eBusiness Weekly
Review your investment strategy from the get-go. Ensure you define your short-term and longer-term (retirement) goals and devise a strategy with your advisor to reach them.
Review your asset allocation within your portfolio. With a very rapid, ever-changing world, your portfolio needs to be adjusted accordingly.
Review your risk portfolio. As our incomes increase and our families and commitments expand, our protection must also be adjusted. Ensure you have sufficient life cover, severe illness and disability cover, and income protection to protect yourself and your family.
Estate planning — ensure you do a holistic review of your estate plan and that you have an updated will in place. Doing so can ensure that unwanted taxes are avoided through improving structures within the portfolio and that your family is taken care of by not having to wait for an estate to be wound up 12 to 24 months after your death, if not longer.
Have a will drafted, and ensure it is signed!
Review your benefits at work. Many of us start at a new company with the lowest contribution to a retirement fund (e.g. 5 percent) and never review this again; ensure you are saving enough.
Review your beneficiary nominations, especially after any life event.
Ensure your medical aid plan still accommodates your needs. If needed, a lower plan can be considered with Gap cover. Get expert advice if you have any chronic medication requirements.
If your portfolio is mainly cash or bond-based and you earn interest, ensure you understand the tax implications. You have a small annual interest exemption; anything over and above this earned in interest will be taxed at your marginal rate. This is something to be wary of in a high interest rate environment.
Ensure you know of any capital gains tax implications if you switch or rebalance your equity portfolios.
Diversify offshore — directly. This will allow you to benefit from a different currency and have exposure to other economies, sectors and jurisdictions, hedging against the impact of rand weakness and a shrinking JSE.
Underst and that offshore exposure is not everything and carries its own risk and volatility. If we remove the ‘‘Magnificent 7’’ from the S&P500 in 2023, the double-digit returns we enjoyed quickly become single-digit. Approach offshore diversification with caution and with strategy in mind.
Ensure your offshore portfolios are in the appropriate vehicles. Probate and situs tax in different jurisdictions can cause great headaches. UK and US inheritance tax is levied at as much as 40%.
A sliding scale applies, but the impact needs to be considered carefully for high-net-worth individuals.
You can opt for more appropriate vehicles where tax is managed, and estate planning is considered.
Structure an emergency fund, something purely for short-term needs — an emergency or a holiday. You don’t want to dip into your savings whenever an unforeseen expense occurs.
Involve your spouse/partner in your financial planning discussions. One of the greatest struggles we deal with as advisors is a spouse falling ill or passing away, and the spouse/family is left with no idea of what portfolio was in place — or not in place.
Review your budget. We need to revisit what we are spending in detail. We tend to overspend on housing, vehicles, and debt and underspend on future planning. I recommend printing the last six bank statements and analysing your spending line by line.
Start saving for your child’s education early on. It’s much easier investing a mere R500 p.m. when you have 18 years to do so — compared to playing catch-up with a 16-year-old.
Teach your children about finances and wealth planning from early on. You have the power to change their future way of thinking about finances; perhaps opportunities older generations did not have.
Give equal priority to your home loan and your investment portfolio. It won’t help much to retire without any debt but not have a substantial portfolio to live off of. Ensure you know what you need to replace your income needs; it’s more than you think if we consider inflation and tax.
Plan your year. If we plan for holidays and “life”, we can also save for them. Holiday planning can form part of the planning in your portfolio.
Don’t have excessive exposure to any one thing. Not one country, one currency or one share.
There are no quick fixes with investment portfolios. Stay away from products or schemes that seem too good to be true — they are. As Paul Samuelson said:
Investing should be more like watching paint dry or watching grass grow. If you want excitement, take US$800 and go to Las Vegas. — Moneyweb
