IC Newsletter - Issue 2 2022

Individual Consulting

Connect Issue 2 • 2022

Connect with Alexforbes for insights and tips to help you make better financial decisions.

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In this issue Hello! Welcome to our latest edition of CONNECT. I’m Rita Cool, a senior financial adviser at Alexforbes Financial Planning Consultants.

We recently celebrated an important milestone in the Alexforbes journey, with the unveiling of our new brand to the market. This brand is our promise to you – our clients – a promise of quality, consistency, competency and reliability. To grow as a future-fit business, we are committed to making connection our priority. With unrivalled insight connected to powerful advice and solutions, we will connect you to your future, connect your investments to a better tomorrow and connect your decisions to positive impact.

Getting real with Rita Cool

What are your options if you stand to inherit?

Thato & Trevor discuss Inflation

Market Data / Infographic report

In this edition of our newsletter, we continue our series of ‘Getting real with your finances’ as we look at Loss and how the fear of losing can influence people’s financial decisions. We also examine what your options are if you stand to inherit from a deceased loved one.

Thato and Trevor discuss why it’s important to pay attention to inflation and changing interest rates, and to end off, we summarise what the markets have been doing and what to expect in the quarter ahead.

Until next time, happy reading.

Need more info?

For queries, contact: Telephone: 0860 66 4444 Email: mymoneymatters@alexforbes.com

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Getting real with Rita Cool Nobody likes loss: The loss of a loved one, the loss of a job or loss of face. Perhaps the only good loss is weight loss. People go to great lengths not to lose anything, and they sometimes make poor decisions trying to avoid loss.

Loss is linked to grief, as you mourn the person or the thing that was lost. Each person deals with grief in their own way and there is no right or wrong way to grieve.

Financial loss not only causes potential grief, it can also bring up other emotions as well, depending on the loss.

Loss aversion is ingrained in humans and has been studied in depth in behavioural finance. Loss affects people much quicker and more deeply than a corresponding gain causes happiness. That is why even small negative market movements cause concern and also cause knee-jerk switches out of portfolios perceived to be causing the losses to try prevent further losses.

It’s important to remember that the “negative” that you see on a statement is not yet an actual loss. It is simply the perceived value of your investment on the date of the statement. It is a snapshot of the perceived value of the underlying assets. You only lose the value when you sell the assets. If you leave the assets until the market recovers, your fund won’t lose the value.

If you are still accumulating assets, you should welcome a negative market every now and then, as it makes the share prices cheaper. This means you can get more shares for the same Rand amount invested.

You can also negate the effect of certain losses by structuring your finances properly. This can include life cover to look after your family if you die; retrenchment cover; insurance to protect the loss of a car or house; or disability cover to protect your income if you lose your health.

Loss is part of life and can be traumatic, but not all losses are equal. Markets can recover and the loss of a job might create new opportunities. Think about what the impact of a loss could mean for you and see if you need to do something to reduce the effect of those losses.

Speak to your Alexforbes financial adviser to see if you are protected sufficiently against losses.

Very often this is the reason why peoples’ portfolios do not show the returns that are reported by the investment managers. People buy high and sell after a share has lost value. Buying high and selling low is a recipe for actual long-term losses.

This fear of loss affects the way that we make decisions. People might stay in portfolios that are too conservative for long periods because they are afraid of seeing negative values.

The actual risk is inflation risk, something not seen on a statement, which is the risk that money in the future is not worth as much as it is now. Your investment must be able to produce inflation-beating returns in the long term and you need to take some investment risks to get this, but this risk can also cause short-term losses.

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What are your options if you stand to inherit?

Do you know what you should do in the event that a loved one dies? If a person is sick for a long time, you may have time to make sure everything is in place and all important documents are updated. However, this might not be the case in the event that your loved one dies suddenly. This is already a very difficult time for you emotionally, so where do you start with the paperwork to deal with a death?

There are several benefits that might have been left to you and the different benefits have different choices to be made.

If you are named in a will You might’ve been named in a will or if the deceased did not have a will you might inherit due to the intestate succession formula if it was your spouse or family member who died. A will is not the same as the nomination form completed for an employer’s pension or provident fund benefits. If the deceased only completed a nomination form without setting up a will, the Intestate Succession Act will have to be followed.

The will probably mentioned an executor but the executor still has to be appointed by the Master before they can start any work. Once the Next-of-kin have completed the necessary paperwork the proposed Executor can apply for appointment. This process is currently being delayed by the Master’s Office and it could be several months before the original appointment letter is received.

It is possible that you have been nominated as the Executor, potentially to try to save Executor’s fees. Unless you have the necessary experience in finalising estates the Master will insist that you appoint a professional Executor to do the work. This agent will still ask the legislated fee to do the work. If you’ve been nominated as the Executor and you’re staying overseas, this could

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complicate the estate as it is almost impossible to get approval as Executor from the Master and you’ll have to provide financial surety on the assets in the estate. Certain aspects of the estate also have to be dealt with in person so be prepared to travel to SA if necessary.

