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Top financial planners and your questions

A single intervention by a financial planner to help a client stay the course and not abandon what would otherwise perhaps be a fantastic investment strategy.

MARC ASHTON: Welcome to the Moneyweb Personal Finance and Investment webinar, today we are going to be talking self-service investing. I’m very fortunate today, I am joined in the studio by three of South Africa’s top financial planners. I always find the idea of what somebody’s reading very informative and it gives us a bit of background about the person who has joined us in studio. I’m going to start with each of our three guests, allow them to introduce themselves and maybe tell us a little bit about who they are, what they have been doing and what they are reading. Janet, let’s start with you.

JANET HUGO: I’m reading The Ascent of Money: A Financial History of the World by Niall Ferguson, so that’s sitting on my bedside table, I’m not very far through the book, so please don’t ask me any questions about it right now. I have a practice in Johannesburg and Hermanus, and we also have a presence in Cape Town, and we’re a group of five certified financial planning practitioners in Sterling Wealth.

MARK MACSYMON: The book I’m reading at the moment is called Tools of Titans by Tim Ferriss, and he’s the guy who authored The 4-Hour Workweek, and it’s really a summary of all the nuggets that very successful people around the world have managed to follow in their day-to-day activities, so it’s a real power-information type book. I am a wealth manager and a financial planner at a company called Private Client Holdings and we have a family office approach to wealth management and financial planning. I’m one of seven wealth managers at the business and we have a presence Cape Town and we have a number of clients across the country.

MARC ASHTON: I have to say I’m a big Tim Ferriss fan, I signed up for his blog, I enjoy the podcasts on a Friday, I think it’s one of the best podcast series around. I enjoyed his interview with David Blaine recently, Vince Vaughn. I think it’s very nice when you are stuck in this finance world to be able to get a few different inputs and insights and I find Tim incredibly valuable from a personal perspective.

FRANCOIS LE ROUX: I’m a financial planner with Private Wealth Management, we do comprehensive holistic lifestyle financial planning for our clients, mainly focused on private individuals. I’m based at the Pretoria branch, we have a national footprint across South Africa with offices in Cape Town, Gauteng, Port Elizabeth and Durban. At the moment I’m reading Andrew Bradley’s How Much is Enough? Needless to say that is perhaps one of the most, if not the most pertinent question that comes up in personal financial planning is how much do I need to retire in good fortune. So it’s always good to get that kind of perspective from the authors on a topic that is certainly always a very crucially important one in personal financial planning.

SA out of recession

MARC ASHTON: Francois, you and I were chatting just before we were on air, there was some good news today because it’s very difficult when you’re in the media and you’re always chasing scandal and the negativity but there’s actually been some really good news today in terms of some GDP figures and maybe it looks like there’s potential for getting out of the recession. One of the questions we get asked is is there a reason to be enthusiastic about South Africa, it informs a whole lot of things in terms of investment decision, where you live, what you invest in. Maybe just your take on it and in talking to clients what’s the environment like from a confidence perspective?

FRANCOIS LE ROUX: At the moment people are definitely on the back foot when it comes to decision-making regarding their personal finances, they tend to sit back and want to wait to make the big decisions. So there’s definitely a lack of investor and consumer confidence, lackof business confidence, we can’t get past that. I think the news of the day with South Africa being formally out of recession is certainly some very good news and we can do with some good news, so that’s definitely a positive development. There’s no reason to be overly negative, as seasoned financial planners we have seen the good, the bad and the ugly, we’ve come through so many market cycles and we understand that what goes down today will, no doubt, be going up again tomorrow and in the future. There is always reason for being positive and there’s always scope for some good investments. So there’s no reason to be overly negative.   

MARC ASHTON: I think it’s fantastic to hear a bit of an optimistic note. Mark and Janet, do you share that view?

