Your risk profile will determine your investment returns

When undertaking any investment there is always risk involved. Most people only think of risk as losing your money. Although this is certainly a big risk and causes most of the anxiety investors experience there are other risks that can be even more detrimental to the financial well-being of an investor.

When engaging in any investment the Regulators require that the “risk tolerance” of an investor be established as the expectation from the regulator is that an investment shouldn’t be undertaken that falls outside of the investor’s propensity to stomach risk (volatility). But is this approach the right approach and starting point?

When we break risk profiling down to it’s bare essentials we see that it is made up of three very important aspects i.e:

Risk required: the returns an investor require to meet their investment objective over time

Risk capacity: The resources an investor has to fund his future life style

Risk tolerance: The fear/feelings an investor experience when there’s severe volatility in the markets

Now let’s unpack the three elements in more detail to establish whether some of these elements are more important than others.

Risk required

I believe that this element of the overall risk profile is the most important because it will ultimately determine whether an investor will have enough resources available to fund a future life style.

This is simply the incorporation of maths and tax calculations to make sure an investor is “chasing” the right return for the long-term outcome of his /her portfolio to ensure a sustaining income in retirement or to have enough capital to purchase the item saved for.

For this element of the total risk profiling to be done properly the investor must have a clear idea of what he wants his/her future goals to be. This is unfortunately the biggest problem as investors today rarely know what they want from life, let alone how they want to spend their time in retirement or financial freedom.

Once the financial planner has a “picture” of what the investor wants he/she can then proceed with the calculations to determine what return is required over the remaining time frame to when the investor requires this money.

So, if an investor “requires” this specific return isn’t it then a natural consequence to find an investment that will reliably produce this return over the specified period?

This should actually really be that simple in practice but reality often shows that investors don’t understand the intricacies of the market and that volatility is just that, volatility and not really risk (of losing all your capital).

It happens normally at the very worst time in an investment cycle that an investor cannot handle the wild swings of a volatile market and bails out to the perceived safety of a fixed interest investment.

The risk characteristics of an equity unit trust could be depicted as follows:

2. Risk capacity

The amount of resources accumulated at the time of requiring the capital to fund whatever objective or goal you had at the outset. Most people don’t know what the relationship between resources required and the amount of income that could be expected from the resources accumulated.

If someone has only accumulated R2 000 000 at the time of retirement they can not expect to have a monthly income of more than R9 000.00. Most people want at least R15 000 from such capital. They don’t understand that you cannot draw an income that has to increase annually with inflation that starts at more than 5% of the capital available.

Many would argue that if they invested with a banking institution they could get 8% which is R13 333.33 per month but forgetting that this income would not increase over time and that the capital would not have any potential of increasing.

The optimum ratio between income and potential capital growth over time is a fine balancing act that is not as straightforward as calculating what a banking investment would provide at any specific time.

The risk to an investor is that at the time of requiring the capital to provide an income, you cannot instantly fix deficiencies that crept in over time such as wishing you had rather invested in an equity fund in stead of a low risk money market fund.

Risk capacity also has nothing to do with emotions or how the investor “feels” about his/her investment. Risk capacity is totally based on facts.

3. Risk tolerance

This aspect of the total risk profile is totally based on how the investor “feels” about the current state of his/her investment. Their emotions fluctuates with the wild swings of the investment markets. The following chart depicts it well:

The biggest risk (that the investor doesn’t always realise), is the damage they do to their long term financial wellbeing when they bail out from a well structured scientifically constructed investment portfolio at the wrong time, at the despondency phase. This normally happens when the investment is at it’s lowest point in a particular cycle. At the moment they bail out to transfer the money to a fixed interest investment where they “feel” much more comfortable because they can “see” the interest earned every month and this makes them much more comfortable.

They seldom realise that once you abandon the investment it is normally very difficult to re-invest in a growth portfolio again and the mistake investors make is to get back in when they “feel” more comfortable and this is normally after the “relief” stage of the cycle when the market advanced more than 25%.

So, investors sell low and buy high destroying wealth because acting on the risk you can tolerate is totally linked to your emotions.

The risk tolerance leg of total risk profile should in practice be the least important but unfortunately this seldom happens.

Once an investor abandons a well-structured portfolio the chances are great that they would not achieve their long term financial goals. This will only become apparent after time when there is not enough time to rectify the situation.

