nfb sensible finance magazine issue 14

Eastern Cape's Community...

PERSONAL FINANCE

a FREE publicationdistributed by NFB Private Wealth Mangement

p r i v a t e w e a l t h m a n a g e m e n t

issue 14March 2010

NFB

PERSONAL FINANCEMagazine

Eastern Cape's Community...

THE CRYSTAL BALLwhat does 2010 hold for us?

WIN A WEEKEND AWAY

TO THE THUNZI BUSH LODGE

see inside for details

DEFLATION : not alldoom and gloom

“Getting more bang

for your buck”

BE ACTIVE, BE WEALTHYthe benefits of having your portfolio

managedactively

“The best way of preparing for the future is to takegood care of the present, because we know that ifthe present is made up of the past, then the futurewill be made up of the present.

Only the present is within our reach. To care forthe present is to care for the future.”

- Buddha


2525

East London tel no: (043) 735-2000 or e-mail: [email protected]

Port Elizabeth tel no: (041) 582-3990 or email: [email protected]

Johannesburg tel no: (011) 895-8000 or email: [email protected]

web: www.nfb.co.za

NFB is an authorised Financial Services Provider

contact one of NFB's financial advisors:

fortune favours the well-advised

2525

Providing quality retirement,

investment and risk planning

advice for years.

a sensible read

February saw Pravin Gordhan delivering his first official budget

speech, and quite an ordinary one really; which I think is

probably a sign of an economically stable country. A

particularly scary statistic was that about 900,000 people have lost

their jobs in the last year. And in a country that, in December 2008

(according to Stats SA's Labour Surveys), only had 13.8 million

employed people, that translates to 6.5% of the employed

population! So although many of us may not have noticed the

severity of the recession, it really had a major impact on our

economy. Out of interest, at the same date, we had a total

(potential) labour force of 17.7 million, of which 3.8 million were

already unemployed. However, there is good news on the horizon

with 2.3% growth expectations for South Africa for 2010, rising to 3.6%

by 2012, and interesting government subsidy plans for new

inexperienced entrants into the workplace. I just hope that this gets

coupled with improving the quality of school leavers. It's very sad to

see the standard of the vast majority of job applicants that we see,

and before inequities in the workplace can be remedied, that

needs to be a crucial focus of the government. Furthermore on the

positive front, South Africa is officially out of recession and it appears

as though the world economy has entered a recovery, rebuilding

and expansionary phase. We can all optimistically breathe a sigh of

relief and hopefully our investment portfolios can do the same!

Finally, it was brought to our attention that we have not

adequately been sourcing some of our articles and have made

errors in terms of incorrectly listing the authors for some articles. We

apologise for the oversight, misleading information and specifically

the editing from my perspective and will ensure that much more

attention is put into these details in future. We assure readers of our

commitment to providing quality and relevant information as

professionally and accurately as possible.

Best of luck to underdogs, Bafana Bafana, in the up and

coming World Cup! Get your vuvuzelas out and let's give them our

support!

Brendan Connellan - Editor and Director of NFB

editor

advertising

layout and design

address

contributors

Brendan Connellan

[email protected]

Duncan Wilson (NFB), Travis

McClure (NFB), Philip Bartlett (NFB),

Chris Lemmon (NVest), Shaun

Murphy (Klinkradt & Assoc.), Grant

Berndt (Abdo & Abdo), Leona

Trollip (NFB), Claire Broedelet

(Travel Experience), Natalie Dillon

(Old Mutual), Tamas Kulcsar

(Glacier by Sanlam), Robyne

Moore (NFB), Iona Minton (for

IE&T).

Robyne Moore

[email protected]

The views expressed in articles by

external columnists are the views

of the relevant authors and do not

necessarily reflect the views of the

editor or the NFB Private Wealth

Management.

©2010 All Rights Reserved.

No part of this publication may be

reproduced in any form or

medium without prior written

consent from the Editor.

Jacky Horn Design

[email protected]

NFB Private Wealth Management

East London Office

NFB House, 42 Beach Road

Nahoon, East London, 5241

Tel: (043) 735-2000

Fax: (043) 735-2001

E-mail: [email protected]

Web: www.nfb.co.za

a sensible read

sensible finance ED’SLETTER

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Email your full name to [email protected] to subscribe to

NFB's free economic electronic newsletters.

another aspect of our comprehensive service

sensible finance March10

CONTENTSSENSIBLE

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NFB TOUCHING LIVES IN OUR COMMUNITY

2010 BUDGET HIGHLIGHTS

YOU ARE SPENDING YOUR MILLIONS R1 AT A TIME

TAX RELIEF FOR HOMES HELD BY COMPANIES, CC'S ANDTRUSTS

WHO RECEIVES MY PENSION BENEFIT WHEN I DIE?

“TO IMPROVE IS TO CHANGE, TO BE PERFECT IS TOCHANGE OFTEN”

WHAT YOUR HEIRS NEED TO KNOW

HOMO ECONOMICUS OR HOMO SAPIEN?

DEFLATION: NOT ALL DOOM AND GLOOM

BE ACTIVE, BE WEALTHY

TRAVELLING IN 2010

HOW TO MAKE FINANCIAL PLANNING WORK FOR YOU

EXPECT THE UNEXPECTED

DISCOVERY HEALTH'S SPECIAL UNDERWRITINGCONCESSION

THE CRYSTAL BALL

WIN A WEEKEND GETAWAY TO THE THUNZI BUSH LODGE

You too can make a difference! The Loaves and Fishes Network and the CANSARelay for Life

A snapshot of Pravin Gordhan's budget speech.

A lesson in the time value of money.

A final opportunity to transfer your property tax free into your own name.

An equitable distribution may mean that your nominated beneficiary receivesnothing.

Are our fund members appropriately invested given their age, proximity to retirementand stage of life cycle? Unfortunately, many are not.

Making financial matters easier for those who are left behind.

For an investor seeking a comfortable retirement, the romance is not in the journey,but solely in the destination.

“Getting more bang for your buck”.

The benefits of having your portfolio actively managed.

With the Soccer World Cup upon us, it's time to plan ahead.

Advice to help you achieve the best results.

The major life events which can disrupt your retirement plans.

See the article for details of the offer

What does 2010 hold for us?

Stand in line to win a weekend away for two, compliments of the Travel Experience,East London

Q&A.You ask. We answer. Advice column answering your investment, personal finance,life and/or risk insurance questions

By Shaun Murphy, CA (SA), Partner -Klinkradt & Associates

By Joshue Kennon - About.com

By GrandtBerndt - Abdo & Abdo

By Natalie Dillon, Legal Advisor - Old Mutual

By Leona Trollip, DivisionalManager - NFB

By Iona Minton forIndependent Executor & Trust

By Duncan Wilson, Financial Advisor - NFB

By Tamas Kulcsar, InvestmentAnalyst - Glacier by Sanlam

By Claire Broedelet,Marketing Executive - Harvey World Travel

Source: FPI

By Robyne Moore - NFB

By Chris Lemmon, Director/Portfolio Manager - NVest

with Travis McClure, Financial Advisor - NFB

Written by Philip Bartlett, Independent Financial Advisor -NFB East London

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SENSIBLE RESPONSIBILITY

At NFB we are committed to uplifting and

enriching the lives of those less fortunate

than ourselves. Through our social

responsibility programme we believe we can reach

these people and make a positive impact, not only

on their everyday lives, but on our community as a

whole. By enriching others, we enrich ourselves.

nce again, in March this year, a group of

intrepid NFB’ers will take to the track at

Jan Smuts Stadium to join in East London’s

second CANSA Relay for Life event. The various

teams raise funds before and during the Relay for

CANSA services. This all night event serves “to

honour those living with cancer, to remember those

who lost the battle and to fight back to save lives”.

