Category: Blog

Passive investing has become the most popular investing strategy, globally. Simply put, it’s the strategy of buying the whole market (a diversified reach of stock allocations, ETFs and the like), and continually contributing to your portfolio. The long-term goal is to achieve the average market return.

This strategy avoids buying and selling regularly (like with actively managed strategies), long hours of extensive research into individual companies and stocks. In theory, this sounds like an easy approach to investing, but in practice, it’s hard to keep buying the market when stocks are overvalued, and the short-term performance is looking dismal.

Remember, we cannot predict what will happen tomorrow, but we can look at the stock markets’ performance for nearly one hundred years and learn from how markets have consistently grown. In times like this, it’s good to listen to the late John Bogle’s time-honoured advice

Keep investing

Don’t stop investing when you see the markets moving in a downward slide. If you break the habit of investing, it will be far harder to adopt the behaviour again, and it’s very dangerous speculation to try and time the markets by only buying before a growth phase.

Time is your friend

When it comes to passive investing, time is your best weapon for securing a return on your investment. Every seasoned (even most novices) agree on this point and it’s helpful to be reminded of it when quarterly or monthly statements show negative growth. It’s the three-, five- and ten-year reports that show the robust growth of passive funds.

Impulse is your foe

Money is, and always will be, a highly emotional resource. It affects every facet of our decision making – whether consciously or unconsciously. This makes it challenging to ignore our impulses to sell stocks before we incur further losses. Unfortunately, most people don’t recover from these impulse sell-offs.

Stay diversified

It’s never been easier to buy into the whole-of-market through exchange-traded funds in today’s marketplace. This ensures that the investor can remain diversified. The temptation to sell the wide strategy and buy a focussed strategy means that the investor loses the security of diversification and takes on the risk of fewer companies to try and ensure better returns to make up what the market lost. But the reality is that the market will most likely regain its losses over time.

Stay the course

When we put all of these thoughts together, we are encouraged to stay the course! Passive investment strategies work best when they have time to sit and mature in the markets, rather than prodded, tweaked and adjusted frequently.

If you’re reading this and you still feel like your investment strategy is no longer working for you – then let’s get in touch!

The first thing to remember when approaching investing is that the best approach is dependent almost wholly on the investor and their desired investment outcomes. While this may sound simple, working out desired outcomes hinges on many factors and conversations and ultimately works out best when a trusted financial adviser guides the investor.

In a nutshell (this is a very simple explanation):

• Active fund or portfolio management is overseen by a team of investment, market and fund specialists who make regular trades to achieve a benchmarked return.
• Passive, or index fund, management is typically where the portfolio is designed to parallel the returns of a particular market index or benchmark as closely as possible. A passive strategy does not have a management team making investment decisions and can be structured as an exchange-traded fund (ETF), a mutual fund, or a unit investment trust.

So – which is better?

When we chat about your specific needs, we will help you determine investment criteria like how much growth you need for your money and how long you have to grow it. Your perception of risk (risk appetite) and personal feelings around investing also start to come into the conversation as you consider the types of funds, stocks and companies in which you might invest. These will influence the journey we take to helping you decide which option is better suited.

What will most likely happen through this journey is that you will recognise that you have different types of investment needs: business finance, education fees, purchasing property, travel, lifestyle changes (retirement) etc.

As we develop this conversation, the need to diversify and adopt a hybrid investment approach means that we may select passive index funds for certain goals, whilst we make deliberate choices for active fund management for other investment goals.

The markets are also dynamic, as are the strategies for protecting and growing our money. Upheavals in stock markets, politics and social landscapes can change both the approach to investing as well as your financial needs. As your portfolio grows, you will also have more scope (and most likely some more appetite!) to engage in different funds and fund management.

Active funds normally have a slightly higher fee (because they anticipate better returns) whilst passive funds are more cost-effective. Ultimately, the markets and the future are not sure-things, which is why a balanced and well-thought-out approach is always advisable.

