Equity Schmequity – really?

There’s a conversation that does the rounds every 10 to 15 years in investment savvy circles; Cash vs Equity – which is better?

When markets are rallying, equities hold to their promise of higher returns than cash; when markets take a knock, cash suddenly appears to have been a hidden gem that could even outperform equities for a short period.

The reason why this conversation is cyclical is because the markets too are cyclical, whilst volatile they will turn around. From the middle of a down cycle there is always fear and panic that the markets won’t actually turnaround – but so far, they always have.

Like a rollercoaster ride, if you ride it enough times, you get to know the corners, dips and rises – but you’ll still feel surprise, panic and joy!

Some may be dismissing the prudence of equities, toting ‘equity schmequity!’ or ‘cash is king!’, but historically this rhetoric is myopic. If you look at the last fifty years of equities versus cash, for those who had the patience to stay invested, equities have outperformed cash 80% of the time.

This is precisely why a well-structured investment portfolio will typically have diversity in asset-classes (equities, bonds, listed property and cash) and exposure that is both local and global. It’s through this diversity and risk exposure that an investor is able to strategically leverage different market opportunities within their specific investment plan.

If you’re hearing conversations that are pushing cash over equities you can rest assured they will likely flip in the coming years. We will never be 100% certain, but we can follow the historic patterns that those who hold onto equities long enough will have a high chance of achieving their investment goals. Those investing in cash (money market instruments) do so with the understanding that they want early access to their funds and don’t have the luxury of time to ride out the markets.

Your starter guide to alternative investments

In the wake of very lacklustre JSE performance and plenty of uncertainty, many investors have started considering thinking… alternatively.

In a nutshell

Alternative investments are different to the standard stock market approach; investing in assets outside the usual asset classes or in companies outside of the JSE-listed crowd.

But can you invest alternatively? The first thing to note is that, like anything bespoke, alternative investing is far more expensive and less easily accessible than good ol’ equities. However, if you have significantly more cash than the average Joe and the financial know-how these alternatives can easily outperform the normal market.

Assuming you can, should you? Here, we break down some of the main and most popular alternative investment options:

Hedge funds

Hedge funds are by far the most common and easily accessible of the alternative investing options. Due to this, they enjoy better regulation and options than other alternative asset classes. They are smaller, boutique funds often operating with much higher fees than traditional equities investing. But hedge funds routinely beat equities in the returns stakes, although not as handily of late.

The phrase ‘hedging your bets’ explains what hedge funds do well – hedge funds have a unique ability to ‘hedge’ themselves so that the investors behind the hedge fund manager can do well whether a stock appreciates or depreciates.

Hedge funds are essentially an exclusive pool of investors aggressively investing in a variety of opportunities not often available to the mainstream market. This can suit investors who have money to spare (the minimum investment requirement for most funds is high – sometimes R1 million just to get in the door) and want a long-term investment vehicle that’s safer than the stock market that offers similar or higher returns.

Venture capital and private equity

Usually only available to private equity of venture capital funds themselves, this is long-term investment in promising businesses near the beginning of their lifespan, with a view to share in their success later down the road when the company is turning a profit.

Venture capital investing, specifically ‘seed round’ investing during which the company invested in is very young, is typically a long relationship with the funder in an advisory role to the business and an aid in growth.

Private equity, although often grouped with and sometimes mistaken for venture capital, is different. Private equity often buys out these companies wholly or in part and so is the primary decision-maker, rather than the advisor.

This is attractive because private equity traditionally outperforms equity. Options here are limited to those with a private equity fund registered with SAVCA.

Socio-economic investments

Even more rewarding than the idea of private equity can be socio-economic investing – which is putting in finance and sharing in the returns later, not in a company, but in the country. So-called ‘impact investing’, these investment alternatives address issues in society like infrastructure, education for lower classes, renewable energy innovation and the creation of low-cost houses, to name a few examples. Few funds offer such options as it’s still a relatively new concept for SA, but it’s a great vehicle for those who can access it and are looking to improve and contribute meaningfully to the world while making returns on their money at the same time.

