A Fin24 user writes:
My background is that I am a single 28-year-old female who has a degree.
I have very little to no financial support, but I have a good job and so should be able to put away R4 000 to R4 500 a month in investments.
I am new to the financial world, but I have found several anomalies that make it seem shrouded in mystery.
Firstly, I have taken out a Momentum retirement annuity (RA) for R1 500 as the base of my investment. Then I have taken a Liberty life policy of R500 a month so I have dread disease cover, disability cover and income protection.
I also belong to Discovery medical aid. I think my highest risk currently is becoming ill and missing out on monthly income.
Am I on the right track or did I receive unsound advice? The salesman was fairly pushy. Are these goods schemes? Will I be thoroughly covered?
I would also like to invest in Satrix. I have read your other articles on Satrix and its seems fairly straightforward.
What I would like to know is if I can phone a person once every three months (or find a graph) to see how the satrix funds have done over the past three months and make suggestions on what to buy in the next three months.
I do not believe in paying a guy for the rest of my life (through percentage commission) for this information. I would like to pay per call/graph/advice report. Am I asking too much? Is this possible?
I am a smart individual and I want to avoid brokerage fees as far as possible if all they provide is an admin fee.
I would much appreciate your help.Ian Beere, financial adviser at Netto Invest, responds:
Firstly, you should always separate insurance from investment decisions. They may be related, but they are separate issues.
Here is a useful checklist for insurance:
- Short-term insurance (your car and house)
- Medical insurance (medical costs – specifically when in hospital)
- Long-term insurance made up of:
Permanent disability (lump sum)
Dread disease/critical illness cover
You said you are a member of Discovery - I think having medical insurance is vital. (Insuring your car and home is also important, as they are likely to be your two largest assets.)
You just need to manage the cost of this as effectively as you can.
You said you have a Liberty life policy of R500 a month so you have dread disease cover, disability cover and income protection.
I think this is very sensible. Remember that the income protection is tax deductible, which makes the cost to you even cheaper.
Given that you have no dependants, I am pleased you were not sold life insurance. I don’t have any details so I cannot comment on the amount or quality of the cover.
Remember that insurance is supposed to cover you if a range of things go wrong, so the probability of something happening should not be a consideration.Investments
There are two issues here. Firstly, the structure you are using and secondly, the investment strategy you use in whatever structure you have decided on.
The RA is a good structure as you are allowed to invest 15% of your taxable income in an RA investment, for which you will receive a tax deduction.
The investment in the RA will also not be levied with any income tax, capital gains tax, or dividends tax as it grows.
So if you are paying tax at 40%, your R1 500pm investment is only costing you R900pm after tax. You are therefore investing 67% more money from day one.
Satrix is a good investment as it gives you a diversified portfolio of shares without you having to decide which ones and manage the detail, which is done for you.
Remember that while you have access to this at any time, your intention should be to leave this invested for 7-10 years as the value will go up and down. Sure, you could enjoy the dividends but it is better to reinvest them.
The key issue is to decide on a strategy and stick to it. As satrix is already diversified, there should be no need to invest in anything different. You most definitely don’t want to change your investment strategy every three months.
The one issue you have not taken into account is cash, and I would suggest that you always have 20% to 30% of your investment in cash.
This is so that you will be able to buy more shares if the market drops. (Like having spare cash when things are going half price.)
This will help you to make more money in the long run. Most people sell their shares (Satrix) when the market drops though.
You may achieve your goals more effectively by investing in a balance growth fund unit trust through any reputable asset manager.
With regard to advice, if all you are getting is middle-man product sales service (especially a pushy one), I also would not pay a guy a percentage of my assets.
However, if you are getting objective advice and a professional financial planning service, then the probability of you achieving your objective will be significantly higher. Paying a fee for this is worthwhile.
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