Sunél’s Blog | How nearly losing it all, can bring everything in focus

In 2020 many people have been faced with loss – financial loss, loss of health or even the loss of loved ones to the pandemic. It’s been that kind of year. Many of our clients faced loss – a few faced death. It has been a privilege to listen to their stories and to see what the possibility of losing your life has taught them and us.

Loss brings human connections into focus and puts family and friends at the centre of life. ‘I will consider myself lucky if I see my children grow up,’ says a friend who fought cancer this year. ‘I have no other dreams.’ It gives us another chance.  We so easily assume that we will live until we have fulfilled all our dreams. However, these second chances remind us that time is limited and our final hour is not under our control.

It reminds us that we must be prepared so that whoever needs to pick up the pieces can do so without additional grief.
It also reminds us that we must make the most of our time here and pursue whatever it is we feel called to do. Why wait? Why put off that dream? Why wait until you’re retired and no longer working to really live or spend more time with your people? Why spend so much energy and time earning more money, when a simpler life could afford you the luxury of spending your time on things or people you love? Why wait until you’re old to move to a place you love?

Often, what stands in the way of these choices is our definition or perception of enough. When faced with death, enough money fades in the face of not enough time. Enough money is a poor substitute for not enough time spent with your people, doing the things you love or on what matters.

Nearly losing it all calls attention to the important, redirecting you away from what is urgent or even easy. Why wait until you nearly lose it all to focus on what matters?

Ps. If you are not on our mailing list, you can subscribe to receive this blog every week on our website www.foundationsa.com.

Kind regards,

Sunél

//30 October 2020

Sunél’s Blog | Will Donald Trump trump again?

On my return from a few days off-grid, I was assaulted by reams of research on the possible impact of the American election on our future. How will a Biden administration impact global growth? Will a Trump win spur financial markets on? Speculation clothed as research or expert opinion claim to answer these questions.

The truth is that we don’t know. Even if we knew exactly which policies the next American administration would adopt, we do not know how it will impact our wealth. There are too many other variables involved in how the future will evolve and there is no direct link between election results and the economy or the outcome of financial markets.

Understanding the nuances of the American election (or the lack of nuance in the case of Trump) may make an expert sound intelligent, but it doesn’t give them an advantage when it comes to managing money.

Of course, the American election is important. It will set the global direction for the next four years. However, there is simply not enough evidence that getting the result right will have any economic benefit to the forecaster. Somehow though, we cannot help ourselves obsessing over forecasting the future; as though a correct results prediction means we can now accurately predict the financial future and so plan specifically towards that.  We can’t.  But we can take steps to manage our finances in the face of uncertainty.  It feels more uncomfortable – acknowledging uncertainty – but it is more helpful for financial planning than betting on an outcome.

Seeing the election and the speculation in this light removes the drama and fear. It is then just part of the unfolding of our unpredictable future for which your financial planning should already account.

Ps.  If you are not on our mailing list, you can subscribe to receive this blog every week on our website www.foundationsa.com.

Kind regards,

Sunél

//23 October 2020

Sunél’s Blog | What have we learnt?

As we slowly emerge from lockdown, I wonder, what have we learnt? Are we taking a moment to let the enormity of what’s just happened to us, sink in? Are we taking stock of the impact it has had on our bodies, minds and souls? Or our money? Have we taken a moment to express gratitude for simply making it through?

Our son contracted COVID during the last month. It wasn’t a natural conclusion that he would recover because of pre-existing conditions. Thankfully, he recovered remarkably quickly.

In biblical times, people would celebrate with a thanksgiving feast, an altar or at least a heap of stones as remembrance. Throughout history people have written down their stories of pursuits and battles in songs and poems to pass onto their children around campfires.

But it’s about more than just writing it down, it’s also about the reflection and the learning. It’s about honouring the enormity of what’s happened to us and the ways we changed and still need to change. Perhaps, we need to remember how little we needed to live on, how afraid we were for ourselves and our country, how wonderful it was to have family time without live sport interfering or how our investments recovered rapidly. Perhaps we need to remember the pictures of wild animals returning to deserted beaches or skies without pollution. Perhaps we should remember our intentions of giving hugs or visiting our families because we couldn’t do it for a while. And then, we should take those reflections, make our changes and act on our intentions.

How have we marked this time? What have we learnt and what are we doing?

Ps. If you are not on our mailing list, you can subscribe to receive this blog every week on our website www.foundationsa.com.