At the outset I mentioned that investors seldom understand the real risks they are exposed to.

Conclusion:

All three these elements are considered during the financial planning process but Ultima Financial Planners’ philosophy is that the risk required is the most important element to enable the client to have the most chance of achieving his/her goals.

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When it Comes to Investing, Debit Orders are Your Friend

“The beauty of debit orders is that they make investing a habit, not an afterthought.” (Warren Buffett)

We’re all human – which often means being emotional and not consistently disciplined. Debit orders remove the emotion from investing and encourage responsible behaviour. With debit orders in place, you don’t have to choose between contributing towards your retirement or upgrading your Apple watch to include additional features you’re likely not to use.

Once you’ve consulted with us and we’ve agreed to the amounts, you should set up debit orders for various investments, including an RA, an emergency fund, and the much-needed annual holiday fund.

Little and often

Investing the same amount every month helps you stay on track and not be influenced by market cycles. We all know it’s a bad idea to try to time the market. Automating your investing via debit orders minimises the risk of losing capital if the market falls shortly after investing a lumpsum amount.

Setting up debit orders for your investments is not just a smart move, it’s also highly convenient. Once you’ve locked in the debit order, the process operates automatically. This convenience allows you to focus on other aspects of your life, knowing that your investments are being taken care of.

Rand-cost averaging

A further advantage of regular contributions towards your investments is rand-cost averaging. This concept means that when you use debit orders, you buy more units (of shares or unit trusts) when prices are low and fewer when prices are high. When you invest in well-selected investments, they will grow in the long term, so you benefit from a reduced average cost per unit. In simple terms, it’s like buying more when prices are low and less when prices are high – which should lead to better long-term returns.

And then there’s the magic of compound interest

The underlying principle of compound interest is that you earn interest on an ever-increasing amount of capital, as opposed to only earning on the original capital amount. This amounts to growth on growth for Titanic profits. Over the years, modest contributions to well-chosen equity funds can snowball into impressive sums, giving you a reason to be optimistic about your financial future. Little wonder Albert Einstein called compound interest “the eighth wonder of the world.”

Inflation is the real deal

According to Stats SA, the average inflation rate in 2024 was 4.4%, down from 6.0% in 2023. But it certainly doesn’t feel that way when you shop for food and other household essentials. Medical and education inflation rates are also higher than general inflation.

Inflation erodes the purchasing power of your money over time, so it’s important to ensure that your investments keep up with or exceed the inflation rate. This is why it’s so important you participate in your annual review every year so we can adjust your debit orders to keep up with inflation. Auto-escalations are not a substitute for a financial review, as your investment goals may change.

Let’s sum it up

Now that we’ve looked at how debit orders create savings discipline and leverage the benefits of both rand-cost averaging and compound interest, you should have a much higher opinion of these oft-criticised banking instruments.

If you haven’t already done so, please come in for a chat about using debit orders to secure your financial future.

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.

Managing the Psychology of Uncertainty in Investing

“Our greatest motivation in life comes from not knowing the future.” (Thomas Frey)

Investing is an exercise in uncertainty. When you make any investment, you are taking a bet on the future.

This can be a hard thing to do. Markets move up and down, economies shift, and geopolitics can make everything feel unhinged.

At least, that’s how it feels in the moment. At any given time, there’s always something to worry about.

Yet, when we look back, things can seem very different. For example, if you’d been invested in global stock markets over the past 15 years, you would have done incredibly well. From today’s vantage point, it’s easy to say you made a great investment that has gone up in pretty much a straight line.

But, in reality, there were plenty of moments along that journey when things would have felt unbearably uncertain – after all, this period includes a global pandemic, wars in Europe and the Middle East, and five instances where the market fell more than 20%.

Making good decisions

Given how things have turned out, it’s easy to forget now the kind of anxiety those events caused at the time. After all, we now know that none of them permanently disrupted the upward trajectory of the market. As finance writer Morgan Housel points out, we don’t feel that stress, because we know how the story ends.

But for anyone navigating today’s market turbulence, uncertainty is all too real. South African investors have been watching global markets react sharply to every comment from the new American president, and even what he says about South Africa. This is hard to stomach, because we don’t know how things will turn out.