JANET HUGO: One of the things that came to mind was that PEs are the biggest predictors of future investment returns, not GDP figures, sorry to stir the pot already. But I think what investors need to focus on going forward is that we’ve had four years of sideways movement from many of the portfolios and that needs to change and it’s clearly going to change, whatever the reason, whether it’s GDP or any other outside reason. That gives us a great opportunity going forward, we’ve had low performance, we, on average are due for some good performance, which is a great reason to be optimistic.

MARK MACSYMON: I think it’s pleasing to see GDP up 2.5%, so we’re out of that technical recession and our market delivered 7% in July. So I don’t think investors must get too sidetracked by a market that has crab-crawled along over the past three years. Investment returns will revert over time and I think it’s crucial to stick to longer-term investment strategies. What we have seen, certainly over the past 18 months, are stronger flows into bank retail deposits and money market funds at the expense of multi-asset funds. So I think investors are getting a bit frustrated with lackluster returns but mustn’t be sidetracked about the discipline of sticking to a longer-term investment strategy.

Relationships between financial planners and clients

MARC ASHTON: I always find the relationship between a financial planner and their client a fascinating one because I see it in the media and you see a lot of the common investment themes, buy low-cost unit trusts or exchanged traded funds, you can do it yourself, you can manage your financial plan, you can trade your way to wealth, if you want you can be a millionaire with forex overnight. There’s almost this idea that everybody can just do it themselves and for my sins I thought I could day trade through my 20s, I did alright in my early 20s and then discovered that life got in the way of all of these fine plans. But when I took on my first financial planner it was very much I was being sold products, they were being brought to me and here’s some life insurance, here’s some health insurance and so on. My current financial planner then took it on and, in fact, I always tell the story that he interviewed me as a potential client but I found him to be a very good sounding board for things like when I applied for this job, for instance, how do I go about it, what type of contract should I be doing, I’ve got kids now, what do I consider. It’s a very personal relationship and I think, Janet, maybe you can talk to this, it’s not about the product you’re selling, there’s so much more encompassed in a financial planning environment, what’s your take on the relationships that you build as time goes on?

JANET HUGO: The relationships are incredibly intimate because what we work with with our clients is their hopes and dreams and then we translate that back into a business plan, so to speak, so there’s a business plan by which you are measured in – I don’t want to say benchmarks because that’s got other connotations – but you can go back to the plan and see whether it fits or the investment strategy is appropriate or if the insurance is sufficient because at that point when you’ve got a plan you know how much insurance, as opposed to can you afford the insurance, which is the sales product version of it. I think a good financial planner has their main product that they are going to sell you is the plan and for me that’s really important, if a planner places value on that then you know that they are not going to be product pushing, they’re not going to have to sell you something to achieve their income at the end of the month. What does the rest of the team think?

FRANCOIS LE ROUX: To get back to the markets, we can’t control markets but what we can control is our behaviour and there’s never a good or a bad time to go through a comprehensive financial planning process or to review your planning. So I think, having said that, it’s all about the plan and that plan entails an advice-led approach when you engage a client, it’s not about the product, it’s not about product at all in the first instance, it’s about advice. So for us, as professional financial planners and members of the Financial Planning Institute of Southern Africa, we understand what a comprehensive financial planning process entails and it’s all about advice and building strategies and plans to help clients meet their long-term investment and life goals. Why would one want to consult with any professional for that matter as you seek an independent, objective professional opinion and there’s always scope for doing that, unless you might be a top expert in your particular field and you feel that you don’t need that expert input but that’s not the general rule.

JANET HUGO: I’d love to chip in there, I’ve got some portfolio managers who are clients of mine and they are the worst advised people out because they think they know it all and their investment strategies may not be perfect for their lifestyle goals and it’s been an interesting exercise to help them unpack where they could achieve better tax efficiencies and better lifestyle planning with the money that they have. So even a professional or a so-called expert is only an expert in their field, they’re in the expertise of choosing shares or the right asset allocation, they’re not going to achieve the best outcomes that financial planning can add to a client. I did a recent exercise for a client where we unpacked all the things that we were able to help him achieve and we were achieving a 1.64% better return for him after the fees that he was paying the financial advisor, me, but it was in the tax strategies, it was in the bulking of his investments, it was making sure that he wasn’t paying inappropriate fees elsewhere. Pulling all that information together took a long time to actually identify and quantify his situation, how much it was worth. So I don’t think many advisors actually do that but I was delighted to see that I could put a number to it.

