Divorce and money matters

– By Sunél Veldtman

Too many times I’ve sat across the table from a sobbing woman going through divorce. Divorce is always heart breaking – but divorce involving a woman who has sacrificed her career, her financial power and sometimes her identity is particularly traumatic.

Invariably, it’s tempting to tell younger women behind her: “Don’t make the same mistake. Do not give up your career. Always maintain your financial independence!”

It all sounds simple. Have your own career. Maintain your financial independence.

But then life happens. You start a family. His job requires extensive travelling. Two demanding jobs is not sustainable or necessarily conducive to building a family. So you agree that you will scale down. It’s logical since you take care of the kids. Your job takes second place. He excels and earns the big bucks. You support him and keep the home fires burning. Then you split up and find yourself as a single parent at a time when you have to return to a serious job to earn serious money to support yourself in the future. If you were lucky, there were assets (that you knew of) that could be divided up to provide for your retirement. Usually (sadly), there aren’t.

I’m not stereotyping. Money is power. You can replace the she for he in this example and the result will be the same.

Career’s frequently require sacrifice for reward. That sacrifice comes in the form of time, money or both – and someone has to be willing to give something up.

Sometimes the sacrifice is discussed – there is a spoken or written contract. More often than not though – it is assumed or unspoken.

Highly qualified women who make the career sacrifice are particularly vulnerable. You give up your career to raise a family, but when you get divorced, your qualification will make you more easily rehabilitatable (as if you have been addicted to a drug!). That’s right. You will be expected, to get back up on your feet in the world of work in no time at all.

Financial independence is not always achievable. It is not always practical. In most modern families, financial reward may shift between partners over time.

So how do we advise couples to navigate through this issue?

  1. Realise, that regardless of your marriage contract – if one partner is making a career sacrifice for the other or for the family – there needs to be an agreement on how that partner will be rewarded for that sacrifice.
  2. You need to agree on how all of the financial resources will be spent. Too often, a wife gets a “salary” from her husband to run the household and pay for her personal expenses. That wife has no financial power other than her (often marginal) budget. If this couple splits, she often has no knowledge of the rest of the assets and seldom has any power over them.
  3. You both need to know of all the details of all the financial decisions, regardless of your marriage contract. If you (as the wife) are dependent on those decisions for your financial future, you have the right and the responsibility to know. Attend meetings with the financial advisor or banker.
  4. We advise women to remain informed and preferably keep their skills sharp. Women who have stayed in touch with the workforce, find it easier to get back into it. Do not let go in totality.
  5. We also encourage women to save or invest some of their own money. Your will learn by doing and not just witnessing. You will improve your knowledge about financial products.

Finally, financial independence is not always practical or even desired. In the extreme, it is unhelpful to maintain a happy relationship. Selfishness and a lack of genuine care for each other’s wellbeing often masks as financial independence.

I advise couples to be financially symbiotic – a mutually beneficial relationship. It recognises the contribution of both partners and the right of both to benefit financially from the agreement. It requires open and honest conversation and negotiating skills.

What keeps you going?

-By Sunél Veldtman

 

Some thoughts for those of us in the later stage(s) of our career

Watching Federer and Nadal battle it out for the Australian Open Title, I marvelled at both men’s endurance. I have to confess, I am a Federer fan. There he is, late in his career, in better shape than ever and at the top of his game. What keeps him going? What keeps him motivated to win another one?

Not only does he keep going, he has also decided to come back from knee surgery last year at the age of 35. He was at the pinnacle: the greatest male tennis player ever with 18 grand slam titles behind his name. He could’ve easily retired to spend more time with his young family. However, not only did he come back but he came back with a new coach, to become only the second person ever to claim five Australian Open titles.

It cannot possibly be about the money. In his own words he said he’s made enough to last three generations.

So what can we learn from Federer?

This is an important question for us all: What keeps us going? Especially the ones who have been around in an industry for a few decades.