Kind regards,

Sunél

//16 October 2020

Sunél’s Blog | What commitment means for your money

Next week, Piet and I will celebrate our thirtieth wedding anniversary. It is somewhat surreal, thinking that I have been married for thirty years.  It is difficult to believe that all that time has passed.

It feels like our lives have come full circle – we started our married life in the City Bowl in Cape Town and are now back here after living in Scotland and Johannesburg for 26 years. During this time, we gained in-laws, three children, weight, grey hair and fabulous experiences.  We cried together through losses, celebrated gains, held hands in the hospital when our son was fighting for his life and grinned stupidly at our children’s milestones.

Staying married for thirty years has required growth and grit. There were many times when we reached the end of our resources and resilience, when friends and family rallied with prayer and petitions and our children’s wellbeing and shared history were the only reasons we kept going.

Esther Perel, the world’s current favourite therapist, asserts that most of us in the West are going to have at least 2-3 marriages or committed relationships during our lives  — and some of us will have it with the same person. She explains that “No relationship lasts for a lifetime. You can have the same relationship with a thousand people or you can have a thousand different relationships with a single person. It’s up to you to decide.”

Yes, marriage is about the commitment you made, the promise spoken between two individuals, but as Perel astutely points out, that commitment is to a changing person – a partner who evolves every few years as they grow. And with that change comes challenge.  Difficulty.  Clearly, there are circumstances when commitment is not healthy, but perhaps if we were more honest about how difficult marriage is, what the living of that commitment involves, more people would think it is normal. That difficulty is normal.

It’s not popular to talk about the resilience and perseverance it requires to stay married, stay in a difficult job, raise children or even just to keep working at oneself. But it is nonetheless what adulthood asks of us. It’s relentless to be responsible and hard-working and to keep doing the right thing.

Being an adult with one’s money is no different: it too is a relentless responsibility, requires that you be hard-working and demands that you keep doing the right thing to achieve success, even when it is hard.  Like marriage, it means little and large sacrifices, so you can prepare for unforeseen events and future needs like retirement or frail care. It means foregoing pleasures now so that you can keep going when times are tough. It means staying the course in the face of fear or the unknown. We all learnt that during the pandemic. Those with resources fared better. Those who stuck to their financial plans and investments are now better off.

There’s another intersection between money and marriage – the impact of switching from a long-term commitment.  Staying married, living in the same house and driving the same cars for years are typically sound financial decisions. Switching comes with cost.  The cost of trading in spouses, homes and cars adds up and erodes capital. Financial and emotional.

Conversely, long-term commitment comes with reward.  In marriage this lies in the joy of growing old together, which I’ve witnessed. The joy of having made it, having grown and now being able to savour the experience of the journey – hardships included – as much as the final reward. The joy of staying the course with money is the reward of compound savings and growth over many years. Long live commitment.

Ps. I love to hear your comments.  If you are not on our mailing list, you can subscribe to receive this blog every week on our website www.foundationsa.com.

Kind regards,

Sunél

//9 October 2020

What’s the story with prescribed assets?

-By Michelle le Roux

 

For a while now, we have been reading with great interest about how the government wants to be able to control how our retirement savings are invested. This is usually referred to by its short name, “prescribed assets”, and advocates on either side of the argument have been keeping us glued to our seats with their fierce opinions on the matter.

What are prescribed assets really, and what does it potentially mean for investors?

Although retirement savings are already subject to certain rules of the Pension Funds Act, there is a fear that those provisions will be amended to the detriment of investors. Specifically, that more of our hard-earned money will be invested into government-approved assets.

It appears that government is placing strong emphasis on investments in infrastructure, in support of the country’s development plans. This is the aspect that has most investors up in arms – there is a fear that our retirement savings will be used to try and save state-owned enterprises that are unlikely to be good investments.

In addition, with government debt mounting, there is a concern that they could require retirement funds to hold a minimum percentage in government bonds. This could potentially reduce the available returns in retirement assets.

 

Prescribed assets are not new

Prescribed assets is not a new development in the Pension Funds Act.  Under the Apartheid government, prescribed assets were used to ensure that government could fund the budget deficit during sanctions – a period when overseas investors were not allowed to invest in South Africa.  What is new is the proposed change to the current legislation.

 

How real is this threat, who is at risk, and what can we do about it?

Imposing a change to prescribed assets requires, legally speaking, nothing more than a change to section 28 of the Pension Funds Act. This could in practice, however, take a long time. On the presumption that the suggested provisions are written into law, what can one do to protect oneself?