People from all walks of life and many businesses

take part in the Relay. One of the highlights of the

evening includes a candle-light ceremony and an

inspirational survivor walk.

Should you wish to sign a debit order form

in order to make a monthly contribution to

assist in the sustainability of this very

worthwhile organisation, kindly contact

Robyne at NFB on 043 735 2000 or

[email protected] Should you wish to purchase a “Hope” or

“Life” armband for R10 or make a small

donation for a Luminaria bag (decorated

any way you please and placed on the

field with a lit candle inside) in recognition

or support of a loved one, please contact

Robyne Moore at NFB on 043 – 735 2000 or

[email protected]

For further reading or information:

www.loavesandfishes.co.za

LAFN contact details:

9A Dyer Street, Arcadia, 5241

P O Box 19640, Tecoma, 5214

Tel/fax: 043 – 722 0010 Cell: 082 306 5823

E-mail: [email protected] For more information please go to

www.cansa.org.za

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Loaves & FishesNetwork

Loaves & FishesNetwork


in proud association with


Touching lives

in our

community.

You too

can make a

difference!

you toocan makea difference!

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A snapshot of Pravin Gordhan's budget speech. By Shaun

Murphy CA (SA), Partner - Klinkradt & Associates

RELIEF FOR INDIVIDUALS

OTHER TAX PROPOSALSAFFECTING INDIVIDUALS

Personal Income Tax

Increased exemption for interest and dividend

income

Medical Expenses

Retrenchment Packages

Standard income tax on individuals (SITE)

Limiting salary structuring

Voluntary Disclosure Programme

Budget 2010 provides significant tax relief to

individuals amounting to R6.5bn, which partially

compensates for the effects of inflation.

This means that individuals younger than 65 years of

age earning a total amount of–

R80 000 will pay tax at an average rate of 5.2%

on earnings and save R504;


on earnings and save R1 614;


on earnings and save R3 534.

The tax threshold for individuals younger than 65

will be R57 000, and for individuals 65 or older R88

528.

The annual exemption on interest earned for

individuals younger than 65 years is raised from

R21 000 to R22 300.

The exemption for individuals 65 years and older

increases from R30 000 to R32 000.

The threshold for the tax-free portion of interest

and dividends from foreign investment increases

from R3 500 to R3 700.

From 1 March 2010 the tax deductible portion of

monthly contributions to medical schemes is

increased for each of the first two beneficiaries

from R625 to R670, and for each additional

beneficiary from R380 to R410.

The R30 000 exemptions for termination of services

has not been adjusted in many years. It is Budget

proposed that this exemption be merged into the

retirement fund lump sum benefit system and that

the qualifying lump sums be taxed by applying the

tax table for retirement fund lump sum benefits. The

aggregation principle will apply.

SITE was introduced in the late 1980s to limit the

number of tax returns filed annually. Administrative

modernisation and the fact that the tax threshold

for taxpayers younger than 65 years is approaching

R60 000 have eliminated the need for this system.

SITE is to be abolished from 1 March 2011.

Administrative relief measures will be considered for

low-income taxpayers with multiple sources of

income.

The company car fringe benefit value is to be

increased

Deferred compensation and employer-provided

group life insurance will be taxed as fringe

benefits

In order for taxpayers to disclose their defaults (non-

compliance) and regularise their tax affairs a

voluntary disclosure programme will be

implemented.

The programme is to be effective during a

window period from 1 November 2010 until 31

October 2011

The full amount of tax remains due

Relief with regard to interest and penalties will

apply

Relief is to be granted if –

the disclosure is complete

SARS was not aware of the default

a penalty or additional tax would have been

imposed had SARS discovered the default in the

normal course of business

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2010BUDGET

HIGHLIGHTS

2010BUDGET

HIGHLIGHTS


continued on page 24...

SENSIBLE TAXPhoto BigStockPhoto.com

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YOU ARESPENDING

YOUR MILLIONSR1 AT A TIME

YOU ARE

YOUR MILLIONSSPENDING

R1 AT A TIME

6

A lesson in the time

value of money.

Written by Joshua Kennon,

About.com Guide

One of the fundamental principles of

finance is the concept that R1 today is

more valuable than R1 a year from now.

FV = pmt (1+i)

The reason for this is two-fold. First, a rand will

probably buy less goods and services in the future

due to the destructive force of inflation. Second, if I

have a rand in my hand today, I can invest it and

earn a return in the form of dividends, interest or

capital gains.

The best money advice anyone can ever give

you is to firmly establish this time value of money

concept in your head. The key to financial

prosperity is realizing the potential value of every

rand that comes into your hands. In fact, I think of

cash as a seed – you can either eat it (spend it) or

invest it (sow it).

To help illustrate this point, let's assume you find

a R20 note on the side of the road. You are faced

with two potential uses: you can place the money

in an investment account or take yourself out for a

burger . “It's only twenty bucks!” you say to yourself

and opt for the burger. In reality, you are spending

far more. Using one of the time value of money

formulas, we can calculate the real economic cost

of not investing the cash.

FV = Future Value

Pmt = Payment

I = Rate of return you expect to earn

N = Number of years

To perform the calculation, we have to make a

few assumptions. First, let's assume you are 30 years

old (and hence 35 years away from retiring at 65).

That means that the R20 can compound for 35

years. We will substitute 35 for “n” in the equation.

Next, we must establish your expected rate of

return. In the current low inflation environment, an

after tax, after fees rate of return of 10% would be

acceptable.

The “pmt”, or payment, is the value of the

single amount you want to invest (in this case R20).

Now that we've figured out the variables, the

formula looks like this: FV = R20 (1+.10)

Enter 1.10 into your calculator (this is the sum of

1+.10). Raise this to the 35th power. The result is

28.1024. Multiply the 28.1024 by the pmt of R20. The

result (R562 and change) is the true cost of

spending the R20 today (if you adjusted the R562

for inflation, it would probably work out to about

R140 in today's rand. That means your real

purchasing power would increase approximately 7-

fold).

Clearly, this is enough to buy a meal at one of

our more up-market establishments. Armed with this

knowledge, you are free to make an economic

decision; namely, would you prefer to eat a R20

burger today or a R140 meal in the future. The

answer is entirely personal. Once you understand

this concept, however, it becomes painfully

obvious that the small luxury items you think nothing

of are really costing you millions and millions of rand

in future wealth.

n

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Contact an NFB Wealth Manager to ensure that

your financial plan is in order on email

[email protected] or phone 043 - 735 2000.

SENSIBLE LESSONSPhoto BigStockPhoto.com


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TAX RELIEF for homes heldby Companies, CloseCorporations & Trusts

SENSIBLY LEGAL

Prior to 13 December 2002 one could

purchase an interest in a Company or Close

Corporation or obtain a beneficial interest in

a trust, which entity was a residential property

holding entity, without paying Transfer Duty to the

South African Revenue Service (SARS).

This tax relief was closed by SARS making such

transactions subject to transfer duty. Tax payers

were then allowed a 12 month period to transfer

their primary residences (their homes) out of

Companies, Close Corporations and Trusts into their

personal names without paying any Tax. A primary

residence is defined as a residence in which a

natural person holds an interest and in which he /

his spouse ordinarily reside and use it mainly for

domestic purposes.

