YOUR QUESTIONS ANSWERED

Email your queries to martin.hesse@inl.co.za or fax them to 021 488 4119

Important aspects of estate planning

What is the most important aspect of estate planning for my wife and children?

Name withheld

Gerhardt Meyer, a financial adviser and the head of technical support at PSG Wealth, responds:

Consideration should be given to the maintenance of your spouse, adequately providing for your children, and the overall liquidity of your estate to ensure that your wishes can be carried out as intended.

If you have minor children, it is important to protect their inheritance to avoid it being held by the Guardian’s Fund until they reach the age of majority, if you and your spouse pass away at the same time. It is crucial to appoint a guardian for them, and if use is made of a testamentary trust, careful consideration should be given to who you appoint as trustees of the trust, as they will ultimately manage your children’s inheritance until they reach majority (or the age you select for the trust to come to an end).

Working with a qualified estate planner is essential to avoid any mis-wording or unintended consequences.

Where should I save R5 000 a month?

I have R5 000 to save a month in addition to my retirement annuity (RA) fund contributions. What should I do?

Name withheld

Marius Cornelissen, a financial adviser from PSG Wealth Menlyn, responds:

The first step to take when you have additional cash flow to invest is to service any outstanding debt, particularly the shorter-term, high-interest rate types of debt, such as credit cards and revolving credit.

If that is not an issue (that is, you have cleared all your shortterm debt, including store cards), analyse whether your level of life, disability and critical illness cover is sufficient to meet any future hazards. Once these are addressed, consider additional investments aligned to your financial goals.

The term of any investment will determine which type of investment and asset classes should be considered.

Nothing prevents you from making additional contributions to your RA, as you will be able to benefit from such contributions at retirement.

If your expected investment term is long, you can also consider a tax-free savings account (TFSA). With a TFSA, you can contribute R3 000 a month up to R36 000 annually (with a lifetime limit of R500 000), with the benefit of not paying any tax on the returns. Any excess savings may then be allocated to a voluntary investment product in line with your risk profile and risk tolerance. I advise that you discuss your needs, allocations and fund selections with a qualified financial adviser.

Insurance and hazardous items

Does my insurer have the right to tell me what I can and cannot store in my garage?

Name withheld

Luzanne Wait, an insurance adviser at PSG Jeffrey’s Bay, responds:

Your insurer will have recourse if, for example, you are storing flammable items that are not there lawfully.

Properties zoned as residential must be used in line with their official zoning. This includes freestanding homes, townhouses and blocks of flats. It is illegal to conduct a process or activity on a property when it is not legally zoned for that process.

The National Building Regulations do not require portable fire extinguishers in a freestanding home, so this adds to the fire risk if chemicals are stored inappropriately, particularly in an adjoining garage. Aligning to your building’s occupancy status and ensuring safe storage are musts, including for your own safety. Check with your adviser whether there are specific items you are concerned about storing.

Generally, if you store items safely and in accordance with the law, you should be covered, but cover must match the true replacement costs of the items you are insuring, including the structure of your garage and home.

When is it time to cut my losses?

My holdings in Naspers and Clicks have performed well through the ups and downs of the market. However, there are other shares in my portfolio that have been lagging for years. How do I know if it’s time to cut my losses?

Name withheld

Anet Ahern, the chief executive of PSG Asset Management, responds:

A popular myth holds that if you buy shares in good companies and hold them long enough, you will make money. For example, the compelling narrative behind big tech has driven the prices of these shares to extreme valuations, apparently proving this point.

But the “share prices of good companies only go up” narrative is not always true. Pay too much for your initial investment based on valuation, and you are likely to wait a long time to see growth on your investment.

There are costs to buying into prevailing narratives, and those who are serious about building wealth in the long term will realise that a sound investment strategy has several facets.

Avoiding a share simply because its price has not performed “well”, or selling it because it has “not done as well” as some others, is a precarious strategy. At any given time, a well-structured, diversified portfolio will have parts that are working and parts that are lagging.

The best investment decisions are based on a sober assessment of fair value, and they take various future scenarios into account, knowing that things rarely pan out exactly as predicted.

Should I manage my share portfolio?

After 20 years of working full time, I now have more time available to pay attention to my investments. Will my share portfolio benefit if I take a more active, hands-on approach?

Name withheld

Schalk Louw, a financial adviser from PSG Wealth Old Oak, responds:

It’s hard to say without knowing more about your experience and trading knowledge. In general, investors often disagree about the best strategy to follow when buying and selling shares.

“Telescope investors” look at the investment landscape with a long lens. They buy shares and see them as good long-term investments. They don’t monitor the market on a day-to-day basis, and they invest in shares that should increase in value over longer periods, usually five to 10 years.

“Microscope investors” prefer to look at daily details. They believe that trading very actively holds the key to good returns. Shares are bought with the intention of generating quick returns, and this type of investor’s main goal is to outperform the market over the long term.

Microscope investors need to know what they are doing, though. This strategy needs commitment and hard work. In my experience, only a small number of people – usually financial professionals – can pull this off.

The thing to be careful of is having a telescope strategy with a microscope mindset. If you are a long-term investor, it is important not to panic about daily market fluctuations.

How do I attain financial freedom?

What is financial freedom, and how do I get there?

Name withheld

Nirdev Desai, the head of sales at PSG Wealth, responds:

When financial advisers talk about financial freedom, they are typically referring to reaching a point where the income drawdown from your investments is low enough to allow capital growth in excess of inflation, meaning you’ll never run out of capital. Exactly where this point is (how much your savings needs to be) in your financial journey will depend on your circumstances and requirements. Working closely with a qualified financial adviser can help you work it all out, and get your plan on track.