future income stream can be protected from injury, illness or death.

The importance of this is significant. Financial commitments do not stop when you become injured or suffer a critical illness and are unable to work. You will still have to pay your bonds, school fees, vehicle finance and insurance. Neglecting any of these payments could be devastating, especially if your insurance cover lapses as a result.

Another factor that needs to be considered is the sphere of influence (dependency ratio) in South Africa. An income earner may have five or six people who depend on it. This is a frightening reality in South Africa where the unemployment rate is 29%.

From a business owner’s perspective, this responsibility increases exponentially. Not only do you have to look after your dependents, you also have a financial commitment to your staff who need to provide for their families. An injury or critical illness for a business owner has a significant ripple effect on the people around them.

The final point to consider when looking at the importance of income protection is the prevalence of injuries and illnesses. The macabre reality of life is that you only die once, and when that happens, there are no financial commitments to your dependents. Injuries and critical illnesses are common occurrences and you need to provide for yourself and your family during this time. Statistics show that if you experience an injury or critical illness once, your likelihood of experiencing another injury or critical illness increases by 30%.

So what should you be asking your financial advisor when it comes to income protection?

In South Africa, life insurance is sold two or three times more often than income protection. Yet, you are more likely to have repeated injuries or critical illnesses than you are to die. Prioritise a conversation with your advisor around planning for being disabled in addition to planning for death.
The second conversation should be your future insurability. A recent study indicates that clients – particularly Millennials – do not know how much they will earn in the future. They underestimate this figure by as much as 30 to 40%. Your financial advisor can assist you by forecasting your future earning potential and making sure that you cover 100% of your income.
The third conversation should be around waiting periods. Clients should be taking the shortest waiting period possible when it comes to income protection as most South African households cannot afford to suffer a financial loss of even R10,000. Imagine the losses associated with not being able to work and having to go through a long waiting period for your income protection policy to pay out.
Your final discussion should be around the method of payment. A common practice in the industry is that insurers pay disability payments in a lump sum and then expect their clients to plan their finances accordingly. The urge to spend the lump sum at once – whether by choice or by necessity – is a real problem in South Africa. You should be talking to your advisor about an annuitized option when it comes to disability cover.

The departure point of any financial discussion should be the protection of your most valuable asset; your ability to earn an income now and into the future.

6 Winning Strategies That Top Investors and Elite Endurance Athletes Share

“Excellence is my new habit.” (Dirk Stroda)

Athletes know that excelling in endurance sports and building wealth both require more than pure skill. They also demand resilience, patience, and discipline.

Here are six habits that top investors and elite athletes share. Read on to find out how to win your race – be it financial or physical.

1. Dare to dream big

Greatness starts with audacious dreams. Whether you’re aiming for financial freedom or the finish line of an ultramarathon, the bigger the goal, the more room for growth.

Successful wealth builders don’t shy away from ambitious targets. They know that even the most significant financial goals can be achieved with consistent effort over time. The key? Being specific. When you define precisely what you want, it becomes something you can chase relentlessly.

Running hundreds of kilometres may seem daunting, but it shifts from impossible to inevitable with steady discipline. The same goes for building intergenerational wealth: one step at a time is the only way to get closer to your goal

2. Master the art of steady progress

Accumulating wealth, like running the Comrades or completing the Cape Epic, is all about endurance. The finish line isn’t going anywhere, but rushing there often leads to burnout or injury. Successful investors know to trust the process, staying the course even when progress feels slow.

Endurance athletes know this well: pacing is the key to conquering long distances. A strong start is impressive, but the careful, strategic strides carry you to the end. There’s no prize for reaching the halfway point first. As the story of the tortoise and the hare illustrates, the victory only comes when you cross the final finish line.

3. Harness the power of expert guidance

No one wins alone. Successful investors surround themselves with seasoned advisors who’ve seen the markets’ ups and downs. These coaches can filter out the noise, offer strategic insights, and guide them away from risky choices.

Similarly, top athletes have coaches who are motivators and sounding boards. They provide clarity, feedback, and perspective, helping athletes push through doubts and unlock their full potential. A good coach doesn’t just teach you how to win – they teach you how to learn from your mistakes and grow.

4. Leverage cutting-edge tech for success

In a world where tech dominates, winning is as much about brains as it is about brawn. For investors, technology is a powerful ally. From checking your spending against your budget to monitoring portfolio performance and setting goals, smartphones have become invaluable financial assistants. (Tech is great for tracking stuff. But do remember that your financial advisor offers a big-picture human perspective that no app can compete with.)