MARK MACSYMON: That number that Janet mentioned, 1.64%, is what we call gamma in the financial planning space and that’s really the ultimate benefit of having a synchronised, integrated financial planning and wealth management strategy, where the tax effects speak to the investment activities, as well as the risk planning activities and the investment activities, and it’s that financial plan, which we spoke about earlier that anchors our behaviour when markets are very volatile and that’s really where financial planners add a huge amount of value is that inevitably we are going to experience volatility in markets, volatility is here to stay, it’s a characteristic of markets. But when those markets are depressed and we do go through a correction it’s so important to have that rational sounding board that you mentioned earlier, Marc, to anchor our behaviour and ensure we don’t lock in losses at the wrong time.

Quantifying the return of a financial planner

MARC ASHTON: For me, I look at my financial plan and I sit there and say how do I actually quantify the value of it. For me, when I day trade it’s easy because my Pan African shares were up today and I made some money and I always conveniently forget what I lost but I always tell you about the ones I got right. But where I can start to see a kicker now is I arrived very late to the retirement annuity party and only started when I turned 30, so I missed out on ten years of compounding but I can just start to see the returns that are coming through there and the safety net that’s almost being created. Ironically the eye-opener for me was when my dad passed away about two-and-a-half years ago and I saw the problems [that arise] when you don’t plan your estate properly, you don’t think about the transfer of assets and he never went the financial planner route, so two years down the line you are still trying to sort out an estate. Francois, how do you quantify, we talk about alpha and gamma and all of these fancy terms but how do you actually go and quantify the return the financial planner is bringing, particularly when markets have gone sideways for four or five years?

FRANCOIS LE ROUX: There are a couple of major studies that have been done in the world, one of them being the Vanguard study, where they actually tried to quantify advisor alpha or advisor value-add and what they did in the study is to see I terms of the bottom line, by using typical financial planning and wealth management techniques, a financial planner is able to add to the bottom line in terms of additional investment returns and then they compared those with portfolios that did not apply those wealth management techniques. So, for instance, to take one point, they looked at advised portfolios where there’s a financial planner guiding a client and providing coaching, tailoring and teaching, if you wish, under ulterior market conditions and  as they put it, and I love the way that they put it, is we need to act as emotional circuit breakers under ulterior market conditions such as pretty much what we have seen over the past couple of years. They make a very valid point, in my mind, when they say that a single intervention by a financial planner to help a client to stay the course and not abandon what would otherwise perhaps be a fantastic investment strategy could easily offset years of advisor fees in terms of money that could have been lost by getting out of a portfolio, not because there’s anything wrong with the portfolio but because markets are happening and taking their toll on the investment returns in a particular portfolio.

MARC ASHTON: But how do you deal with the behavioural issue and, again, I can always compare it to myself, I can tell you that I’m doing a good job but I feel it in my heart and head I think I’m doing a good job but how do you go and show somebody that what they’re doing is actually holding them back from a more substantial financial plan.

FRANCOIS LE ROUX: I think it goes back to the relationship that you develop with the client from day one and it soon develops into a relationship of deep trust. You develop a relationship that is a long term highly professional trust-based relationship and when times are tough clients do trust you in terms of the advice that you give them, as long as you can show them the rationale, obviously, behind the advice and point to the bigger picture and paint that picture for the client to understand and then I think the relationship will inevitably be sound enough to save the day. It does get difficult for sure, to go back for a couple of years, as we’ve all had to do, returns going sideways or even negative is never easy.