We have to, as Housel puts it, “manage the psychology of uncertainty”. Because, to some extent, all investors have to accept an unknowable future. The best we can do is look at what has happened in the past.

And what the past tells us is that the real challenge for investors is not just making good investment decisions, but managing the emotions that come with them. Those who are able to sit out the difficult times, stay invested, and let compounding work in their favour over time have always reaped the rewards.

Navigating uncertainty

With that in mind, here are some practical strategies to help investors navigate uncertainty without falling into emotional traps.

1. Acknowledge that uncertainty is normal

Market uncertainty isn’t a temporary phase – it’s a permanent feature of investing. There will always be reasons to worry, whether it’s interest rate changes, economic downturns, or political developments. The key is to recognise that uncertainty does not mean doom. Markets have historically rewarded long-term investors who stay the course despite short-term fears.

2. Focus on the long term

Short-term market movements can feel overwhelming, but they are often just background noise in the overall symphony. Looking at a long-term market chart shows a steady upward trend, despite numerous corrections and bear markets. If you’re investing for retirement or wealth accumulation over decades, what happens over the next six months is far less important than your overall strategy.

3. Tune out the daily noise

In an age of instant news and social media, it’s easy to get caught up in every market-moving headline. However, reacting to daily news cycles can lead to poor decision-making. Instead of following every fluctuation, focus on the fundamental reasons you invested in the first place.

A practical step is to limit how often you check your portfolio. The more often you look, the more volatility you will see.

4. Reframe how you think about risk

Markets moving up and down over short periods of time may feel disorienting, but it isn’t risk. The only real risk you face is not meeting your investment goals over time. Remind yourself that downturns are a normal part of market cycles, and of investing. Historically, markets have always rebounded.

5. Seek professional guidance

Investing can be overwhelming, especially during periods of heightened uncertainty. A financial advisor can provide an objective perspective and help you stay aligned with your long-term goals. If you find yourself second-guessing your investments frequently, consulting a professional can give you peace of mind.

The bottom line

Uncertainty is an unavoidable part of investing, but it doesn’t have to be a source of anxiety. By accepting that uncertainty is normal, maintaining a long-term focus, and using disciplined strategies, South African investors can navigate volatile markets with confidence. The key is not to predict the future, but to prepare for it – and to stay the course despite the inevitable ups and downs.

If you have absolutely any questions about your investment portfolio, please give us a call.

8 Things You May Not Know About Capital Gains Tax

“I’ll tax the street, I’ll tax your seat, I’ll tax the heat, I’ll tax your feet.” (Adapted from Taxman by The Beatles)

1. Why do I have to pay CGT in the first place?

Following a worldwide trend, South African authorities introduced CGT in 2001 to broaden the tax base. Before CGT was introduced, salaried employees shouldered the vast majority of the country’s tax burden, a situation that was clearly unfair. CGT also ensures that affluent citizens who buy and sell assets should pay more tax – as it should be in a country like South Africa.

2. How’s CGT different to income tax?

CGT is just one component of your income tax. When you sell an investment, 40% of the profit is added to your income and taxed at your marginal tax rate. CGT applies to shares, unit trusts, property, crypto currency and the sale of privately-owned businesses.

3. Can I avoid paying CGT?

The only surefire way to avoid paying CGT is by investing in retirement funds (RAs, provident funds, pension funds or tax-free savings accounts) as these don’t attract CGT. It’s impossible to avoid CGT by hanging onto an investment because when you die, the law deems your investments sold, and CGT kicks in.

4. But surely there are some exemptions?

Thankfully there are! Some big exemptions include:

R2 million CGT exemption on the sale of your primary residence.
Annual R40,000 exemption applies to all capital gains within a tax year. In other words, you can sell investments with combined profits totalling R40,000, without having to pay CGT.
R1.8 million once-off exemption for individuals over the age of 55 selling small businesses (valued under R10 million).
CGT doesn’t apply to the sale of personal items (cars, art, jewellery, small boats, light aircraft etc.), donations to approved benefit organisations, or proceeds from a life policy.
Non-residents only pay CGT on immovable property in South Africa.

5. What if my home is jointly owned or owned by a trust?

If you sell a home that’s jointly owned, both parties must declare the total gain to SARS. Both the profit and the primary residence exclusion will then be split. Both parties will also be able to utilise their individual annual exclusion of R40 000.

