Investment strategy, South Africa
If you are like most people, you have probably made your list of resolutions for the year. Most make some kind of resolution involving their finances, whether it is keeping a tighter budget on their costs or saving more every month.
In sticking to this tradition of resolutions, I have come up with a checklist that every investor should revisit at the start of each year.
You and your financial planner should do a stock-take of your portfolio of assets, liabilities and investments. This will ensure, among other things, that you have the correct asset allocation (allocation of your money between cash, bonds, property and stocks).
Research has proven that the correct asset allocation is the most important factor in determining returns (and risk).
The greater the diversification, the more resilient your overall portfolio will be to serious financial loss.
Plan your tax affairs effectively. Salaried employees have limited tax-planning opportunities after recent amendments to the Income Tax Act. However, retirement annuities still remain an effective way to save tax and invest at the same time.
Retirement annuity fund contributions are limited to the greater of 15% of taxable income from non-retirement funding employment, R1 750 or R3 500 less pension fund contributions.
Provident fund members may contribute at least R3 500 a year to a retirement annuity.
It is wise to keep records of your retirement annuity contributions.
At the end of the tax year, you may find that you still have further opportunity to contribute to a retirement annuity fund due to unforeseen bonuses or overtime pay.
Remember that if you miss the opportunity to contribute for a particular tax year, the opportunity is gone forever.
Should you not be able to deduct your whole contribution in a particular tax year, this may be carried forward to the following tax year, subject to certain limits.
When deciding to sell an investment, it may make sense to sell half the investment in February (the current tax year) and the other half in March (the next tax year).
This will enable you to make use of the capital gains tax exemption of R12 500 in respect of both years. Bear in mind that the paramount decision is when the best time is to sell the investment, and the tax saving should be a secondary consideration.
It is important that you and your financial planner review on at least an annual basis the amount of disability, income protection and life cover you require.
Also ensure that you have the necessary medical aid cover in place. If you are reluctant to purchase the cover required for you or your family, consider that some cover provides better protection than no cover at all and budget accordingly.
You do not want to be paying for unnecessary cover, and – worst of all – you do not want to be inadequately insured.
Review your last will and testament as well as the trust deed provisions of any trust you may have. You may also want to ensure that the beneficiaries nominated on any benefit funds (pension, provident or retirement annuity funds) are still up to date.
You should inform your financial planner of any lifestyle changes that take place. These include but are not limited to changes in your employment, cash flow and/or marital status.
By not notifying your financial planner of changes to your personal situation, you risk making a financial commitment to a product that may not be appropriate to your needs.
My advice to you is to engage an independent, fee-based, CERTIFIED FINANCIAL PLANNER® professional who is focused on your best interests and who can provide unbiased advice on an ongoing basis.
These principles provide good ground rules to achieving long-term financial security.
Visit the website www.fpi.co.za to select a qualified, CFP® professional.
Debbie Netto-Jonker CFP® is the founder of Netto Financial Services and was Financial Planner of the Year in 2001.
By Debbie Netto-Jonker CFP®
