Connie Bruwer van PC Bruwer en Vennote gee raad oor hierdie belangrike onderwerp.

Vraag:  ‘n Leser, Frank, vra hoe effekte werk en hoe dit in ’n effektetrust werk.  Ek kom uit ander lesers se navrae ook agter dat daar ’n bietjie verwarring is oor die begrip effekte teenoor effektetrusts. Dis twee verskillende goed.  Verduidelik asseblief vir ons die verskil, Connie.

Connie:  ’n Effektetrust, deesdae genoem kollektiewe beleggingskemas, is ’n samevoeging van onderaandele in ’n aantal bateklasse, met inbegrip van onder meer kontant, aandele en eiendom.

Effekte, wat in Engels as bonds bekend staan, is ’n bepaalde belegginginstrument wat in ’n bepaalde effektetrust opgeneem kan wees. Of nie.

Dit hang af van die bepaalde effektetrust se samestelling.

Effekte is beleggings wat ’n vaste inkomste bied, wat ’n rente-inkomste bied en jou geld teruggee aan die einde van die termyn, byvoorbeeld 5, 10 of 20 jaar.

Die presiese werking is baie tegnies en ek bepaal my liewer by die vraag wat ek meen die meeste lesers graag beantwoord wil hê: Moet ek nou in effekte belê?

Vraag:  Wat antwoord jy ons lesers, Connie?

Connie:  My antwoord is ja. Maar lees eers verder.

Effekte word deur die regering en groot maatskappye uitgereik as hulle geld wil leen. En hiervoor betaal hulle jou rente teen ’n koers wat vasgemaak word as jy die effek koop. Op die vervaldatum kry jy jou geld terug.

Die huidige hoë rentekoerse maak effekte nou aanloklik. As jy geld wil leen by die bank, betaal jy die hoë rentekoers. Dit werk net so as jy geld uitleen, want dit is eintlik wat jy doen as jy effekte koop.

Die prys van die koepon (rentekoers) word bepaal deur die heersende rentekoers. Dit is dan ook die bepaler van die rente-inkomste wat jy gedurende die termyn ontvang.

Vraag:  Wat dan van risiko?  Hoe werk dit?

Connie:   Alle beleggings, ja, selfs kontant, het ’n mate van risiko en effekte se risiko word beskou as matig. Effekte wat deur die staat uitgereik word, is seker die veiligste. Die regering kan mos geld skep. Hy verhoog eenvoudig belasting as hy agterkom hy kan sy skuld nie betaal nie.

Maatskappye het nie dié “voordeel” nie en dit kan dus gebeur dat hulle die geld nie kan terugbetaal nie, hoewel die kans maar skraal is. Suid-Afrika het een van die bes ontwikkelde effektemarkte ter wêreld en dit word goed gereguleer.

Die renterisiko werk albei kante toe en dit is die enkele groot kenmerk van ’n belegging in effekte. As rentekoerse styg, verminder die kapitaalwaarde van jou instrument. Hoewel jy steeds dieselfde rente kry, kan beleggers in nuwe effekte ’n beter rentekoers kry.

Vraag:  Hoe kan dit anders gestel word?

Connie:  Anders gestel, as rentekoerse styg, daal die waarde van jou belegging.

Maar as rentekoerse daal – en dis die rede vir my antwoord hierbo – sal jou belegging in waarde toeneem omdat die rentekoers wat nuwe effekte betaal, laer is as die koers waarteen jy jou effekte gekoop het.

Effekte is likied en kan dus verhandel word. Jy kan dit dus teen ’n hoër kapitaalwaarde verkoop as waarteen jy dit gekoop het as rentekoerse daal.

Effekte is dus ’n verhandelbare instrument en in die ope beleggingsmark word dit ook verhandel, net soos aandele.

Effekte se rol in ’n effektetrust is dus dieselfde as aandele.

Vraag:  Moet jy direk in effekte belê of deur ’n effektetrust? Watter een sou jy aanbeveel, Connie?

Connie:  Effektetrust, sou ek sê. Bloot omdat kundige mense jou koop-en-verkoopbesluite neem en in ’n effektetrust is jou blootstelling aan effekte deel van ’n meer gediversifiseerde belegging en sit jy nie met al jou eiers in een mandjie nie – soos wat dit moet wees met ’n verstandige belegging.

