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Category Archives: Finance

Get your cash together

Go carless

The idea of the first challenge – to ‘go carless’ – was to walk/cycle/use the bus or Gautrain or a service like Uber to get to work instead of driving.

I took Uber to work for a week and each trip cost me about R130 one way. If I extended this over a month, this ended up being more than my average spend spend on petrol per month, which is about R100 per day. What worked better was carpooling with a colleague, allowing us to both save money on petrol.

As a young adult I have not been responsible for a lot of my transport costs and one of the things I realised is just how expensive it is to move around a city like Johannesburg. Transport costs add up quickly, and if you can do a bit of planning in advance, you can save a fair amount of your disposable income.

Subscription subtraction

This was the next challenge and I was asked to cancel or reduce a subscription such as DStv, gym, magazines or data.

When my mother was picking up the bill, it was easy to start a whole lot of hobbies but as soon as I realised how much it costs to fund these activities, I had to rethink my existing subscriptions.

I don’t go to gym as often as I would like to and if I was honest with myself, I wasn’t getting my full value out of this contract. Dancing was a better form of exercise for my health, so I prioritised what I got the most value out of.


This challenge helped me the most and I recommend it to anybody struggling with their cell phone or data bill. I was on contract and my data bill came to R2 000 in June, this was not the first time that happened, and my parents were less-than-impressed.

How did it get to R2 000 you ask? Well my data for that month would run out but wouldn’t cut me off… it allowed me to use data just at double the price.

I am now on pay-as-you-go and able to limit the amount I spend on my data every month and with the 22Seven app, it is easy to monitor.

When I run out of data it is cheaper to top up than it would have been on my contract. It has also made me a lot more conscious of my daily data usage.

Lunch de-loaded

When you start earning your first salary you start spending money on things like Woolworths sandwiches and fast food.

In this challenge you had to pack lunches for a week instead of buying them and then compare that cost with what you normally spend on food. I started tracking the spend on the app and found I was often spending R50 per day on lunch. And on an interns salary, that adds up pretty quickly.

I found this challenge difficult because I didn’t have a lot of time in the morning, but on the days I was able to do it, I could save between R30 and R50.

Find something free

As I’m still young, I do want to go out and have fun but unfortunately that comes at a cost.

This challenge was to find something free (or very cheap) for entertainment and compare that to what a meal or night out would have cost.

This month I was fortunate enough to have received a two-for-one ticket to Parker’s Comedy and Jive at Montecasino. I went with a friend and I now aim to find more things like this where I can socialise smartly.

Have a no-spend Sunday

If I have money I will spend it. By picking one day in the week where I tell myself that I am not spending any money, I can immediately take some pressure off my budget.

For this challenge, I chose a Sunday and packed a picnic basket from groceries we had at home and then enjoyed a great day in Delta Park with the family.

Pay yourself first on payday

This challenge meant I had to put a few hundred bucks into a loan or savings account or investment and see if I even felt the loss of that money later in the month.

This helped me create a habit of putting R200 away in a small investment account and I will be able to monitor how much I save with this monthly task through the app.

By doing this I discovered an interesting calculation using one of the online savings calculators. If I take the R200 per month and save it for the next 20 years, and increase it by 10% each year, I will have saved about R258 000 just through this habit.

Overall the 22 days were a success and while I did have a few bumps in the road it pushed me to break those bad spending habit that I have adopted and helped me to implement some good habits that I will be able to use in the future.

How is estate duty calculated?

The value of the assets is based on their market value, which the executor is tasked with determining. When it comes to assets such as immovable property, an appraiser appointed in terms of the Administration of Deceased Estates Act will have to be used and the estate will have to pay this person’s fees.

Practically, the car’s value will be the book value, unless it is sold, in which case it will be the actual sale price. Note that the Master can insist on an appraiser valuing any property (not only immovable property) if he has reason to believe that the value provided by the executor is not reasonable.

  • Are life insurance policies included in the assets as deemed property a) for the purposes of calculating executor’s fees; and b) for the purposes of calculating estate duty? 

