Tuesday, September 13, 2016

Investment vehicles and Investment Funds

Investment vehicles and Investment Funds

Many seem to get confused around investment vehicles and investment funds /
strategies and may fall into the trap of thinking one investment vehicle
(eg: Unit Trust) performs better than another (eg: Retirement Annuity). The
reality is that performance is primarily driven by the type of fund(s) you
are exposed to and what their asset allocation looks like.

Let's draw an analogy…..

Land Rover meets Lamborghini in a sprint race – who's going to win? Well, it
depends........assuming a flat tarred surface and the Lamborghini will be
the obvious choice. If, however, the track was a rocky 28° incline then the
Land Rover would become the clear winner.

And so it is with the selection of investment vehicles with the track
'condition' being aptly represented by tax – select the incorrect vehicle
for your circumstances and needs and stand the risk of placing unnecessary
'drag' on your investment performance. The way to increase the performance
of these investment vehicles to provide better returns would be likened to
choosing a 'bigger engine' for the vehicle and boosting long term returns
through greater exposure to equities and property. Just looking to cruise?
You would then opt for more bonds and cash in your investment vehicle.

The main differences between investment vehicles (from a legislative point
of view) are that of tax and liquidity and when deciding on which vehicle(s)
to use to house your wealth, these should be the topics that are dealt with

With the wide array of investment 'products' available in the market, the
surprising truth is that they all fit into one of the following categories:

Collective Investment Schemes (eg: unit trust)
Retirement Annuities
Pension Funds
Provident funds

So although there may be one or two bells and/or whistles added to some of
these products by the life company or investment house, the undeniable truth
is that they all fall under the same legislative constraints and obligations
as each other – understand how they are governed and be empowered with
perspective of which is best for you.


The tax aspect of investment vehicles are dealt with in two areas namely;
income tax and Capital Gains Tax (CGT). One has to consider what income tax
concessions (if any) are given on the premium or contribution made to the
investment as well as explore how you or the fund will be taxed whilst in
the fund and finally understand what tax will be paid (if any) on exiting
the fund.


Liquidity of an investment is purely the extent to which the funds invested
in a given investment vehicle can be liquidated (cashed out).

For the most part, there is a trade-off between potential immediate tax
benefits and liquidity constraints. It therefore become important to have
one's investment portfolio intelligently structured in order to maximise
both elements and ensure that one is either not falling into a tax trap or
forcing their wealth to become illiquid.

So, in short, while correctly structuring your portfolio within the right
investment vehicles can optimise your tax, the key driver of returns are
derived from the investment funds and asset classes you hold.

Philip Barnard Tel: 021 975 0933 Cell: 083 270 4721

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What is good financial advice?

What is good financial advice?

On its own, advice is just advice and probably not that effective. Let's
consider a retirement annuity, for example. In isolation the product has
many features and benefits which provide many reasons to invest in one.

A main advantage is the tax deductibility of the premiums from you taxable
income. So should every have one? Well, if you are young and just starting
out in your working life, perhaps not yet. You see a retirement annuity
cannot be accessed until age 55. If you need money for a deposit on your
home or a car there is nothing you can do if your savings is in a retirement
annuity fund. You may be better off saving in unit trusts which will give
you accessibility to your money when you need it.

Good advice comes into its own when total retirement provisions are
considered, including pension and provident fund contributions. These place
limits on the amount that can be deducted from retirement annuity
contributions. Having carefully calculated the maximum tax deductibility
would set up an appropriate contribution and any excess could be diverted to
different investments making the overall provisions far more tax effective.
You see, it's not just a product. It's really about taking everything
relevant into account and making a financial decision on your circumstances.

So good advice boils down to appropriateness; advice that suites the
situation; different strokes for different folks. This can only be
accomplished through a thorough and holistic evaluation. It is not about
best but rather suitability.

Good advice is therefore not product focused. It is rather solution focused.
Just like visiting a doctor you are taken through a medical evaluation which
then leads to a diagnosis and then suitable treatment is prescribed. A
CERTIFIED FINANCIAL PLANNER professional will take you through a financial
planning process which will highlight opportunities which will form the
basis of the recommendation. This is good advice. It is not premeditated. It
is objective and appropriate.

Next time you are given advice be aware of the way the advice is delivered.
If it is all about features and benefits, past performance and speculative
opinions into the future then be careful.

A CERTIFIED FINANCIAL PLANNER professional is a trusted professional who
upholds the highest standards in the industry. Your interests are put first
with a CFP professional which translates a plan that really suites you.

Philip Barnard Tel: 021 975 0933 Cell: 083 270 4721

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Wednesday, August 31, 2016

Tax advice for returning expats

My friend and I are contemplating relocating to South Africa after 10 years abroad.

Upon seeking employment we have experienced a remarkably positive response and were quite enthusiastic about our decided return. Then we were advised of taxes.

We were advised that should someone receive an annual salary in the range of R700 000, he/she would be left with around R500 000 after tax deductions. That seems like a lot of money.

As we are more familiar with the European tax system, we were wondering if you could help us by explaining the healthcare, educational and social security benefits that that R200 000 every year, or R1 000 000 every five years, pays for.

We have been advised that there are no benefits, but I am certain that there is no way that this could be true. And so we would really appreciate some accurate advice from the people in the know rather than disgruntled individuals complaining about the country.

I apologise if these questions seem trivial, but we have never been employed in the country and the numbers are just not making sense.

We know we do not have accurate information, but from what we can tell it appears 40% is tax, 30% mortgage, 10% transport, 15% provident fund, 5% left to live.
Also, we have been told that one has to pay for one's own medical aid and security and that topped with the provident fund it seems as though there's a either a misunderstanding or a duplication in what tax pays for and what we are opting to pay for.

My friend is in the UK where government housing and medical aid as well as social security is really not bad. I am in the UAE where medical aid is provided for by the employer and housing is either provided by the employer or an allowance is given.

Participating in a retirement fund is at your discretion. But there is no income tax here, so we are really and truly at a loss.

Look, our bags are packed to leave in a week and we are pretty much ready to come home, but if this information is correct, while we still have an option to stay where we are we would really appreciate your guidance in this regard.

I have emailed the South African Revenue Service and tried again on their Facebook page. I'm sure we'll get a response but if you could guide us before then, it will really be a huge help in making an informed decision.