Certain property owners who owned their

homes in Companies, Close Corporations or Trusts

missed out on this initial opportunity to transfer their

property tax free into their name. They have now

been given until 31 December 2011 to do so.

To qualify for the exemption, the Company's

shareholding or the member's interest in the Close

Corporation must be held by the natural persons or

his / her spouse, acquiring ownership from 11

February 2009 to the date that registration of

transfer is effected into the name of such person. If

the property is owned by a Trust, the person who

financed the purchase of the property by the Trust

must take transfer into his / her name.

Further, the natural person must have

personally, and ordinarily, have resided in the

property and used it mainly as an ordinary

residence for domestic purposes from 11 February

2009. Thus, this relief is not in respect of holiday

homes or commercial property. Should there be

compliance with the above requirements, transfer

can be effected into the name of the natural

person concerned, without transfer duty being

paid.

The question then raised is whether Capital

Gains Tax is now payable upon registration of

transfer? The answer is, no. Capital Gains Tax will

only become payable upon the sale of the

property or death of the registered owner, bearing

in mind that the first R1 500 000.00 capital gain on a

primary residence registered in the name of a

natural person is exempt from Capital Gains Tax.

However, the date of acquisition and the

acquisition value of this property will be that at

which the Company, Close Corporation or Trust

bought the property. As Capital Gains Tax came

into existence on 1 October 2001, the value of the

property bought by any Company, Close

Corporation or Trust prior to 1 October 2001 will

need to be determined, alternatively for those

properties bought after 1 October 2001, the

purchase price will be the base cost for Capital

Gains Tax purposes.

Payment of Capital Gains Tax is delayed until

the sale or death of the natural person. If the

property is owned by a Company, the distribution is

also exempt from STC (Secondary Tax on

Companies).

Thus, whilst this exemption is expected to

benefit the majority of people who still have their

primary residences registered in the name of a

Company, Close Corporation or Trust, there may

still be the exceptions. It is, therefore, advisable to

get guidance from one's attorney and tax

consultant or accountant before making such a

decision.

TAX RELIEF for homes heldby Companies, CloseCorporations & Trusts

A final opportunity to transfer your property taxfree into your own name. By Grant Berndt -

Abdo & Abdo

7sensible finance March10

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Who receives mypension benefit

when I die?An equitable distribution may mean that your

nominated beneficiary receives nothing.GETTING TECHNICAL with Natalie Dillon, SeniorLegal Advisor - Old Mutual Broker Distribution

Who receives my

when I die?pension benefit

8

When a person takes out a retirement

annuity or joins their employer's

retirement fund, they nominate the

person(s) whom they want the trustees of their

respective fund to pay their retirement benefit to at

their death.

Despite this nomination, the Pension Funds Act

(PFA) governs who the trustees are obliged to pay

the benefit to.

Section 37C of the PFA contains a general rule

that provides that if, within 12 months of the death

of the member, the fund becomes aware of a

dependant(s) of the member, the member's

benefit must be paid to such dependant(s) in a

manner that the trustees deem equitable (Note: If

a retirement fund's rules specify a benefit that pays

to a spouse or child, such benefit is not subject to

the discretion of the trustees).

A 'dependant' is defined by the PFA and includes a

person

whom the member is legally liable to provide

maintenance for;

whom the member is not legally obliged to

provide maintenance for, but

that person is factually dependant on the

deceased member (for example, an elderly

parent who is financially supported by their

child);

who is the spouse of the member;

who is the child of the member

in respect of whom the member would have

become legally liable to maintain had the

member not died.

The trustees of the fund have a 12 month period to

find any 'dependants' of the deceased member

and have to consider them when making an

equitable distribution of the deceased's retirement

benefit – whether a beneficiary is nominated or

not.

Mr X dies while a member of his employer's

retirement fund and is survived by Mrs X, his

children, A and B, and granddaughter, C. His wife is

his nominated beneficiary.

The board has 12 months to establish whether Mr

X is survived by someone who falls within the

definition of 'dependant' (Mrs X, A and B do).

The board makes an equitable distribution

between Mrs X, A and B.

The distribution must be .

They could, for example award everything to B, if

A and Mrs X are millionaires, and B is a minor with

none of her own assets.

If the board discovers an illegitimate child of the

deceased, such child also qualifies as a

'dependant' and will also be considered when

the trustees make their distribution.

If the member has nominated a beneficiary,

the board of the fund must make an equitable

distribution to the nominated beneficiary and the

dependants. An equitable distribution may,

however, mean that the nominated beneficiary

receives nothing.

When taking care of one's financial planning, it is

important to understand the workings of Section

37C of the PFA, as the discretion that the trustees

are obliged to exercise, might mean that people

who you intended to benefit from your assets end

up receiving nothing.

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For example:

EQUITABLE (not EQUAL)

What does this mean?

Why is this important?


TECHNICALLY SENSIBLE

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SENSIBLE RETIREMENT

3

Administrators of pension and provident

funds have shifted from defined benefit

to defined contribution, dealing, along

the way, with the tricky issue of surplus

apportionments and improving upon their systems

to offer member-directed investment choice at

competitive costs. Almost 52% of pension/provident

funds surveyed in the 2009 Sanlam Employee

Benefit Benchmark offer member-directed

investment choice, although of these funds 64% of

members rely on the default choice, which for 50%

of funds are lifestage mandates.

Whilst lifestage mandates are an improvement

on the one investment fund for all, the

disadvantage of these types of investment funds is

that they assume members will retire at the normal

retirement age as stated by the employment

contract (generally age 65). However, members

may retire from employment early, from age 55, or

as late as 70 (with the employer's consent) and find

that their total asset allocation in their investment

portfolio (including their pension/provident fund) is

mismatched with their term to retirement.

Personal financial planning, therefore, is

imperative otherwise they might find themselves in

the same position as the Brazilian, Jorge Guinle,

who said

The consensus is that you

should be able to retire comfortably provided you

save 15% of your gross salary over a 35 year period

and preserve your retirement funds throughout.

According to the Survey, there has been an

improvement in the average contribution rates as

the percentage of salary in Pension Funds to actual

retirement provision has increased from 10.9% to

11.3%. However, this equates to 8 years less money

in retirement according to the Benchmark Survey.

Of concern, is that the prevalence of premature

withdrawals from retirement funds when changing

employment, is still high.

With regard to risk benefits, according to the

Survey when compared to 2008, the average

death benefits increased from a lump sum of 3.2 to

3.5 x final salary, whilst the average disability

benefit remained at 75% of salary per month.

The Survey was across the spectrum of salaried

and waged staff, free standing funds and

participating employers in umbrella funds. The

average total contribution rates to funds indicated

the employer contribution increased from 9.5% to

9.9% of salary and employee contributions rates

rose from 5.5% to 5.9% of salary (15.8% total

contribution). Below is the allocation of

contributions:

“the secret to living well is to die without a

cent in your pocket. But I miscalculated and the

money ran out too early.”

To assist employers in reviewing the provision of

Pension/Provident Funds and Group Risk Schemes,

contact Leona Trollip, Divisional Manager

Employee Benefits on 043-735200 or

[email protected]


“To improve is to change;

to be perfect is to change often.”

