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“Just take a bit more risk,”... Carla Fried said recently on CNNMoney. That was in response to the widespread fears of lower returns among many investors, who are worried about the possible fall in value of their capital and prepared to sacrifice future profit for protection against that danger.
Such a quantum shift is due to share prices fluctuating widely over the past decade or two without showing any net increase. The graph of the S&P 500 – the index of the share prices of the 500 leading companies in the United States – shows we aren’t even back where we were when Bill Clinton handed the reins over to George W Bush in 2000. The Dow Jones graph confirms this.
That fear on the part of investors explains the popularity of any product described as “guaranteed” – regardless of whether it’s the capital or the very poor return on it. Bloomberg’s Margaret Collins says the sale of policies in the US guaranteeing a lifelong income and also protecting investors against any fall in capital value increased by 24% in first quarter 2011.
Such products are now also appearing in South Africa – if they haven’t already become too established.
Kenneth Masters, director of new insurance at the Pinnacle Financial Group of America, says the cost of that guaranteed living product is exorbitantly high – up to as much as 3,7%/year of the capital invested. His simple question is: “Would I have been better off saving the 370 basis points and being fully (invested) in the stock market?”
Yes, yes and yes again, I say. And I can’t help fully supporting the wonderful, honest and simple remark by Colleen O’Brien, of US brokers Charles Schwab: “Investors are stuck on protection of principal when they should be focused on what their principal can do for them.”
In a recent cover story colleague Bruce Whitfield quoted various financial experts with their clever calculations and investment advice who claimed you need at least R10m for a decent retirement. Then he came to the conclusion that “retirement is dead or out of reach” as few individuals will have collected R10m by the age of 60 or 65.
Yes, very few of us have R10m – even veteran financial journalists, as I was called recently. That’s why we have to make some other kind of plan. One of them is to keep well away from the new generation of smart alec financial advisers who’d have no qualms about blatantly telling you one of those guaranteed lifelong income things is the best for you. Haven’t we just managed to get rid of the financial advisers who have been trying for more than a decade to sell Sharemax and PICvest dreams?
One of the cornerstones of those living annuities is that your portfolio make-up must weaken to at least 60% interest-bearing and only 40% in shares. Though the return on fixed interest-bearing bonds has admittedly been better than on shares in the US over the past 10 years, if you raise the horizon to 25 years, ordinary quality shares are still the best investment.
Elsewhere I’ve compiled my non-guaranteed lifetime income portfolio I believe will offer a far better return than any of the guaranteed funds over the next three decades or so, and is already doing so. British American Tobacco won’t cut its dividends and nothing can happen to make the world suddenly stop smoking. MTN and Vodacom are currently among the best listed income shares, but also have exceptional growth prospects. Woolworths is clearly forging a new path with Growthpoint – the largest owner of quality shopping centres in SA. Woolworths is also increasingly looking more like the preferred food retailer for the new emerging wealth in SA.
If you don’t like my selection of shares replace it with Satrix’s dividend fund and you’ll immediately get a far wider exposure to more quality shares that also pay good dividends. If we’re ever struck by such a strong economic storm that all the shares in the Satrix dividend fund have to cut their dividends at the same time then the guaranteed living annuity will also be down the drain.
In brief, now’s the time to raise your risk profile and rather to aim at a greater exposure to shares. If you have to invest in an interest asset there’s nothing better than retail Government bonds.
Another important reality – and we all have to accept this as early as possible – is there’s little if any likelihood of ever being able to save enough to reach that magical R10m for your retirement. Not even the miracle of compound interest will help you. Focus on two solutions if you aren’t lucky enough to enjoy the benefit of a large share option scheme with your employer.
That house of yours – the so-called biggest investment of your life – must work for you rather than being a burden or just a place where you live and raise your children. Effective application and management of your residential property often makes a greater contribution to the growth of the assets in your estate than all your savings plans. Read the story about Louwrens elsewhere.
If it’s impossible to carry on working, another alternative is to start thinking in good time about your own small business that can earn a good income on a small capital outlay. But don’t make the mistake of trying to turn your lifetime hobby into a business in your old age. Be proud of the furniture you make yourself but don’t try turning that into a business. Marietjie – who has five bakkies for refuse removal – maybe has a better idea.
