Your financial, investment, and pension fund questions answered

I’ve just landed a well-paying job and want to start building a financial plan for my future. How do you suggest I go about this? –  Bianca van Niekerk, Wealth Adviser, PSG Wealth, Vanderbijlpark Financial Planning

Congratulations on landing your new job and even more so for taking charge of your financial future! One of the best habits you can build early on is treating savings as a fixed monthly expense. This makes it easier to stay consistent and reach your goals.

Start by mapping out your financial priorities:

1. Emergency fund

Life is unpredictable, and having a financial cushion is essential. Aim to save at least three times your monthly salary in an easily accessible account. This fund will help you stay afloat in case of unexpected expenses like medical bills or job loss.

2. Five-year plan

For medium-term goals like buying a car or funding further studies, consider an endowment policy. This is a fixed five-year investment that encourages discipline and offers tax-efficient growth on interest and dividends.

3. Long-term plan

Retirement may seem far off, but starting early pays off. A Retirement Annuity (RA) allows you to grow your investment tax-free and also provides tax deductions from SARS for your contributions. It’s a smart way to build wealth over time.

You might also explore a Tax-Free Savings Account, which lets you invest up to R36 000 per tax year without paying tax on the returns. It’s a flexible option for both short- and long-term goals.

By setting clear financial goals and sticking to a savings plan, you’re laying the foundation for a secure and prosperous future. Start now- your future self will thank you.

I’m a 38-year-old mother of two. My husband and I are unsure if we should be putting more of our money towards saving for our children’s tertiary education, retirement, or paying off our home loan first. Can you advise on the best strategy? – Patrick Duggan - Wealth Manager – PSG Wealth, Melrose Arch

My suggestion is to allocate a portion of your available capital for investment to your mortgage loan, yourself, and your kids. Here are some considerations.

Your mortgage loan

Typically, a mortgage loan might be considered ‘good debt’ because you have bought an asset that should appreciate over time by roughly inflation – obviously, there will be some outliers. It is also the cheapest form of debt relative to, say, expensive credit card debt. However, consideration needs to be given to where we are in the interest rate cycle because even this so-called ‘cheap’ debt could become expensive in a rising interest rate environment. Fortunately, our central bank is currently in a rate-cutting cycle, which means the interest liability of your mortgage loan should be coming down. Thus, to ‘beat’ this cost of funding should be getting easier, and so while you will still be required to meet your minimum mortgage repayments, you might consider apportioning any extra funds available to yourselves and/or your children.

Your retirement

It’s always a good idea to save towards your retirement It provides an opportunity to save tax efficiently (you can claim tax deductions against contributions to a pre-retirement vehicle such as a Retirement Annuity). Also, given your age, you have the luxury of time to work for you as you start to build your retirement savings.

Your children

It is a wonderful idea to save for your children’s tertiary education and/or beyond. It is, however, important to proverbially ‘put your own oxygen mask on first’. The best vehicle to allocate capital for a child’s tertiary education is a Tax Free Savings Account. As an underlying investment, I typically recommend investing in a ‘growth’ investment, potentially linked to listed equities. 

It is always advisable to speak to a financial adviser who will be in a position to tailor a plan to meet your unique needs and help you to reach your goals.

Can you explain why some funds have a flexible mandate and whether timing the market can add to long-term returns? –  Graham Lovely, Wealth Manager at PSG Wealth, Claremont

A flexible mandate in investing allows fund managers to make dynamic decisions about asset allocation, giving them the freedom to:

• Adjust market exposure: Move in and out of the market, or adjust the portfolio's asset allocation, in response to changing market conditions or investment opportunities.
• Diversify across asset classes: Invest in various regions, asset classes and currencies to capitalise on global diversification and valuable opportunities worldwide.
• Pursue alpha generation: Actively seek out undervalued or high-growth investments that can potentially outperform the broader market.

Benefits of flexible mandate funds

• Increased flexibility: Enables fund managers to respond to market opportunities and challenges in a more agile manner.
• Potential for enhanced returns: By investing in a wide range of assets and sectors, the manager might be able to generate higher returns over the long term.
• Risk management: Allows managers to manage downside risk by adjusting market exposure and diversifying across asset classes.