The primary residence exclusion of R2 million doesn’t apply to ordinary trusts but it can apply to special trusts (for example, for a person with a disability).

6. How does CGT apply when you trade for a living?

If you trade in forex, cryptocurrency, shares or property with the intention of making a short-term profit, your profits are seen as income and taxed at your marginal rate (generally higher than CGT).

7. What happens if your investment makes a loss?

If you sell an investment at a loss, you can’t write this off against your income. You can, however, use the loss to reduce how much CGT is payable. This loss can also roll over to subsequent tax years.

8. What happens when I die?

The only way around CGT is to invest in retirement funds because you are deemed to have sold any investments held when you die. After death, there’s a R300 000 exemption on CGT.

A quick disclaimer

All information was correct at the time of writing but some of the finer details may change after the budget speech is (presumably) delivered on 12 March.

The bottom line

While capital gains tax (CGT) can seem very unfair, why not look at it from another angle? At least it means you’re improving your financial situation year-on-year – which is not something many South Africans can say.

Of course, minimising tax is integral to financial planning, but you should never avoid selling an investment because you’re wary of CGT. We’d advise investing in retirement funds, holding other investments for the long term, and always working closely with us.

Market Update | SA and Europe Outpace the US Stock Market

Europe and South Africa have turned the tables on the US stock market, outperforming them in February and year-to-date due to signs of a slowing US economy, trade policy uncertainty and a rotation out of tech stocks. Trump-related investor optimism has dissipated, leaving the US stock market in the red since he took office.

While the STOXX Europe 600 has achieved an impressive 8.82% gain, and South Africa’s JSE All Share Index is nearly 4% ahead year-to-date (despite the budget speech postponement), the S&P 500 has managed to deliver a paltry 2% increase, with the index having lost all post-inauguration gains since Trump took office.

Several key US-specific factors point to why this may be happening:

US business growth slows: Surveys are capturing evidence of near-stagnant business conditions and declining manufacturing orders. Major retailers like Walmart have issued growth warnings, raising concerns about consumer spending.
Trade policy uncertainty: The Trump administration’s proposed tariffs, including a 25% duty on imports such as autos, semiconductors, and pharmaceuticals, have created market uncertainty. The president confirmed tariffs on Canada and Mexico will move forward on schedule in March after a month’s reprieve, contributing to market declines.
Tech sector rotation: Markets have been rotating out of AI and tech stocks, particularly after Chinese technology company DeepSeek rattled investors by introducing cost-effective AI models.
Trump political premium dissipates: After initial enthusiasm following Trump’s inauguration, market sentiment has cooled as implementation realities set in.

Blowing away the budget blues

In South Africa, investors shrugged off the short-term financial market sell-off in response to the unprecedented delay in the government’s annual Budget Speech, after the DA refused to sign off a proposed VAT increase. The All Share Index fell 0.8% on the day, and the rand weakened 0.9% to R18.57 to the dollar. However, analysts interpreted the events as evidence that the GNU coalition is working and markets have since recovered the lost ground, with the All Share Index almost 4% ahead year to date and the rand trading back at R18.47 to the dollar at the time of writing.

SA equities are presenting compelling valuations, which Rezco CEO Simon Sylvester describes as “offering better value than Nenegate, at a better than Ramaphoria opportunity with lower political risk.” The mining sector has rallied on higher precious metal prices, with gold approaching a landmark $3,000, after breaking record after record.

Bottom line

Despite all the global uncertainty and Trump’s disruptive macroeconomic and geopolitical decisions, market analysts generally believe the fundamental case for global equities remains intact. However, the performance divergence between regions may persist in the near term.

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

How to Keep FOMO Out of Your Investment Strategy

“Focussing is about saying no.” (Steve Jobs)

What is the point of investing?

In simple terms, there are only two reasons to invest:

To save for a specific goal like sending a child to university or taking a holiday. These are finite targets with clear time frames.
To achieve financial independence. This means building a pool of wealth that can generate a passive income stream so that you no longer need to work to sustain your lifestyle.

Investors who understand these goals also understand why fear of missing out (FOMO) gets in the way of a good investment strategy. In both cases, what matters is achieving consistent growth over time, not quick wins.

