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Why your retirement dreams are crashing around you

A perfect storm that can leave an investor under-funded for life.
The ten years of rule under the Zuma-led ANC has done more damage to the economy than most people are aware of, writes Magnus Heystek. Picture: Supplied

On paper, all retirement planning is perfect. You punch in a couple of numbers into a computer, make some assumptions on contributions, time period and growth on your investments and voila!, the answer comes back in an instant: you are on track or if you are not, the computer programme will tell you how to fix it by making additional investments or working longer.

All retirement planning programmes that I have ever done or seen, assumes an inflation-beating rate of return, depending on how bullish you might have felt about the future performance of your particular investment strategy. Most assume inflation plus 3, 4 or 5% in making these calculations.

Many of these assumptions are also backward-looking. We extrapolate what happened in the past and assume these performances will repeat in the future. But what happens when these projections turn out to be incorrect? Even worse, when a great number of investors do not even realize this is happening?

Until about 2015 the returns of traditional investments such as pension funds, RAs and other types of non-discretionary investment did, on the whole, offer these kinds of returns.

Something changed in 2015, particularly towards the end of it, at a time when former President Jacob Zuma fired his finance minister Nhlanhla Nene.

This particular event and what followed over those four dramatic days in December 2015 when Pravin Gordhan was re-appointed as finance minister, seems to have been the catalyst for the start of a severe  and substantial underperformance of the JSE, not only against global markets, but also against its peers in the emerging market space.

Big capital, local and foreign, didn’t take kindly to this open and brazen take over attempt on SA’s finance department, and hence the National Treasury and possibly at a later stage the South African Reserve Bank. The outflow of capital from the SA market has been very significant.

Now, if your money is in a discretionary portfolio, there is a lot you or your advisor can do (or should have done) by either switching to asset swap funds or making use of your offshore investment allowance and investing it offshore.

Even if you invested your money on the worst day for the currency in December 2015, your subsequent performance in either a global or preferably the S&P index since then still has been better than had you left it behind in the JSE. Over five, seven and even ten years it’s been a no-brainer where your money should have been invested.

The poor performance of equities on the JSE since 2015, together with restrictions imposed on pension funds by Regulation 28, has further combined to produce below inflation returns over one, three years and possibly over five years should this trend should continue.

If you don’t believe me, get a statement on your pension, or preservation fund. Prepare to be shocked. Reg 28, as it’s known in the industry, determines how much of your money can be invested in the major asset classes. Not more than 25% of can be invested in property (the best asset class over 15 years), or in offshore equities (the best asset class over 10, 7, 5, 3 and 1 years).

In many other parts of the world, members of a pension fund are allowed the freedom to invest in any asset class in any part of the world. It’s their money and they can take the risk. But why is it not the same here in SA?

We are still clinging to the patriarchal notion that a regulator somehow knows what is good for investors, even if it impoverishes them over time. That is the real elephant in the retirement room, not a fixation on fees and the role of advisors as some players in the industry would like us to believe.

The latest three-year figures from the Association for Savings and Investment SA show how poorly retirement funds are doing. Over three years (to end June 2018) the CPI index is up by 16.3%. Cumulative average growth for high equity multi-asset funds came to 12.8%, for medium equity funds 13.4% while low equity funds fared best with cumulative growth of 17.6%. When costs are deducted from these numbers, all three categories of retirement funds are under water compared to inflation.

In other countries this type of underperformance reaches the font pages of newspapers and is debated in parliament. Back at home however, not a word is uttered, partly due to the cozy arrangement between the asset management industry and Treasury. The asset management industry gets handsome tax relief on contributions to RAs and pension funds. In exchange, it acts as part of the revenue collection industry on behalf of Sars and also plays an important role in maintaining exchange control.