It’s important to remember that alternative investing is generally more difficult, exclusive, expensive and time-consuming than the well-oiled default of listed stock market options or old-favourite vehicles like unit trusts. They’re also newer here in south Africa, with less variety and regulation for now because there is simply less demand. But if you’re something of a pioneer and you want something very long-term, it may be worth a try. Just be sure to talk to your financial advisor and consult your personal financial plan before making any sudden movements.

On the road: the best road trips for the long weekend season

It’s that time of year coming up again when the public holidays flow thick and fast for South Africa. With a country as beautiful as ours, the ideal solution could be a road trip.

Here are some of the best to get you out of the city and on the road.

Got three days? Enjoy the Garden Route
It’s an oldie but a goodie for a reason, especially if you stay on the coast. Even if you’ve done the Garden Route many times, there’s always a new wine farm to check out and side roads to take. Add horseback riding into the mix for some extra adventure.

Got four days? Hit the Midlands Meander
Durban is a holiday favourite but just a little too far away, for some, for a long weekend trip. The Natal Midlands, however, are a whole two hours closer to Johannesburg and boast some of the most extravagantly verdant greenery in the country. There are countless antique stores, cafes and curio shops to stop in and the prices are far lower than in Cape Town or Joburg.

Got nine days? Try Namibia
If you’ve never done a road trip to Namibia, you can’t possibly imagine how strikingly lovely the scenery is, how meditative the open, uncongested road and how friendly the people are once you get there. If you can fit in the extra drive, check out the Skeleton Coast – it’s on international tourists’ bucket lists for a reason.

Got ten days? Head to Botswana
In between the lush Okavango Delta and some of the best game reserves on the continent, Botswana is the ultimate road trip for a South African nature lover. Lush green bush, mighty rivers, striking sandy plains… Botswana has got it all. You’re unlikely to find cities as clean, unpretentious and well-run as Gaborone either.

There you have it, some of the best road trips to get your spirit of adventure without the exorbitant price of air tickets.

Teach your children well

It’s an overwhelming feeling most of us recall vividly – that first job, the first month of rent to pay and the exhilarating yet terrifying knowledge that we have to keep ourselves alive for the rest of the month for the very first time.

For those with children in school, a new experience awaits: watching your own child navigate those same hurdles. And yet, it doesn’t have to be a gauntlet for them like it was for us. In a few simple steps, you can set your child up to leave the nest more confident and wise than your own former self.

The younger they start, the better
You may feel that you want your children to grow up unencumbered by the stress of money. In fact, many parents who grew up in relatively poor circumstances want to lavish finances on their children to the point where they don’t even think about money…

Until they leave the house, that is.

It’s important to understand that the later a person starts to think about managing their own money, the scarier it is. Teaching your children the importance of rands and cents as early as possible is not only better for you, but significantly less stressful for them. As soon as your children are old enough to understand the value of money and the arithmetic behind counting coins, teach them how to draft a budget. Make it as fun as possible and empower them young with their pocket money.

… but don’t make it all about spending
Many savvy parents teach their children about money from a young age – but almost always with a mind to spending.

‘You can save up your R50 now instead of spending it on sweets today so that you can afford that game you want in two months’ time.’

While this does teach kids the vital importance of budgeting to an extent, it also tacitly enforces a zero-savings mindset. From as young as possible, teach kids that they should never spend all of their money and always have something in savings. For example, tell them that, if they save R5 in their piggy bank each month, you will give them R50 at the end of six months. If they leave that R50 where it is, they can get R100 at the end of the year. This alone will set your children up to succeed where many South Africans fail – having the benefit of compound interest from early on. Also offer your advice to help them pick out their first savings account and retirement or living annuity when they leave home.

Rainy day smarts
Also, emphasise the wisdom of having emergency savings separate to general savings. The benefits of a short-term safety net are numerous and ensure that, should something happen to you or to the economy, your child will able to weather the storm. This tip is often the hardest for parents to take because an important part of this with older children is letting them bump their heads a few times.

If they haven’t got emergency savings or insurance and they’re in a bumper bashing, for example, don’t just rush in to save the day. Ask them about what steps they had taken to safeguard against misfortune and let them see that it’s up to them and no one else to ensure that they thrive financially without getting crippled by twists of fate.

And remember: the better you teach your children financially now, the better they’ll be able to look after themselves – and you – later.