The problem with FOMO is that it encourages exactly the opposite – chasing trends and new ideas in the hope of a short-term windfall.

Where FOMO comes from

FOMO is rooted in the human impulse to compare ourselves to others. When we see friends or family making quick profits, we want a slice of the action. This can lead to impulsive decisions such as:

Chasing hot stocks or trends. The trouble with this is that investors can easily buy into assets that have already experienced significant gains. Often this leads to buying at inflated prices.
Abandoning long-term strategies. When investors see short-term opportunities, they may abandon their well-thought-out plans in pursuit of quick wins – which can derail their financial progress.
Taking on unnecessary risks. FOMO can push investors to take on higher risks without fully understanding the potential downsides.

The illusion of big gains

One of the most misleading aspects of FOMO is that those talking up an idea rarely share the full picture of their investments. They may boast about being invested in a particular stock that doubled in value, but forget to mention how much of their portfolio was actually invested in it.

For example, your buddy might claim they made a 100% return on a hot investment – but if that investment only made up 2% of their overall portfolio, the impact on their total wealth is minimal. This selective storytelling can give others a distorted view of the potential returns and risks involved.

This highlights the importance of diversification and managing risk. It’s crucial to remember that successful investing isn’t about finding one magical investment, but rather building a balanced portfolio that grows steadily over time.

How to keep the FOMO at bay

To keep FOMO out of your investment strategy, consider these practical steps:

Know your plan. The best way to avoid FOMO is to have a clear investment plan. This includes setting realistic goals, understanding how much risk you are willing to take on, and choosing an asset allocation that suits your needs.
Automate your investments. An effective way to remove emotions from investing is to automate your contributions through a regular savings plan (usually by setting up debit orders). Investing a fixed amount at regular intervals, regardless of market conditions, reduces the risk of making impulsive decisions.
Diversify. Diversification is a proven way to manage risk. By spreading your investments across different asset classes, sectors, and geographies, you reduce the impact of relying on any single asset’s good performance – or suffering from its poor performance.
Tune out the noise. Financial news and social media are major sources of FOMO. Limiting your exposure to these can help you avoid the temptation to react to every market move. The media loves to tell us how much the JSE or the gold price went up or down every day, but in reality this is meaningless information. What matters to an investor is long-term growth, not short-term volatility.

Understanding risk and reward

The source of FOMO is always seeing or hearing some recent success story. It’s human nature to want to participate in something that’s going well.

But the reality is that it’s almost impossible to rescue a failing investment plan with a high-stakes gamble. What definitely does work, however, is being an investor who sticks to a well-constructed financial plan for achieving financial independence steadily and sustainably.

To discuss your investment portfolio, speak to us.

Navigating Inheritance Conversations: Turning Tough Talks into Lasting Legacies

“A life of luxury sounds nice, but generational wealth sounds better.” (Unknown)

As the old adage goes: “The first generation creates wealth, the second generation preserves wealth, and the third generation squanders it!” Our goal is to prevent this.

If you’re fortunate enough to have created generational wealth, it’s extremely important that your heirs know about your hopes for the future use of your wealth. The conversation doesn’t need to feel as if you’re walking on eggshells. In fact, these chats can actually be fantastic opportunities to strengthen family connections, protect your money value system, honour the creation of wealth and pave the way forward for your family’s future financial security.

The very basics

Your heirs must know where you’ve filed your Last Will and Testament, Power of Attorney, and Living Will. (Your doctor should also have the latter on file.) Deceased estates can take a long time to finalise, so make a plan for your family to have access to funds in the interim – life policies, family trusts, and separate bank accounts are common recommendations.

Essential elements of a winning family constitution

Turning tough talks into lasting legacies doesn’t have to involve developing a family constitution. You could choose to have ongoing family meetings without any documentation. The principles could be included in your letter of wishes. But family constitutions can help to formalise your hopes regarding the wealth you have created.

If you decide to document your wishes, a family constitution should ideally outline the principles, roles, and guidelines for managing and passing down family assets. It’s all about providing a harmonious script to avoid the breakdown of family relationships.

Some of the recommended elements include:

The history of your career, which will assist in celebrating your hard work (and explaining how you built your estate).
A mission statement. Core values could include prudent spending, encouraging continued education, and gifting rules.
Measurable goals can be set for wealth preservation.
Give roles and responsibilities of each heir, making sure that they align with their respective skillsets.
Manners of empowering the next generation.
Family council rules to assist in making decisions regarding joint assets such as a holiday house.