Those in SA who have money invested in a non-discretionary portfolio are paying the price for this current confluence of factors. An increasing number of high net-worth investors are cashing out their pensions/preservation funds, opting to pay the steep taxes now, rather than risking their retirement capital in underperforming funds. Most of the money extracted this way finds its way to offshore markets. Maybe that’s why the pensions industry is so quiet about this issue.

Property speculators paying the price

The other leg to your retirement planning, which is now much shorter than it should be, is exposure to the residential property market. This is particularly true if you bought one or more residential property many years ago to serve as a source of income for your retirement.

The residential property market has been the place where dreams come to die for investors in most parts in the country for some time now, with the Western Cape the only exception. Latest reports, however, seem to indicate that the handbrake is about to be pulled up there very quickly.

Average property prices today are about 22% lower in real terms than they were in 2008. You might be somewhat better off if you bought after the crash in say 2010 or 2011, but even these properties haven’t beaten the inflation rate over the last five years. Its taking longer and longer to sell your house – on average more than 4 months now – while upmarket homes over R4 million can remain on the market for longer.

Ten years ago the average house in SA was worth about 80% of the average house in the USA. Now you can only afford one room at best, or about 35% of the average house in the USA.*

Rentals too, from personal experience, which is backed up by the research done by Tenant Profile Network, shows that (a) rentals are escalating by between 2 and 3% per annum, on average, while (b) only 82% of all tenants pay their rent on time. In certain parts of the country rentals are actually declining in nominal terms. The economists and analysts have a nice way to describe such a state of affairs, namely “negative equity”. When your bond is worth more than the property.

Maintenance, rates and taxes – on the other hand – are rising by between 10-12% per annum, as per the latest FNB Property barometer.

How to get out of this mess

What to do? First, I think investors should put aside a good two to three hours aside for a long and honest discussion with a financial advisor, if you have one. 

See where in your overall portfolio you can somehow increase your exposure to foreign assets, either within the permissible rules of the fund, or to get money offshore directly with some available cash.

The ten years of rule under the Zuma-led ANC has done more damage to the economy than most people are aware of. More of this in a next column. It is going to take up to ten years for this damage to be repaired, and only if government start with radical new economic ideas to boost economic growth.

Ever since the beginning of the year, the choir of “captured economists” has been spinning a good news story with growth rates forecast between 2 and 3% for 2018 and even better next year. Goldman Sachs, whose SA chairman happens to be Trevor Manuel, tried hard to portray SA as its “emerging market pick of the year”. Good luck with that one, as the market is down 6% for the year, growth rates have plunged by -2.2% in the first quarter, the rand is weaker by 18% and according to Mike Schussler, the economy could be in recession already. How do forecasters get it so wrong?

The Zuma years have done incredible damage to retirement planning. Your greatest danger is doing nothing on the advice of institutional funds managers/economist who are paid to placate the investing populace.

In Roman times they had circuses to keep the masses quiet. What do we have now that World Cup Soccer is over?

*Based on calculations using the Case Schiller Housing index.

**Magnus Heystek is investment strategist at Brenthurst Wealth.

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Shock horror, another o so negative, self serving article by Magnus. Investment strategist indeed. On the point of RA’s, why are your adviser network actively selling RA’s? Yes, reg 28 sucks but you get a tax deduction contributing to a RA/pens/Prov. It can take you out of the net of being a provisional tax payer, the funds are protected against creditors, you can have up to 30% direct offshore exposure. If you are so in tune with the markets why did you not warn the investors about Steinhoff, Resilient etc. See Markus Jooste much at Val de Vie much? The US market has outperformed most if not all the other markets. I recall reading an article recently that said the Rand performed much better against the Dollar than most other emerging market currencies in the last year. Thanks again for a super inspiring and uplifting article on a Monday.

The numbers are factually correct. Why are you shooting the messenger?

Magnus is spot on. The article you read that indicated the Rand as performing better than most EM currencies was probably written by Tom Moyane

Dear Gemini- judging from your inane comments and name it seems your twin got all the brains.