Recent times have been life-altering for so many, from emotional and health traumas to relational and financial traumas. We’ve all had to encounter a considerable onslaught of ‘stuff’ to process and deal with.

It may just be life, but it’s still hard.

Divorce is one such trauma that so many have to work through. It has a wide range of social and financial implications, as Lebona Khabo from Allan Gray highlighted in a recent article on their website.

Depending on your matrimonial property regime (considers implications like community of property, accrual, pre-marital ownerships etc.), there may be a sharing of assets you own individually or jointly when you get divorced. One such asset that may be included in this division is your retirement savings, which may have been accumulated over a long time. 

Retirement products fall under several legislations when they represent assets that are jointly owned (subject to tax legislation and family and divorce legislation) – and this creates complex considerations in a divorce settlement. 

Furthermore, some of these products may only mature at a future date, so whilst not available to the principal member, they may have future value to dependants. This needs to be included in a settlement. In many instances, court challenges have made provision for a ‘clean break principle”, which allows for the non-member spouse to receive their share of the benefit, referred to as “pension interest”, at divorce.

Pensions interest encompasses marital regimes and the type of investment, and is a dynamic principle of law that is constantly evolving with applications and legal challenges.

All of this is a very high view of a complex and technical area of financial planning and law, so please remember to check the specifics of your unique situation before making any decisions or signing any agreements.

Ideally, you want to keep things short and simple. A divorce order should: 

• Ensure that the retirement fund is identified, or identifiable.
• Provide that the non-member is entitled to “pension interest”. An order that refers to “interest”, “full value” or ”retirement interest”, may be invalid. (this may vary in different geographical jurisdictions)
• Provide for the pension interest amount or percentage that must be paid to the non-member (e.g. “50% of pension interest”).
• Instruct the retirement fund to make the pension interest deduction.

If you are going through a divorce, it’s probably one of the hardest things you will ever do. Surround yourself with people you trust to help you make the best decisions for your future. There will be immense pressure to ‘wrap things up’ and ‘end this quickly’ – but this can cause us to make decisions that we will regret later.

Take the time you need and speak to the people you need to before making any decisions that will affect your future financial wellbeing and personal happiness.

Nothing is certain in life, except for death and taxes. Benjamin Franklin said this almost 300 years ago, and it still rings of truth.

The economic and political landscapes are now even more complex and connected than they were in the early days of American politics and free-market exploration. Making money has never been easier, whilst at the same time, it’s never been harder to keep.

Saving and investing seem to be things that ‘only the wealthy’ get to do, but the reality is that we can all save and invest in ways that are both accessible and appropriate for personal setup. Every country has its own opportunities to invest… but they also have their own tax laws. With the global community in which we live, many of us have opportunities to work in other countries (whether we emigrate there, or work remotely) and this creates deeper levels of complexity to our financial planning.

Regular tax assessments of our investment policies and products allow us to benefit (if we’re staying informed and on top of them!) from tax relief. Receiving a monthly pay-check is becoming less certain as contract work and freelancing become the new normal for many of us. This means that we may not be paying tax every month and could be caught off guard by tax responsibilities at the end of the tax year. 

There are ways to structure your expenses, and investments, to lower your tax bill. 

Here are some of the most common ways to invest in a tax-savvy way.

Maximise your tax-free investment limit 

Whilst most long-term investment products are designed for retirement, that conversation is fast reaching the end of its shelf-life with investors realising that there are other ways to support a retirement lifestyle (in addition to retirement savings). As such, tax-free investment products offer a little more access to invested money but are usually capped by the Government to limit the abuse of these investment structures. As the limitations are reviewed every year in the treasury budget speeches, and most of us don’t usually contribute to these products often, there could be some headroom in there to stash some cash and keep it tax savvy.