  • Be disciplined. Looking at Federer’s physical shape (easy on eye isnt he?) – it’s clear that he has changed his diet and fitness routine. He is less bulky and looks super fit. The hours of disciplined training is paying off. Discipline is such an important part of success, and continued success. Early on in our careers we are driven by the desire to prove ourselves. For most of us, that has happened. We have earned our stripes. However, we need to remind ourselves to keep the discipline of good habits. Whatever that requires. It can even revive our lives. Disciplines of exercise, good diet, good sleeping habits and seeking healthy friendships are crucial at a generally challenging time in our lives (menopause and mid-life crises are the silent stages that come with huge challenges.)
  • Keep learning. Appointing a new coach and adopting a new game plan is testimony to Federer’s desire to improve. The desire to learn will keep us fresh and competitive. I often have to remind myself to keep an open mind about learning from younger colleagues. We can never get complacent. We should always keep learning even if we are no longer competing in the workplace. It will keep us in good mental health.
  • Set new goals. Federer admits that he could’ve stopped playing tennis after becoming the Wimbledon champion the first time because that was his life’s ambition. But he didn’t stop there. He set his sights on a further goal. We should all set more goals and dream bigger dreams, no matter what our age.
  • Having fun. I have industry colleagues who are still at it at 70. Why? Why not? Federer said he’s not retiring because tennis is still great fun! We should be the same. Never stop having fun.

So keep at it. If you are no longer having fun, change direction, but keep at it as long as possible. For yourself. Your health. Your quality of life. Keep going.

 

 

 

Why should you update your balance sheet every year (and discuss it with your financial planner)

-By Sunél Veldtman

 

Over the years, I have learnt a lot from my clients, many of whom are successful business people and entrepreneurs. One such useful practice was to update one’s balance sheet every year.

A balance sheet is simply a list of what you own (assets) and what you owe (liabilities). The former should ideally outweigh the latter!

 

What to take into account?

You should include the obvious such as your primary residence, other properties, vehicles, your investments and policies. It is easy to forget some assets (and some liabilities!). Less obvious assets are loans outstanding to your family trust, your company or family members, and your interests in businesses. Also, remember your retirement assets – especially your employer’s pension fund.

However, remember that family trust assets do not form part of your assets.

 

How will it help you?

  • Your balance sheet will highlight growth (or the lack of it) and will fill you with a sense of achievement and gratitude or spur you on to work on your financial goals;
  • Review each asset and liability. What is the purpose of the asset in your life? Do you still need that share in a weekend home that you never use? Do you still need the life policy now that your kids are independent? Should you not pay off that loan or renegotiate the terms?
  • Update your insurance schedules. You can save money by insuring lower vehicle values. On the other hand, your home value may have to be increased.
  • Your tax consultant might need it to submit with your tax return. You will also need to submit a balance sheet when you apply for an annual foreign currency discretionary allowance to take funds out of the country.
  • You can keep track of your separate or joint estates as spouses. If you are married out of community of property (without the accrual) and one spouse is financially dependent on the other, it is important that you discuss how the assets are split. If you are married with the accrual, it is easier to track the accrual. This becomes critical information not only at divorce but also at death.
  • Talk to your financial planner about changes in your balance sheet. It may affect your financial plan.
  • Update your will if necessary to reflect big changes in your balance sheet. From time to time, especially if you have assets in excess of R3.5 million, calculate the estate duty that will be due at your death to see if there will be enough cash in your estate. Your financial planner can help with this calculation.
  • Send it to your executor or let them know where to find it so that it will be easier to wind up your estate (one day) and less stressful for your family.

 

Adopting a discipline like this, can be one of the best financial decisions you make. Make the time, it will be worth it.

At Foundation Family Wealth, we aim for holistic advice. Taking a client’s entire balance sheet into account leads to personalised and appropriate advice. We encourage our clients to update their balance sheets regularly and we like to discuss the implications of the changes to their financial plans.

Market Overview: Q4 of 2016

There are decades where nothing happens, and then there are weeks where decades happen.” Vladimir Lenin.

2016 had two big weeks that changed how we view the world. Britain voted to exit the Eurozone in June, which could have a domino effect and see other countries leaving too. Donald Trump got elected President of America; with certain policies that could spark economic growth and others that can take us back 20 years.

 

Asset Class Currency 1 Month 3 Month 2016 YTD 2015
Local Equity ZAR 1.0% -2.1% 2.6% 5.1%
Local Bonds ZAR 1.5% 0.3% 15.4% -3.9%
Local Property ZAR 4.2% 1.3% 10.2% 8.0%
Local Cash ZAR 0.6% 1.9% 7.4% 6.5%
Resources ZAR -3.6% -1.2% 34.2% -37.0%
Industrials ZAR 1.8% -4.7% -6.5% 15.3%
Financials ZAR 3.5% 2.9% 5.4% 3.9%
R/US Dollar 2.5% 0.6% 11.7% -33.9%
R/Pound 3.6% 5.4% 26.0% -26.6%
Global Equities USD 2.2% 1.2% 7.9% -2.4%
Emerging Market Equities USD 0.2% -4.2% 11.2% -14.9%
Local Equity USD 1.0% -2.1% 2.6% 5.1%

Source: PortfolioMetrix, Bloomberg

 

Local equities were hit by a strengthening Rand and ended the quarter 2.1% lower with a dismal return of only 2.6% for 2016.