Even if overseas markets collapse this should a wake-up call to the government who seem to be intent on destroying the middle class who are trying to build a financially independent future and not rely on government handouts.

Check out Vanguard retirement funds in the USA, they deliver 7% in USD and outperform the JSE in any period you care to name going back 15 Years.

No regulation 28, they just ask you to pick a fund that takes into account your planned retirement date.

As a non-resident alien investing directly in the USA, your dividend tax on US equities ranges from 20 – 30%, and your death tax on assets > $ 60 000 (less than ZAR 800 000) is 40%.

@ TTR: One cannot wake up a dead brain.

Yes, you do get a tax deduction for RA and Pension contributions . Just remember that once the pension / RA is converted into an annuity, living or otherwise you will be taxed on the proceeds after taking your lump sum benefit.

Moral of the story – do not invest in a RA simply for the the tax benefit like most people do egged on by AG, Sanlam, Lib Life et al at the end of the financial year. Invest for the return if you can find it – and why @ only 30% foreign exposure when you can get 100% in a living annuity. That is why at age 55 you should cease investing in Pension products and invest directly in the market.

As far as asset managers are concerned, most are are bunch of idiots. Consider John Biccard, fund manager of Investec Value Fund – read this article https://www.biznews.com/thought-leaders/2016/02/08/top-financial-advisor-tells-clients-put-15-into-john-biccards-unit-trust/ to see just how wrong he was. If you had followed this manager’s advice you would have lost big time – so yes Magnus is mostly able to give far better advice than most “knowledgeable asset managers”. heck, the so called asset managers did not even see Steinhoff coming (or is it going?)

You do need an independent financial adviser and a good tax adviser as well plus you need to know the difference between good and bad advice.

white Saffies will stop at nothing until this country has collapsed so they can say…we told you so!

The politicaland racial debates are on a different site ……

Ouch Lulu – That’s so hurtful 🙂 Well done on typing a complete sentence. Please let me know which statement you disagree with? Anyway, Magnus would love you as a client. Look where the Rand is trading today. Anybody not using the tax deductions for a RA/Pens/Prov is stupid. Use discretionary money and invest offshore. Cut out the middle man and active managers and get 100% of your offshore dividend paid out – Reinvest and repeat… I invest directly in offshore tracker funds – I pay NO platform fees and NO ongoing advice fees. But most people are just to lazy to do it themselves. They would rather pay someone for sub standard and biased advice. I’m busy with my taxes now – Of course I have to convert the US Dollar dividends to Rands and pay the 5% additional div tax to SARS but I still earn dividends in hard currency. Having said that I still love SA and its people. There is no reason to be negative all the time and drag down people with you.

Struggling to see the benefits in your logic. RA tax benefits ….. how beneficial are these, really? You merely delay paying till later. In a politically and economically unstable environment. Is it wise to tie your money down in such “investments”? Where fees are generally orrendously high? 30% offshore is too low. No one saw Steinhoff, Resilient coming – our major pension/RA schemes were caught. No, my friend, in the long term, both future and past, if you not mostly offshore you screwed. And don’t wait too long, at this rate forex controls will be reintroduced.

Hi Sporting. If you are employed in a Co you have to belong to the pension fund/Provident fund. So that’s a given. If you are self employed you have the option to contribute to an RA or not. I use the RA option to reduce my taxable income and thus I fall outside the provisional tax net (I earn offshore interest and dividends and it is still taxable in SA). So I contribute enough to my RA to keep my admin and tax liability to the minimum. Even if my return in the RA is say 5% I saved 45% in tax and there is tax liability in the fund (no CGT no tax on interest and rental income and no dividends tax). If they choose emigrate you can take the lump sum with you (withdrawal tax tables will apply and its subject to forex but I have yet to see SARB blocking this). The max tax on the withdrawal is 36% after 1 mil. So if my deduction is say 40% its still a 4% return. I use low cost tracking funds so my return is 2 or 3% above most of the “active” managers. I don’t think the 30% is too bad although I think it should be 70% :-). I’m not saying its better than a direct offshore investment but it has its place and I like the tax deduction and offshore exposure (even though its small). If you have your own business the proceeds are also protected against creditors. I have no problem investing directly offshore but I think its extremely dangerous to advise people not to invest in retirement funds or to withdraw money for preservers (also no tax in the fund and protected against creditors). Any portfolio must have a mixed of investments. RA + Tax free saving account + discretionary portfolio (local and offshore). The mix will depend on the clients risk profile and debt exposure.