If a beneficiary has been nominated then the policy benefits will pay directly to the beneficiary and will not fall into the estate. The executor will therefore not be eligible to charge his fee on the amount and it will only not attract estate duty if one of the spouses is the beneficiary or if it is a qualifying keyman or buy and sell policy.

If, however, no beneficiary is nominated or the estate is nominated as the beneficiary, then the benefits will fall into the estate, under the administration of the executor and he will charge his fee accordingly.

In such a case, the benefits will also be taken into account when calculating estate duty, unless the life insurance policy is exempt in terms of the provisions of the Estate Duty Act, or accrues to the surviving spouse. Interestingly, it is the person who receives the benefits who will have to actually pay the estate duty attributed to the policy benefits.

The types of policies that are exempt are certain employer owned policies, such as certain keyman policies, certain buy and sell policies, and policies that have been taken out to meet a requirement in an ante nuptial contract. In addition, any benefits, including death benefits from long term insurance policies that accrue to a surviving spouse, qualify as a deduction when it comes to estate duty under section 4(q) of the Act, thus no estate will be attributed to those policies. 

  • I have a retirement income fund (living annuity). Is this included in the assets of the estate for the purposes of a) calculating the executor’s fees; and b) for the purposes of calculating estate duty? If so, what value is given to this retirement funding given that it is pre-tax money?

If you have nominated a beneficiary for the annuity, then the benefit will pay directly to that beneficiary and it will not be included in the estate. The executor will therefore not be eligible for a fee on it. If no beneficiary is nominated, then the benefit will be paid to the deceased’s estate, as a lump sum.

This lump sum will attract retirement tax in the deceased’s hands, and the after tax benefit will be paid to the estate. The executor will then deal with this asset and will accordingly charge his fee.

In terms of current legislation, the benefits in an approved retirement fund or compulsory annuity are exempt from estate duty. This may change to some extent going forward, as National Treasury intends to include any “disallowed contributions” for estate duty purposes. We only have draft legislation on this at this point in time, so we do not know for certain how this will actually play out.

  • From what I have read, the entire estate from the first spouse to pass away can be transferred to the surviving spouse with no estate duty being payable. Also, the first R3.5 million of the value of the estate is exempt from estate duty. My wife and my wills, which were drawn up some time ago, specify that the first R3.5 million of our estates is transferred to our family trust. This means that the second of us to pass away will have R7 million exempt from estate duty. However, I have read more recently that the R3.5 million exemption is automatically transferred to the surviving spouse, so is there any need to transfer the second R3.5 million to a trust?

You are correct that the abatement now automatically rolls over to the surviving spouse, unless used on the death of the first dying spouse. So, if the first dying spouse leaves his or her entire estate to the survivor, then on the survivor’s death estate duty is only levied on the estate in excess of R7 million.

It is therefore true to say that the abatement is no longer lost if not used on the death of the first spouse. But, what must be kept in mind is that the potential growth on the R3.5 million may well be lost.

If R3.5 million is bequeathed to the family trust and invested, when the surviving spouse passes away, then R3.5 million could have enjoyed good growth and now be worth more. If it had not been bequeathed to the trust and invested, it would remain R3.5 million.

Overall, when looking at your estate planning it is essential to ensure that the surviving spouse is adequately catered for. He or she must have sufficient capital after all the taxes and administration expenses have been paid to enjoy a comfortable standard of living.

If bequeathing the R3.5 million to the family trust (or adult children) results in his or her standard of living being adversely impacted, then this should not be the route selected. However, if there is more than enough cash in the estate, and the bequest poses no risk at all to the surviving spouse, then it still has merit as an estate planning tool.

When is investing in property a good idea?

In looking at your situation, you are both doing relatively well from an earnings point of view, but the 15-year difference in age is a huge factor that makes planning much more difficult. You also started a family relatively late and as we all know, kids are incredibly expensive, especially in their teens and early 20s.

Given your family situation, it counts in your favour that your husband plans to work until age 71. We fully support people carrying on their working lives while this is still fulfilling, and the additional economic contribution it provides increases your chances of being financially independent in retirement. If it is possible for your husband to continue to earn some money for another few years beyond age 71, this again would be an enormous help.