The current global financial situation calls for

pension and provident funds to challenge their

investment strategy. Questions they need to

ask are, for example:

Written

by Leona Trollip, Divisional Manager Employee

Benefits - NFB East London

are our fund members

appropriately invested given their age,

proximity to retirement and stage of life cycle?

Unfortunately, many are currently not.

1.9

1.3

1.3

11.3

Death

Disability

Admin.

Retirement Fund

“To improve is to change;

to be perfect is to change often.”

~ Winston Churchill

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10 sensible finance march10

SENSIBLE PLANNING

You might know exactly where everything is

stored, and have the balances of all your

accounts and investments at your fingertips,

but those who are left behind in the event of your

death may not.

Important documents

Associate information

Family and friends

Personal information

Funeral arrangements

Assets (Location, Account Number, Types)

Liabilities (Account, Balance, Payments)

Miscellaneous information

This can cause unnecessary delays

and heartache for your loved ones at a time of

enormous stress and confusion. Little bits of money

in dozens of separate accounts doesn't make

good financial sense at the best of times, but

especially not when your family only finds the

savings book when they get around to clearing out

your tool box a year later. I was recently told an

interesting story by a couple who bought a piece

of furniture at an auction of a deceased estate.

When they began to clean up the chest of drawers

they peeled off the contact paper and

underneath were layers of R200 notes. In all there

was R10 000 in a sticky grip. Obviously the person

who owned this died unexpectedly and was

unable to tell anyone. Don't let this happen to you.

If you don't have a home study or office, or even a

particular shelf in the linen cupboard where you

keep all your records, at least keep an Estate Diary

and let your family know where this is kept. Your

Estate Diary provides a simple roadmap to take

them to your various hiding places. Here are some

of the things your heirs will need to know to make

the financial matters easier.

These include: wills, living wills, trusts, powers of

attorney, life insurance policies, health policies, car

insurance policy, disability insurance, other

insurance policies, safe deposit boxes, deeds, titles,

income taxes from previous years, birth certificates,

marriage certificate, divorce decrees, identity

documents, passport, driver's license etc, title and

registration of vehicles, and inventory of home

furnishings.

These include the name, number, and address of

your attorney, executor, accountant, financial

advisor, broker, insurance agent, trustees, doctor,

tax advisor, and employer.

List immediate family members, distant relatives,

pets, local friends, distant friends, and associates.

Record driver's license number, organisations,

memberships, clubs, fees, secret hiding places,

address book, organ donation wishes.

State cremation or burial (casket), minister and

pallbearers, location, indoor or outdoor services,

speakers, flowers or donations to charity, name of

mortuary or cemetery, burial plot - if pre-arranged,

and obituaries.

State sources of income, cars, boats, house,

vacation or rental home, checking accounts,

savings accounts, money market accounts,

certificates of deposit (CDs), stocks, bonds, unit

trusts, valuables, antiques, or jewellery, and

precious metals.

List personal loans, bond, car loan, credit cards,

business loans, clothing accounts, store accounts,

other loans, routine bills, and debit orders.

Give security system codes, location of firearms

and ammunition, and the place where spare keys

are stored.

At Independent Executor Trust we are committed to personalized service and

individual attention. With combined experience of 65 years, we specialize in the

Drafting of Wills, Administration of Estates Testamentary Trusts.

&

&

49 Beach Road, Nahoon, East London, 5241 | PO Box 8081, Nahoon, 5210

e-mail: [email protected]: (043) 735 4633 Fax: 086 693 3356 / (043) 735 3942 |

Making financial matters easier for those who are left behind. ByIona Minton for Independent Executor & Trust


HomoEconomicus

or HomoSapien?

For an investor seeking a comfortable

retirement, the romance is not in the

journey, but solely in the destination.

Written by Philip Bartlett, Independent

Financial Advisor - NFB East London

SENSIBLE JOURNEY


The Efficient Market Hypothesis has been the

central proposition of finance since the

1950's. In a nutshell, the assumption is that

investors are always rational, and value

assets accordingly. It is deemed that irrational

behaviour is random and subject to elimination by

rational market arbitrageurs. It asserts that asset

prices reflect the unbiased collective beliefs of all

rational investors.

The Behavioural Finance approach on the

contrary, believes the market over the short-term to

be affected by irrational sentiment, postulating that

people are strongly steered by emotion when

assessing value. Hence pricing is imperfect; giving

rise to unsystematic biases that can move prices

away from fundamental values. Behavioural

Finance sees the investor as complex, often

irrational, unpredictable and contradictory, and

although the rational side of the investor is

recognised, it is proposed that inefficiencies in the

market can be attributed to the likes of greed, fear,

overconfidence, and investor noise. The conclusion

is that market returns, or lack thereof, are in the

short-term linked to investors' behaviour as

opposed to market performance.

Decision-making is fundamentally based on

the way the investor perceives and organises

information, the way they feel when they register

the information and the social environment in

which the decision is made. With so many

contributing factors it is no wonder the outcome is

subject to bias.

Consider the impact of the representative bias

where the investor, in a bid to cut to the chase,

focuses on a small data set, matches it up to

previous experiences, and hence either writes it off

as a bad idea or takes it on as if being fully

informed. Or in an attempt to research the position

turns to the most available information source,

Google or “Bob”, and hence falls foul of the

availability bias, failing to question the objectivity of

facts.

Advertisers play to these weaknesses, framing

facts in wording specifically catering for our

propensity to associate credibility with a product or

tweaking our inherent regret aversion button by

implying inaction leads to missed opportunities.

Then there is the way we as investors see

money: compartmentalising it into money earned

or unexpected windfalls; the fore being subject to

lock and key and the latter to the whims of

something red and fast or bright and bold. Rainy

day funds, fun funds, sentimental funds and the

likes all fall foul of mental accounting mixed with

an unwarranted faith in ones own intuitive

reasoning or judgment.

Ultimately the cold

and detached

investor will be the

most successful.

Investing legend

Warren Buffett is a prolific

advocate of common-sense

investing, being quoted

as saying “investing

is simple, but not

easy”, referring

of course to

the sea of

emotions that

one needs to

detach from.

HomoEconomicus

or HomoSapien?

For an investor seeking a comfortable

retirement, the romance is not in the

journey, but solely in the destination.

Written by Philip Bartlett, Independent

Financial Advisor - NFB East London

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Contact Philip Bartlett of NFB on 043 735 2000 for more information

DEFLATION:

12

The Economic definition

of deflation is “a decrease

in the general price level of

goods and services”. Deflation

would occur when the annual inflation

rate falls below zero percent (negative

inflation rate), resulting in an increase in the

real value of money – the ability to buy more

goods with the same amount of money, or more

appropriately phrased at your local bar, as

“having more bang for your buck!”. Much of the

commentary on deflation is negative, due primarily

to talk of a deflationary spiral; a spiral into the

abyss, some seem to think. This spiral would entail a

decrease in prices, which lead to lower

production, which in turn leads to lower wages

and demand and so the cycle continues and

compounds the problem further. Deflation has

always been associated with the Great Depression

and other significant economic downturns.

Japan's “lost decade” is cited as a shining

example. Yet what many fail to understand is that

it was a combination of bad policies, internal

rigidities and demographic trends that were

primarily to blame for the long-term structural

damage after the bursting of the 1980's bubble in

Japan. Deflation was a symptom, but certainly not

the disease. Having said this, not all historic

episodes of deflation

correspond with poor economic

growth. Deflation has always

been incorrectly tied too closely

to the word depression, so much

so, that most think they are

actually synonymous, but this is

hardly the case.