What Comrades runners can teach you about how to lead at work

In our modern world of convenience, there is something about marathons. People choosing the hard road, putting their physical and mental endurance to the test, is increasingly rare. With the Comrades season coming up soon, a few surprising parallels emerge for leaders. Read on to see what you can learn about excelling at your business from experienced marathon runners.

There’s no such thing as a quick win
Perhaps you could put it down to our easy 21st-century existence, but we all want success yesterday, not ten years from now. But for those of us who aren’t Bruce Fordyce, slow and steady really does win the race, in leadership and in life.

Many leaders want to impress shareholders, loved-ones and clients by being a rapidly rising star and getting enormous successes right out the gate. Unfortunately, those who pursue this usually neglect family, run roughshod over colleagues or staff who don’t want to work fifteen-hour days and even sacrifice their own health and sanity to achieve a hollow prize.

Marathon runners know that any true victory is made in the long haul over months and years of training without any recognition. Good leaders know it too.

Fortune favours the well-prepared
It seems counter-intuitive, but many otherwise rational leaders start a new project or a new business without ever really planning for the possibility that it might fail. It seems like negative, counterproductive thinking, right?

But ultramarathon runners have been doing this for years with one simple tool: visualisation. An experienced runner will not only physically prepare for an arduous race, but mentally will imagine in detail the exact moment when it seems their legs are about to give way or they think of quitting.

They then prepare a strategy of exactly how they’re going to keep themselves going. It’s a great lesson for business leaders too. Don’t just imagine the day when the champagne and bouquets are passed around, imagine the 4am worries and the crippling doubts and get a strategy to deal with it before it happens.

Uncommon leadership advice: be here
Forward thinking can only rake you so far, and many marathon runners will tell you that it’s not always the best idea. Think about it – you’re on the starting line, the gun goes… and you envision the hours and hours of hell ahead of you. It’s enough to make anyone turn around and go home.

Instead, Comrades runners need to learn to plan for the worst but, once they’re in the race, just focus on putting one foot in front of the other. How do you climb a mountain? One step at a time. Same with marathons, same with leadership.

Another benefit of being present as a leader is being more engaged with your team. It’s tough for someone thinking of 11 months’ time to ask themselves how their staff are doing right now and what they need to put in their best performance. Be present, but also think about others’ present states. A happy team is a productive one, after all.

Have a great week and remember – life is about the journey and not the destination. Focus on running well, leading well, and you’ll be just fine.

Keeping the lights on: how to keep overheads down in an unfair environment

There’s no doubt about it, businesses are getting squeezed from every side like never before. With load shedding back, the rand weakening, land expropriation casting uncertainty on the property scene and the price of electricity increasing, it’s tough to try and keep costs down.

While you can certainly hope for Eskom to get their comeuppance, it’s best to try and work with what we do have. Here’s how to keep the lights on in an uncertain time:

Skimp on the small and unnecessary:
The first port of call is the least painful – try and cut down on what’s not absolutely vital. If your company does beer and pizza each Friday, level with your staff and tell them that you’re trying to spend money on them where it counts, like an awesome end of year party. Limit entertainment expense budgets for your sales staff and executives and see if there are any non-essential stationery items, like post-its or highlighters, you can buy every second or third month only. Funnel this freed-up cash straight into your overheads such as water and lights.

Keep your eyes on the road
Petrol is another expense that has been unforgiving lately, so another real way to reduce costs is with company vehicles and transport. Ask frequent travellers like sales reps to try combine trips and keep fuel spend low and, if new vehicles are required, try the pre-owned route and ensure you look at fuel-efficient makes. If you’re able, try to have out-of-office meetings over Zoom or Skype, saving you travel and time!

People pleaser
In any business, the most expensive and valuable asset is people. During tough times, it helps to cut back on recruiting new staff and rather focus on cross-training the people you already have instead. This is also likely to save you valuable time as these existing employees already understand the company culture and you already know they’ll gel with the rest of your workforce. However, don’t skimp on training these transplants – you’ll really want them as upskilled as possible. Invest time in them and be sure to explain how this will be valuable work experience for their futures in the company and beyond.

