Coronavirus – Co-Vid19

Coronavirus and the implications for investors

Could anyone imagine at the start of the year that Italy would quarantine their entire country, that most schools, colleges and universities in Europe would be shut down or that America would cancel all travel between Europe and itself? The Coronavirus certainly has created a mass panic around the spread of the virus with the World Health Organisation yesterday labelling the virus a global pandemic.

All of this uncertainty around the spread of the virus has led to a large sell-off of global and local markets over the past week. In the attached document, Investec’s Jeremy Gardiner provides us with his view on the virus, the market and why investors should not make any irrational spur of the moment decisions.

Andrew Lapping, Chief Investment Officer of Allan Gray also provides commentary on how they perceive the current market conditions and the effect that the Coronavirus is having on their investment portfolios. Making sense of current market decisions

Since the start of this week, markets have declined very significantly. This is not unusual for markets.

Markets cannot go up forever!

However, as pointed out by both Jeremy and Andrew in their respective articles it is at times like these that opportunities present themselves for investors to purchase shares at attractive levels and reap the rewards when normality returns to the market.

Kevin has previously written about his concerns regarding the price of the stock market and as such he has been moving client funds into income-generating investments with very little to no exposure to the stock market. Investors in these income portfolios can rest assured that their income and investments have not been affected by the recent sell-off in local shares.

For investors invested in balanced funds the opportunity to acquire meaningful stakes in businesses at a 20, 30 or 40% discount offers the potential for long-term capital appreciation and wealth creation! Whilst markets corrections are never an easy investment period for investors to sit through, the recovery of the markets very often leads to significant outperformance for those investors who remained focused and committed to their investment strategies.

“A smooth sea never made a skilled sailor” Franklin Roosevelt

December 2018: Minimising your taxable income

Retirement annuities and Tax-free investments

With the end of the financial tax year, fast approaching investors are reminded of the opportunity to minimise their tax liability by contributing into a retirement annuity. The South African Revenue Service (SARS) has put in place tax incentives to help encourage South Africans to save more for their retirement.

Investors are able to claim a deduction against their taxable income of up to 27.5% of the greater of their taxable income or remuneration capped at R350, 000 per tax year. Retirement annuities do have certain restrictions, and funds cannot be accessed before the investor turns 55. However, retirement annuities also offer protection against creditors and fall outside of investors estates. Any over contributions to a retirement annuity are automatically rolled over to the following tax year.

Tax-free investments are another way for investors to maximise their tax benefits. All tax-free investments are completely free of tax. That means individuals pay no capital gains tax, no income tax and no dividends withholding tax. Current legislation limits annual contributions to R33, 000 per annum with a lifetime allowance of R500, 000. Any over contributions into a tax-free investment are taxed at 40%.

With both, retirement annuities and tax-free investments, investors can invest in unit trusts that best align their investment needs with their future financial goals. Investors can choose between being invested into equities, property, fixed income, money market instruments or a combination of the above.

For more information or to find out how to invest into a retirement annuity or tax-free investment please click on the link. Start saving today

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.