Before going into the specifics of your situation, there are a few considerations to bear in mind when considering the investment case for physical property against an investment in a balanced portfolio:

  • Property can be leveraged, balanced unit trusts should not.
  • You will receive a capital gain from the property and also earn an income once you have retired.
  • Liquidity in real estate can be a problem from time to time. The transaction costs involved are also very high and there is the hassle factor of maintenance and finding tenants. If you hire a management company to do this, then this will reduce the rental income. A balanced fund is liquid within a week and is hassle free.
  • Property prices are very interest rate-sensitive and rates are expected to continue to rise in the short term.
  • The long-term average return from SA residential property is lower than portfolios with high equity holdings.

To look at your specific circumstances, we performed a calculation to ascertain how long your money would last, and to determine what returns your investments would need to achieve in order to reduce the risk of outliving your capital.

What should you do with your business’ cash?

I understand your frustration. As a business owner and entrepreneur, every financial decision you make for the business has its opportunity costs. Holding money in a current account, or any savings and investment vehicle, where you earn below inflation, let-alone no yield, exposes you to the following risks:

  • Cost risk – which is the erosion of your capital due to costs and fees incurred to maintain the account.
  • Inflation risk – which is not being able to grow your capital or funds in excess of inflation and eroding your purchasing power over time.
  • Asset allocation risk – which is your capital not being exposed to an optimum mix of asset classes through different investment cycles that can offer the optimal return for a given level of risk.

Like an individual investor, a business should be clear on articulating their short-, medium- and long-term financial objectives and the quantum of funds needed to achieve these. In other words, be clear on how much cash flow is needed to meet the daily operational expenses of the business as well as what potential capital expenditure is required for future projects. These should be invested differently.

Depending on your business’s cash flow cycle, you may find that there is excess cash in the business account from time to time. It’s therefore a good idea to decide on the minimum balance that you’re comfortable having there.

As you indicated, the challenge in deciding how much liquidity you are comfortable with is key. Having a clear plan for the business in the short-, medium- and long-term and reasonable estimates of the costs associated with each will help you to make this decision.

This is on the assumption that the capital currently sitting in your business account is intended as working capital. As a first point of call, banks offer a savings facility attached to your business account.

These come in various forms, for example, money market call accounts or fixed term deposit accounts. The conditions of returns, liquidity and costs will vary with each product. The average yield on a money market call account with one of the four big banks is between 3% and 6% per annum. At these yields, you are barely fending off the inflation risk.

There are, however, alternatives to having your capital lying in your business account. There are many local investment managers that have fixed-income unit trusts that utilise enhanced cash and cash equivalent instruments. These solutions are designed to offer similar levels of liquidity, flexibility and preservation to a money market account, but with the opportunity to earn higher yields of between 5% and 7% per annum.

In conclusion, your business needs to be clear on its minimum cash flow requirements. Traditionally six, eight or 12 months’ average operational expenses should be held in cash depending on the nature of your business.

Ask your bank or another financial services provider how you can incorporate a savings facility within your business account.

Articulate the short-, medium- and long-term financial objectives of the business and align cash flow accordingly.

Divert excess capital in the business account to an alternative savings or investment vehicle, ideally one which gives you exposure to various asset classes.

Always consider the risk factors when making these financial decisions.

Explore consulting a certified financial planner to perhaps create a holistic investment strategy for the business.

How to Choose The Right Funds

I would like to congratulate you on your decision to use your tax-free savings account as part of your retirement planning. The biggest saving the tax fee savings account offers an individual is that you pay no capital gains tax when you withdraw money, and having a tax-free income can have a big impact in your retirement years.

The R500 000 that you are currently allowed to invest in a tax-free savings account during your lifetime is equal to investing R30 000 a year for 16 years and 8 months. The good news in your case is that if you plan to retire at age 65, your annual allowance will be invested for just more than 22 years before you start using it. That means it will be compounding during that time, and you will not have to pay any tax on the gains.

In order to maximise your return on your investment over time, however, you need a clear investment strategy to guide your decisions over time. You appear to appreciate this, as you mentioned that you do not want to make emotional decisions about your underlying investment funds.

You also realise that the investment environment has changed since last year. But if we assume that your investment period is nearly 40 years, we would expect things to change regularly over this time.

