Your investment, retirement, and insurance questions answered

How do I protect my investments during currency fluctuations? Jac De Wet, Wealth Manager, PSG Wealth, Somerset West

The simple answer is to diversify your portfolio across multiple economies (and currencies). Currency fluctuations are an unavoidable part of investing, especially in a country like South Africa, where the rand can be volatile. By spreading your investments across local and international markets, you reduce your exposure to any one currency’s movements, which helps smooth out returns over time.

For example, if the rand weakens, your offshore investments (denominated in dollars, euros, or pounds) will typically increase in rand value, offsetting potential losses on your local holdings. Conversely, when the rand strengthens, your local assets may outperform while the value of offshore investments dips. This natural balance between different economies is the foundation of global diversification.

To put it in practical terms, you can gain offshore exposure directly by investing in offshore funds denominated in different currencies. Alternatively, you can invest in local unit trusts or stocks that hold international assets. This allows you to diversify globally without moving money overseas yourself. That said, it’s not about guessing where the rand will go next. Short-term currency moves are almost impossible to predict. A better strategy is to build a well-balanced, long-term portfolio that includes both local and offshore exposure across various asset classes (equities, bonds, and cash).

It's easy to say that you need to diversify your portfolio, but there are quite literally hundreds of different funds and asset combinations to choose from, and there are many important factors to take into consideration, such as your risk tolerance and your future needs. That is why professional financial advice is so important.

I am a 31-year-old and my parents don’t have sufficient retirement savings due to the nature of their jobs. I’d like to start investing now to help support their retirement in the future,  without straining my own finances. What investment products or strategies would you recommend for this goal? Kobie Kritzinger, Wealth Adviser, PSG Wealth, Menlyn

It is a wise choice to start planning for your and your parents’ financial future at age 31. Time is your biggest ally in growing wealth, because compounding will turn your good habits into serious back-up for your parents’ retirement, without overwhelming your monthly budget. Start small by setting up a monthly debit order to keep your new savings habit on track. As and when your income rises, increase your debit order. This early savings habit will train you for your forties and fifties to secure your own financial freedom later in life.

A tax-free investment allows you to contribute R36 000 per year with a lifetime maximum contribution of R500 000. Effectively you can contribute for almost 14 years, paying no tax on interest or capital gain if you maximise your contributions. This will ensure that emergency withdrawals needed in future won’t hurt, but once withdrawn, you can never play catch up as you lose the contribution. Be careful not to overcontribute as you will face a hefty penalty of 40% on all over-contributions. 

Select a portfolio of growth assets with maximum exposure to equity-focused funds. This is the best way to achieve capital growth in excess of inflation. 

Keep it practical: Set up a  debit order and forget it. Review your portfolio annually to ensure that inflation doesn’t nibble away your growth and watch your investment grow while you focus on your own life. This way you are building your parents’ safety net while yours grows. Sounds like a win-win to me. Don’t go on this journey alone, a skilled and qualified financial adviser can assist you every step of the way and secure your passage to financial freedom. 

I took out a life policy in 1992, 31 years ago. In July this year, I received a notice from the Assurer giving me three options:

• Increase the monthly premium by a factor of four; or

• Reduce the death benefit by 50%; or

• Keep the premium the same, but once the surrender value is used up, the policy will cease.

I’m feeling frustrated and worried about this, and at the age of 78, I’m not sure what to do. Is there any guidance or advice that you can give me on the best approach? Or where I should look at going? Chrisley Botha, Wealth Adviser, PSG Wealth, Paarl Cecilia Square Stockbroking

It’s completely understandable to feel frustrated when faced with such a significant change to a policy you’ve faithfully paid into for decades. Life assurance policies from the early 1990s were typically designed with premiums that weren’t guaranteed to remain level indefinitely. Over time, the cost of providing cover rises — mainly because we all become higher risk as we age, and investment returns that once supported lower premiums have often fallen short of expectations.

At age 78, the best approach depends on your current financial position and the original purpose of the policy. If the main goal is to provide an inheritance or liquidity for estate costs, maintaining some level of cover could still be valuable. However, increasing your premium fourfold may not be practical, especially if you’re on a fixed income.