 

Retirees

If you are already retired, you are unlikely to be affected. At this stage, there are no prescriptions on living annuities, or on normal discretionary investments and savings. It will be life as usual.

Prescribed assets may one day be imposed on living annuities too, but it would again be many years before legislation allowed for such an amendment.

 

Contributors to retirement savings, who are within 5 years of retirement

There is a good chance that the proposed change is not on the immediate horizon – the most recent comments by the ANC’s head of economic transformation suggest that the party is moving away from the idea. However, even if they do go that route, if you are within 5 years of retirement you would by now have accumulated the lion’s share of your retirement savings.  This means that the imposition of prescribed assets wouldn’t have enough time to seriously impact your portfolio before you were able to retire from your funds.

Retirement annuities allow for retirement from the fund from the of age 55, but you don’t necessarily have to retire from work to retire from your retirement annuity.

 

Young professionals and those in mid-career

This group will be at risk. If you have 10 or more years to go before retirement, it could be detrimental to your portfolio. The risk is that your investments are not likely to generate the growth that you need to fund your post-retirement income requirements. Not in that time frame.

Should you continue to add funds to your retirement savings? Yes, contributions to a retirement product is still a tax-smart move. Stopping your contributions will take away a tax-deductible expense, resulting in an increase in your income tax.

You can, however, estimate what the maximum amount is to contribute towards your retirement savings in order to qualify for tax relief. If you have a surplus you can invest it into a discretionary investment, such as a flexible investment, or an endowment policy.

The crux for this group is having a balanced retirement portfolio. You need to have both retirement as well as discretionary savings. Save just enough in retirement structures to remain tax-savvy but invest the rest in discretionary portfolios (including sizable global investments that are appropriate for your circumstances).

 

What do we do right now?

We cool our heels.

We believe that it is too early to take radical action on your retirement funds. It may be a costly pre-emptive strike with long-term implications for your wealth.

In an earlier article, we calculated the potential loss of return from prescribed assets (you can read the article here).

For now, the situation remains speculative. It would not be prudent to take financial decisions and make drastic changes to hard-earned retirement savings until we know for certain that we’ve been backed into a corner. It will be far more detrimental to stop saving than to save with potentially lower future returns.

Equally important is to understand that prescribed assets will not necessarily limit investment returns. Infrastructure projects driven by public private partnerships could result in suitable returns for investors if well managed. Allan Gray recently released some insights on infrastructure investments and prescribed assets, read the article here.

It seems that government now wants to focus on identifying viable developmental investment opportunities for pension funds and retirement assets within the existing framework. Of course, we remain sceptical about the nature and potential returns of such projects. However, it’s a more preferable outcome than was previously envisaged.

 

Revise your financial planning now

First and foremost, this requires careful deliberation about your vision for your retirement. How will you fund that vision? Is your portfolio suitably diversified to hedge against the risk of prescribed assets, and ensure that the life-after-the-office you are dreaming of becomes a reality?

At Foundation, our team is highly skilled in constructing retirement portfolios and can address your concerns in a practical manner. Speak to us if you want to revise your financial planning.

 

<Foundation Family Wealth is an Authorised Financial Services provider>

Sunél’s Blog | The elegance of simplicity

I’m a fan of French elegance. I am drawn to the simplicity and minimalism of their style – the blue blazer paired with a crisp white shirt never dates. It’s timeless. If you build up this type of French wardrobe, daily dressing becomes easy and effective. The same is true for a property of good design as opposed to alterations and renovations of an existing property over years.  The latter, in the end, impacts the overall effect and use.

At Foundation Family Wealth, we believe in simplicity for our clients’ affairs. The same principles that underpin French elegance or great architectural design apply. We aim for a few products and accounts, carefully selected for the overall goal, preferably with the same administrative platform. It saves time and money when it comes to tracking assets and paying tax. It saves mental energy too. Everyone is busy, wealthy people specifically because of their broader choices and lifestyles. Their financial affairs shouldn’t consume more time because it’s spread over many different products and is difficult to track.

On review of your investment portfolio, consider whether it speaks of design, planning or intent, or if it tells the story of brokers selling you a multitude of products for the upfront commission or the ‘flavour of the month’ investment.
Your answer is telling of your financial strategy or lack thereof.

What does your portfolio speak of?

Ps. I love to hear your comments. If you are not on our mailing list, you can subscribe to receive this blog every week on our website www.foundationsa.com.

Kind regards,

Sunél

//2 October 2020