In the same way, technology has revolutionised training in the athletic world. Athletes can monitor their pace, recovery, and nutrition in real-time. And they can use tech to identify their opponents’ weak spots. But there’s a catch. Too much information can overwhelm. Both investors and athletes must avoid ‘analysis paralysis’ – the temptation to overanalyse every move instead of focusing on the bigger picture.

5. Stay focused on the ultimate goal

The best investors understand that building wealth isn’t just about managing portfolios to balance liquidity, tax strategy, fiduciary duties, and risk. It’s a holistic process that keeps the end goal in sight, even when the details seem overwhelming. This is why it’s important to prioritise your health (mental and physical) and to spend time doing the things that are important to you with the people who matter most.

Likewise, any top athlete knows success isn’t just about running faster or harder. It’s about growing physically, mentally, emotionally, and spiritually. Without balance, performance falters, whether on the track or in the market.

6. Turn setbacks into stepping stones

Both investors and athletes know one universal truth: not everything will go according to plan. The road to success is often paved with failures, setbacks, and unanticipated hurdles. It’s how you respond to those bumps that defines your journey.

In financial planning, strategies may need adjusting when times get tough. The ability to adapt and stay the course separates the winners from the rest. The same holds for athletes: every race and every training session is a learning experience. Mistakes aren’t failures – they’re opportunities to refine, recalibrate, and return stronger.

Adopt an athlete’s mindset

At your next financial review, let’s think like athletes and focus on growing your wealth in the long term. As your financial endurance coaches, we are here to help.

Why the Rand Shouldn’t Be Your Main Reason for Investing Offshore

For many South Africans, the fact that the rand weakens over time against the dollar feels like the biggest reason for investing offshore. When you think that one dollar cost less than R7 in 2011 compared to over R17 today, it seems obvious that having money offshore is imperative.

Over long periods of time, this trend will probably hold. The rand is likely to steadily get weaker. But it’s important to understand why. Primarily, this is due to South Africa having a higher inflation rate and a higher risk premium than developed markets. Significantly, both of these things mean that returns from South African assets should also be higher.

It’s complicated

The past year has been a very good one for South African investments. Local property has gained more than 50%, and both shares and bonds are up more than 20%.

Image source: Visio Fund Managers

Notably, the rand has also been strong. It’s gained around 10% against the dollar in the past 12 months.

This is only a short period, but it’s a reminder that markets never move only in one direction. After many years of South Africa underperforming, local assets have been very strong this year. This further highlights the importance of having a diversified portfolio.

In the long run, these factors and rand weakness actually tend to even themselves out. In dollar terms, the returns you earn in South Africa have actually been better over long periods of time than you could earn just about anywhere else – ours is the third-best performing stock market in the world in dollar terms in the period between 1900 and 2019.

Are you a gambler or an investor?

While the fluctuating rand often seems like the only reason you could ever need to seek refuge in offshore investments, there are far more meaningful reasons to diversify internationally.

Currency movements are notoriously difficult to predict, and the rand is no exception. Over the years, the rand has experienced periods of significant depreciation, only to stabilise or even strengthen later.

For example, the rand weakened sharply during the 2008 global financial crisis and again in 2015 during the “Nenegate” scandal. This alarmed many investors, who sent large sums of cash offshore. In both instances, the currency subsequently regained some strength, resulting in losses for those investors. Relying on these short-term movements as the main reason for investing offshore is speculative and risky, especially for long-term investors.

D is for diversification

The primary reason to invest offshore should be to diversify your portfolio, not to hedge against a weak rand. South Africa represents only a small fraction of the global economy, and offshore investments provide access to a broader range of sectors, industries, and companies that are not well-represented in the South African market.

Global markets, especially in developed economies, offer exposure to industries like technology, healthcare, and renewable energy that may not have the same growth potential locally. Diversifying into these sectors allows you to tap into global trends and reduce the risk of being overexposed to South Africa’s economic cycles.

We all know that South Africa faces many structural challenges, including political instability, slow economic growth, and reliance on commodity exports. Investing in global markets allows you to reduce your exposure to local risks and focus on economies that are more stable and diversified.

For example, the COVID-19 pandemic hit South Africa hard. However, international markets, particularly in the US and Europe, recovered quickly due to massive government stimulus packages and the strength of large multinational companies. Investors with offshore exposure were able to benefit from this global recovery.

The proof is in the pudding

The underlying growth in global equities and bonds – as opposed to the performance of the rand – is what ultimately drives these gains.