What you have to do if you don’t have the R10m for retirement is simply to increase your risk profile. Don’t be a coward: but on the other hand don’t be so foolish as to believe the Sharemax kind of promise of 12,5% interest either.
Retail Government bonds
Best for your investment
ADVICE SUCH AS “You must use all your money to earn interest now, because shares are expensive and property prices will never rise again, because the new Government is making a mess of everything” is often handed out free around the braai on a Saturday afternoon. It’s just a pity those who give that advice know so little about what they’re talking about.
To put your money in the money market – the ordinary 30-day deposit – is at its best just a put-away-and-wait investment decision. The return is currently around 5%/year. That won’t be much good for paying your rising electricity bill. This is money you’re only putting aside temporarily to use later. Fixed deposits of 12 months at the current rate of approximately 6,5% to 7% are a small step in the right direction. However, that’s made more people poor over the past five years than, for example, ordinary shares. Five years ago you could still earn more than 10% on a fixed deposit at a bank. All you achieved with that kind of investment was to protect your capital. You may still have your original R1m but your income has fallen from R100 000 to R65 000/year.
On the capital market you can still buy Government bonds in units of R1m from stockbrokers. Jan de Kock, founder of FFO Securities, says the R186 Government bond – which only matures in 2026 – is still available at a return rate of 8,37%/year. The coupon rate of the bond is 10,5%/year – and that’s why it is currently trading at R118 per R100 of coupon value.
Decide for yourself where you think interest rates will be going over the next 15 years before you buy bonds. If you’re one of those who believe Government is soon going to mess up SA’s economy and that the inflation rate will rise again it’s not a good idea to buy those bonds now. But remember those bonds are bought by the institutions where you’re planning to buy your living annuity. It’s the only way they can guarantee the living annuity.
SA’s Treasury is constantly trying to make its retail bonds a bit more attractive. When it kicked off about a decade ago, interest was only paid six-monthly. Now Treasury has already created a pensioner’s version, which pays the same interest rate but paid monthly.
The latest addition to making the product more attractive is the “reset” of the interest rate. That simply works as follows: make a fixed investment for five years now at 8%/year and you’ll know exactly how much you earn every month. If interest rates were to increase – you’ll be able to adjust your existing interest rate – that is, “reset” it to the new higher rate – which Treasury will then pay for new money. So if interest rates go up from 8% to 10% even 12%/year you’ll reap the benefit. However, if the interest rate were to fall from 8% to, say, 6% or even 4%, as has happened in the US and in Britain, your rate won’t fall.
There’s no living or guaranteed annuity currently available in SA that can beat the return from retail Government bonds.
For the information of my colleague Bruce Whitfield, on an investment of R5m at 8%/year in retail bonds you’ll get R400 000 in interest or R33 333/month in pension. And that will increase every time interest rates go up but won’t drop if interest rates fall.
THE RISK TAKERS I
Louwrens builds houses; Vic buys them at auctions
MY GOLFING BUDDY left teaching as a school principal at the age of 60. Note “left”, not “retired”. His first challenge, about 10 years ago, was to build the family a new house. He drew as much cash from his pension as possible and bought a stand in a select, new security development in Pretoria. With the bit of knowledge he’d acquired as a teacher with the building of toilets, sports pavilions and lean-tos he began building while the family found temporary living quarters in their old holiday caravan at a nearby caravan park. Less than six months later the house was finished and the family moved in. But Louwrens wasn’t done. The first job he got was from an acquaintance who asked him to build him a house in the same complex. That was followed by a few more. Before long Louwrens was an owner-builder who buys a stand and puts the final product on the market. After 10 houses the former teacher who had left teaching at 60 finally retired and at 70 now enjoys his golf and a lovely house he bought for cash. He admits – hesitantly – the value of his estate has doubled since he left teaching and tackled something new.
Was it reckless of him, or clever, to increase his risk profile and tackle something he knew nothing about? Incidentally, his luxury retirement home was designed from the very beginning in such a way that the upstairs section can be separated by a temporary wall and leased out as a flat. The rental income now pays his water, lights and rates and what’s left over he’s allowed to use for his golf and for a new club from time to time.