From 1865 to 1895, the US had persistent deflation.

During that period, industry boomed. While the

monetary value of assets declined, businesses

produced real output from innovation, capital

investment and human resources, without

unrealistic gains from currency depreciation. This

view was ably summed up as follows:

Advantages of Deflation


DEFLATION:

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13

SENSIBLE INVESTORSENSIBLE INVESTOR

“Rather than a problem to be dreaded and

combated, falling prices through increased

production is a wonderful long-run tendency of

capitalism. The trend of the Industrial Revolution

in the West was falling prices, which spread an

increased standard of living to every person;

falling costs, which maintained general

profitability of business; and stable monetary

wage rates—which reflected steadily increasing

real wages in terms of purchasing power. This is

a process to be hailed and welcomed rather

than to be stamped out."

Contact Duncan Wilson of NFB Port Elizabeth on

041 582 3990 for more information

Savings and investment are vital for a dynamic and

well balanced economy. They generally have

three sources namely households, businesses and

government. When households have little or no

incentive to save, investment has to come from the

other two. That is where the word “increase” and

“taxes” appear in the same sentence. There has,

however, already been a significant turnaround in

savings rates globally since the fall of Lehman's. In

fact, since late last year, we have seen the most

significant rise in aggregate savings since the

Second World War.

40 Years of inflation in the US and UK has, however,

led to damaging imbalances that we face at

present. Although central banks have been forced

to finally tame consumer price inflation, excess

money growth has once again created the

potential for asset bubbles. Inflation has quite

simply stood to encourage debt up until now.

Today's generation have become chronic

borrowers. Over the last 15 years it has only been

an environment that encourages debt. Despite this,

governments and banks still encourage

consumption and penalise savers, if only to a lesser

extent, by maintaining artificially low interest rates.

This naturally encourages people to borrow more,

and more significantly, for investors to take more

risks.

Yes, deflation would be considered bad in a

vacuum, but what are the alternatives to

deflation? Deflation means a massive slowdown in

consumer spending, which in a vacuum would be

destructive. We are, of course, in anything but a

vacuous space and global borrowing has reached

unrealistic levels. Deflation is the market's cure for

countries' low savings rates. It forces debts to be

fire-sold in the near term, and in the longer term, it

brings down formerly inflated asset prices into the

reach of more people. There is a dire need for a

significant and permanent change in generational

mindsets. It is the idea of enduring the pain now, in

order to enjoy the gain later.

We have to bear in mind that inflationist

decisions by institutional elites now, mean more

deflation later. We will prolong inevitable pain and,

if anything, add to its severity. It is one thing for the

government to intervene in financial markets to

offset an exogenous shock, such as 9/11, but there

is no rationale for the government's intervening

against an endogenous financial shock. Deflation is

a short-term consumption killer, but a long-term

cure for the savings rate – it is not all that evil.

Unfortunately, the oversized institutions of the

world, some having only grown in the last two

years, have a way of never admitting they're

wrong. If history is anything to go by, the “credit

crunches” will continue, with sporadic central bank

Band-aid patching, to temporarily calm credit

fears.

It is not surprising that until late, global savings

rates were as poor as our President's polygamous

ways. Central banks cannot expect people to save

if their response is to avert pain now and quietly

reinforce an inflationist ideology.

Vacuum, What Vacuum?


14 sensible finance march10

Be active, be healthy

The benefits of having yourportfolio managed.actively By

Tamas Kulcsar, InvestmentAnalyst - Glacier by Sanlam

Medical practitioners often emphasise the

importance of staying active to

maintain good health. This seemingly

simple advice can be applied to the investment

world too. Odds are that investing in a passive

index fund is unlikely to get you as financially

healthy as proponents of the strategy would have

you believe. For investors to gain and maintain true

financial health (i.e. wealth), an investment

portfolio needs to be actively managed.

A passive approach – akin to sitting on the

sidelines during an exciting football game – has a

few underlying problems for investors. It's boring,

and it doesn't necessarily reduce portfolio risk as

asset allocation – the most important investment

decision – primarily drives returns (and risk). Investors

are also faced with having to decide which index

they want to use. Like active funds, index trackers

can differ widely and investors need to understand

the benefits and limitations of these products. Satrix

ETF's provide exposure to a variety of equity indices

at a reasonable cost, while funds using

fundamental indexation (or price indifferent

indexation) rely on a number of fundamental

factors to make investment decisions – not unlike

active equity managers.

The main problem with a pure index fund lies in

the benchmark itself, or more specifically, the

method used to determine the constituents of the

index used as the benchmark. Most indices in South

Africa are market-cap weighted, meaning the

weighting to securities increases as their price (and

market cap) increases. As securities get more

expensive, an index fund buys more; as they get

cheaper, an index fund sells. This could potentially

create undesired exposure to market heavyweights

like Anglo American and BHP Billiton, which

accounted for more than half the resources

weighting in the All Share Index and had the same

impact on index returns as the entire financial

sector!

Active managers, on the other hand, can

position their portfolios to stocks/sectors that either

show better long term value, or that have a lower

potential for significant capital loss (e.g.

financials/industrials in mid 2008). They are not

required to hold stocks based on a weighting in an

index and can trim holdings when their stake

becomes too high. This approach, while

dependant on the skill of the portfolio manager,

often leads to more diversified, lower risk portfolios

with higher potential returns.

In South Africa over the past ten years, all

active equity funds currently available generated

returns at lower levels of risk than the All Share Index

and, by inference, index tracker funds. And almost

half of all active managers outperformed the

market over the same period by protecting capital

better than the index during market crashes. This is

a direct result of superior portfolio construction

methods, more diversified portfolios and efficient

trading practices. This lower risk, combined with

potential index-beating returns over time, will

ensure that actively managed equity funds remain

the core of a South African investor's portfolio.

ACTIVELY SENSIBLE

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“Sensible Finance - Questions and Answers” is an advice column

that will allow our readers the opportunity to write to a professional

and experienced financial advisor for advice regarding

investments, personal finance, life and/or risk cover.

SENSIBLE FINANCE QUESTIONS & ANSWERS

Q:

A:

With the high rate of divorce in South Africa we

get a lot of questions around how pension and

retirement funds are treated on divorce. How are

the funds paid out and what are the options for the

non-member of the pension/retirement fund and

how is the tax treated?

The Current Position

The Tax Position

Divorce orders made on or after 1 March 2009

In the last two years, there has been much

legislation dealing with the early payment of

divorce awards to a non-member spouse from

retirement funds.

The legislation has been in the form of

amendments to the Pension Funds Act and to the

Income Tax Act. Unfortunately, the Divorce Act

which also needs to be amended remains

unchanged.

1. An amendment to the Pension Funds Act

effective 13 September 2007 allows a retirement

fund, pursuant to an order of divorce, to deduct a

portion of the member's pension interest from the

member's retirement fund and pay it to the non-

member spouse or another fund on his/her behalf

immediately on divorce. The non-member spouse

no longer has to await the member's exit from the

fund.

2. The non-member spouse has to submit the order

to the fund and initiate the claim.

3. On 1 November 2008 legislation was passed to

allow the early payment mechanism to apply to

divorce orders which are binding on funds and

made before 13 September 2007.

1. An important part of the process was ensuring

that the tax legislation was able to accommodate

the early payment of such orders.

