Author: Tom Brukman

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It’s not the birds and the bees, but talking about death is just as important

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Just the thought of one’s mortality can bring out strong emotions and feelings of anxiety. We all know death is inevitable, but dealing with it doesn’t make it less difficult. Even more challenging is talking about death with our loved ones. The people who will be left behind to deal with loss and grief.

It can be easier to park these hard emotional conversations, and instead focus on the money side of death. Who gets what and how. Most of us know of families that have had their relationships changed forever because of the unfairness some have felt with inheritance. However, the unfairness usually stems from not having the hard conversations before death, not from the flow of money. I know from first-hand experience that this can have far-reaching adverse effects on the people, and their relationships, that you leave behind.

I encourage you to start having conversations around death with your loved ones when you next feel comfortable to do so. Ask them if they have thought about your passing, and what they felt when they did. Speak to their emotions first, and acknowledge that it is an uncomfortable, difficult conversation. Try and avoid the financial aspect of death until you have explored the emotional side. When you do bring in money, the conversations will be more valuable and comforting for all those involved.

As we like to say at Chartered Wealth, our loved ones would give up all the money they intend leaving behind just to spend one extra day with us.

Four tips to remember when it comes to your Will

  1. Make sure you and spouse each have your own original Will. Joint Wills can cause havoc as the originals are routinely misplaced by the Master’s office
  2. Make sure your original Will is signed, witnessed and dated correctly. It is also important that none of your witnesses are beneficiaries of your Will.
  3. Think carefully about who you want to act as your executor. The burden on your family is tremendous, and often does not come with the savings benefits one imagines.
  4. If you have offshore assets, make sure these are referred to in the appropriate way. Fixed assets in many countries carry additional burdens and should be discussed with professionals.

If you need help with having these conversations with your loved ones, Chartered Wealth has a number of Retiremeant™ Specialists, who are experienced in facilitating these types of discussions.
In terms of your Will drafting, Chartered Wealth are fortunate to have the services of Chartered Legacy and Trust. Kerryn Franck, and her team of specialist attorneys, understand that drafting the right Will takes time, in order to ensure that every client feels confident that their intentions have been communicated correctly through their Will.

If you would like to discuss any aspects of your will, please do so by contacting us on info@charteredwealth.co.za

Podcast

Kim Potgieter and Tom Brukman tackle the difficult topic about talking about death with our loved ones, as well as tips to remember when drafting your Will.

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Retrenchments and Layoffs

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Sadly, retrenchment and layoffs are terms many people are having to come to grips with these days. These terms invoke anxiety and uncertainty, especially when it comes to an understanding of how being retrenched or laid off will affect their Pension or Provident funds as well as the company risk benefits.

If you have been retrenched or laid off, you need to understand all the options available to you, so that you can make informed decisions that best suit you and your family.

One way to help navigate through the uncertainty is to understand what your options are with each decision your employer takes regarding Company Pension / Provident Fund and Company Risk (insurance) products.

Pension / Provident Fund

Accessing your company Pension / Provident Fund will be one of your options if you are retrenched. However, before you decide to access your funds, you should ask yourself the following questions:
Do I have any savings that I can use for my daily living?
Do I need a short or longer-` term solution?
Do I have debt?
Do I have people that rely on me financially?

Depending on your age, your access is wide-ranging, but there are tax consequences. There are also options to access part of your Pension / Provident Fund and preserve the remainder.

Decisions regarding accessing your Pension / Provident Fund can have varying long-term financial consequences, so it is crucial to understand the implications before making any decisions. The decision to access your Pension/Provident fund should preferably be made after a consultation with your Financial Planner.

If you are laid off, you remain a part of the company and will not be able to access your Pension / Provident Fund. Your employer may offer to still contribute to your Pension / Provident Fund (potentially on your behalf), but this is not mandatory. It’s important to note that if you are laid off, and during your layoff period you find other employment and resign, you will not get the benefit of a retrenchment package. Again, each case is different and discussing what suits your situation best with a Financial Planner is encouraged.

Company Risk (insurance) products

If you have life cover or income replacement cover with your employer, these will fall away if you are retrenched. If you have debt and other responsibilities such as a family, understanding if you can continue with these significant benefits in your own capacity is extremely important. The ability to continue these benefits in your name can be an advantage from a cost and underwriting point of view. Continuing with these benefits in your own capacity when leaving your employer is a decision that your employer would have made at a group level, and needs to be confirmed by your employer. If you do not have this continuation benefit when leaving your employer, you are still able to approach insurers to apply for this cover in your own capacity.