My own route into investing in property followed a completely different path. We first tried restoring one or two houses and then selling them at a profit. But that didn’t work. The only result was a lot of stress on the family relationship. Then there were one or two lucky breaks at sheriffs’ auctions where the sellers were under pressure. Our first break was when some other couple were fighting bitterly and wanted to sell the house urgently so its assets could be split and they could go their separate ways. My cash offer was many thousands lower than the market value, but the squabbling couple agreed to the sale.
As our children left home I was able to pick up a house for each of them at sheriffs’ and insolvency auctions for much less than even the current depressed market value.
The last bit of luck was more recent. After five years in our latest “squabbling” house it was time to move to a smaller place, preferably in a security complex. But rather than swooning over the beautiful marble kitchens of new homes being built we put our house on the market and after a wait of six months we received a good enough offer to accept. Then there followed a few years of inconvenience in a rented house before I got my chance to pick up a wonderful bargain at a sheriff’s auction. The extra bonus was that my wife loved the design of the kitchen.
Louwrens lives in a house without debt, because he left teaching and stayed in an uncomfortable caravan while he built his own house. The De Klerks had to move repeatedly from one house to another, do their own gardening as well as spend hours on research and hanging around sheriffs’ and other auctions, but we achieved the same end result.
So just take a bit more risk, be creative and put up with some inconvenience rather than sit bemoaning the fact that you don’t have R10m to retire on. Your house is your first big asset and you must use it.
(Both Louwrens and I play off a handicap of 19, but we’re working hard at pushing it up to 24. We don’t use the seniors’ tees yet.)
THE RISK TAKERS II
Vic’s retirement portfolio
ELSEWHERE THERE’S a short extract about living and guaranteed annuities. I don’t understand anything about them and I’m completely up in arms against the rules and regulations of such products and the mould it would force me into. The cost of as much as 3,5%/year of my capital for the privilege of receiving a guaranteed payment every month riles me. That’s why I keep suggesting a higher risk profile – but without putting money into a scheme such as Sharemax.
My portfolio – without guarantees but, thanks to the quality of the investments – is perhaps safer than those guaranteed things, is well designed for a single taxpayer (man or woman) who has no other income. If there’s a financial adviser who has a better product available – at lower cost and with a higher return – I’d like to hear from him. There’s a good chance I can give you some business.
THE RISK TAKERS III
Marietjie and her bakkies…
SOMEWHERE IN Tshwane there’s a lady – let’s call her Marietjie – who built up a business specialising in quick and cost-efficient removal of small loads and garden and other refuse. She has five 1,3t Hyundai bakkies on the road. Each bakkie is a business on its own. The bakkies are driven by healthy ladies, and even one old gent, between the ages of 55 and 70. Each driver usually employs one helper at his/her own expense to help with loading and unloading.
The business model works like this: The driver gets 30% of his/her daily gross income and that must be used to pay the helper. Marietjie pays for the bakkie, its maintenance and also the diesel used. She also answers the central phone number prospective customers use and she then dispatches the nearest available bakkie to that customer.
I find this kind of business and spirit of enterprise fascinating. I once spoke to one of the ladies who came to load some rubble at my house at R250/load. She said she usually earns around R1 500 to R2 000/day. Of that, 30% is hers and after paying her helper she takes home between R300 and R500/day. That could be as much as R60 000 to R100 000/year, which is around what the smart alec financial adviser would guarantee you for a R2m to R3m investment. The driver of the bakkie naturally doesn’t have that kind of retirement capital.
But Marietjie is doing far better. I reckon she makes a profit of at least R200/bakkie/day – which is R1 000/day or R20 000/month with her five Hyundai bakkies.
You can buy a good second-hand Hyundai bakkie for around R80 000 and I doubt if Marietjie invested more than R1m in her business. That gives a good, liveable income of probably more than R250 000/year. Marietjie is lucky. She doesn’t have R10m to buy retirement annuities, so she had to use her initiative and considerably increased her risk profile to earn more with less capital.
I wonder if there’s another Marietjie somewhere in Pretoria? Perhaps we can start up a franchise-type of garden service with five bakkies and 10 mowers on the road. My risk profile is quite high enough to risk something on that.