Take out insurance
Specifically, regarding load shedding and the chaos it causes, a great purchase can be business interruption insurance. For those who can afford it, business interruption insurance the overheads that your business continues to incur despite the drop in income that things like load shedding might bring. Remember, some policies will cover load shedding while others won’t, so be sure you check before settling on one.

Tracking wheels and meals: have a less stressful tax season next year

Personal Income Tax (PIT) season is often a nightmare rush of catch-up, trying to capture and find invoices, mileage and other expenses! Now that we’re approaching March, start good habits that will make your next tax return that much easier and more rewarding in terms of returns.

You’ll be grateful you did…

Why everyone hates tax so much
Imagine yourself digging through a haystack to find a specific needle ten times in a row… that’s most people’s experience of filing tax returns. Because your information is not organised with your next tax return in mind every day or week, it’s that much harder eleven months on. Try to reduce the amount of needles lost in the haystack – or avoid the haystack entirely. Here are some tips to help you record the correct information – but please note that these are general guides. For proper tax advice, please get in touch.

Start a travel log now
This is one of the real pet peeves and where most people throw good money that they could’ve had in rebates away – their work-driving mileage. Keep a little A5 notebook in the car with you as a logbook and, each day, track your kilometres.

Another option for those of us more paperless is to take a screenshot of your odometer at the start and end of each work day and save these in a special folder on your phone.

Remember, you are not required to pay any tax on business travel expenses. That can get you a healthy rebate, as can declaring your amount of travel allowance given to you by an employer, as long as you’re not reimbursed more than 355 cents per kilometre which, let’s face it, most of us aren’t. That’s good money spent that you can get back from the taxman, as long as you keep a good record of it being for work-related travel.

Start tracking receipts now
If you’re going to track your work driving for tax, you’re going to need to keep your petrol purchase slips. So, while we’re at it, let’s talk about receipt-keeping.

Another good practice is to keep a folder in your office and car for every single receipt you accrue for work. Put everything in and use as this folder as a backup reference. Then, ask for your receipt to be emailed to you and keep that digital copy of the receipt as well. A good way to do this is simply to create a folder in your email purely for tax receipts and file things in there as soon as they come in.

Remember – do it that moment; it’s amazing how quickly we can forget. A bonus is that you’ll accrue much less paper clutter in your wallet, your car, laptop bag, handbag… definitely a win.

Because things slip through the gaps, it may also be good to set aside 20 minutes once a week – book it in your diary as if it were a meeting – and go over your work expenses for the week and check whether all of them are accounted for.

Think about using a tax professional, and keep them in the loop
A good accountant is with worth their weight in… well, tax rebates. However, handing over a mountain of receipts and logbooks once a year, just before tax deadline, is stressful for both you and them. A better way? Have a shared system where you can put stuff in immediately – a shared folder on Google Drive is a neat solution – so that your meeting the month you need to file your return is painless or, better yet, not even necessary. One less thing to do!

All these tips sound miniscule and so obvious, but that’s exactly the point: small changes do add up and, if you look after the pennies, the pounds really do look after themselves.

Try it and see. You’ll thank us next tax season, promise.

What you need to know to set yourself up for offshore

All offshore who are going offshore…

Beginning to invest offshore is increasingly looking good for worried South Africans amidst geopolitical turmoil. Depending on your risk appetite investment expectations, it can work for you and need not be an overwhelming or intimidating experience. Here’s what you need to know:

Professional help is essential
Everyone can invest offshore, it’s not only for the Oppenheimers… That being said, you cannot go it alone. Every country has its own nuanced rules and best practices; did you know that succession planning in Mauritius is completely different to here and estates don’t automatically go to spouses, or that there is no capital gains tax in Namibia?

There isn’t just one way of investing offshore
Whilst higher net-worth individuals often use bespoke investment options, average earners can invest offshore in a few different ways. The most common ways are to either invest in a foreign currency unit trust or to go large and hire a portfolio manager, through your bank usually, to set up a personal international brokerage account.

For tax reasons, many higher net-worth investors will set up an offshore trust into which they can deposit money as an investment to earn interest. If you choose this route you need to be aware of tax laws both locally and abroad. There are other options too, so again, speak to a professional advisor before you take the leap.