MARC ASHTON: Janet, maybe building on this, each of you is going to have different investment returns for different clients, now the same client comes to you and says you gave me X, you gave me X plus one, X plus two but how do you go and say to them my X comes with certain other value, how do you go…because you’re being compared on such thin margins in a lot of cases, particularly if you’ve been following a general investment trend, how do you go and say my value is way beyond just the investment return that I’ve delivered to you?

JANET HUGO: What we’re able to do is when we sit with a client we, it’s got a lovely name and sounds very fancy, liability matched investment modelling, so a lot of my clients will come into my office and they’ll talk about their buckets of money and we set expectations for investment returns before we deploy an investment strategy. So if I’m looking for money in the next year my client is going to expect that money to be in a money market-type investment. Next year’s money is going to be in a low-risk very income focused investment strategy and the money that I’m looking for in five to ten years’ time will be in a much more aggressive strategy. When we set that plan out for a client we then explain to them that it is very normal to have a negative return in an aggressive portfolio and we explain how often those negative returns come along and when it happens we raise a flag and say remember when because if you’ve been warned that it’s going to be a bit of a rollercoaster ride it’s not going to be quite as scary because you know that the money is there for the right investment timeframe. So it’s about matching the timeframes to the investment strategy and allowing people to go away with peace of mind and not worry about having to dip in and out of the markets. So we’ve all seen the studies in America where the average investor achieves about half the investment returns available on the table and I think we can probably say that South Africa does the same, there are people hopping in and out of the market, fleeing to money market because it’s so scary and never getting back in again. I think Allan Gray did a study that confirmed this, people just don’t get back into the market at the right time. If you don’t believe in the long-term investment strategy it is going to be a scary place and advisors add value by helping you plan and believe in the plan and believe in the investment returns that they’ll get there.

MARC ASHTON: Mark, how do you go and interview a client, though, I remember the first financial product that got sold to me was an insurance product and the guy sits down and he asks how much can you put in, how long are you going to save for and he shows you the fantastic PowerPoint presentation, which shows everything going through the roof and I’ll have billions of rands by the time I’m retired and, of course, I think that’s fantastic and then you realise that doesn’t actually happen. How do you go through this process? I would imagine I’m a nightmare client just because I believe that I can do better than everybody else. You deal with entrepreneurs, you deal with business owners, how do you go and deal with that relationship, how do you interview them, what are the questions you ask upfront?

 MARK MACSYMON: I think we really want to get a very thorough understanding of the client’s position, not just where the client is currently but also where they have come from, what their attitude to money is, what assets they have currently but then also what their aspirations and their goals are for the future, so that’s the sort of picture we want to develop. That’s why these relationships do become very intimate and one of the ways we can give some certainty of the future is we build models, cash flow analyses, to get an understanding of what may happen to those assets over time and those cash flow analyses really do help clients to get a better understanding of what may happen to those compound returns. You spoke about it earlier, you thought you were going to become a multi-millionaire over a short period of time but in these models in today’s money terms we can give clients a much better understanding of what those savings could be in the future and how that may translate into a lifestyle in the performance of time. So those models help us to build a picture of what a retirement could be like in the future and we can change those assumptions, we could can change hypothetical inflation rates or growth rates or drawdowns at retirement but these help to start clients to take more responsibility of the actual plan going forward over time.

Diversification is vitally important

MARC ASHTON: I’m looking at the questions coming in and there’s quite a lot about should I emigrate, where is local and international equity. Maybe let me start with this, I’m a South African optimist, I’ve tried to be an optimist for a significant amount of time and for the first time in my life I thought Iceland is looking good at this time of year and I think there are so many things informing that decision. South Africa is playing in the international market space and you look at the success of some of the US tech stocks, they’ve made a material difference to investment portfolios, for instance, but then I look at my own portfolio and I’ve returned 1% in my retirement annuity up until the start of this year. What you are saying to people who are looking at this and saying but my South African assets are not doing well, 2019 is still feeling like it’s a long way away in terms of political upheaval, political change. If the theory is that your retirement assets are supposed to double every seven years and you’ve lost five years where these things are just standing still, you’ve lost a significant amount of compounding investment return. What are you saying to people who are saying where should my assets be, Francois, what are your thoughts on that?