THE DEATH OF RETIREMENT
Bruce Whitfield retorts
VIC IS ABSOLUTELY RIGHT: the only way to grow your capital base is by taking more risk. Far too many advisers put their clients’ retirement monies into “low risk” assets with the intention of capital preservation but ignoring the biggest threat to your savings – inflation. The trouble is defining just how much risk is appropriate. It’s all well and good running your own business and transporting other people’s waste, but is that really something you want to be doing when you should be reaping the rewards of your retirement? Tragically, it’s the sort of thing more of us will need to be doing to supplement our diminishing incomes as we get older.
Market volatility tends to make investors more conservative: the financial crisis and collapse in equity markets amplify the fear of people already wary of what they perceive to be the “casino effect” of the market. Hence, most of the almost R1 trillion invested in unit trusts has found its way into the perceived safety of the money market, where capital has been preserved for relatively modest returns.
Organisations such as the Association of Savings and Investment SA regularly point to the fact that most South Africans miss out on wealth-building opportunities presented by strong bull markets due to their overly conservative investment approach.
Of course, the big question now is whether this is an appropriate time to be taking on more risk. The JSE and certainly many developed economy equity markets aren’t trading at particularly demanding multiples. Sure, you have to question the bubble that appears to be developing in the more adventurous part of the IT market – particularly where social media is involved and new IPOs are trading on multiples of several hundred times – but on average valuations appear pretty tempting.
“Don’t be a coward,” says Vic wisely. At the same time be aware of the very real global risks when making investment decisions. Also look at the diversification. If the lessons of Old Mutual and Anglo American taught us anything in the financial crisis it is that dividends are by no means guaranteed. I like Vic’s thinking – but note with some concern he proposes stakes in two cellphone companies. I’d say pick one of those – probably MTN – from a growth perspective, plus its new dividend philosophy is encouraging. You want a decent dividend yield with some growth potential? What about Standard Bank? As for Woolworths – eish. A wonderful place to shop, but as an investment?
With global growth under pressure and economies under siege as sovereign debt levels build and unemployment rises, is this really a great time to be taking risk?
BRUCE WHITFIELD
Such a quantum shift is due to share prices fluctuating widely over the past decade or two without showing any net increase. The graph of the S&P 500 – the index of the share prices of the 500 leading companies in the United States – shows we aren’t even back where we were when Bill Clinton handed the reins over to George W Bush in 2000. The Dow Jones graph confirms this.
That fear on the part of investors explains the popularity of any product described as “guaranteed” – regardless of whether it’s the capital or the very poor return on it. Bloomberg’s Margaret Collins says the sale of policies in the US guaranteeing a lifelong income and also protecting investors against any fall in capital value increased by 24% in first quarter 2011.
Such products are now also appearing in South Africa – if they haven’t already become too established.
Kenneth Masters, director of new insurance at the Pinnacle Financial Group of America, says the cost of that guaranteed living product is exorbitantly high – up to as much as 3,7%/year of the capital invested. His simple question is: “Would I have been better off saving the 370 basis points and being fully (invested) in the stock market?”
Yes, yes and yes again, I say. And I can’t help fully supporting the wonderful, honest and simple remark by Colleen O’Brien, of US brokers Charles Schwab: “Investors are stuck on protection of principal when they should be focused on what their principal can do for them.”
In a recent cover story colleague Bruce Whitfield quoted various financial experts with their clever calculations and investment advice who claimed you need at least R10m for a decent retirement. Then he came to the conclusion that “retirement is dead or out of reach” as few individuals will have collected R10m by the age of 60 or 65.
Yes, very few of us have R10m – even veteran financial journalists, as I was called recently. That’s why we have to make some other kind of plan. One of them is to keep well away from the new generation of smart alec financial advisers who’d have no qualms about blatantly telling you one of those guaranteed lifelong income things is the best for you. Haven’t we just managed to get rid of the financial advisers who have been trying for more than a decade to sell Sharemax and PICvest dreams?
