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Get off your asset!

in Financial Plan, Investment, Wealth Ecology Leave a comment
Asset classes made simple

You have probably heard investment gurus and investors talk about ‘asset classes’ as if everyone was born knowing what they are. They are really important in determining how ‘risky’ your portfolio is, and what kind of short term and long term returns you can expect – and really it’s not difficult at all. If you learn anything about your investments before abdicating their performance to your advisor, this is it.

The ‘risk’ we are talking about here is more emotional than physical – but obviously the one can lead to the other. ‘Volatility’ is probably a better adjective. In other words how much the investment bounces around the ‘average’ or ‘mean’.
Cash is the least volatile, and only moves when the interest rate moves. It is considered the ‘safest’ investment – but that is more applicable to bank savings accounts (protected by the Banking Act) – than money market unit trusts (governed by the FSB) – as anyone who had exposure to African Bank will be well aware of.
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Holistic or Specialist – which works better for your finances?

in Financial Plan, Investment, Permanent Disability, Wealth Ecology Leave a comment
Magnificent 'slipper orchid', photo taken at the 21st World Orchid Show, Johannesburg 2014

Magnificent slipper orchid, photo taken at the 21st World orchid Show, Johannesburg 2014

Specialist/generalist – which one works for you?

We have all got so used to increasing specialisation in our lives, sometimes we don’t even question when it’s a good idea when it’s not – how about when it comes to your finances? I don’t want my plumber to do the electrical stuff in my house – but I would like my landscape architect and architect to work together, or be the same person. But that’s just me. In the medical field, medical specialists also make sense for specialist conditions – but the first stop is usually your GP.

So how does this translate to financial advisory?

There are some fields in financial advisory where specialisation is an absolute necessity – specifically asset management. Whether that is a stock broker, or the asset manager for a collective investment, you need someone who is keeping their eye on the ball. Yes, you can effectively run your own stock portfolio, but if you want to do any form of ‘hedging’ you are probably going to need collective investments, run by an asset manager. If you decide you want to invest in a ‘fund of funds’ – in other words a collective investment made up of other collective investments – then watch your Total Expense ratio, you will be paying asset manager fees on asset manager fees. It would be cheaper to ‘mimic’ that portfolio by buying up the mix of collective investments in your own investment, and balancing them periodically – your financial advisor can help you with that.

Financial advisors can still be excellent at investment without becoming a specialist, but they will usually only get involved with Collective investments – in other words leave the highest level of asset management to someone else. Not all brokers are comfortable with investments, with good reason. They can be extremely volatile, and clients can get very upset if they lose money, as a result they might be inclined to be too conservative for your long term needs, and use a couple of traditional unit trusts that have served well in the past.

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Love your bank? Make them the executor…

in Estate Planning, Wealth Ecology Leave a comment
Executors fees

An executor on your estate ‘only’ gets 3.99% of the value of the property – hell that’s only fair for a long and difficult job! Right?

Let’s see…

They get 3.99% on ‘property’ and not ‘deemed property’ – that’s usually life policies –unless you have put ‘the estate’ or ‘in terms of my will’ on the policy – then it goes to the estate and becomes ‘property’. So assuming you’ve put real beneficiaries into your life policies, then the executor uses other sources of cash to wind up the estate.

Married in community of property? The entire estate – husband and wife is aggregated into one big fat ‘property’ on death – but you knew that right? What you might not know is that the entire estate is now subject to the ‘executor’s fee! Twice as nice Tuesday! To add insult to injury, when the second spouse dies, they do it all over again – on the full estate!

But 3.99% is chicken feed for an arduous job, so let’s give them a break! Let’s look at an example. Spouse has a R10m property in her name, that’s it – apart from a bit of cash and a car. She leaves it to her hubby (section 4q, no estate duty). On her death, what does the executor have to do? Lodge with the master. Call the accountant to wind up the income tax. Call the conveyancer to transfer the house (the conveyancer does the rest). Close her bank account. Draw up a liquidation and distribution report (from a template – might take an hour). His/her fee? R399 000. Mmmmm…

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If it isn’t simple, they think you’re stupid – Policy structure

in Financial Plan, Risk Assurance, Wealth Ecology Leave a comment

Who are they fooling?

The complexity of Financial advisory never ceases to amaze me. As an Independent Financial Advisor, it is one thing to keep up with all the different unit trusts/collective investments on a daily basis (like most advisors I have several dozen of the 1000 odd available that I watch carefully), but the small print is often exhausting. Regulations keep changing, and just when you thought you had it waxed, a clever tax consultant finds another wrinkle in the amendment (see tomorrow’s blog on retirement fund amendment and estate duty). When it comes to keeping up with all the life products, benefits and bells and whistles the providers keep adding and taking away to their product – if I get confused, how on earth can anyone who isn’t in the industry keep up?
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Wealth Ecology – What is it?

in Financial Plan, Wealth Ecology Leave a comment

Wealth Ecology ™ – What is it?

In this age of increased specialisation in every facet of our lives, something gets lost. As a botanist, specifically a plant physiologist, I always worked with the entire plant system, because a change in one part of the plant, always effected the entire system. In ecology, these interactions are even more complicated, and the balance more difficult to achieve. If even one plant is removed from an ecosystem, it can have a knock-on effect for the entire ecosystem. Insects that use that plant to feed off, die. The birds that feed on those insects die or leave and so on.
If you load your bird table with fruit, seeds, suet in winter (as I am inclined to do) then every bird in the area will come and feast at your table until it’s all gone. Big birds pushing the little ones out of the way, and the bullies ganging up on everyone. Is financial advisory any different? The food is a finite supply – like the money you’re prepared to spend on risk and investment.
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Financial Stress – what keeps you up at night?

in Estate Planning, Financial Plan, Wealth Ecology Leave a comment

Know where you stand – reduce the stress

Seven years on from the credit crunch and the economy still seems to be limping along. It’s the new normal. Jobs that were lost, are probably gone forever, unemployment is dire and the only real growth is coming from SME’s. Yes, there’s opportunity there, but in the meantime family and budgets alike are under pressure. Interest rates are starting to climb again after a long hiatus, and there is every indication that there are plenty more to come – so for anyone with debt that is bad news.
Enough of the misery. Much of the stress created by uncertain finances is fear of the unknown. There is an automatic assumption that if a job is lost, or there is another calamity, the world is going to fall apart, and you are going to be out on the street. Mostly that panic will pass, but it has a nasty habit of interrupting your beauty sleep.
So how can you keep this stress at bay? Here’s a start:
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