Hindsight is a perfect science! I struggle to understand how someone who has been in this industry for so long honestly thinks he knows more than qualified asset managers. Statements/articles like this cause so much harm to the average man in the street and I really think that Moneyweb should show more responsibility before publishing such self serving nonsense.

No one can time the markets and it is only time on the market that will deliver.

You too are shooting the messenger.

Not at all, this article will not help the man in the street, it will only encourage a knee jerk reaction which will be detrimental to long term returns. Our job as advisers is to assist clients make smart long term decisions, this kind of article does the opposite.

Spot on Magnus. The only problem is that taking your money offshore won’t help either as the global economy itself is on the brink of collapse, a collapse which this time, destroy the global financial system.

Chinese proverb “he who buries his head in the sand thinks with his asshole”

I guess he who resorts to insults has a serious chip on his shoulder.

That was not an insult, neither was it meant to be, but if you like the jacket, wear it.

Comment “…thinks he knows more than qualified asset managers”

I’m happy that the “Jesus” voice of Liberty Life in the morning drive to work or the voice of the “Headmaster” in the Sanlam wealth-smith advert in the afternoon drive back puts a smile on your face or that of legislation in your RA

Your hubris and naivety to think asset managers are more than FA’s is folly

Asset managers are driven by greed first and “joe average” investor comes after that. Need you be reminded of Alexander Forbes mid 2000 or Investec under hand activities in the prior and same period

Magnus is giving alt advice….which may or not benefit but is worth peering into

You clearly know very little about the industry Tim Rice, not all are driven by greed. Do some research to enlighten yourself.

A person can be a “Qualified asset manager” at the age of 22! Give me rather the person who has been in the industry for “so long”.If moneyweb only published articles that were not self serving, we will have nothing to read! Magnus article is under the opinion section, as in it is his opinion.

Tell the “time in the market” myth to the Japanese investor who bought the Nikkei in 1989.
If you overpay, i.e. buy at the wrong time, you will suffer for a long time.

Yes, but one is generally not doing a lumpsum with retirement savings buildup, it’s month to month. How is the Nikkei investor doing that started in 1989?

If you had put in money in the Nikkei on 6 March 2009, it would now be up 214%. Not the best, but not the worst either.

How is ‘time in the market’ a myth? It is proven investment rule. You take the exception (e.g. Japan) and make it the rule.

Yep Dirkg, qualified asset managers like:

Nedbank ( Managed Fund disaster over +- 7 years ) mind boggling dereliction of duty and their head honchos sat on their hands doing sfa.

Coronation 2.6% Steinhoff in their Balanced Fund aimed at future retirees. 3 managers with 8 “qualifications” between them. 1 Bcom Hons, 2 Bus Science Finance, 2 CA(SA)s-vomit, 3 CFAs.

How many times does one have to tell these “qualified” asset managers that it is not only portfolio construction via asset allocation that matters (CFA). It is also, if not overwhelmingly, about the QUALITY of the assets in that portfolio.

And so it goes on.

pacaratac, so you saw Steinhoff coming? You are a genius!!! Look at Coro’s long term return and tell me they are not good at what they do. If you took time to educate yourself you would know that 94% of returns come from Assrt Allocation over time. If you want short term returns buy Bitcoin.

No Dirk I did not.