The post Effektetrusts versus Effekte first appeared on PC Bruwer & Partners / Vennote.

Connie Bruwer from PC Bruwer and Partners gives advice on this important topic.

Question:  A reader, Frank, asks how bonds work and how it works within in unit trusts. I also gather from other readers’ queries that there was a little confusion about the concept of bonds vs. unit trusts. It is two different products. Please explain the difference to us, Connie.

Connie: A unit trust, now called collective investment schemes, is a combination of units in a number of asset classes, including, inter alia, cash, shares and property.

A bond is a particular investment instrument that can be recorded in a particular unit trust – or not.

It depends on the particular fund’s composition.

Bonds are investments that provide a steady income, which is an interest income and provides return of your money at the end of the term, for example, 5, 10 or 20 years.

The exact effect is very technical and I would rather answer this question: Do I invest in bonds?

Question:  What do you answer our readers, Connie?

Connie:  My answer is yes. But first read a bit further.

Bonds are issued by the government and large companies when they want to borrow money. For this loan, they pay you interest at a tied rate if you buy the effect. At maturity you will get your money back.

The current interest rates make bonds attractive for now. If you borrow money from the bank, you pay a high interest rate. It works just the same if you lend money, because that is what you do when you buy bonds.

The price of the coupon (interest rate) is determined by the prevailing interest rate. It is also the determinant of the interest income you receive during the term.

Question:  What about risk? How does it work?

Connie:   All investments, even cash, have a degree of risk and risk for bonds are considered moderate. Bonds issued by the state, is probably the safest. The government can always create money. They simply raise taxes when they realize they can’t pay their debt.

Companies do not have that “benefit” and it may happen that they cannot refund the money, although the likelihood is slim. South Africa has one of the best developed bond markets in the world and it is well regulated.

The interest risk works both sides and it is a key characteristic of an investment in bonds. If interest rates rise, the capital value of your instrument will reduce. While you still receive the same interest, new bonds investors can get a better interest rate.

Question:  Can you explain this in another way?

Connie:  Put in another way, if interest rates rises, the value of your investment will become less.

But if interest rates fall – and that’s the reason for my answer above – your investment will increase in value because the interest rate paid for new effects are lower than the rate at which you purchased your unit.

Bonds are liquid and can be traded. You can therefore sell it at a higher capital value than which you bought it if interest rates fall.

Bonds are a negotiable instrument and in the open market investments are also traded, just like shares

Bond’s role in a mutual fund is the same as shares

Question:  Do you invest directly in securities or through a mutual fund? Which one would you recommend, Connie?

Connie:  Unit Trust, I would say. Simply because knowledgeable people take your buy and sell decisions and in a unit trust your exposure to bonds form part of a more diversified investment. All your eggs are not in one basket – as it should be with a sensible investment.

The post Unit trusts vs. bonds first appeared on PC Bruwer & Partners / Vennote.

Connie Bruwer from PC Bruwer and Partners advises on this important topic.

Question:  As long as we do not touch my capital, I hear frequently as people’s requirements when they seek advice about investments. It this always wise?

Connie:  Strange as it may sound, it is sometimes cheaper to also use your capital to provide income.

Question:  What is the reason for this?

Connie:  Capital is not taxable. Income from the return on capital is. To say this in a simpler way – money that is in your safe (legal money that you already paid income tax on) – is still not taxable if you only take out a hand full on a daily basis. But unfortunately money in a safe does not grow.

Question:  How can you get the best of both worlds?

Connie:  To get the best of both worlds, you need to invest your money in such a manner that you draw part capital (from the “safe”) and draw partly from returns on capital. Insurers have a product that does exactly that, which I think is sometimes neglected at the expense of investors, perhaps precisely because of the prejudices against capital withdrawals. It’s a voluntary annuity that is purchased with a cash amount, excluding compulsory money from retirement funds, in return for which the insurer undertakes to pay you a monthly or annual income.

Question:  What are the tax implications of this?