Timing the market

Market timing refers to the strategy of attempting to predict market trends and adjusting investment positions accordingly. While some believe timing the market can add to long-term returns, others argue it’s a challenging and potentially costly approach.

Challenges of market timing include unpredictability, emotional biases, and missed opportunities, as being out of the market during strong performance periods can result in lost growth.

Research suggests that consistently timing the market is difficult, even for professionals. Studies show that investors who attempt to time the market often underperform those who adopt a buy-and-hold strategy.

Given the challenges and drawbacks, many investors opt for a long-term, disciplined investment approach, focusing on overall objectives and risk tolerance. Speak to your financial adviser about the best strategy for your personal investment goals.

I started contributing R500 per month towards a Tax-Free Savings Account (TFSA) from age 39 and am now 50. If I plan to retire at 65 and am finally in a position to invest more for my future, how much more should I save each month, and what other savings options should I consider?  - Danie Olivier- Wealth Manager – PSG Wealth, Hermanus portfolio management and stockbroking

If you’ve been contributing R500 per month, you’ve likely put in around R63 500. With consistent growth averaging 10% per year, your TFSA is likely worth around R110 000.

Looking ahead, you have 15 years until retirement at 65, which gives you a great window to build momentum. The TFSA remains a solid option, with an annual limit of R36 000 and a lifetime cap of R500 000. If you maximise contributions each year, it could grow to about R1.75 million. Accounting for 3% annual inflation, this would be equal to R1.12 million in today’s terms. At a conservative 4% withdrawal rate, this could provide roughly R3,750 per month from the TFSA alone.

For a more comfortable retirement, you’ll likely need to save more. Here’s a rough guide:

Saving R5 000 per month, increasing annually in line with inflation for 15 years at 10% growth (adjusted for 3% inflation) could give you around R1.56 million (~R5 200 per month at a 4% withdrawal rate).

Saving R10 000 per month, increasing annually in line with inflation, could build closer to R3.12 million (~R10 400/month at 4%).

Beyond your TFSA, consider:

• Retirement annuities (RAs): Tax-deductible and designed for long-term retirement savings.
• Unit trusts or discretionary investments: Flexible, though taxable.
• Pension/provident fund top-ups: If your employer allows, these are highly efficient.

The key now is to ramp up contributions while maximising tax-friendly options. The next phase is about building on the foundation you’ve already laid. Working with a trusted adviser will put you on the road to financial wellness.

As a South African consumer and business owner, crime is an ongoing concern. How can I best protect myself? Is short-term insurance enough? - Ryno de Kock- Head: Distribution at PSG Insure.

It’s true that consumers and businesses alike continue to face crime-related threats, and it is also true that having short-term insurance is an important component to protect your assets.  To ensure you’re adequately prepared, you can consider the following:

Review your insurance cover

The best way you can protect your property and belongings is by making it, at a minimum, an annual activity to review insurance policies. Having the appropriate cover is your best defense. 

You should also ensure that high-value items such as jewellery or artwork are correctly covered. These can either be included in the overall household goods sum insured, specified individually under the relevant section of the policy, or separate cover can be taken for expensive collections. 

Reduce crime exposure 

You should be proactive when it comes to protecting your belongings. Besides installing the right kind of security systems and making use of them consistently, it’s useful to engage with local neighbourhood watch programmes, for example, to foster a culture of vigilance. 

For commercial property owners, security measures should be aligned with the value and type of stock being stored. Depending on the nature of the goods, requirements may range from linked alarm systems to 24-hour security guards. 

In terms of the security of vehicles, this needs to align with insurers' minimum recommendations, which may include installing tracking devices and using alarm systems. Other simple safety measures include parking strategically, in well-lit, busy areas, and secure locations to reduce the likelihood of theft or vandalism. You can reach out to one of our expert advisers for more information that is best tailored to your personal and commercial needs. 

PERSONAL FINANCE