As a start, you need to write down your profit objective for your investment. You can then design an investment strategy that will give you the best chance of meeting this goal.

I cannot advise you exactly which funds to invest in, but I can give you some things to think about.

Your time horizon allows you the luxury to invest in more aggressive asset classes such as equities and listed property. Investing in these growth assets over a period of time gives you a high degree of certainty that you will beat inflation on average by 7% per annum. If you can handle volatility in the markets, then you can set that as your objective.

The next step is to design your investment strategy to be robust enough to cater for different market conditions. That means being exposed to different drivers of returns.

For example, the Divi index is essentially a value index and will perform well when that ‘style’ is being rewarded by the market. It however will also go through times when it under-performs, such as it did last year.

Similarly, there will be periods when local equity performs well, and other times when international equities deliver better returns. It is worth considering whether you should be always exposed to both, or if you can make informed decisions about when to direct your contributions to one or the other.

An important decision you need to make in this regard is whether you have sufficient knowledge of the markets to handle investments during different market cycles or whether you are prepared to pay a fee for a professional to handle your investments for you.

While crafting this investment strategy is vital, just as important is having the discipline to stick to it.  You should also have a system in place for measuring the effectiveness of your investment strategy over time.

Just bear in mind that great tactics may win battles, but well thought out investment strategies win wars.

Your budget versus your lifestyle

Let’s face it: we all want the lifestyle of our wealthy friends, neighbours or celebrities even when our own lives might be on the right track.  We never seem to have enough, unless of course we decide to change the way we think and how we measure our own success. That starts by living within our means – something that is not an easy decision for most of us to do.

I recently met investors who should have been very well off during retirement as they have managed to save more than R 20 million. Unfortunately, their lifestyle costs are so high that their money will only last for ten to 12 years after retirement.  They need to make drastic changes to their spending habits or retirement is going to be a difficult time for them.

How did this happen?

My sense of these investors is that they earned a great income and never once budgeted to save. Their saving was an accident and something that happened on an ad hoc basis because they never had a spending plan. Your budget is in constant competition with your lifestyle unless you keep it under tight control. Life is about making compromises, but you need to make sure that you take the negativity out of this process and look for positive compromises. What do you really want? Do you want to curb your grocery spending so that you can have one great meal eating out at that fantastic new restaurant? Would you like to send your child to private school or live in the bigger house? Drive the new shiny car or go on a holiday?

You need to decide what makes you happy and spend your money on this. That means you need a budget – something most people don’t have. Once you have worked out what you need every month to cover your lifestyle costs, transfer the difference in your transaction account to another account, where you won’t be tempted to spend it on frivolous items. Hopefully there is an excess in your budget and if there isn’t, get a third party to help you. You are the only one with an emotional attachment to your money and a pair of impartial eyes can help to make you think clearly about your money and to make smarter decisions.

And then you need patience. Once you have decided that you want to take that trip to Italy, you have two choices. You can go immediately and use your credit card or you can save and wait until you have the money to pay for the trip. If you have the cash available; a trip to Italy will cost you at least R 25 000 (as an example). If you decide to pay upfront with a credit card it will cost you between R 44 289 and R 64 843, depending on whether you pay it off in three or five years at an interest rate of 21% per annum. Most of us are able to stomach R 25 000 for such a trip, but R 64 843 is a bit rich. Patience has a real monetary value.

Patience is tested especially when you start to save for retirement. This is usually because we do not have an idea of what retirement will look like. We almost try to avoid it, because it reminds us that we are getting older. If you know where you would like to stay after retirement and what you would like to do with your time, the decision to save for it becomes far easier.

Lifestyle is important; this is how we live every day, but it must fit into your income. So figure out what you can do without to make the things that are really important to you, obtainable.

Tips for Teaching Your Children About Money

For many parents, money is an uncomfortable subject. Discussing finances with your children is either too scary or too personal for many people.

However, a panel of experts at The 2016 Money Expo agreed that this is one of the most important subjects any parent has to manage. Preparing your children for their financial futures is one of the greatest gifts you can give them.

Nikki Taylor from Taylored Financial Solutions said that the earlier parents start on this journey, the easier and more effective the lessons will be.