2. A policy decision was made for divorce awards

to be taxed in the hands of the non-member

spouse in respect of divorce awards which accrue

in the future. However, divorce awards in terms of

divorce agreements which were concluded in the

past and which were negotiated based on the law

as it existed in the past would continue to be taxed

in the hands of the member.

3. The tax situation which will apply with effect from

1 March 2009 is summarized as follows:

The Revenue Laws Amendment Act of 2008 which

came into effect on 8 January 2009 provides for

the non-member spouse to be the taxpayer. This is

confirmed in the Taxation Laws Amendment Bill of

2009.

If the non-member spouse elects to take the

amount in cash, he/she will pay the tax at the rates

set out in the new retirement fund lump sum

withdrawal benefit tax table.

If he/she chooses to preserve the benefit by

transferring it to another approved fund, he/she will

be able to delay the tax payable until they

withdraw or retire from that fund.

Divorce orders made between 13 September

2007 and 28 February 2009

The non-member spouse is obliged to submit

the order to the fund and to elect whether he/she

wants the benefit paid to them in cash or paid to

another fund. The taxability of this will depend on

when the divorce award accrues to the non-

member spouse.

The date the non-member spouse makes the

election is the date on which the fund must deduct

the assigned amount from the member's minimum

individual reserve. It is also the date on which the

amount accrues for tax purposes.

If the date of accrual falls in the 2008/09 tax

year (up to 28 February 2009) the member remains

the taxpayer. Even if tax has not yet been paid

over, tax is payable at the member's average rate

of tax. Two tax directives will have to be sought

because a “tax on tax” liability has to be paid too.

Unless the divorce agreement excludes it, the

member has a right to recover the tax directly from

the non-member spouse (excluding tax on tax).

However, if the election is only made after 1

March 2009, the tax accrual will fall into the

2009/10 tax year. As previously stated divorce

continued on page 24...


SENSIBLE TRAVEL

The 2010 Soccer World Cup is going to bring a

whole host of travellers to South Africa. We

would all naturally think that because the

international airlines will increase their number of

planes and frequency flying into SA, that there

would be a whole host of empty and cheap flights

flying back to their origin. This, however, is not the

case; we must keep in mind that many of these

planes will be staying in SA to assist with the

domestic flights that will be quite full.

Many people would like to plan a getaway for

the long school holiday in June/July - my advice is

that you should look at it as soon as possible and

be quite flexible in the dates on which you would

like to travel, as well as be open to available

destinations.

If you are heading out of our borders you will

need a passport and you will need to visit Home

Affairs in order to do this. Your passport must be

valid for six months after your return back to South

Africa and have a minimum of two blank pages

inside. When you book your flights, make sure your

name is correct as per your passport. If this is not

identical you will have problems at the airport and

may not be allowed to check in and fly. The ticket

may have to be cancelled and a new one issued

which may cost you a lot more money, or worse,

you may lose your seats!

If you are driving into Africa, please give us a

call or pop in at 45 Devereux Avenue as we can

give you a list of requirements for most African

countries. When travelling to Zimbabwe or

Mozambique, by car in particular, you will need a

third party insurance which we can issue for you in

store. You may also need an International Drivers

Licence (IDP) which we can issue immediately for

you.

Remember the restrictions on Liquids, Aerosols

and Gels (LAGs) in your carry on luggage for

International flights. You may only take LAGs onto

the plane if they are in containers smaller than

100ml each. You may have a maximum of one

litre's worth of 100ml containers and they must be in

a transparent, resealable bag.

If you would like to travel and you have a

limited budget plan, look around in advance for

great deals. For airline tickets the cheaper seats

are generally sold out first so you would need to ask

your travel consultant to shop around on the

different airlines for you.

Don't forget to buy travel insurance; if you pay

for your trip by credit card your bank may offer

insurance to you. Your travel consultant will also

have comprehensive insurance options for you,

including a credit card top-up.

Most importantly, remember to relax and enjoy

your holiday!

Clair Broedelet is the Marketing and

Operations Director of Travel

Experience East London and Port

Elizabeth (previously Harvey World

Travel EL). Contact Clair on

[email protected]

Travelling in 2010

With the Soccer World Cup upon us, it's time to plan ahead. By ClaireBroedelet, Marketing Executive - Travel Experience

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HOW TO MAKEFINANCIAL PLANNING

WORK FOR YOU

18

You are the focus of the financial planning

process. As such, the results you get from

working with a financial planner are as much

your responsibility as they are those of the planner.

To achieve the best results from your financial

planning engagement, you will need to consider

the following advice:

Set measurable financial goals

Understand the effect of each financial decision

Re-evaluate your financial situation periodically

Start planning as soon as you can

Be realistic in your expectations

Realise that you are in charge

Set specific targets of what you want to achieve

and when you want to achieve results. For

example, instead of saying you want to be

"comfortable" when you retire or that you want

your children to attend "good" schools, you need

to quantify what "comfortable" and "good" mean

so that you'll know when you've reached your

goals.

Each financial decision you make can affect

several other areas of your life. For example, an

investment decision may have tax consequences

that are harmful to your estate plans. Or a decision

about your child's education may affect when and

how you meet your retirement goals. Remember

that all of your financial decisions are interrelated.

Financial planning is a dynamic process. Your

financial goals may change over the years due to

changes in your lifestyle or circumstances, such as

an inheritance, marriage, birth, house purchase or

change of job status. Revisit and revise your

financial plan as time goes by to reflect these

changes so that you stay on track with your

financial goals.

Don't delay your financial planning. People who

save or invest small amounts of money early, and

often, tend to do better than those who wait until

later in life. Similarly, by developing good financial

planning habits such as saving, budgeting,

investing and regularly reviewing your finances

early in life, you will be better prepared to meet life

changes and handle emergencies.

Financial planning is a common sense approach to

managing your finances to reach your life goals. It

cannot change your situation overnight; it is a

lifelong process. Remember that events beyond

your control such as inflation or changes in the

stock market or interest rates will affect your

financial planning results.

If you're working with a financial planner, be sure

you understand the financial planning process and

what the planner should be doing. Provide the

planner with all of the relevant information on your

financial situation. Ask questions about the

recommendations offered to you and play an

active role in decision-making.

Contact an NFB Wealth Manager to ensure that



Advice to help youachieve the best results.

Source: Financial Planning Institute –www.fpi.co.za

HOW TO MAKEFINANCIAL PLANNING

WORK FOR YOU


SENSIBLE ADVICE

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SENSIBLE INVESTORSENSIBLE SOLUTIONS

The life events which can disrupt

your retirement plans. By Robyne

Moore - NFB

Expect the unexpected

When planning your retirement, you

envision days spent in your garden,

making that long-awaited round-the-

world trip or afternoons with your book and pot of

tea. Initially, you set your goals with your specific

objectives in mind: where will you live, how much

money will you need – to live and/or to do things

you want to do? Most of your working life is spent

endeavouring to achieve these goals in order to

realise your retirement dreams. However, even the

best thought out retirement plan can be destroyed

if you have not planned for certain unexpected (or

expected) life events. Will you be ready?

Marriage

Children

Money is a very big part of a marriage and when

deciding to tie the knot, it is important that you and

your prospective spouse be on the same page

when it comes to your retirement goals. You have

decided to grow old together, but how will this be

possible when you each have completely separate

ideas of how you will spend your “golden years” (or

how you will get there)? If you are young and in

love, retirement will be far from your mind,

however, there will come a time in your relationship

when your future together will be discussed. If you

each handle money differently, now is the time to

talk: to create an understanding of expectations,

set objectives, and then draw up a financial plan.