Connie:  Because such an annuity partly pays out proceeds and partly capital, a portion of this income is tax exempt.

Question:  How do they calculate such an annuity?

Connie:  Such an annuity is calculated using the life expectancy as per the accepted  mortality tables.

But what tipped the scale for me in favour of this particular client, and again stresses my view that everyone’s needs are different, is that both his parents lived up to their nineties.

According to the tables, his life expectancy is a further 17 years, but according to his genetic origin, his chances increase with another 30 plus years, which makes such an annuity eminently suitable as a risk that your money will die before you.

Naturally R10 000 per month over a period of 30 years will not be worth much, but the client has other money with good growth potential that can be invested to keep inflation at bay.

Question:  Are there any other options?

Connie:  There are of course different options when buying a voluntary annuity – something that a good adviser will give you more information on.

I’d rather discuss the relationship between a voluntary annuity and that of a one-third cash withdrawal from a retirement fund or retirement annuities.

Many people with who I speak, are reluctant to withdraw the full amount of cash based on the fear that they will not have enough income after retirement. The problem is that your pension from a compulsory annuity is fully taxable and also at a marginal rate.

Question:  What is your advice then?

Connie:  My advice is to always at least withdraw the tax-free portion (minimum of R550 000). Depending on your tax rate, you can also consider to withdraw the next R220 000 (as long as it falls within your third), then to pay the 18% tax thereon and then buy a voluntary annuity.

The post Investment and Capital first appeared on PC Bruwer & Partners / Vennote.

Connie Bruwer from PC Bruwer and Partners advises about this important topic.

Question:  A customer wrote: “I can spend a small amount per month on shares. All the financial advisers who I contact is very reluctant to say which agency I should use. Everyone suggested that I put money in a unit trust instead. However, I want to take more risk and currently have money for it. “Connie, what advice do you have for him?

Connie:  I can tell you about a direct equity portfolio, but the “small amount” to which you refer, bothers me. It is doubtful whether a stock broker will be interested in investing small amounts. Usually, shares are bought and sold in bundles of 100. This is an expensive way for a small investor to invest in shares.

If you have enough confidence in your knowledge of the stock market or want to speculate for fun with small amounts, you can invest through one of several internet merchants.

If you have friends who want to enter the stock market with you, you can even consider starting a club. Sanlam’s iClub is an example, and can even provide a bit of fun to your finances. I can understand that brokers would prefer you to rather take a unit trust investment. Few of them can provide you with a unit trust investment and therefore they will not make money from you. It’s a little cynical, but it’s true.

Question:  What other points would you like to touch on?

Connie:  The other point I want to make is on the issue of “little more aggressive” investing. I find that many readers do not look at unit trusts when they seek “really” good growth. Nothing is further from the truth. Unit trusts, or collective investment schemes as it’s called, offers precise investment choices and you can choose between unit trusts funds ranging from very conservative to moderate to highly aggressive.

Question:  What’s the difference?

Connie:  The big difference, and this can be important, is that with a unit trust fund you cannot put all your eggs in one basket. Diversification is one of the major requirements for a meaningful and responsible investment. To ensure significant risk distribution in a direct equity portfolio, you must invest in a bunch of different shares, even in foreign companies. In terms of the sometimes high price of a single share, the number you need to buy, and the range to get diversification, will mean that we’ll be talking big money.

Question:  What do you get with a unit trust fund?

Connie:  With a unit trust fund you get exactly that at a lower price because you do not buy the full share, but a lower proportion of a number of shares – so a few shares. You share in the market action of each of the shares, but it is limited to your piece. If we take the Allan Gray Balanced Fund as an example, we see he holds about 57% of South African shares, with well-known and sought-after shares like SABMiller, Remgro, Richemont and MTN that are strongly represented.

Question:  Does this fund also have foreign shares?

Connie:  This fund also has foreign shares and part is cash assets that make the risk spreading even better. Other asset managers have similar funds. You have to look around and decide which one you like.

If you really feel very aggressive, there are unit trusts that simply invest in shares, but then you do not have the risk-reducing effect of the more moderate asset classes. You still have the distribution of your investment in more shares. You also have the advantage of expert asset managers to choose it for you.

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