3 points:

1)I know from personal contacts that the furniture industry ( big part of Steinhoff) is a dog eat dog street fighter business. Just how did Coronation and other so-called asset managers not know this and factor this into their asset allocations even after they had misgivings.

2)I paid significant sums of money to a variety of asset managers to see this foul-up. Given 1) above there is no way I would have invested in Steinhoff. But hey, all these “qualified” asset managers did.

3) I have been in the “time” investing business since early 1969. Long enough “time”. Sorta think I may well be “educated” in “time” investing.

Have a nice day.

I would be surprised if you are a fraction of the investors that RECM and Coronation are. Both Coronation and RECM have proven themselves over many, many years and market cycles. In the case of RECM you judge them at their worst and if you were judged on your worst behaviour you won’t look very good either, like everyone else. You claim Coronation did not see quality and site Steinhoff but if you did you would have been short Steinhoff and profited handsomely, but did you? Coronation get a lot more right than wrong so why don’t you look for stuff they got right because there’s a lot to find. RECM is a manager with strong convictions and they poorly during a period where many top-notch value manager underperformed. Your comments are naïve an lack perspective and with those characteristics I would not be surprised if you are struggling with your investments. It is too easy for people to criticise local fund managers but I have researched fund managers globally for almost 25 years and we have world-class asset management in this country.

“What do we have now that World Cup Soccer is over?”

Articles from Magnus Heystek that doesn’t even know that foreign allocation in Reg 28 had been increased to 30% 5 months ago already (and no, it doesn’t indicate Magnus is just highlighting a historical figure, via tense usage or otherwise). >insert cry-laugh emoji here<

And then there is fact that money of the Top 40 companies earn lots of income in overseas markets, and you can invest in that via a retirement fund.

And then one has to work in that tax benefit (which is admittedly individual, the higher the tax bracket the better actually) into any sums when working out true overall performance.

One of the good aspects about Magnus is that he is able to see things from different angles and does not tow the line. He is able to give a view point without fear or favour and readers are able to discern the truths of the situation. All things are manipulated these days to suit any view point! We must be very wary of large institutions and government. Trust nobody and make sure you look after your own affairs! This is the message I get from Magnus.

Mistake no 1:”investors should put aside a good two to three hours aside for a long and honest discussion with a financial advisor”. The quality of advice given by advisers is just shocking – they are all just punting 2-3 products. Rather do what Warren Buffett does: read, read, read and do it yourself!

SA has run out of quality asset managers & advisors years ago

Emigration of skills and the benefit of their offspring lost forever to SA.

Collapsing educational standards

Pushing through failures even on the lower standards. Ever worked with a UCT MBA; viz. one of the usual suspects. What is the quality of those graduating via SAICAs ethuZukakulola program?

Race based AA and BBB-EEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEeeeee

Never-ending focus on ideology based instead of evidenced based decision making

Merit appointments and promotions? Huh? What is that?

How long have you been in Aussie?? Missing home?

Nope Dirk; right here in sunny SA.

Luverly day here in CT, sunny with a spot of rain predicted to help our still are far too empty dams.

Realistically, you need to look at property market segments.

On the whole, SA’s property is flat.

In Cape Town, not so.

The average man on the street’s most important investment is property and the figures are very sad indeed. Thanks for highlighting this Magnus.

Offshore allowance is 25% offshore plus 5% in the rest of Africa. Most would not count that as offshore, but rather more of the same.
The issue is why do we still have rules that tell us where to invest? Or like the coming NHI, will we believe that it’s in our best interest?

It has been 30% offshore and 10% to Africa since shortly after the February budget speech.

*crickets chirp as to this correction*

On the point of investing in ROA, I would not consider that ROA is “more of the same.”

Note that 46 (of 54) ROA countries have better economic performance than ZA. Only five countries in Africa are poorer performers. Consider countries that one would not have, five or ten years ago.