FRANCOIS LE ROUX: I think you are talking about possibly investing a portion of your assets overseas but let’s remember that if you invest into a typical portfolio of JSE listed shares more than 50% of the income generated by the companies underlying those shares come from abroad.  So just on the point of diversifying your investment portfolio to include offshore assets, we’re in quite a unique position in South Africa that we have that rand hedge share situation. But having said that, it is obviously prudent if you think in terms of the fact that our total market makes up less than 1% of world markets but it is vitally important to diversify, not only offshore but also across various asset classes. So I think that would be the standard point of view to start having a discussion about optimal asset allocation.

MARK MACSYMON: I think when you are investing in risky assets and equities it’s not uncharacteristic to go through three years of flat returns because that’s typically what will happen when you’re investing in equities and now is certainly not the time to start changing strategies. Francois mentioned asset allocation, investors over the performance of time need to have an anchor, you need to have a strategic asset allocation that you’re going to tend around, you can have tactical deviations when you think valuations permit when you might tactically overweight equity positions relative to your longer-term strategic allocation. But investing in risky assets will mean that there are going to be periods of flat returns and significantly negative returns. But, as Francois mentioned, there’s an opportunity to diversify offshore, South Africa does represent about 1% of global market capitalisation and there are some fantastic opportunities out there and you certainly don’t want to have all your eggs in one basket in South Africa.

JANET HUGO: Absolutely and the thing to remember is that in those flat returns the averages dictate and have shown us in the past that you’re going to get some very exciting returns after them, so you are paying the price now for some positive returns in the future, we’re banking on it.

MARC ASHTON: Is it not a function, though, that for the last…let’s say 2008 through to now we’ve just had incredible returns, 1994 through to 2007 we had incredible…we’ve actually been spoilt for choice in South Africa and they have said that the JSE has been the best performing index since 1920-something just because we happen to be a concentration of some fantastic businesses and a concentration of capital and maybe we just need to lower some of our expectations from that perspective.

JANET HUGO: Or diversify your portfolio more overseas, so have a global outlook on your portfolio, have as much as you can afford to have overseas. Be careful of being only trapped with 25% allowed in retirement fund investing. Have a good strategy around where you should be investing and watch the costs.

Future currencies

 MARC ASHTON: Just looking at these questions coming in, there are some really interesting things but people have a very short tolerance for equity return at the moment and I can see in the questions that have been pre-submitted and that are coming through at the moment I have got everything from cryptocurrencies to foreign exchange through to 12J, which we can touch on shortly. Let’s use cryptocurrencies as a starting point, have any of your clients come out and said I’m really curious about Bitcoin, Ethereum and Bitcoin Cash, do any of them come in and say can’t we take a bit of a flutter on something like that?

MARK MACSYMON: I think we are going to experience that question more and more and more but as financial planners we ultimately need a thorough understanding of the assets which we propose clients position their wealth in, we need to take responsibility for the outcome of that asset and if we can’t value that asset and we can have a separate discussion on whether or not, it might be Bitcoin that becomes a currency of the future or whether even corporates have their own cryptocurrencies, the bottom line is I think we all know that Blockchain or that sort of technology is here to stay but if we can’t value or understand that asset it would be foolish for us to advise on using that as an asset to grow client’s wealth over time.

MARC ASHTON: How do you respond when they say this looks really good and you’re not getting the equity side of it right, so I want to go now because I’m reading the papers and it’s doing 20% a weekend, how do you respond to that kind of risk appetite?

MARK MACSYMON: I think one must realise that there are risks associated with these types of investments and one can’t bet the house on one concentrated solution like that. If clients want to take a stab at it or if people want to take an outlying bet on those sorts of things, well, there’s nothing wrong with doing so. But I think it’s important for financial planners to really disclose the risks of taking such bets like that and how it might affect the future going forward for them.