One of the cornerstones of those living annuities is that your portfolio make-up must weaken to at least 60% interest-bearing and only 40% in shares. Though the return on fixed interest-bearing bonds has admittedly been better than on shares in the US over the past 10 years, if you raise the horizon to 25 years, ordinary quality shares are still the best investment.
Elsewhere I’ve compiled my non-guaranteed lifetime income portfolio I believe will offer a far better return than any of the guaranteed funds over the next three decades or so, and is already doing so. British American Tobacco won’t cut its dividends and nothing can happen to make the world suddenly stop smoking. MTN and Vodacom are currently among the best listed income shares, but also have exceptional growth prospects. Woolworths is clearly forging a new path with Growthpoint – the largest owner of quality shopping centres in SA. Woolworths is also increasingly looking more like the preferred food retailer for the new emerging wealth in SA.
If you don’t like my selection of shares replace it with Satrix’s dividend fund and you’ll immediately get a far wider exposure to more quality shares that also pay good dividends. If we’re ever struck by such a strong economic storm that all the shares in the Satrix dividend fund have to cut their dividends at the same time then the guaranteed living annuity will also be down the drain.
In brief, now’s the time to raise your risk profile and rather to aim at a greater exposure to shares. If you have to invest in an interest asset there’s nothing better than retail Government bonds.
Another important reality – and we all have to accept this as early as possible – is there’s little if any likelihood of ever being able to save enough to reach that magical R10m for your retirement. Not even the miracle of compound interest will help you. Focus on two solutions if you aren’t lucky enough to enjoy the benefit of a large share option scheme with your employer.
That house of yours – the so-called biggest investment of your life – must work for you rather than being a burden or just a place where you live and raise your children. Effective application and management of your residential property often makes a greater contribution to the growth of the assets in your estate than all your savings plans. Read the story about Louwrens elsewhere.
If it’s impossible to carry on working, another alternative is to start thinking in good time about your own small business that can earn a good income on a small capital outlay. But don’t make the mistake of trying to turn your lifetime hobby into a business in your old age. Be proud of the furniture you make yourself but don’t try turning that into a business. Marietjie – who has five bakkies for refuse removal – maybe has a better idea.
What you have to do if you don’t have the R10m for retirement is simply to increase your risk profile. Don’t be a coward: but on the other hand don’t be so foolish as to believe the Sharemax kind of promise of 12,5% interest either.
Retail Government bonds
Best for your investment
ADVICE SUCH AS “You must use all your money to earn interest now, because shares are expensive and property prices will never rise again, because the new Government is making a mess of everything” is often handed out free around the braai on a Saturday afternoon. It’s just a pity those who give that advice know so little about what they’re talking about.
To put your money in the money market – the ordinary 30-day deposit – is at its best just a put-away-and-wait investment decision. The return is currently around 5%/year. That won’t be much good for paying your rising electricity bill. This is money you’re only putting aside temporarily to use later. Fixed deposits of 12 months at the current rate of approximately 6,5% to 7% are a small step in the right direction. However, that’s made more people poor over the past five years than, for example, ordinary shares. Five years ago you could still earn more than 10% on a fixed deposit at a bank. All you achieved with that kind of investment was to protect your capital. You may still have your original R1m but your income has fallen from R100 000 to R65 000/year.
On the capital market you can still buy Government bonds in units of R1m from stockbrokers. Jan de Kock, founder of FFO Securities, says the R186 Government bond – which only matures in 2026 – is still available at a return rate of 8,37%/year. The coupon rate of the bond is 10,5%/year – and that’s why it is currently trading at R118 per R100 of coupon value.
Decide for yourself where you think interest rates will be going over the next 15 years before you buy bonds. If you’re one of those who believe Government is soon going to mess up SA’s economy and that the inflation rate will rise again it’s not a good idea to buy those bonds now. But remember those bonds are bought by the institutions where you’re planning to buy your living annuity. It’s the only way they can guarantee the living annuity.
SA’s Treasury is constantly trying to make its retail bonds a bit more attractive. When it kicked off about a decade ago, interest was only paid six-monthly. Now Treasury has already created a pensioner’s version, which pays the same interest rate but paid monthly.