Should either, or both, partners have life policies,

your spouse should be named as the beneficiary.

Consideration should be given to how you will

handle your finances once you are living in one

home. Will you combine your salaries or each keep

separate accounts?

You have now been married for a few years and

the thought of tiny pitter-pattering feet is a distant,

foreign idea no more. The daily cost alone of

having children will take a sizeable chunk out of

your monthly disposable income and the financial

decisions you make now may hugely impact on

your original retirement goals. Every parent wants

the best for their child, and will in all probability

plan for them to study further after school.

A good education is precious and starting to

save early towards this goal is vital, so as not to

negatively influence your retirement savings. There

is no need to neglect your life-long goals while

saving for your children's university education. As

your children get older, encourage them to share

their own career and study goals with you. Discuss

what you and your spouse want for yourselves and

SENSIBLE EXPECTATIONS

20

The life events which can disrupt

your retirement plans. By Robyne

Moore - NFB


Expect the unexpected

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for your children. As a family you can prioritize and

formulate a financial roadmap in order that you

may each reach your goals. If you feel that your

children may have to help pay for their own studies

or wedding, tell them, so that they in turn can

make their own plans.

You could lose your income due to a number of

reasons: loss of your job, an accident or illness. Even

though this may only be for a short period of time,

loss of income can wreak havoc on your retirement

savings unless you have another source of income.

To prevent digging into your retirement savings,

it is best to have some sort of emergency savings to

tide you over this period. As a rule of thumb, it is

suggested that you have six months worth of your

salary stashed away, to be used should he need

arise. An important decision at this time, which may

impact greatly on your eventual retirement lifestyle,

will be whether to take a lump sum from your

provident fund to help cover expenses (beware of

tax implications), or to reinvest the full amount.

When first getting married, divorce is certainly not

something which is contemplated. However,

divorces unfortunately do happen, and the

financial ramifications can be devastating. Your

entire financial plan may have to be restructured,

but by educating yourself and with proper

planning the financial implications of a divorce can

somewhat be minimised.

When divorcing, a spouse could be entitled to

half of the other's retirement fund with immediate

effect, due to new legislation and the introduction

of the “clean break principle”. It would be a good

idea to consult an impartial financial advisor who is

focused on your best interests and can advise you

with regards all the legalities and tax implications

on the splitting of your assets when considering

divorce.

Nobody wants to think of death, and especially not

losing a loved one. However, as the death of a

spouse can have a major impact on your

retirement plan and current living standards, it is

wise at some stage to look at the scenario should

either you or your spouse pass away. Make sure

that when setting up your retirement plan, the

surviving spouse has access to certain funds should

the other spouse pass away, as it may take some

time before the entire Estate is wound up.

Coping with the loss of a loved one can be

emotional and painful, and adding the burden of

dealing with financial matters can make a difficult

time even more stressful. At this time, you would not

want to add the worry of loss of income and

additional expenses, and you would certainly not

want to resort to dipping into your retirement fund.

Losing a family member can happen at any

stage of your life and although you never know

when this may occur, there are ways of making the

difficult time a bit easier for the surviving spouse. It is

always a good idea to be prepared by having a

valid will in place, drawing up an estate plan and

also having all your other vital papers in order in the

event of a death.

The above events are the major ones which

could affect your retirement plan, although there

are a number of other unexpected occurrences

which may veer you off course a bit from your

ultimate financial retirement goal. Be sure to cover

all your bases so that in the eventuality that

something untoward should happen, it will not

destroy your goals.

No matter what your life stage should be, or

what your financial needs are, a financial plan and

a budget are vital to helping you keep on track

and focused. However, the unexpected and

unpleasant do happen and you also need to be

flexible as these will change as your life

circumstances change. With a bit of planning and

some forethought you can protect yourself, your

loved ones and those retirement plans you made

when you were just starting out.

Loss of income

Divorce

Death of a spouseContact an NFB Wealth Manager to ensure that




22

The Offer

WILL NOT

Members applying to Discovery Health before

the 30th April and who are able to answer YES to

the following 4 questions:

1. I am on a registered South African medical

scheme at the moment

2. I have been on the scheme for the past 24

months, with no breaks in cover during this

period (must provide proof of previous cover in

form of a membership certificate)

3. I am younger than 49 years

4. I have not been diagnosed with, or do not

suffer, from CANCER or ANY CHRONIC

CONDITIONS listed on Discovery Health's list of

chronic conditions.

receive any Late Joiner Penalties, Exclusions or

Waiting Periods.

Financial security - AA+ rating and over R6 Billion

in reserves

A wide spectrum of plan options

Flexible, comprehensive cover for chronic

conditions

The Medical Savings Account gives members

control of their day-to-day medical spending

No overall limits for hospital cover and important

critical care such as oncology treatment

Early detection through the screening benefit

Vitality - a science based programme with a

personal approach to wellness

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For more information, contact NFB Healthcare

Consultant - Leonie Schoeman

Switchboard Telephone Number: 043 - 735 2000

Direct Telephone Number: 043 - 705 6740

Cellphone Number: 082 820 8930

e-mail: [email protected] choosing a medical scheme it is important to

ensure that the scheme is reliable, affordable and

financially stable and Discovery Health certainly fits

the profile.

DISCOVERY HEALTHSPECIAL UNDERWRITING CONCESSION

The Eastern Cape's first

NVest Securities (Pty) Ltd:

www.nvestsecurities.co.za

NFB House 42 Beach Road,

Nahoon, East London 5241

P O Box 8041 Nahoon 5210

Tel: (043) 735-1270

Fax: (043) 735-1337

Email: [email protected]

home-grown stock brokerage…..


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THE CRYSTAL BALLWhat does 2010 hold for us?

By Chris Lemmon,

Director/Portfolio Manager -

NVest

Given recent market movements since

late 2007 one could be forgiven for

dusting off the old crystal ball to help

make sense of it all. After the

exuberance of falling risk premiums, ever rising

asset prices and an increasingly strong appetite for

commodities, came the constrictor-like squeeze on

credit, crimping demand and forcing global

households and businesses alike to deleverage

aggressively. From the heady heights of 33000

came the depths of 17000 on the JSE, a difficult pill

for investors to swallow. As governments co-

ordinated a global response to the credit crisis and

impending depression, we have seen a return to

risk assets as investors have taken comfort from the

trillions of dollars that have flooded the global

financial system. What has followed has been an

impressive rebound in global equities, with the JSE

enjoying a 58% bounce on the back of close to R80

billion in foreign investor inflows in 2009.

So given that back drop, what does 2010 hold

for us? I think this may well be a year of counting

the cost. There is always a price to be paid; I've yet

to see the elusive free lunch. The massive

expansion of global money supply cannot

continue unabated for too long. Just like each of

us, governments have to balance their budgets in

the end. Tough choices need to be made in the

coming years, with the PIGS (a rather derogatory

acronym for Portugal, Italy, Greece and Spain) a

key case in point. These EU countries find

themselves in a difficult position. Typically, in

instances where a country's spending outstrips its

income over several years, you see pressure in two

areas of importance (among others): the currency

devalues and government bond yields move

higher – sometimes sharply so. In Greece's instance,

the sharp yield move on government backed debt

has started to gain momentum. This yield move is

facilitated by a rapid fall in prices, creating capital

pressure. Who wants to be a holder of guarantees

from a government who doesn't have the finances

to pay? What we've seen in the past is that these

distressed assets have a habit of finding themselves

on balance sheets all over the world. It will be

interesting to see who'll be left holding the old

maid. And what of the currency? Being a

member of the European Union and part of the

common monetary area puts Greece (and the rest

of the EU members) in a difficult position as the

currency cannot accommodate a move weaker.