This theory is borne out in practice. Historical data shows that globally diversified portfolios tend to outperform South African-only portfolios in risk-adjusted terms over long periods.

The final word

Ultimately, offshore investing should be part of a broader, long-term plan focused on diversification, asset allocation, and risk management. The rand’s movements should not be the primary driver of this decision. Instead, you should look to global markets for access to growth opportunities, protection against local economic risks, and better risk-adjusted returns.

To discuss how best to diversify your investment portfolio, speak to us.

Evolving Wealth Part 1: Gen Z, Trailblazers of the Digital Investment Era

“Life’s tragedy is that we get old too soon and wise too late.” (Benjamin Franklin)

Born between 1997 and 2012, the youngsters of Gen Z are driving change in the investment world at lightning speed. Unlike the rest of us, they’re totally at home in a tech-driven world. For them, managing money via mobile apps and online platforms isn’t just convenient, it’s essential. Forget slow and steady approaches like retirement annuities (RAs) and unit trusts – Gen Z is all about speed, efficiency, and micro-investing.

With nothing more than a smartphone and a 5G connection, they’re fully equipped to navigate global markets, invest spare change, and even participate in crowdfunding bright ideas.

Ethical investors

Gen Z isn’t just looking for profits; they want their money to stand for something. These young investors are at the forefront of the socially responsible investing movement, putting their money where their values are. Sustainability, green energy, and ethical business practices are top priorities, and they’re not afraid to demand change.

By choosing to invest in companies that champion environmental and social causes, Gen Z is pressuring businesses to adopt better practices. Their influence goes beyond financial returns – it’s about reshaping corporate behaviour for a better and more sustainable world.

The gig economy: Gen Z’s secret weapon

Rising living costs and the desire not to be stuck behind a desk all week have seen Gen Z embrace the gig economy with a vengeance. For them, work isn’t confined to a 9-to-5. Instead, they’re Airbnb hosts and freelance providers on Upwork while also holding down a ‘conventional job’ and working digitally from cafes.

This flexibility gives them greater control over their income streams and the freedom to pursue diverse revenue sources. Micro-investing fits perfectly into this world, allowing them to put small sums of money to work for them. It’s an era of adaptability and resourcefulness, where the barriers to entry in investing are lower than ever.

But with freedom comes challenges. While the gig economy offers flexibility, it can send your work-life balance into disarray and erode traditional financial safety nets like employer-sponsored pensions and group benefits. As side gigs become main gigs, it’s essential to weigh the risks of losing core income stability.

Glass half-full

Despite these pressures, Gen Z is relentlessly optimistic about its financial future. They understand that knowledge is power and are fiercely committed to further education, constantly consuming online courses, podcasts, and articles to stay financially savvy. Their hunger for learning (and avocado toast) and their interdisciplinary mindset mean they’re pretty good at adapting to today’s ever-changing financial landscape.

Shadows on the horizon

Of course, no generation is perfect. Gen Z faces some unique challenges on their financial journey, including:

Market volatility: Gen Z is more likely to invest in high-risk assets like cryptocurrencies, which makes them more vulnerable to extreme market swings.
Trusting the machine: While apps simplify investing, relying too much on automation can lead to a superficial understanding of core investment principles.
Social influence: Social media is a double-edged sword. While it offers a wealth of information, it can also lead to herd mentality and impulsive investment decisions.
Wet behind the ears: Being relatively new to the game, Gen Z may need to learn to recognise scams or avoid common pitfalls in volatile markets.
Bigger picture: Particularly in regions like South Africa, where economic instability looms large, local conditions may constrain or impact investment opportunities.

Balancing optimism with caution is crucial. Gen Z must pair their enthusiasm with a good dose of old-fashioned prudence to navigate these challenges.

The bottom line

There’s more to financial planning than just investing. As advisors, we use tech-driven strategies to our advantage. Our value is helping clients weave these modern tools into comprehensive plans that also include risk mitigation and estate planning (no matter how young you are.)

Whether you’re part of Gen Z or just intrigued about how they’re shaking things up, this generation’s innovative spirit is a wake-up call. It’s not just about keeping up with the times – it’s about redefining what wealth means for the future.

Watch this space

Stay tuned for the next article in this series, where we’ll dive into how millennials continue to evolve the financial landscape.

If you’re curious about any of the above, please don’t hesitate to call us. We’re here to help, whatever your age. And please do forward this article to your Gen Z family and friends…

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Physical Address:

73 Kariba St, Lynnwood Glen, Pretoria, 0081

Telephone:

+ 27 12 348 1386

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+ 27 12 348 3706

Email:

[email protected]