November 2018: Market Update

What goes down must come up!

“What goes down usually goes back up, if you are willing to be patient and don’t hit the panic button.” Mark Mobius, Founder Mobius Capital.

Over the past year investment returns have been disappointing! So far this year (up to 27^th November 2018) the markets have generally declined. Here are the returns:

The world is made up of “up” and “down” cycles. Stock markets go up and down, the property market is buoyant and then stagnant. Once all the dust has settled markets will go up again!

Declines in the stock market are quite normal and should not be regarded with fear! We, at Kevin Mills Financial Services, have always made it abundantly clear that markets go up as well as down! From time to time all markets decline! This is quite normal and part of the dynamic of any stock market. The important thing to realise that this is not some cataclysmic event! It is quite, quite normal.

In many ways, a decline in the market is good news. Markets need to take a “breather”. In fact when a market declines it presents great opportunities for fund managers to select shares that are now trading cheaper than a few months ago.

So what should investors do?

Stick to your investment plan. Declines in the stock market are quite normal.
Don’t buy high and sell low. That is irrational and guarantees losses!
Ignore all the noise in the market from people who don’t understand the markets.
You have probably invested with fund managers that are rational, competent, experienced and who have spent an enormous amount of time studying the markets. Trust them!

“The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.” Sir John Templeton.

“One of the funny things about the stock market is that every time one person buys, another sells and both think they are astute.” William Feather, American author.

Guaranteed Annuity or Living Annuity?

Guaranteed Annuity or Living Annuity

At retirement, investors are faced with two options when deciding on purchasing an annuity. Should I purchase a guaranteed annuity or a living annuity?

A guaranteed annuity is underwritten by a life insurance company who guarantee to provide the investor/life assured with a fixed annuity income for the rest of their life.

Guaranteed annuities can be structured so that the annuity increases annually by a fixed amount and investors can stipulate whether to attach an additional life to the policy to continue paying the annuity until the death of the second life. This is usually the case where there is a need to provide an income for a spouse.

With a guaranteed annuity, there is no investment risk attached to the annuity. The life company undertakes to pay the annuity until the life assured’s death. Upon the death of the life assured the company ceases all payments and the investment ends. With a guaranteed annuity, there is no ability to leave a legacy to any beneficiaries.

With a living annuity, the investor purchases an annuity and is then responsible for the level of income they choose as well as how the underlying funds in the investment are invested. Currently, investors are able to choose an income annuity between 2.5% – 17.5% of the capital value per annum. On the anniversary of each year, the investor can reassess their income level and increase or decrease the amount of income they receive.

With a living annuity, the investment risk becomes the investor’s responsibility. Should the investor withdraw a greater amount of income than the investment is generating then the capital value of the investment would decrease. If the annuity was less than the investment returns the investment would increase.

Investors in a living annuity are not constrained as to how the funds are required to be invested and can tailor their investment to best suit their retirement needs and risk profile.

With a living annuity investors are able to nominate a beneficiary and upon their death, the funds are transferred into the beneficiaries name and they can then choose whether to take the proceeds in the form of a lump sum, receive a monthly annuity or take a combination of both.

The advantages of choosing a living annuity are that if the funds are managed properly and a prudent level of income is withdrawn the investor can leave a legacy for future generations. Living annuities are not governed by the Pensions Fund Act which allows investors control over who they nominate and can also be used as an effective estate duty planning tool.

Fund of the Month: Nedgroup Investments Property Fund

The Nedgroup Investments Property Fund is a specialist property fund that provides investors with income generation and capital appreciation over the long term. This fund is suitable for investors who can withstand increased volatility but are looking to maximise their returns over an investment horizon of 7 to 10 years. The Fund has a long term track record and has provided investors with a return of 12% since inception of the Fund.

The South African Property Index is currently down 20% for this year. This presents investors with the opportunity to buy ‘Low’. The expected income return on the Fund for the next year is forecast to be 13.2%.

By incorporating the Nedgroup Investments Property Fund into a tax-free investment, investors can make provision to ensure that when they require the income it is received tax-free! For more information on the Fund, its income yield or to open a tax-free investment please click on the link.

October 2018: Presentation invite and nominating beneficiaries

Invitation to an Investment Presentation

2018 has been a tough year for investments! There has been political upheaval throughout the world and global stock markets have generally declined making important investment decisions very difficult. To try and make sense of the current investment climate join Rod Hunter, Sales Manager of Investec Asset Management as he provides a market update and reviews the key challenges facing South African investors in 2019.

Difference between beneficiary nominations in a Retirement Annuity and a Living Annuity

Retirement Annuities are governed by the Pensions Fund Act. Investors are able to nominate beneficiaries however, the Trustees appointed for the Retirement Annuity Fund consider the individual client’s circumstances and whether or not the client has any dependents. The Trustees then decide as to how the funds should be distributed.

Living Annuities are governed by the Long Term Insurance Act. This means that investors can nominate beneficiaries and on the death of the annuitant the benefit will be paid to the beneficiary. The beneficiary then has the option of choosing how they wish to receive their benefit. This can be in the form of a lump sum or the beneficiary can choose to receive a monthly income or a combination thereof.

Both Retirement Annuities and Living Annuities are exempt from estate duty in terms of section 3(2) of the Estate Duty Act, regardless of whether an annuity or a lump sum was chosen by the beneficiary.

Office Closure

Our offices will be closing on the 14^th December 2018 and reopening on the 7^th January 2019. Should you have any urgent queries/needs during this period you can contact Greg on 0027 61 017 3468.