Local bonds were the shining light recovering from the shenanigans of December 2015 when Finance Minister Nene was fired. Bonds further strengthened as we avoided a credit ratings downgrade in December.

Bonds were up 15% in 2016. In dollar terms, we saw positive returns over the year with emerging markets recovering from a torrid 2015 up 11% in 2016.

 

snip1

Source: I-Net Bridge

 

The market P/E as shown above indicates that the JSE All Share Index is expensive at current levels trading at a P/E of 22.8. However, half of this index consists of the 10 biggest companies. Of those, Naspers makes up the biggest portion comprising of 14%. Naspers is currently trading at a P/E multiple of 77. The Top 10 resource companies are trading at a P/E of 30. This is mainly due to depleted earnings figures published last year. If we look at the Top 15 financial stocks on the market, their P/E is only 13. Although the market as a whole might look expensive, there are definitely stocks out there that are more affordable. Stock selection will be more important than usual.

From the graph below it is interesting to note that small and medium size firms on the JSE had an excellent year recovering from the losses of 2016. Performance was boosted by the recovery in the resource sector that was up 34% at year-end. Large shares were mainly pulled down by the big Rand hedge firms ending in the red.

 

02

Source: I-Net Bridge, Investec

 

The Rand strengthened against all major currencies in 2016. The graph below illustrates the 5-year movement of the Rand. With SA inflation in a long-term range of 5-6% in comparison with major economies between 0 – 2%, the long-term trend will always be a weakening Rand. Although political events might cause big shifts in the currency it tends to revert to fair value.

 

03

Source: I-Net Bridge, Investec

 

Inflation for the year was at 6.8% mainly driven by food inflation that was above 11%. Inflation is expected to come back under the 6% threshold this year. This is mainly driven by food inflation that is expected to subside as the improved rainfall is expected to increase the maize production. It is also expected that there will be no hike in interest rates by the Reserve Bank should inflation pressure ease.

The graph below illustrates these projections.

 

04

Source: PortfolioMetrix

 

On November 8, 2016, the United States of America had their elections. In yet another shock result Donald Trump was elected President ahead of the favourite, Hilary Clinton. US equity markets reacted positively to the news. This is mainly driven by promises to reduce corporate tax and implement stricter policies on imports to increase competitiveness on US soil as well as increased spending on infrastructure. Trump’s “America First” push is unprecedented and unknown. How this policy will be implemented and how corporates and the rest of the world will react to this policy shift, heightens uncertainty.

Continuing on the global front, Theresa May was pushing for what is described as a hard Brexit. This was met with strong resistance from parliament. The UK has set a deadline of 30 March 2017 to trigger Article 50 of the Lisbon Treaty. This story will develop rapidly in the coming months. There have been mixed market reactions since the referendum. Initially both the markets and the pound tumbled. The Pound has weakened considerably and lost 17% since the vote. This illustrates that a globally diversified equity market such as the UK’s, benefits from a weak pound. The doom and gloom over Brexit and the potential impact on the UK equity market is overrated. Even the FTSE250 (which is a better yardstick of the UK economy) has returned more than 4% since Brexit.

 

Capture

Source: Bloomberg

 

In America, the Federal Reserve finally increased their interest rate with 0.25% as expected. Fed Chair, Yellen, has signaled further hikes in 2017 as the US economy improves.

The most significant event in December happened when OPEC (Organization of the Petroleum Exporting Countries) agreed to cut production of oil for the first time in 8 years. Russia followed suit. This led to a significant jump in the oil price to above the $56 mark. Whether this deal will hold is difficult to forecast. The higher oil price would mean that US companies might start drilling again, which could lead to a surge in supply and dampen the current surge in the price.

On the local front, the NEC led by Tourism Minister Derek Hanekom, pushed for a motion against President Zuma to step down. This was the first time the NEC, or at least some members, openly came out against the president. The Zuma camp rushed to have the motion dismissed. Expect the buildup to the ANC’s Leadership Conference and the battle for the heart of the party to create significant volatility this year.