Of African stock markets, JSE is 12 out of 17 for one year performance. See MSE, GSE, USE, TUNIDX, ZSE, NSX all above 20%.

ZA is a poor performer by World standards and also by African standards. Hence credit bureaux don’t like us so much and World Bank says “Poor effort – Must try harder.”

Warren Buffet identified the SP500 ETF as the best investment for his funds after his death. We can buy the SP500 ETF on the JSE. The SP500 outperforms the MSCI World Index. The MSCI Emerging Markets Index under-performs the World Index, while the JSE All Share under-performs the Emerging Markets index.

The Nasdaq 100 Index performs better than the SP500. The Nasdaq 100 Index is listed on the JSE as Satrix Nasdaq. So, local investors can buy the best international opportunities on the JSE, it is a perfect rand-hedge, at relatively low cost, no need for an offshore bank account, no tax-clearance, no costly currency transactions.

But of course, nobody in the pension-fund industry wants you to know this. The best offshore opportunities are available right here on the good old JSE, at the lowest cost and it is liquid.

The risk of the implementation of exchange controls is basically the only reason for taking money off-shore.

The other point to consider is that if you are saving outside of a tax exempt structure and your assumption for taking on offshore exposure is that the rand is going to depreciate, if this comes to fruition then you will have a significantly lower CGT liability if you have externalised your money.

Holding a Zar based feeder-fund, your CGT will be calculated on your entire gain. If you have ytaken your money offshore, your CGT liability will only be in local currency (e.g USD) and not on your gain in rands.

So if this is your view, it would be better to externalise.

Markets are cyclical, so this could also work against you if the ZAR strengthens and offshore equity runs hard.

How is the Rand NOT going to depreciate?

SA Real Yield +-5%; Dev Market Real Yield +-0%…..could support ZAR going forward. The current rand depreciation is driven by global EM risk off. Has NOTHING to do with local news…..ZAR one of the better performing EM currencies this year.

Quite right … your stockbroker can also sell you the same product, at a much higher cost, so better to deal directly with Satrix.

Sensei, My concern with buying the S&P 500 on the JSE is that funds need to come back into ZAR. IF we head into a Zim situation I would rather have USD1000 of shore than having o bring it back to SA and getting ZAR1000000000000000000000, which I can do nothing with. The process of investing in an off shore account is as easy as paying my water and lights account. Cost- Paid R800 the other day to tansfer a few ZAR100 000. Still believe the bet of our life time is shorting the Rand.

I am a professional trader. The most money I have ever lost on one single trade was on “a sure bet”, and that was also betting against the rand. So, whenever I hear that term, I search for the factors that may cause the rand to strengthen. We should remember that the market is forward-looking, it anticipates. Everybody is aware of the dire situation we find ourselves in. The IMF warned the ANC about the consequences when SOE’s fall over. We are on the brink of junk status already, why isn’t the rand at R20/USD? All the bad news is priced into the rand already.

The Mining Charter is a socialist disaster but the green energy REIIP program is invest-able. International investors will get a guaranteed 10% to 15% yield, that grows at the rate of inflation over 20 years, on these programs. The contractual agreement with REIIP developers, property owners and investors is that government will have to buy out entire projects in case of expropriation of land. These contractual agreements from government state that expropriation without compensation cannot take place.

This is basically the only low-risk investment in South Africa at the moment. Pres. Ramaphosa declared REIIP as his favorite project, with the highest potential for creating jobs and growth in the rural areas. When minister Jeff Radebe declares the new rounds of REIP developments in August, we will see how the rand reacts. Most of these developments will be funded by foreign pension funds. These investment inflows may cause the rand to strengthen substantially.

Maybe, just maybe, we area bit too pessimistic about our own future.

“The process of investing in an off shore account is as easy as paying my water and lights account.” – I would like to know more how to go about doing this. Any advice?

@Trubit, I agree with @Big Concerts. The process of investing offshore is not complicated. I do not want to abuse the opportunity offered by Moneyweb and advertise one institution that offers excellent client services.