“For me, it’s about starting them early,” said Taylor. “How do you teach children manners? You don’t wait until they are 15. You start when they are really young.”

Brand manager at Emperor Asset Management, Lungile Msibi, said that even two- and three-year olds can appreciate the lessons of delayed gratification and working towards a goal.

“Start kids when they are young with goal-based savings,” she advised. “If they want a Barbie doll, for instance, show how they can save towards that goal. That’s important because later in life they will understand that you can’t invest if you don’t have a goal.”

As they grow older, you will have therefore prepared them for conversations about investing for the long term. It’s particularly helpful if family members support you.

“When my kids were born I gave their grandparents bank account details for both of them and said instead of filling my house with toys at birthdays and Christmas, please put money in these bank accounts,” said Taylor. “My children still get toys and presents, but they also see the money in their accounts and how it is earning interest. They now get excited at every birthday and Christmas to see who has put money in for them and how much they now have.”

It’s also important to involve your children in how you are saving for their own futures through things like education plans or unit trusts that they will receive later in life.

“I’m saving for different stages of my son’s life and he knows what each of those investments are and what they are for,” said Dineo Tsamela, founder of The Piggie Banker. “He gets excited because he can see what that money means for him – that he will have access to a really great education and that he will have some financial security. He appreciates that money is not just about what it can get you now.”

Msibi said that it’s also important to teach children the impact of the choices they make. She used the example of a child who wanted a new iPhone, but his parents offered him the choice of having them invest that money instead.

“The value of an iPhone in one year or two years diminishes,” said Msibi. “But if your child rather invested that R10 000, it could make a huge financial difference later in life if you give it 40 or 50 years to grow.”

It is also crucial that parents instil a sense of where money comes from.

“You have to teach them the value of work,” said Tsamela. “It’s very important for children to understand that money doesn’t just happen – that there are things you have to do for it to come in.”

Taylor agreed.

“If my kids want anything we negotiate how many stars it will cost, and I then allocate them stars for things like good manners or cleaning a room,” she said. “They ask me why they have to get stars when their friends get things for free, and I explain that mommy has to work for everything she earns, and that’s an important conversation. Because it becomes something they have to work towards, they also have to consider whether it’s worth it or whether there is something else they want more instead.”

Crucially, this is also linked to the values we teach our children. And those values are most often conveyed in how we ourselves treat money.

“What value system do you instil in your children through the way you spend your money?” asked Kristia van Heerden, CEO of Just One Lap. “We should think about how we interact with money and what money can do for us.”

Tsamela added that parents have to think about the lessons they are teaching through how they talk about what money is and why it is important.

“Putting the emphasis on saying that you have to be rich, you have to have money distorts children’s view of how the world works,” she said. “Don’t make money the primary thing. What is primary is fulfilment and that you enjoy your life. Everything else comes afterwards.”

Importantly, parents should consider carefully what they teach their children about what it means to be successful.

“Parents need to teach their children about purpose, resilience, following their dreams and pursuing them relentlessly,” said Nonqaba Stamper from FundBabies. “If they help their children to become the best version of themselves, that is when they contribute to society and make South Africa a better place. When they see themselves as people who can add value, that’s where true success lies.”

What to do with bonus money

A lot of people who get a bonus or once off additional income for whatever reason, tend to ‘blow it’ as you have pointed out. It is therefore a very good idea to try to think of better things to do with the money. I would, however, suggest that you consider not only your immediate or short term needs but also the long term potential of any extra income you receive – no matter how small.

If you have a need for extra monthly income, which might be the case if you are currently using a credit card or overdraft because your expenses are close to or more than your current monthly income, then I support your idea of putting the money in a vehicle that will allow you to supplement your income for the next two years.

A two year term, however, is a very short time horizon for an investment and I assume you intend to be drawing the full amount over the two years. In other words, you will be left with nothing at the end.

If so, you will need access to the money and very little, if any, risk. With these constraints in mind, I would suggest either multi-asset income unit trusts – the top funds produce between 8% and 10% per annum historically – or a bank savings, call or money market account with cash immediately available. These bank accounts produce between 5.5% and 7.5% per annum, depending on the amount.