The latest addition to making the product more attractive is the “reset” of the interest rate. That simply works as follows: make a fixed investment for five years now at 8%/year and you’ll know exactly how much you earn every month. If interest rates were to increase – you’ll be able to adjust your existing interest rate – that is, “reset” it to the new higher rate – which Treasury will then pay for new money. So if interest rates go up from 8% to 10% even 12%/year you’ll reap the benefit. However, if the interest rate were to fall from 8% to, say, 6% or even 4%, as has happened in the US and in Britain, your rate won’t fall.
There’s no living or guaranteed annuity currently available in SA that can beat the return from retail Government bonds.
For the information of my colleague Bruce Whitfield, on an investment of R5m at 8%/year in retail bonds you’ll get R400 000 in interest or R33 333/month in pension. And that will increase every time interest rates go up but won’t drop if interest rates fall.
THE RISK TAKERS I
Louwrens builds houses; Vic buys them at auctions
MY GOLFING BUDDY left teaching as a school principal at the age of 60. Note “left”, not “retired”. His first challenge, about 10 years ago, was to build the family a new house. He drew as much cash from his pension as possible and bought a stand in a select, new security development in Pretoria. With the bit of knowledge he’d acquired as a teacher with the building of toilets, sports pavilions and lean-tos he began building while the family found temporary living quarters in their old holiday caravan at a nearby caravan park. Less than six months later the house was finished and the family moved in. But Louwrens wasn’t done. The first job he got was from an acquaintance who asked him to build him a house in the same complex. That was followed by a few more. Before long Louwrens was an owner-builder who buys a stand and puts the final product on the market. After 10 houses the former teacher who had left teaching at 60 finally retired and at 70 now enjoys his golf and a lovely house he bought for cash. He admits – hesitantly – the value of his estate has doubled since he left teaching and tackled something new.
Was it reckless of him, or clever, to increase his risk profile and tackle something he knew nothing about? Incidentally, his luxury retirement home was designed from the very beginning in such a way that the upstairs section can be separated by a temporary wall and leased out as a flat. The rental income now pays his water, lights and rates and what’s left over he’s allowed to use for his golf and for a new club from time to time.
My own route into investing in property followed a completely different path. We first tried restoring one or two houses and then selling them at a profit. But that didn’t work. The only result was a lot of stress on the family relationship. Then there were one or two lucky breaks at sheriffs’ auctions where the sellers were under pressure. Our first break was when some other couple were fighting bitterly and wanted to sell the house urgently so its assets could be split and they could go their separate ways. My cash offer was many thousands lower than the market value, but the squabbling couple agreed to the sale.
As our children left home I was able to pick up a house for each of them at sheriffs’ and insolvency auctions for much less than even the current depressed market value.
The last bit of luck was more recent. After five years in our latest “squabbling” house it was time to move to a smaller place, preferably in a security complex. But rather than swooning over the beautiful marble kitchens of new homes being built we put our house on the market and after a wait of six months we received a good enough offer to accept. Then there followed a few years of inconvenience in a rented house before I got my chance to pick up a wonderful bargain at a sheriff’s auction. The extra bonus was that my wife loved the design of the kitchen.
Louwrens lives in a house without debt, because he left teaching and stayed in an uncomfortable caravan while he built his own house. The De Klerks had to move repeatedly from one house to another, do their own gardening as well as spend hours on research and hanging around sheriffs’ and other auctions, but we achieved the same end result.
So just take a bit more risk, be creative and put up with some inconvenience rather than sit bemoaning the fact that you don’t have R10m to retire on. Your house is your first big asset and you must use it.
(Both Louwrens and I play off a handicap of 19, but we’re working hard at pushing it up to 24. We don’t use the seniors’ tees yet.)
THE RISK TAKERS II
Vic’s retirement portfolio
ELSEWHERE THERE’S a short extract about living and guaranteed annuities. I don’t understand anything about them and I’m completely up in arms against the rules and regulations of such products and the mould it would force me into. The cost of as much as 3,5%/year of my capital for the privilege of receiving a guaranteed payment every month riles me. That’s why I keep suggesting a higher risk profile – but without putting money into a scheme such as Sharemax.