Try and find the biggest international trading platforms with the lowest brokerage rates and lowest margin finance rates (interest rates), that has a local “introducing broker” or local financial services company that can give you a personal service.

It is time for Moneyweb to do an article on this topic.

@Sensei Thank you for the feedback and taking the time to respond.

Magnus, yes you are right, we are all screwed and suicide is the only option, but geez brother, you sound like a stuck record !

Today I will give you an “E” and tomorrow a “u” and then a “t”. Can you work it out Magnus?

Hi Magnus,

What % of the JSE All-Share is exposed to offshore earnings/assets? SO put it at roughly 50%.

You are allowed to take 30% directly offshore within Reg 28%.

So 50% of 50% (SA Equity) = 25% + 30% means that 55% of most regulation 28% are driven by offshore assets/earnings that increase as the rand decreases.

You are advising that South Africa’s forgo the tax relief offered by Retirement products when Regulation 28 portfolios already provide significant offshore diversification.

For all but THE Richest individuals in South Africa this is borderline negligent advice. Anyway those who do not require the tax relief probably aren’t at risk of maintaining their standard of living in retirement.

The other point is that markets are cyclical, we were in a worse position during 2008-2010 when looking in the review mirror, the same can be said from 2001-2003. I somehow remember Magnus advocating taking money offshore when Nene was fired, how did that go?

Your advice is borderline reckless, taking concentrated one way views. No one knows what will happen in the market with any certainty. Talking to SA Property and International Equity is using hindsight to determine what your asset allocation should be which you criticise other people of doing – please stop being hypocritical.

Sorry, that should read for everyone except the richest

For God’s sake, when are people in this country going to wake up and vote for someone else? And I don’t mean the EFF!

Self serving article as always. Remember to have a 2-3 hour discussion with your financial planner “if you have one”. The Brenthurst team is awaiting your call. Please remember not to look at any CSP500 15.63%,SYGUS 15.11%,SYGWD 10.15%, CTOP50 8.25%,SYGJP 7.35% ETF yearly returns before going there. All these ETF’s available on the your local JSE as normal instruments to be bought or sold or your can buy them via your TFSA account. Do the calculations to see if your local financial planner can get you a better deal. Please also ask what happens with estate duty taxes when “your” safe money is sitting in a foreign country earning TER for your financial planner/asset manager when you die one day.Then ask what the cost is of funding any loopholes to get past this little inconvenience, because ultimately you will also fund that. Magnus should for once in his life have a honest article about the benefits/dis benefits of ETF’s instead of playing on emotions every time the ZAR lose some value or local politicians drive thinking investors up the walls.

I am no financial wizzard but one thing is clear – most of us mere mortals are under pressure and most people do not have money to invest! So yes, the numbers in the table speak for themselves and property is under pressure but is it not better to still invest in property, rent it out and get someone else to pay for your asset rather than doing nothing. Not a lot of assets out there that can be leveraged as is the case with property.

Magnus is correct – I have been a victim of appalling growth over the last 3 years from one of SA’s biggest companies (The order of approx 1%/year). I implore all to monitor the growth of their portfolios/pension funds and don’t trust these big companies to look after your interests. Look for alternatives and manage your own finances.

Sometimes situations are compared as to whether it has undergone elastic or plastic deformation. The latter meaning that it cannot return to its original position. South Africa of today differs so much from 20 years ago that the relevance of past performance needs intense scrutiny. Most players in the Asset Managing industry try to avoid these questions as all the investment models refer to past performance. The mentioned Global ETF’s probably the best option for now but more time has to be spent analyzing SA asset managers positions for different political outcomes. Financial Advisers still give the same advice as 10 years ago and I often doubt the relevance.

Very good comment Thesas. Few recognise or admit to the fact that we have to start all over from 1994 with stats.

During 1990 to 1994 we became brokken in far more ways than we could have ever imagined.