Reducing the death benefit might strike a sensible middle ground — you retain cover, albeit at a smaller amount, without taking on a significantly higher premium. Alternatively, keeping the premium unchanged and allowing the surrender value to fund the shortfall until it runs out will provide temporary continuation, but you must plan for the cover to eventually lapse.

Before deciding, request a detailed projection from the insurer showing how long the policy would last under each of the available options. This information will help you weigh the cost versus the benefit more clearly.

It’s also wise to speak with a qualified financial adviser who can review your broader financial situation — including liquidity needs, dependants and your estate plan — to determine whether maintaining or letting the policy go best aligns with your long-term objectives. 

I’m considering increasing my monthly contributions to my retirement annuity (RA) and tax-free savings account (TFSA). For the past two years, I’ve been contributing R750 to each. How much should I increase my contributions by if I want to retire comfortably at age 60? I’m currently 27 years old. Shreekanth Sing, Wealth Adviser, PSG Wealth, Sandton Grayston Drive

Well done for investing and planning for your future. You are young and starting early will ensure you fully reap the benefits of compound interest and time in the market. 

Ideally, you should focus on ensuring you are contributing at least 15% of your monthly gross income to retirement savings. This is the general rule of thumb and should be seen as the minimum. Saving more ensures your future self, at 60, is better off. 

In addition, it’s important to ensure you’re maximising the tax deductions available for contributions to retirement savings. You can deduct up to 27.5% of your gross annual income, capped at R350 000 per year, in respect of your contributions . The tax deduction ensures you reduce the income tax you pay, and you can see it as SARS ‘paying a portion’ toward your retirement savings. 

The earlier and more consistently you contribute, the more you benefit from compound growth and tax-free investment returns.

Regarding your tax free investment, this is an excellent investment opportunity that all South African’s should take advantage of. My advice is that you focus on maximising the annual limit where you can contribute up to R36 000 per year (R3 000 per month), with a lifetime limit of R500 000. All returns (interest, dividends and capital gains) are completely tax-free, making this a powerful long-term savings tool which can supplement your income, with no income tax payable. Note your returns in an RA are also tax free but there are investment limits applicable to a RA for example onlyup to 75% may be invested in equities, whereas in a tax free there are no similar investment limits and you can invest 100% in equities, local or offshore. Taking on more risk as you’re young is advisable as you will benefit from the long term growth equities provide. 

To illustrate  the impact, if you compare contributing R750 per month for the next 33 years, with contributing the full R3000 per month until you reach your lifetime limit, then by doing a basic calculation with a return of 10% p.a. ,your would investment would have grown by approximately  R4 million more at age 60.  

A financial adviser can help you ensure you meet your goals as they take your personal circumstances into account, ensure your money is properly invested, actively managed and well diversified. 

There are so many myths about insurance in South Africa. Please could you share and address some of the most common ones? Ryno de Kock, Head: Distribution at PSG Insure

Absolutely. The short-term insurance landscape is unfortunately full of misconceptions. Some of the most common ones include:

• Myth #1: Many small business owners believe insurance is only needed and affordable for larger corporates. In reality, smaller operations can face greater vulnerability to risks such as theft, fire, cybercrime, or employee fraud, because they may lack the resources to recover quickly or to protect against these issues. The cost of a single incident could also outweigh the cost of tailored cover. Business insurance solutions are scalable and can be designed around a specific risk profile, ensuring that even smaller start-ups have access to protection that keeps trading going. 

• Myth #2: Some people believe that if you drive a car in a colour which is generally associated with sports cars, that it attracts higher premiums. However, insurers don’t use the colour of your car to determine the driver’s risk rating. Premiums are determined by risk-based data such as the make and model of the vehicle, repair costs, safety features, where it is kept overnight, and the driver’s history. Myths like these can prevent motorists from shopping around for cover that suits them. 

• Myth #3: Homeowners insurance is often confused with household contents insurance. Homeowners cover applies to the physical structure of a property – the walls, roof, and fixtures. Household contents insurance covers the possessions inside, such as furniture, electronics, and clothing. Another common misconception is that insurers cover damages caused by mould, damp, or gradual wear and tear. These are generally excluded because they result from poor maintenance rather than sudden, unforeseen events which insurance is designed to safeguard against. 

The best way to safeguard against insurance myths is to work alongside an expert adviser who can ensure you have all the right information you need to safeguard yourself and your valuables. 

PERSONAL FINANCE