My portfolio – without guarantees but, thanks to the quality of the investments – is perhaps safer than those guaranteed things, is well designed for a single taxpayer (man or woman) who has no other income. If there’s a financial adviser who has a better product available – at lower cost and with a higher return – I’d like to hear from him. There’s a good chance I can give you some business.
THE RISK TAKERS III
Marietjie and her bakkies…
SOMEWHERE IN Tshwane there’s a lady – let’s call her Marietjie – who built up a business specialising in quick and cost-efficient removal of small loads and garden and other refuse. She has five 1,3t Hyundai bakkies on the road. Each bakkie is a business on its own. The bakkies are driven by healthy ladies, and even one old gent, between the ages of 55 and 70. Each driver usually employs one helper at his/her own expense to help with loading and unloading.
The business model works like this: The driver gets 30% of his/her daily gross income and that must be used to pay the helper. Marietjie pays for the bakkie, its maintenance and also the diesel used. She also answers the central phone number prospective customers use and she then dispatches the nearest available bakkie to that customer.
I find this kind of business and spirit of enterprise fascinating. I once spoke to one of the ladies who came to load some rubble at my house at R250/load. She said she usually earns around R1 500 to R2 000/day. Of that, 30% is hers and after paying her helper she takes home between R300 and R500/day. That could be as much as R60 000 to R100 000/year, which is around what the smart alec financial adviser would guarantee you for a R2m to R3m investment. The driver of the bakkie naturally doesn’t have that kind of retirement capital.
But Marietjie is doing far better. I reckon she makes a profit of at least R200/bakkie/day – which is R1 000/day or R20 000/month with her five Hyundai bakkies.
You can buy a good second-hand Hyundai bakkie for around R80 000 and I doubt if Marietjie invested more than R1m in her business. That gives a good, liveable income of probably more than R250 000/year. Marietjie is lucky. She doesn’t have R10m to buy retirement annuities, so she had to use her initiative and considerably increased her risk profile to earn more with less capital.
I wonder if there’s another Marietjie somewhere in Pretoria? Perhaps we can start up a franchise-type of garden service with five bakkies and 10 mowers on the road. My risk profile is quite high enough to risk something on that.
THE DEATH OF RETIREMENT
Bruce Whitfield retorts
VIC IS ABSOLUTELY RIGHT: the only way to grow your capital base is by taking more risk. Far too many advisers put their clients’ retirement monies into “low risk” assets with the intention of capital preservation but ignoring the biggest threat to your savings – inflation. The trouble is defining just how much risk is appropriate. It’s all well and good running your own business and transporting other people’s waste, but is that really something you want to be doing when you should be reaping the rewards of your retirement? Tragically, it’s the sort of thing more of us will need to be doing to supplement our diminishing incomes as we get older.
Market volatility tends to make investors more conservative: the financial crisis and collapse in equity markets amplify the fear of people already wary of what they perceive to be the “casino effect” of the market. Hence, most of the almost R1 trillion invested in unit trusts has found its way into the perceived safety of the money market, where capital has been preserved for relatively modest returns.
Organisations such as the Association of Savings and Investment SA regularly point to the fact that most South Africans miss out on wealth-building opportunities presented by strong bull markets due to their overly conservative investment approach.
Of course, the big question now is whether this is an appropriate time to be taking on more risk. The JSE and certainly many developed economy equity markets aren’t trading at particularly demanding multiples. Sure, you have to question the bubble that appears to be developing in the more adventurous part of the IT market – particularly where social media is involved and new IPOs are trading on multiples of several hundred times – but on average valuations appear pretty tempting.
“Don’t be a coward,” says Vic wisely. At the same time be aware of the very real global risks when making investment decisions. Also look at the diversification. If the lessons of Old Mutual and Anglo American taught us anything in the financial crisis it is that dividends are by no means guaranteed. I like Vic’s thinking – but note with some concern he proposes stakes in two cellphone companies. I’d say pick one of those – probably MTN – from a growth perspective, plus its new dividend philosophy is encouraging. You want a decent dividend yield with some growth potential? What about Standard Bank? As for Woolworths – eish. A wonderful place to shop, but as an investment?
With global growth under pressure and economies under siege as sovereign debt levels build and unemployment rises, is this really a great time to be taking risk?
BRUCE WHITFIELD