Let’s use an example and say the amount is R50 000. If you can achieve returns of 10% per annum for the next two years, this will produce an income of R2 307 per month for 24 months before being depleted. At 7% per annum, the monthly amount will be R2 194 per month, so there is only a small difference, which means it is probably not worth taking the extra risk.

The question is whether you actually need additional income or if you are just going to be spending it over 24 months instead of one month. If you don’t really have a requirement for the additional income, you may want to consider investing the amount for a longer term so that it can produce even more for you.

You could consider putting the money into a tax-free savings account or retirement annuity (RA). By contributing to an RA, you would be reducing your taxable income. This means you could get something more back from the South African Revenue Service next year, depending on what retirement contributions you are already making.

Let’s use the same R50 000 we used for the example above and assume that you are below the maximum deductible contributions to your retirement funding. This is currently 27.5% of your remuneration or taxable income, or R350 000 per annum, whichever is lower.

Let’s also assume that you are in a 36% tax bracket. If that is the case, you would get an additional R18 000 back from SARS or have to pay in R18 000 less for income tax when you submit your next return. In other words, you receive your R50 000 dividend, you invest it into an RA which results in you having an extra R18 000 next year, and the R50 000 also grows until you retire. You can only access the money in an RA once you turn 55.

The tax free savings account option wouldn’t allow you to deduct contributions for tax, but it also doesn’t tie the money up until retirement. Taking into account that growth and income in the investment is not taxed, you can benefit hugely if you think of it as an additional retirement savings plan.

Let’s say that you have 20 years to retirement. If you put R30 000 per year into a tax free savings account and achieved growth of 10% per year, you would have an additional R1.7 million at retirement with no tax consequences at all. R1.1 million of that would represent gains which would otherwise have been taxed. You can also draw this money out at any time if you have a need for it, so it has the benefit of being an ’emergency fund’ for added security.

The idea is that whenever you get a little extra, take that amount and make it work even more for you, and so improve your position over time. You are thinking along the right path but a two year term doesn’t give you too many options without substantial risk. If you can think longer term, you would be surprised at how much more those dividends can do for you.

Three key investment mistakes to avoid

The current environment is an extremely testing one for fund managers. There is so much uncertainty on so many levels, that selecting appropriate investments takes both a lot of analysis and a lot of courage.

However, Paul Bosman, the co-manager of the PSG Balanced Fund, says that even in times like this it is possible to build robust portfolios that allow both the fund managers and investors to sleep well at night.

“Regardless of whether times are rosy or stormy, the three key mistakes to avoid remain the same,” Bosman says. “Don’t pay significantly more for something than it’s worth; don’t buy something just because it looks cheap; and don’t build highly correlated portfolios.”

To do this, however, you have to be able to look past the short term noise and appreciate the longer term fundamentals of what you are buying.

Understand the risks

Bosman points out that it is possible to manage risk by trying to work out what is already in the price of an asset. And when quality assets sell off, that doesn’t make them more risky, but less so.

“Even the worst of news can be priced into a stock,” says Bosman. “And if it’s already in the price, then it’s not such a risky investment.”

For example, South African banking stocks collapsed at the time of Nenegate last year and have largely remained depressed. Nedbank is basically trading flat over the last three years.

“There is a lot of bad news in the share price,” says Bosman, “but this is a quality business with good intrinsic growth, paying a 5% dividend yield.

“There can be further political challenges in the short run, but over the long term an investment is about competitive forces in the market,” he says. “Banking is not an easy industry to come into, and with all the noise in South Africa there aren’t a lot of people who want to try. So if you can buy this kind of business with inherent quality that the market is not pricing correctly, that is actually a low risk strategy.”

Be circumspect

However, Bosman does caution that just because there is strong negative sentiment in the market, doesn’t mean that everything that has sold off is now worth buying.

“Just because something is down, doesn’t mean that it’s cheap,” he says. “You still need to look for inherent quality that’s worth paying for.”

When adding assets into a portfolio, you also have to be aware of how they are likely to move in relation to each other. Especially when building bottom up portfolios, there is the risk of ending up with assets that are highly correlated as it is likely that the stocks that are currently attractively-priced, may have all sold off for similar reasons.