If you are laid off, the consequences of your Company Risk (insurance) products depend on whether your employer will continue with your contributions to the insurer. Again, you can apply for these benefits in your personal capacity directly at insurers.

We encourage you to speak to a Financial Planner so that you understand all options available, as well as the consequences of any decisions you make. Knowledge gives us the confidence to make the right decisions during these uncertain times.

Podcast

Tom Bruckman and Kim Potgieter discuss retrenchments and layoffs, and what you need to consider so that you can make informed financial decisions should you be retrenched or laid off.

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Sticking to your Plan – How to be aware of behavioural biases

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Sticking to a long-term plan can be difficult. We are constantly bombarded with news and noise that makes us question if we will have the future we want. A plan gives us the framework and roadmap that enables us to navigate through the short-term volatility that we are currently going through and will go through again in the future.

We can start to be aware of ourselves and wanting to act out emotions we are feeling through how it affects us physically. When we have an emotional reaction to a situation, we often display physical symptoms such as a red face, and increased body temperature or sweaty hands. These emotions are natural, and being aware of them can also make us aware of the behavioural bias that can follow.

Bias behaviour is as long-standing among humans as the English language. We each see the world through our own particular lens, and this affects how we process and react to information. Academics have discovered over 100 human bias behaviours, but we are going to touch on three of the most common below.

Confirmation Bias – Reading views/opinions that back up our preconceived idea.

This bias is very common and is being proliferated by the advent and abuse of fake news. The recent case of the very negative article about the Gates Foundation wanting to test a vaccine in Africa is testament to this.

This story was completely fake and was picked up and published by mainstream media around the world. Eventually, the facts were checked and found to be false, and media outlets, such as News24, were forced to apologise. Here confirmation bias manifested itself through those that believed Africa is the testing ground of the world and seen as less important.

When it comes to investing, confirmation bias is common when people use phrases such as “I knew we should have had more offshore, look what the Rand exchange rate has done.” This is a comment made in hindsight regarding preconceived ideas about South Africa over a short period. Importantly, investors need to understand the facts of their situation, especially in the context of their plan.

Herd Bias – Wanting to follow the perceived crowd in the decision one makes. Safety in numbers.

Yet another widespread bias we all can fall prey to. Herd bias has been very apparent through this current, as well as previous financial crises, as people hear that they need to have more of their investments in cash. Friends repeat this message around the braai (digital braais we hope!) as does the media. Again, investors need to understand what their position is first and what affect their plan moving their investments into cash would have.

Action Bias – If I take an action of any kind, I will be more in control, and I will then feel less anxious/uncertain.

This is a behavioural bias, but it can also be an overriding bias leading to other biases, such as the two above. We all like to be in control, and when this lack of control becomes front of mind, it drives us to seek action to wrestle some of this control back. Action that is based on emotion nearly always leads to outcomes that haven’t been thought out, and are in contravention to the long term plan we have. That’s not to say that we can’t make calculated changes during times of uncertainty. We can look at the parts of our lives that we have control over, such as our monthly budgets, health and learning.

In all the cases above, it can always help to speak to your RetiremeantTM Specialists and talk through the thoughts/emotions you are experiencing. Does it suit my Financial Plan? How will my investments change if…? The RetiremeantTM Specialists ability to help you stick to your plan and cut out the short -term noise is one of the most valuable roles that they hold.

Podcast

Sticking to a short-term and long-term plan can be difficult. We are constantly bombarded with news and noise that makes us question if we will have the future we want. A plan gives us the framework and roadmap that actually enables us to navigate through the short- term volatility that we are currently going through and will go through again in the future.

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What is happening to the Rand in this unprecedented time?

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As many of you may know, the Rand has depreciated against the US Dollar since the outbreak of the COVID-19 pandemic.

Below is a readily available graph online from www.XE.com to show you the drop in value.

From 1 February 2020 until 6 April 2020, the Rand has depreciated by approximately 26%.

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The Rand has also depreciated by similar values against the EURO and the UK Pound.

Why has this sudden depreciation happened? Is the COVID-19 the only reason for this?

When the COVID pandemic was first fully digested by the world, the reaction from a large percentage of the investment community was to do everything they could to get their investments into cash (particularly US Dollar) so that they could either reinvest into “safer” assets or use to help their investors with the predicted shortfall in liquidity. As with every previous crisis, the reaction by the investment community has been panicked and very emotional.