MARC ASHTON: I think 12J is interesting, again, I know it’s becoming more mainstream, so for those who are not familiar Section 12J of the Income Tax Act gives some significant tax benefits for being able to invest in non-traditional equity asset classes. I know that a lot of financial planners are now taking it to market, there are some interesting opportunities there, I think they said about
R850 million was raised in 12J funds in the last 12 to 18 months. I have my cynicism about where you can actually invest that but we’ve been involved in a couple of projects in that respect, so it is quite interesting to look at. Janet, what are your thoughts around 12J, is it something that your clients talk to you about, is it something that you are looking at from a financial planning perspective?

JANET HUGO: We’ve been looking at it, it’s been coming up again and again for the last year or so. The thing is that you need to manage the liquidity of any investment and understand what you are getting into and for how long you’re going to be trapped there. The opaqueness of the way these portfolios are going to be managed is just really difficult for us to advise on. So for me to be able to advise a client I’d like to be able to see all the way through, I’d like to – I don’t want to say kick the tyres – but I’d like to know a little bit more and it’s just so vague. Although it’s a great tax idea I’m not sure that the implementation is going to be as easy. I don’t know what anybody else thinks about that?

FRANCOIS LE ROUX: From our perspective we stick to regulated financial services’ products and to the best of my knowledge, certainly in our product suite, there is not talk of including something like this and it goes back to Mark’s point, purely because at this point it’s still speculative, high-risk-type of investing. We as professional planners and advisors have to take responsibility for what we advise, so for the moment I’ll rather stick to the tried and trusted method of raising good capital growth over the long term, and to quote statistics, they are available all over the show, you can just Google this, but here’s one from Prudential, looking back over 40 years we tend to be shortsighted if we have a period of three years of sideways movement in the equity market, as we’ve seen now, but going back for 40 years let’s not forget that South African equities have returned on average 8.2% real return over the past 40 years. South African bonds 2.8% real return over 40 years and cash was 1.8% real return over 40 years. So for now I’m sticking to the tried and trusted asset class, preferred for building good capital growth over the long term.

MARK MACSYMON: I think the tax benefits of investing in Section 12J companies are obviously very appealing but I think before people commit any capital to those sorts of instruments there really has to be a strong investment case for positioning capital in them. So you’ve really, really got to understand the underlying business, I think that’s fundamental to any investment decision.

Should couples share a financial planner?

MARC ASHTON: Interesting question here and it speaks around behavioural finance from some perspective and this is one I can relate to because it contributed significantly to my divorce at the time. Money is a very personal topic, when things are going well we’ll tell you things are going well, when things are not going so well we tend to duck and dive, the question that is being asked here is I’m married, I’ m in a relationship, I thought we had joint finances, I’ve suddenly discovered that my partner has significantly more debt than he let on. You can imagine that that becomes quite a life-changing decision, particularly for my case I was married in community of property, but you can imagine that one way or the other you are sitting with a situation where you discover that one partner hasn’t been entirely transparent with their financial planning. Janet, what are your thoughts on this, do you go and share a financial planner as a couple or do you be quite selfish about it, take responsibility for your own money and assume that your partner will take a similar responsibility?

JANET HUGO: I’m horrified that you say assume, assumptions are the worst things. You need to understand what you are assuming and I think one of the biggest things in a marriage is a lack of secrets because that’s going to bring you together. So being honest about financial planning, being honest about your desires, dreams, hopes and bringing that down to a plan and quantifying the money that needs to go into that is really important. The other thing is I don’t believe that you should leave the burden of financial planning and providing a future to one person or another. For any of the men out there, think about leaving your spouse alone after your death and she suddenly meets the travelling salesman with absolutely no understanding of their finances. So I think you are doing yourselves a service and bringing your marriage closer by working together, this is your marriage, this is your relationship, the finances are part of it, they underpin it.