Bolster your RA 

As mentioned above, a retirement annuity (RA) is a staple choice for long-term investing. As you explore other supplementary investment options, don’t forget this one! If your employer doesn’t provide some sort of pension fund benefit, a retirement annuity is a great way to invest for the future. 22seven recently put it like this – 

“The benefit of a RA is that interest, dividends and capital gains earned accumulate within the RA and aren’t taxed until you retire. A comfortable retirement is important to everyone and you don’t want to give all your years of hard work away to the Tax Man.”

Every country and region differs slightly in how they structure these products, so if you’ve recently moved, or changed jobs, it might be helpful to double-check.

Get savvy around capital gains tax (CGT)

In a nutshell, when you sell assets, shares, stocks or any investments and you generate a profit, this is considered an income (your capital has gained) and will be taxed according to its income code. In some cases, you may be liable for a CGT exemption or relief if the profit earned is below a certain threshold. There are further stipulations for assets that are held by a legal entity (not a natural person) – and these differ from one jurisdiction to another. 

What this means is that if you’re wanting to sell off some investments, it might make sense to time them either side of the tax year-end in order to benefit from annual exemptions. You may also want to consider transferring assets to your company, or to your person, in order to leverage other savings. But, don’t make it more complicated if it doesn’t have to be.

Sometimes we can over-optimise and land up paying fees in other areas that could be more costly than the tax we’re saving.

Ultimately, it pays to have a professional helping you navigate these options. You don’t have to make these choices alone, let’s have a chat if you think you could be saving where you’re currently spending!

In the world of investing there are myriad ways to create wealth. These systems are complex, integrated and offer just enough certainty to attract our attention, but not enough to be a sure-thing.

Two investable options that are talked about daily are stocks and shares. They sound and look very similar, but are in separate categories of investing and offer slightly different opportunities and have disparate risk exposure.

In this blog, things may get confusing, so if you need a conversation about what’s going on, just ask!

Here’s a quick overview:

Whilst both stocks and shares offer opportunities for ownership or profit earning in a company, they represent different denominations of value. Stocks are sold to investors in order to generate capital when a company needs to raise money, and these stocks are broken into shares. We can loosely think of shares as equal fractions of ownership in a company. Stocks can include shares from multiple companies (spreading risk) whereas shares exist inside one company.

Shares are normally issued at the startup of a company and divided amongst the directors, but can be offered in packages to new staff to attract them to the benefit of staying and building the company.

According to educba.com, they set the differences out like this:

• Stocks are the collection of shares of multiple companies or are a collection of shares of a single company.
• Shares are the smallest unit by which the ownership of any company or anybody is ascertained.
• A stock is a collection of something or a collection of shares. Shares are a part of something bigger i.e. the stocks.
• Shares represent the proportion of ownership in the company while stock is a simple aggregation of shares in a company (or multiple companies).
• Shares are of equal denomination while stocks are of different denominations. Shares can also never be transferred in the fraction, whereas stocks can be transferred in the fraction.
• Shares are issued at par, discount or at a premium. It is known as stock when the shares of a member are converted into one fund.

For instance, let’s say Mr. Schmidt has bought certificates of Apple Inc. then in this case we will call these certificates as shares as it can be seen that Mr. Schmidt has bought certificates from a particular company. Now, on the other hand, if Mr. Schmidt has the ownership of certificates from several other companies as well, it can be said that Mr. Schmidt has certificates of stocks and not shares.

Those who own stocks in a public company may be referred to as stockholders, stakeholders, and shareholders, and in reality, all three terms are correct.

As these concepts start to merge and integrate on deeper levels, it gets a little more complicated. Although the term shares generally refer to the units of stock in a public company, it can also refer to other types of investments. For example, you might own shares of a mutual fund. Some companies also offer plans or incentives in which employees get a share of their profits. It’s common among start-up companies to offer profit-sharing plans to attract talent, though some established companies engage in this practice as well.

Both stocks and shares are important in their own terms and they help us when determining the ownership in a company, or companies in their respective cases. They are used interchangeably when talking about company ownership and stock markets.

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