Relax – you don’t need a foreign bank account
Unless you’ve lived abroad and opened an account while in that country, chances are you don’t have a US or UK bank account. And that’s okay. Things like PayPal and Bitcoin are changing the game with cross-border payments and transaction and, in any case, you don’t need a foreign bank account to earn that offshore capital. You can transfer the money directly from a South African bank account in much the same way as you would transfer money from a local account to another local one.

Investing has never been a ‘one size fits all’ exercise, it’s built on a behaviour that is able to stand firm in shaky markets, is supported by a trusted advisor relationship and finds wealth in diversity.

How retirement savings could be saving you tax

For decades retirement savings have formed the foundation of a financial plan, and for good reason – but did you know that retirement savings can not only help finance your older years, they can save you money on tax right now?

It’s a common mistake, but many people forget to declare contributions to their retirement annuity (RA) in their tax return. The SA Revenue Service (SARS) allows tax deductions for contributions to your RA, a pension fund or provident fund up to the value of 27.5% of the greater of your taxable income or remuneration.

This is a mistake – Sars is all for your retirement savings! The amount you can get back was increased dramatically by Sars in 2016 from 15 percent to 27.5 for precisely the reason that they wanted to encourage more people to save and save for retirement.

So, let’s say Judy does not earn very much and has no pension fund at work that she contributes to. Of the R100,000 taxable income she earns a year, she puts R1,000 into her RA each month. Because this is less than 27.5 percent of her annual income, she can claim back the full amount of R12,000.

However, don’t start going crazy on the RA contributions – this deduction is also limited to an annual ceiling of R350 000 per annum, even if that is less than 27.5 percent of your taxable income. If Judy were contributing R35,000 per month instead of R1,000 she would only be able to claim back for R350,000 even though she actually saved R420,000 – a whole R70,000 more than she’s able to claim.

If you’re in the position of being able to invest more than R29,000 in retirement savings contributions in any form each month, you need to be exploring different options. For example, you could leverage the benefit of a discretionary savings portfolio, which not only diversifies your money but is also far less heftily taxed when you hit retiring age and withdraw (capital gains tax as opposed to the far larger personal income tax).

These kinds of decisions are best made with a professional financial advisor, so come in and have a chat. It’s possible to save for your future and have that retirement money save you tax in the short term.

How to have a financially savvy Valentine’s Day

It’s Valentine’s Day this month, a holiday that doesn’t get much love for the way it costs plenty of sensible people a lot of foolish spending. This Valentine’s, why not take a more financially prudent stance?

First things first: have the important talks as a couple
The number of couples who get engaged or take their relationship to the next level around Valentine’s Day is significant… and it’s worth noting that those who talk about money beforehand save themselves stress later and enjoy better conversations around their future together.

This needn’t be a scary affair. Light some candles, pour some of your favourite drinks and talk openly. What would you like your future to look like and how do you feel about having the money for these dreams? What is important to each of you and how do you perceive value? How do you feel about debt and how do you feel about savings?

It’s not about obsessing over money (which is highly unromantic…) – quite the opposite. It’s about speaking about what is important to you and understanding how you can now achieve these goals together. It’s about how you can be more, together (which is considerably more romantic…).

Conversations like these are gold – for both your rands and your relationship.

Discuss the benefits of potentially skipping Valentine’s Day
If you’ve already had the big talks mentioned above, try having a relaxed conversation about skimping on the Valentine’s plans to save money for other things. Now that you have a better idea of what you value together, you can work together to new and bigger goals. Or, instead of splashing out on gifts, consider just spending on creating a special memory together that will outlast any trinket.

For a Valentine’s present, give the gift of empowerment
If you do want to spoil your loved one, try thinking out of the box. One romantic gestures I’ve heard of happened to a divorced woman with three young kids. She met a man and after being together for a few months, he gave her a gift: he’d invested in a Kruger rand on behalf of each of her children with a goal to having enough money for each of their tertiary educations.

Often, we think of perishable items when we think Valentine’s Day – flowers, chocolates and the like. But what message is that really communicating? By taking out an investment on behalf of your significant other, you are saying ‘you are valuable and worth investing in’.

As a couple, do you meet with your financial advisor together? Money is one of the most common stressors in the world and can cause enormous anxiety in relationships.

This Valentine’s day, why not think long term and have a new conversation?