“You have to try to balance this,” Bosman explains. “At PSG we follow a bottom-up process, but are very aware of having too much unintended correlation because you don’t want the whole portfolio to perform strongly only in one kind of environment and poorly in another.”

In the same vein, it is very important not to construct a portfolio around a single outcome.

“You can draw parallels between building a portfolio and going to the supermarket,” Bosman says. “If you only go to the supermarket to buy things that you will need in a world war three scenario you are going to be pretty well stocked up on canned food. Whereas if go and you do your regular shopping, but also buy food for the kind of circumstances that might stop you from going to the supermarket in the future, such as a world war, you will have that canned food in the pantry, but you haven’t built your lifestyle around it. So when you need it it’s there, but you aren’t only eating baked beans.”

For instance, he points out that nobody can know with 100% certainty that South Africa’s credit rating will be downgraded. So it would be irrational to build 100% of a portfolio around this outcome.

“But if you think there is a 30% that we will be downgraded and you can build 30% of your portfolio accordingly, that’s rational,” he says.

PSG therefore does hold a lot of cash at the moment as security against a worst-case scenario, but it is also willing to use that cash when opportunities present themselves.

“That cash can become very powerful when quality assets are selling off,” Bosman says. “We only allocate money when we find an opportunity that is compelling. At the moment across our portfolios we are very happy to sit in cash, and so we don’t mind when the market sells off because that creates opportunities we can enjoy.”

Give the gift that keeps on giving

This time of year sees both children and adults preparing their wish-lists for the upcoming festive season. But as many South Africans continue to grapple with rising debt, now is a good time to shift the focus from giving material items to providing future financial well-being.

Giving a child an investment as a gift will not only promote a culture of saving from a young age, but will also show them how you can make money grow.

There’s a powerful story of one customer’s commitment to leave a legacy for his family, and the value of sound financial advice. In November 1968, a customer made an initial deposit of  R400 into the Old Mutual Investors’ Fund and 48 years later, his investment is today worth over R600 000.

More precious than the value of his money, however, was the culture of saving and the legacy that he passed on to his children and grandchildren. On special occasions such as Christmas and birthdays, he invested a set amount of money on his children’s or grandchildren’s behalf. With this investment, his daughter was able to provide for her daughter’s schooling.

If South Africa is to develop a generation of financially savvy adults, it is crucial to not just talk about it, but actually practise good money habits. It is important to teach your children about money, and the festive season – with the spirit of giving – is a good time of the year for parents to set a good example. Teach your children about the importance of giving within your means, as well as showing them the value of relaxing with family and rewinding after a long, hard year, while respecting the value of hard-earned money.

Families should consider starting a financial tradition of their own. Set a reasonable budget for gift giving this festive season, and instead of spending all your money on gifts that are likely to fade, go missing or be forgotten, speak to your financial adviser about starting an investment in the name of your children.

When children become old enough to understand more about money management, parents should involve them in the process. Teach them the principle of compound interest and explain why putting money away today means they will have more money tomorrow. Help them set a budget for the money they’ll receive over the festive season, encouraging them to spend a smaller percentage today, and investing the rest for the future.

Here are various ways you can give a gift that keeps on giving long after the hype of the festive period has subsided:

  1. Start saving for your children’s education: A hotly debated topic this year, the cost of education is something that needs to be saved towards and planned for. Opening an account and allocating money to it each month can help you fund your children’s future education.
  1. Life-starter fund: Every parent dreams of having the power to provide their children with the necessities in life, but in reality, this isn’t always possible. Setting up an investment and adding to it each year, even just a small contribution of R500, will enable you to provide your children with a lump sum that they can use as a deposit for their first car or deposit on a house.
  1. Set up a tax-free savings account for your children: A tax-free savings account can enable you to save towards your children’s long-term dreams and financial goals, but is also flexible enough to be accessed at any time should it be required. Also, by investing in a tax-free savings account, you won’t get taxed on the growth earned from the investment.

It is never too late to start saving, but the sooner the better, so don’t delay and start today by speaking to a financial adviser. Saving and investing make wishes come true.