FLUC­TU­A­TION LESS

Finweek English Edition - - MONEY -

an­num, you should have the re­quired R6 300 per month af­ter 10 years, and at a more tax-favourable rate (15% div­i­dend tax vs. in­come tax rates).

Look­ing at t he JSE’s All Share In­dex (Alsi), you will see that div­i­dend pay­ments over the past 50 years showed much less f luc­tu­a­tion than the share prices them­selves, prov­ing that you should fo­cus on the long-term abil­ity of the com­pany to gen­er­ate in­come, rather than short-term price f luc­tu­a­tion. VAL­U­A­TION TOOL We have heard ex­perts tell us the mar­ket is cur­rently ex­pen­sive. A num­ber of re­ports and rec­om­men­da­tions over the past year re­fer to the cur­rent av­er­age his­tor­i­cal Price/Earn­ings (PE) ra­tio of 17.5 as an “ex­treme level” (see bot­tom left graph), and they may even be right over the short term.

But com­pare the in­come from shares (div­i­dend yield) rel­a­tive to the money mar­ket: if you take a closer look at this ra­tio (see bot­tom right graph) you will 20 18

16 0.65

0.6

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