South African assets are seen as riskier assets due to our economy falling into the label of an “emerging market” (EM). Other major countries in this bracket are Brazil, Russia, Turkey and even China. When the rush to sell out of risky assets occurred, we saw many global investors sell EM assets first, which did not spare us. We further have not helped ourselves by Moddy’s recent downgrade to junk, but the overwhelming drive of the exchange rate depreciation has been the sale of risk assets by the global investment community.

How does this affect me as a South African citizen and client of Chartered Wealth Solutions?

As a South African, the first thing that this does is make overseas travel that much more expensive!

From a local living point of view, the exchange rate can have some blanket effects on you as some goods that we purchase are imported and priced in foreign currency. By far the biggest good is oil and directly, the price of petrol.

We have been extremely fortunate that as this exchange rate has been depreciating, the oil price has hit historic lows. This has countered any increase we would have ordinarily seen due to the weakening Rand. We may not be driving nearly as much as we would during this lockdown but goods that we purchase still need to make it to the shops and our homes which entail transport. These transport costs will remain stable for a while.

From an investment point of view, all local investment strategies that our clients hold have meaningful direct and indirect exposure to foreign currency. The direct offshore exposure is through fund managers who directly invest your money into foreign shares and bonds. This will proportionately increase your investment when the Rand depreciates, assuming the underlying asset at least keeps its same value.

The indirect offshore exposure is through the South African shares you hold as the vast majority of companies have diversified their operations offshore. This means that their earnings are in foreign currency and increase the value of the company when the Rand depreciates. Depending on your personalised portfolio, the South African companies you invest in could have a combined offshore earnings percentage of up to 70%.

We are very comfortable and confident that the asset consultant that looks after your Financial Plan strategy is very well positioned and equipped to make sure you have the right mix of local and offshore assets. By taking the risk of the exchange rate into account, they are always testing to make sure that your portfolios are positioned as best they can be to deliver your investment strategy.

Please speak to your RetiremeantTM Specialist if you have anything further you want to discuss on this topic!

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Rebalancing Your Portfolio – Why do PortfolioMetrix do this?

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Rebalancing your portfolio is a key function of what we entrust PortfolioMetrix (PMX) to do while managing your investment.

The reason they rebalance your portfolio is twofold:

  1. To make sure the asset allocation (how much you own in shares, property, bonds and cash) is still the right mix to achieve your specific investment strategy.
    The risk you take in investing is PMX’s number priority and so rebalancing the asset allocation mix makes sure they are taking on the least risk possible to achieve your investment strategy return.
  2. To take advantage of good opportunities in asset classes and therefore generate a real return, over time.
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What changes are PMX making to my Portfolio?

With the recent drop in local shares and local property, PMX are going to be moving money from local cash, local bonds, global bonds, global equity and global property back into local shares and local property.
This is exactly what we entrust PMX to do, especially in volatile times when they need to stick to their philosophy and process.
The simplistic graphic below shows you the process described above:

When will this happen, and what do I need to do?

PMX will implementing this rebalance starting on the 7th of April 2020 and will be using the month of April to make sure all client portfolios are fully and correctly rebalanced.
This is done entirely by them through your administrator, and you do not need to do anything.

Importantly, you will still receive any income from your investment, and you will be able to make contributions, at any stage in this process, to your investment.

If you have any further questions, please contact your RetiremeantTM Specialist.

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Moody’s Downgrade

Moody’s Downgrade Announcement – Finally it Happens!

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On Friday, the 27th of March, Moody’s rating agency downgraded South Africa’s credit rating to a level below investment grade, also known as “Junk”. Moody’s finally confirmed what we had spoken about and anticipated for close on two years.

Given that our government’s financial position has deteriorated over the past ten years, it is no surprise that Moody’s did downgrade us. Our government simply does not receive enough income from taxes (our GDP growth figure is too low) to enable it to spend efficiently on infrastructure and services. We have to borrow to pay for these annual expenses, and this level of borrowing has increased by nearly double in the last ten years.

What practically happens now that we are downgraded?

The practical effects of this type of downgrade are that global asset managers that manage money for individuals/corporates/government pensions/etc. could have rules about which level of credit rating they are allowed to invest in.