I think this is a good article from Mr Heystek. He is suggesting that investors look at their pension returns and determine whether returns are going to be sufficient. He does not suggest that all South Africans abandon their RA’s, but rather examine possible future return scenarios. Even if South Africa was an economic powerhouse it would make sense to diversify one’s country risk away from where you own property and probably earn your livelihood. If one was to do allocations based on the size of the economy, then South Africa would get about 1% of your portfolio.
Good luck with getting some advise from a financial planner which goes against orthodox thinking.

Sensei – for once I differ from you. Yes I can get the same offshore exposure (returns) on JSE without all the hassle of getting SARS approval etc but is the real purpose of going directly offshore not really to(genuinely)diversify i.e 1939Jews scenario, or Malema taking control? I’m not negative, I’m after the principle please.

ChrisInc – I’ve always understood let’s say I switch between two offshore funds (direct offshore) that I will pay CGT on my gain in Rands. You said it is only the USD gain?

Thanks Gents

I once read a very informative piece of information from another blogger here about some URL in Mauritius and I got my answer for all the negativity.

I can agree that the property market is currently the one asset class that has very high risk. It not only about land expropriation. The growth municipal fees is not sustainable.

Dear Magnus,

Your paragraph three following table 1 of the article has reference.

Persons 55 years or older and invested in retirement annuities or retirement preservation funds can of course rather opt to transfer the accumulated value of such funds tax free to a living annuity in order to side step the limitations of Regulation 28 on investment jurisdictions.

They do not need to withdraw the monies and take the debilitating tax consequences of early withdrawal. A living annuity are not subject to the restrictions of Regulation 28. One could theoretically opt to have 100% of the investment capital exposed to rand-based international investment options.

Similarly they only have to withdraw a minimum retirement income of 2% per annum once they have transferred to a living annuity. They may furthermore opt to withdraw this 2% income payment i.e. 6 monthly in arrears and use the after tax balance of such income to fund a new retirement annuity (with a bi-annual payment schedule) so as to utilize the tax deduction benefits.

So I did just check my RA with Alex Forbes.
6 years in, 8.05% annualised return.
That sucks.

Firstly, it sounds (from Magnus article and comments here) like the advisory and the asset management industries are having marriage difficulties. They used to be like two cancer tumors. Perhaps the carcass is nearly finished and now the hyena and jackals start bitching.

Secondly, when advisors and professionals scream that we should Buy X, it is usually the time to sell. US equities are at crazy highs on any meausure:
– income yields less than half longterm
– thousands of unlisted billion dollar startups
– CAPE near double longterm average
And this all with a yield inversion on treasuries. The mortgage from quantitative easing party is now due.

Switching nestegg into US equities now with lumpsum will bring tears. You would have to be a fool to expect the same growth in us equities over next 5y as these past 5y.

“Even if you invested your money on the worst day for the currency in December 2015, your subsequent performance in either a global or preferably the S&P index since then still has been better than had you left it behind in the JSE.” R100,000 invested in the MSCI World Index on 10/12/2015 (before the rand reached its worst level) would have grown to R117,676 as at 16/7/2018 (on a total return basis). The same investment in the JSE Alsi would have grown to R121,550.

Hmm never liked R.A’s seems very restrictive (yes they work for the majority) but like having quick access to my money plain vanilla low cost ETF. Tax savings lost though…

I’m a member of the Transnet SDBF and retired in 2004. Since then only received 2% annual increases – the ongoing court cases are related to this subject. However, nobody seems to care,or help, regarding the following – in 2006 the Trustees decided that any Pensioner who remarried after this date would forfeit the monthly payout that the spouse was entitled to after the Pensioner’s death. The only answer they supplied was that “death bed marriages” was the reason. This is total hogwash because the rules specifically catered for this. Reported the case to the Ombudsman as well as the Public Protector – not interested???.
Can someone please advise on a solution.

End of comments.

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