Mastering the journey ahead

Developing a family constitution (or even just discussing your legacy plan) often starts with a group meeting with your advisor and a facilitator, a professional who is skilled in managing group dynamics and ensuring everyone’s voice is heard. The facilitator helps to smooth the way ahead and ensures that the conversation is productive. You may wish to share your Last Will and Testament at this meeting. The conversation should open the door for everyone and preferably be held in a ‘safe place’, such as a home rather than a boardroom.

After signing a confidentiality agreement, the facilitator could host individual meetings with heirs. Heirs may wish to express concerns about their inheritance confidentially, which they prefer not to share with the whole family. The facilitator could then draft a report to be shared with the wealth founder.

All the conversations should preferably balance the heart and the head and acknowledge emotions with empathy.

The early bird catches the worm

Remember to start the process early so that the constitution can be changed annually according to changes in circumstances. These may include revised priorities, the voices of additional heirs, changes in wealth, businesses, or family dynamics. Early planning is key to staying ahead and being prepared for any changes.

Involvement is the magic ingredient

The process works very well if it reflects everyone’s voice. Working together collaboratively ensures the document is respected and relevant, fostering a sense of unity and shared purpose within the family.

From tough talks to family triumphs

As your financial advisors, we can start the process and consult with the facilitator. We can also broach the topic with your heirs if you prefer not to be the first to bring it up.

Remember: when families steer the ship together, they strengthen the ties that bind and create legacies worth celebrating.

Contact us if you want us to assist you and your family in preserving generational wealth.

Evolving Wealth Part 4: Boomer Bucks, Key Financial Strategies for Your Golden Years

“A big lesson in life is never to be scared of anyone or anything”. (Frank Sinatra)

If you were born between 1946 and 1964, you are part of the Baby Boomer generation. This generation is known to be flexible and robust, having lived through many bulls and bears over the decades.

Whether you’re contemplating retirement or already ticking off your bucket list, here’s what you need to know about managing your money to make the most of life.

Same same, but different

As mentioned in our previous Evolving Wealth articles, it’s not safe to generalise about an entire generation. Baby Boomers are often split into two different groups with some shared traits:

The wise generation (aged 72–79)
This colourful group grew up during transformative times. They lived through the Space race, the hippy generation and the onset of apartheid. They are celebrated for their aspirationalism, uniqueness, and adventurous spirit.
The vibrant boomers (aged 59–71)
This subgroup experienced the fallout from the Vietnam war and the impact of sanctions and divestment as local and international opposition to apartheid grew. As a result, this younger generation of Boomers tends to be more questioning and realistic.

Despite these variations, the wise and vibrant boomers share some main characteristics, including:
- A dedicated and disciplined approach to their work. They are also goal-oriented and competitive.
- They like to invest in property, as it’s an asset class they understand. They tend to be risk-averse and often favour unit trusts. Boomers are more likely than other generations to use professional advice for their retirement planning.
- They appreciate travel and rich family experiences.
- Although they may be slower learners, they are unexpectedly tech-savvy and dedicate themselves to continued online learning.
- Regarding value systems, they’re loyal, respect authority and have a strong sense of civic duty and community involvement.

Navigating retirement in a world of rising healthcare costs

Retirement can stretch for decades these days, making planning beyond traditional company pensions essential. We highly recommend that Baby Boomers continue to work for as long as possible to accommodate rising healthcare costs and general living costs.

Mastering money moves for a prosperous future

Here are some other savvy moves for Baby Boomers to make:

Don’t skip estate planning
Baby Boomers often consider themselves invincible, but realistically, having all your affairs in order becomes more important the older you get. This includes maintaining a valid will (Last Will and Testament), general and bank powers of attorney and a Living Will. Also remember to check all the beneficiaries on your life policies.
Consider downsizing
Downsizing is challenging, as you may need to let go of many items that bring back happy memories. But once you’ve gone through the process, and simplified your life, you’ll feel a massive weight lifting from your shoulders.
Life or Living Annuity?
Deciding between a living annuity and a guaranteed annuity can be daunting. Each option has its pros and cons, so consult a professional to determine what’s right for you.