MARK MACSYMON: Certainly when we plan for clients we plan with the couples together, so whether we do an asset allocation report, an estate plan, a financial needs analysis or a cash flow analysis, it’s a joint strategy, it’s not a single-based exercise. We’ll take in the family’s assets into account and it becomes a joint planning exercise. You can’t conduct advice in isolation with one partner, it should be an all-consuming activity.

MARC ASHTON: A question that’s come through is much of the South African economic discussion is around the policy uncertainty and how it will play out in the general economy and investment markets, particularly with the sovereign credit rating downgrade. Francois, what’s your view on the South African economy and market prospects?

FRANCOIS LE ROUX: Specifically referring to further pending sovereign credit downgrade, are you referring to that specifically?

MARC ASHTON: Yes that seems to the question.

FRANCOIS LE ROUX: I think it’s pretty well known or agreed, we can all agree that markets have pretty much priced in a further sovereign credit downgrade. Just to distinguish between that, we’ve had the foreign currency sovereign credit downgrade, so just to bear in mind that we haven’t been finally downgraded on the local currency, which is actually the more important one on the sovereign credit rating side. Markets have certainly priced that in, so I think the majority opinion seems to be that we don’t foresee a sudden crash in markets as a result of what might soon be happening on that front. Although, it must be said, if we lose our local currency investment grade credit rating then the portfolio investors that look towards indices like the World Government Bond Index will be forced to sell their portfolio holdings in SA bonds. So no doubt there will be capital outflows and the effect of that might very well be that interest rates and the currency might come under pressure, inflation might come under pressure but we don’t know for certain. It’s also being said that there might be an inflow of capital from other investors, not affected by the specific credit rating, in search of good yield that we can offer. Also remember that we are still top notch, if I can call it that, sub-investment grade rated, if that makes any sense. In other words there are different levels, even in the sub-investment grades there are different levels, at least we are still on top. There’s not even talk at this point, heaven forbid that going forward that’s going to be the case, of defaulting on our obligations as a country. So some good and some bad news, I suppose.

MARC ASHTON: I’ve got a couple of questions here and some of them are a bit about of the ambit of this webinar but essentially the question is the role of cash. There are quite a few people saying I’m sitting with some cash, thinking of buying property, thinking of investing in 12J. Let’s not look at actual allocation but, Mark, how valuable is cash in the current environment and what are your thoughts about cash in an overall financial planning situation?

MARK MACSYMON: I think the way we look at cash is just a store of value to some extent in the short term and it really is just a parking bay. If you look at the cash returns on an after-tax basis, so let’s say cash is giving you 7.5%, you’re a 45% marginal tax rate payer, you’re going backwards with inflation. So when we look at the yields on cash from an after-tax point of view you are still going backwards. It does seem as though there’s a possibility of further interest rate decreases at some stage during the rest of the year, which will put more pressure on after-tax cash returns. But cash must really be – certainly how we see it – is just a parking bay with an intention to use over the short term. So in any financial plan cash is really available to deploy, whether you want to buy a house or you want to invest in a Section 12J company, it’s really for short-term use. But, as I said, you are going backwards in real terms and that’s the issue at the moment.

JANET HUGO: It’s not a long-term investment strategy but even Warren Buffett keeps a significant portion in cash ready to do something. So if it’s there then justify it and make sure that you are going to have a plan for it in the future.

MARK MACSYMON: It’s always crucial to have an emergency fund, so in any good financial plan there’s always a portion that needs to be positioned in cash. I’ve got a client who always laughs at me when I tell him that it’s always important to keep some powder dry to deploy for opportunities that may arise. But one wants to get that asset allocation right and obviously not commit too much to cash.

MARC ASHTON: I think those of us who have run small businesses have appreciated the benefit of a cash buffer in the last couple of months, it’s been incredibly tough out there, so it’s great to be able to have some cash, we forget how useful it is when things are a little tight out there.

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