How will the voting population of the remaining

members of the EU (the likes of Germany, France

etc) feel about a rescue package for Greece

when they themselves are still in the midst of the

largest credit crisis ever experienced? As I

mentioned, tough choices have to be made.

With markets no longer at the bargain

basement prices of March 2009, investors need to

be a little more circumspect in where they place

their money. Sovereign debt risk is the key area of

concern in the market at the moment, but after

such a strong recovery last year questions will

continue to be asked of the sustainability of current

valuations. While caution is the watchword for

now, the structural outlook for equities over the

next 10 years remains good with a compelling

investment case for the long term investor. With a

bit of patience the astute investor with money on

hand may well be presented with an opportunity to

pick up attractively priced assets that will allow

them to participate in a global recovery in the

years to come.

Contact Chris Lemmon on 043 735 1270 for more

information

SENSIBLE MEANINGS


THE CRYSTAL BALLWhat does 2010 hold for us?

By Chris Lemmon,

Director/Portfolio Manager -

NVest Securities

Ph

oto

Big

Sto

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to.c

om

2010

24

SENSIBLE FINANCE

awards which accrue after 1 March 2009 will be

taxed in the hands of the non-member spouse

under the new withdrawal tax table.

So in respect of divorce orders made after 13

September 2009, the taxpayer will change

depending on when the deduction from the

member's minimum individual reserve takes place,

which in turn depends on when the non-member

spouse makes his/her election.

As mentioned, the non-member spouse can

delay the payment of tax if they elect to transfer to

another approved fund.

A policy decision was made for the member to

remain the taxpayer on the payment of divorce

awards which were made prior to 13 September

2007. Divorce agreements were made in

contemplation of the law as it existed then and

parties to the divorce are entitled to have new

laws applied prospectively and not retrospectively.

The GEPF does not fall under the Pension Funds Act.

Non-member spouses still have to wait until the

member exits the fund prior to receiving payment.

Paragraph 2B still taxes those awards.

Both the member and the non-member are in

need of advice in this process. The non-member

needs to be encouraged to preserve and grow the

lump sum. The member needs to supplement and

compensate for the depleted retirement capital.Divorce orders made pre 13 September 2007

GEPF

Seek advice

Source – Old Mutual Legal.

Please address all Questions to: Travis McClure,

NFB Sensible Finance Q&A, Box 8132, Nahoon, 5210

or email: [email protected]


Effect on Businesses

Headquarter companies

Fuel levies increased

Excise duties focusing on the Environment

No change is proposed to corporate tax rates

Sophisticated tax avoidance schemes

It is proposed that legislative amendments be

introduced to address a number of aggressive tax

schemes, for example–

Interest cost allocation for financial institutions

Offshore protected cell companies

Schemes channelling deductible amounts to

residents in the form of tax free foreign dividends

restricting the interest exemption for non-residents

investing in financial instruments other than South

African bonds, unit trusts or publicly available

interest bearing instruments.

Relief from exchange control and taxation will be

considered for various types of headquarter

companies located in South Africa.

Adjustments to Excise Duties

Excise duties are increased

Malt beer - increased by 6 cents to 85 cents per

340ml can

Unfortified and fortified wine - increased to R2.14

per litre and R4.03 per litre, respectively

Spirits - increased to R27.27 per 750ml

Cigarettes - increased by R1.24 to R8.94 per

packet of 20

On 7 April 2010–

the general fuel levy on petrol and diesel

increases by 10 cents per litre as well as an

additional 7.5 cent per litre for the funding of the

new petroleum pipeline between Durban and

Gauteng

The Road Accident Fund levy on petrol and

diesel increases by 8 cents per litre to 72 cents

per litre

A flat rate carbon emissions tax is to be introduced

on new passenger vehicles from 1 September 2010.

�

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Should you have any queries please feel free to

e-mail me on [email protected]

continued from page 15...

2010 BUDGET HIGHLIGHTS continued from page 4...

Anthony Godwin

Gavin Ramsay

Andrew Kent

Walter Lowrie

Robert Masters

Bryan Lones

Travis McClure

Marc Schroeder

Phillip Bartlett

Duncan Wilson

Stuart Coates

Leona Trollip

Leonie Schoeman

(RFP, MIFM) - ManagingDirector and financial advisor, 22 yearsexperience;

(BCom, MIFM) - ExecutiveDirector and financial advisor, 16 yearsexperience;

(MIFM) - Executive Director andShare Portfolio Manager, 17 years experience;

- Financial Advisor, 24 yearsexperience;

(AFP, MIFM) - Financial Advisor,23 years experience;

(AFP, MIFM) - Financial Advisor, 19years experience;

(BCom, CFP) - Financial Advisor,12 years experience;

(BCom Hons(Ecos), CFP) -Financial Advisor, 6 years experience;

(BA LLB, - Financial Advisor, 9years experience;

(BCom Hons, CFP), 5 years experience;

(BCom, ) – Financial Advisor, 1year experience ;

(RFP) - Employee Benefits DivisionalManager and Advisor, 33 years experience;

- Healthcare DivisionalManager and Advisor, 12 years experience;

NFB has a separate specialist Short TermInsurance Division, as well as now offeringspecialist group companies in the fields of stockbroking, wills and the administration ofdeceased estates.

CFP)

– FinancialAdvisor

CFP

NFB have a

with a between them:

STRONG, REPUTABLE TEAM OF ADVISORSWEALTH OF EXPERIENCE

25

TERMS AND CONDITIONS All entrants will be added to NFB's electronic mailing list (recipients may then manually unsubscribe). Thecontact telephone number is simply to contact the winner telephonically. Unless NFB are specifically authorised to do so, entrants will not becontacted directly in an attempt to solicit business. The give-away is valid from 01 May 2010 to 30 November 2010 (not valid over world cup 2010– June & July 2010), is not transferable and cannot be exchanged for cash. The draw will take place on 31st March 2010 and the winner will becontacted telephonically. No employees or direct family of employees of NFB or Travel Experience will be eligible to win the prize.

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Send your first name, surname, email addressa n d c o n t a c t t e l e p h o n e n u m b e r t [email protected] with “NFB Sensible FinanceWeekend Giveaway” as the subject line.

Please specify in the email if you would like anNFB financial advisor to contact you for a freeinvestment portfolio evaluation or financialadvice.

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fortune favours the well advised

You’ve worked hardfor your money...

“It requires a great deal of

boldness and a great deal of

caution to make a great

fortune...but when you have got

it, it requires 10 times as much wit

to keep it”

Nathan Rothschild, 1834

contact one of NFB’s financial advisors

East London

Port Elizabeth

Johannesburg

• tel no: (043) 735-2000 or e-mail: [email protected]

• tel no: (011) 895-8000 or e-mail: [email protected]

• tel no: (041) 582 3990 or e-mail: [email protected]

NFB is an authorised Financial Services Provider

web: www.nfb.co.za


now let NFBmake your money

work for you.

nfb sensible finance magazine issue 14

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