In December, our Treasury fought off a downgrade of our bonds to junk status. This was an incredible effort but we are not out of the woods yet. Ratings agencies will look to tighter fiscal policy in the Budget speech and improved growth when we are up for review again in June.

The political changes that occurred in 2016 bring a fundamental shift in policies – and the extent of these will unfold over the coming months and years ahead. With the Netherlands, France and Germany heading to the polls throughout 2017 – we could see even more shifts. Campaigns might be formed around leaving the European Union and this might cause more uncertainty. With signs that the economic climate is improving in America – it could boost economic activity globally. Further Fed rate hikes and destructive policies on trade could potentially put a damper on emerging markets.

 

So where does this leave us?

In a diversified portfolio, there will always be asset classes that will perform and under-perform.  The article below is an excellent read on how various asset categories have fluctuated from being the best to worst performers for a given year.

http://www.moneyweb.co.za/investing/unit-trusts/so-you-think-you-can-pick-next-years-winning-fund/

 

Riskier assets are essential

In the long-term having riskier assets such as equities in a portfolio – is essential to most investors to beat inflation. Just because local bonds outperformed in 2016 does not mean you should change your portfolio to include more of this asset class. Most investors are in it for the long run and need equities in their portfolios.

Another common error in times like these is to keep too much cash until the uncertainty has blown over. After all, even cash beat equities last year. However, markets are always uncertain. By the time, markets are exuberant again, it will be too late and you are probably not going to get an average return.

When the pain seems at its worst, it is definitely not the time to bail. Portfolios are probably underweight local equities due to the recent underperformance. This is a time to rebalance to the desired long-term weight, not to reduce local equities.

 

Glossary

P/E

The price-earnings ratio (P/E Ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-earnings ratio can be calculated as: Market Value per Share / Earnings per Share.

 

 

Is your Financial Advisor CFP® qualified? Look for the CFP® mark

The CERTIFIED FINANCIAL PLANNER®/CFP® certification is the premier financial planning accreditation in the world and is recognised in 26 different countries. Currently in South Africa, less than 5% of financial advisors are accredited CFP® professionals.  Not only is the qualification a rigorous process, but CPP® professionals are bound by the FPI Code of Ethics and Practice Standards and are part of a worldwide professional financial planning network.

We are pleased to see that the Financial Service Board intends to recognise the term “financial planner”. They have proposed that a financial advisor may only use the term “financial planner” once they have met the standards set by a professional body such as the Financial Planning Institute (FPI). This body is the custodian of the CERTIFIED FINANCIAL PLANNER®/CFP® qualification in South Africa.

When it comes to health – we make sure that we get the best doctor, surgeon or specialist available.  Dealing with your financial affairs should be no different.  We encourage you to choose competent financial professionals that put your needs first, with utmost integrity.  Make sure to look for the CFP® mark!

At Foundation Family Wealth, we aim to provide excellent advice. One of the ways in which we achieve this, is to ensure that all our financial advisors are CFP® professionals, qualified to provide excellent financial planning with integrity.

 

 

Words Worth Reading

Annual forecasts and Market Returns

The customary annual forecasts for market returns have poured in but research shows that they are useless. Read this article from the New York Times – Wall Streets Annual Stocks Forecasts Bullish And Often Wrong

 

How Much Does Luck Have to Do with Success?

We loved this read: Stop and Acknowledge How Much Luck Has to Do With Your Success… If you’ve read Malcolm Gladwell, Outliers: The Story of Success – this article will resonate even deeper. Go ahead. Practice saying out loud, “I am very, very lucky.” And guess what? You can say those words and still have working hard, learning more and daring to play in traffic be really important”… Read more here and share with other lucky, hardworking individuals.

 

Investing in Creativity and The Greater Good

Excited about investing in The Arts and Creativity? We loved this article about unleashing more capital for creativity.  Inspired by your investments… Now there’s a thought.  Read more here.

 

How Much (Money) Is Enough?

This article appeared in the New York Times in late November 2016. It’s timeless though… It begs the question we all need to answer at every stage of our lives – no matter how much money we are or are not making, How Much Is Enough? How does money make us feel? What does is say about our values – and what about our spending and our saving and what this ultimately says about our family values. Challenging! We’d love to hear more from you on this one…

 

Distinguish between enough and most.

Seth Godin writes this short, insightful read on the difference between “enough” and “most”… This is also true about money. When it comes to financial planning – wanting “most” is often a trap for dangerous strategies. Your thoughts?

 

Just for fun…

This is fun… If you think you’re smart – try this – What got better or worse during Obama’s presidency?