Give us some hope, Vic
MANY OF YOUR READERS subscribe to Finweek for financial advice. Last year, Vic de Klerk started his series on preference shares by saying that, theoretically, the prices of pref shares shouldn’t fluctuate. That sounded right, because the dividends are largely guaranteed.
Then in April this year he conducted an analysis of how much better the return on pref shares is, especially after tax. Unfortunately, he didn’t include the rebate allowed to older taxpayers on interest income.
In the Finweek of 23 August he tried to encourage old investors who have had to look on over the years as the prices of pref shares kept falling. He reported that pref shares are the best place to park your money. Up to August 2008, when De Klerk did his analysis, many preference shares had already fallen sharply from their issue price. For example, Absa was down from R1 000 to R899,10 – that is, 10%.
For example, if we compare the current situation with De Klerk’s analysis in August we find:
Obviously, a return of 11% to 13% isn’t much if the value of the investment falls by 10% to 20% every few months, even if the tax benefits are taken into account.
Since old investors like us can now earn more than 12% on a fixed deposit, does De Klerk still think pref shares are the best place to park our money? Does he think the declines have now come to an end, or what other good news can he give us old investors? Can he perhaps explain why the shares keep falling despite his assumptions?
Come along, Vic. Here’s an opportunity to give old investors some hope again.