The executor will deal with all aspects of the deceased’s finances to pay debts, close accounts and arrange transfer of assets like a house. The legislated fee for an executor is 3.5% + VAT but it is possible that the deceased had negotiated a better fee based on the assets. There will also be costs for advertising, transferring attorneys and fees charged on income received by the estate after date of death until finalisation. The whole estate process is not something that can be finalised quickly as there are certain regulated processes to be followed before the estate can be finalised.

You can only inherit if the estate is solvent, meaning that the assets are more than the liabilities. Remember that things like retirement funds do not form part of the estate.

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If you know that a certain asset has been left to you, you cannot simply start using that asset as it is not yours until the final distribution has taken place. If there is not enough money in the estate to pay liabilities the asset would need to be sold.

Property needs to be maintained while the estate is being finalised and the payment of this would fall to the person who stands to inherit the property. The Executor becomes the transactional party instead of the deceased and therefore the family can’t take over transactions/ agreements that the deceased dealt with.

POPIA has now limited access to the deceased’s information and no information can be provided to anyone if they are not named as a beneficiary until the will has become public.

If you were married in community of property to the deceased, all your combined assets are taken into account for the calculation of the full estate value and the executor’s fee is charged on the whole amount.

When you stand to inherit anything, you should speak to a financial adviser to see how best to structure the inheritance so that it benefits you the most in the long term. For example, would it be better to take cash from a retirement fund or to set up a Living Annuity with your allocation?

Or if you have inherited a share in a property you might want to sell your portion instead of keeping it. You can also buy out any other partial owners. Or you can buy out any other partial owners to have the full property in your name.

Find out more information on what needs to be done for different assets (e.g. what needs to happen with firearms) here.

Getting professional advice during periods of loss can help you to ensure that nobody takes advantage of your emotional state and that you don’t make rash financial decisions that could affect you in the long term.

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Thato & Trevor discuss Inflation Throughout life you’ll probably come across a few financial ideas that everyone is talking about and that you are not sure how it affects you. In this edition of Connect, Thato & Trevor unpack what inflation is and why it’s important to pay attention to inflation and changing interest rates.

Trevor:

Thato:

Hey Thato! I hear that worldwide headlines say that inflation is rising and governments are increasing interest rates? What does “inflation” even mean and how does it affect us, as consumers?

Hi Trevor! “Inflation” is an economic term that explains how much more expensive things are compared to the year before and how much more you have to spend each year for example to fill your petrol tank, buy a litre of milk, or get a haircut.

It is calculated on a general “basket of goods” with things used by the average person in a country.

However, your personal inflation rate might be higher or lower than the declared rate, depending on what you spend money on.

Trevor:

Thato:

So, if the inflation rate is 6%, what does that actually mean?

If a litre of milk cost R10.00 last year it will cost R10.60 this year and R11.24 next year. If you still only have R10 available next year it will not be enough to buy a full litre.

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Trevor:

Thato:

Are there different types of inflation?

Yes – there are two types: demand-pull and cost-push inflation. Demand-pull is when prices increase because consumers spend more (demand more goods).

Cost-push is when prices increase because production inputs have become more expensive or scarce.

Trevor:

Thato:

How does inflation affect interest rates?

Economic theory explains that there is an inverse relationship between interest rates and inflation.

This means that when interest rates are low, inflation generally tends to rise and when interest rates are high, inflation tends to reduce.

If inflation is rising faster than what the government policy makers prefer, they might increase interest rates so that people have less spending money after paying their debt and therefore buy less until it slows down inflation. If inflation drops below the target rate, they might lower interest rates again so that people start spending & borrowing money again.

Trevor:

Thato:

What does high inflation mean for my investments?

Inflation reduces the value of your investment because the same Rand amount will buy less in the future after inflation has been taken into account

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Trevor:

Thato:

What can I do to protect myself against high interest rates?

Try and lower your debt, where your repayments increase when interest rates increase. Make sure your investment portfolio suits your risk and return requirements.

Market updates

Continued rise in flation forces aggressive interest rate tightening worldwide

SA’s asset classes underperformed global equities as commodities and industrials weaken

S&P Global revises SA’s credit rating outlook from stable to positive

Major currencies performs well against the US dollar as risk sentiment improves

Slowing pace of global recovery indicates equity weakness ahead

Monetary policy continues to support South Africa’s economy

Read the complete commentary here.

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Disclaimer: Please note that while care has been taken to ensure that the information provided in this article is correct, it represents an overview of the topic under discussion and as such does not constitute advice. While Alexander Forbes has taken reasonable effort to ensure that the information contained herein is true and correct it will not be held liable in respect of any loss arising from any advice provided arising out of the contents of this circular. We suggest that you contact your Legal department before taking any decisions based on the information herein.

The following businesses are licensed financial services providers: Alexander Forbes Financial Planning Consultants (Pty) Ltd (FSP 31753 and registration number 1995/012764/07) Alexander Forbes Investments Limited (FSP711 and registration number 1997/000595/06)

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