The bottom line: It’s your time to shine

You’ve spent your life working hard and thinking out of the box, and retirement should be no different. With careful planning, the years ahead can be some of your most rewarding. Ready to take charge? Please get in touch with us if you’re a Baby Boomer and want to discuss any of the above.

Tax Tip: Get Your Top-Ups in Now

RAs: The big one

Retirement Annuities (RAs) offer significant tax breaks as contributions to the investments are tax-deductible, and the growth within the funds is tax-free.

You can contribute a maximum of 27.5% of your taxable income to retirement funding each year, up to a maximum of R350,000.

The other bonus is that Regulation 28 now allows more funds to be invested offshore, which assists in geographical diversification and lowers the risk inherent in your RA.

TFSAs: Another important break

Tax-Free Savings Accounts (TFSAs) offer another tax break. You can contribute R36,000 annually with a lifetime limit of R500,000. The contributions are not tax-deductible but similar to RAs, the growth within the fund is tax-free.

The funds within TFSAs are not governed by Regulation 28, and the total amount can be allocated offshore.

The time is now

Please don’t wait until the end of the month to arrange your top-ups! There’s a bit of admin involved on our side, and we don’t want you to miss out.

If you have any questions about tax efficiency, please drop us a line.

Market Update: Trump 2.0 – A Bumpy Ride so Far

January has been a volatile month for global and SA equities. Stock markets experienced a “Trump bump” after his inauguration on January 20, driven by expectations of market-friendly policies. However, equities retreated to end the month with modest gains as investors weighed tariff uncertainties, shifting interest rate expectations, and growing concerns about the sustainability of the technology sector’s remarkable run.

So, what can investors expect?

Tariffs: The wild card

While none of the 20 executive orders signed on Inauguration Day addressed trade tariffs, they remain a potent tool in Trump’s arsenal, with potentially far-reaching implications for the global economy and financial markets.

UBS Global Wealth Management’s base case scenario envisions China’s effective tariff rate rising from 11% to 30%, alongside measures to protect technological interests and new tariffs on European automobiles. The administration’s threats of 25% tariffs on Canada and Mexico are primarily viewed as negotiating tactics in an “escalate to de-escalate” strategy.

Under this scenario, UBS projects the 10-year Treasury yield would decline to 4.0%, while US and Asia ex-Japan equities could rally approximately 10%. However, a more aggressive tariff policy could trigger severe market reactions, potentially pushing the 10-year Treasury yield to 5.0% and causing US equities to decline by 15%, with European and emerging market stocks falling by as much as 20%.

Interest rates: A delicate balance

Strong US economic indicators and the potential inflationary impact of tariffs are likely to result in fewer Federal Reserve interest rate cuts than initially anticipated. Current market pricing suggests only two 25-basis-point reductions this year. As US rates traditionally set the global benchmark for fixed-interest investments, these decisions will influence central banks worldwide, including the SA Reserve Bank. While Trump has signalled his intent to pressure the Fed for rate cuts, he will struggle to do so given the central bank’s legal independence.

Technology sector: New competitive threats

The vulnerability of the US technology sector’s market dominance was highlighted in the last days of January when Chinese AI company DeepSeek emerged as a serious competitor, triggering the Nasdaq’s most significant single-day decline since September 2022.

Investor concerns about the sustainability of the AI-tech rally have been gaining ground despite the Magnificent 7s impressive 63% share price performance in 2024 after surging 75% in 2023. Questions persist about how these companies will turn their massive AI investments into concrete profits.

DeepSeek’s recent success in capturing US market share is particularly notable given that it spent just $5.6 million on its base model and has achieved overwhelmingly positive Silicon Valley reviews. This despite using less sophisticated technology due to US restrictions on China’s access to advanced semiconductor chips.

The bottom line: A bumpy road ahead

Though many of Trump’s economic policies are seen to be market-friendly, the first month of the year has shown that it is going to be more complicated than that. Investors would be wise to maintain diversified portfolios that can withstand potential geopolitical developments, particularly in US-China relations and their impact on global trade and technology leadership.

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

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.

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.

Contact Ultima

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73 Kariba St, Lynnwood Glen, Pretoria, 0081

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+ 27 12 348 1386

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+ 27 12 348 3706

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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]