South Africa has been a popular destination for these asset managers over the past ten years to some degree, as we offer high-interest rate returns on government debt, often referred to as “yield”. Our exchange rate has depreciated against the major currencies. Still, despite this currency depreciation, the real return offered by government debt for global asset managers has been enticing enough for them to take the risk.

With Moody’s announcement on Friday, we expect that some global asset managers will now have to disinvest from South Africa in the bond market, as their investment rules do not allow them to invest in countries that do not hold an investment-grade rating. The flow of money out from South Africa has the potential to increase the interest rate that our government can offer for their bonds. This will directly impact the government’s debt repayments.

What is the short and medium-term consequence of the downgrade for South Africa?

Although some global asset managers will be taking money out of South Africa post this downgrade, many other asset managers are allowed to invest in South African bonds. As mentioned, this decision by Moody’s was widely expected by the investment community, and that has already reflected in the rate of interest offered by the South African government on their bonds. We can always expect an overreaction from the market in the short term, and this could result in the Rand weakening further against major currencies. Our interest rates payable on bonds could increase too, but this will come back down in time.

Brazil was downgraded into sub-investment grade in February 2016. South Africa’s economy is similar in terms of its structure (commodities dominant, unemployment rate, etc.) even though our population is much smaller.
After Brazil was graded as Junk, its stock market has increased by approximately 215% in the past four years. Their government bond yield was at 16.5% in February 2016, and it now sits at 7.8%. The downgrade forced the Brazilian government to make significant changes to their economy, and this resulted in the advantageous moves in the stock market and bond yields.

Of course, the big overlaying factor is the current COVID 19 pandemic, and the effect this will have on our economy and the world. We believe that it is better for this downgrade to have happened now rather than when the world returns to a new normal. We can now focus on changing the economic landscape that our country so desperately needs.

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The magic of beginnings

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I am facing a monumental life transition – one that evokes both excitement and terror in me.

I will be a father in a few months, and it’s a role I know I will have to become accustomed to very quickly.

The birth of our first child heralds a significant shift for both my wife and me. I am prompted to reflect on all life’s transitions; many are personal – completing steps in education, marriage, parenthood, grieving the loss of a loved one – and quite a few are related to careers: our first job, a career change, retirement.

Each of these transitions has financial implications.

Right now, I feel there may be no bigger financial transition than welcoming a little human into this world. A Fin24 article in January this year calculated education costs (Grade R, 12 years of public schooling and three of tertiary education) at a staggering R1,6 million (it doubles for private education). While this is undoubtedly a cost to account for in my budget, I find myself fixated on comparatively negligible nappy price tags.

My anxiety is mitigated by the fact that I have planned financially as thoroughly as I can for the arrival and growth of my child.

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A tool that we use in our Planning process at Chartered Wealth Solutions is the Sigmoid Curve, conceptualised by organisational management expert, Charles Handy, and expanded on by Bob Buford in his book, Halftime. Let me explain it if you are unfamiliar with it – I am sure you will find benefit in the philosophy underpinning it.

Curve 1 represents that sharp curve that you experience when, for example, you are starting your first job or having your first child. Your knowledge and experience are small, and tasks may be difficult and time-consuming.

But as you work at it, you become more comfortable and competent. Understanding the nuances and the ability to overcome challenges becomes a strength. You start mastering the craft.

Then Point A arrives – an a-ha moment that anticipates a transition ahead. You could easily suppress the quiet warning and continue as is. Then the change happens anyway, and you have not planned for the necessary adjustments to accommodate this new normal. You plod along, trying to derive meaning from what used to be most important before the change. But things start to become harder and harder. Your life starts to feel meaningless or out of control.

You are heading down to Point B.

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How do we avoid this decline? We plan for the life shift before it happens. We have envisaged how our lives will change and how we will adjust our time management, careers, communication and social lives.

This is creating a second successful curve upwards, Curve 2.

Our baby is due in a few months, but I already know how to burp him or her. I know what baby equipment we need and have set up investment structures to make provision for the changes. That is the message of the Sigmoid Curve: envisage the changes, plan, implement … and then enjoy the life transformation!

Thriving through life’s changes can be a simple choice.

Tom Brukman is a CFP® and RetiremeantTM Specialist at Chartered Wealth Solutions. He heads up the company’s Western Cape branch.

Johannesburg Office
Tel: +27 11 502 2800
Eastern Cape Office
Tel: +27 41 001 1026
Western Cape Office
Tel: +27 21 001 0048
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