Your financial and investment questions answered

PSG answers questions on finances and investments.

PSG answers questions on finances and investments.

Published Feb 24, 2024


Magdeleen Cornelissen, Wealth Adviser at PSG Wealth, Menlyn:

My daughter is five years old, and I’m eager to begin setting aside funds for her university education. What initial steps should I consider to kick-start this savings journey?

There are several factors to give thought to when setting up an investment. As a starting point, one must consider the goals to be achieved, as well as the time frame of the planned investment.

These aspects aid in deciding which assets to include in the investment portfolio. You have already defined the purpose of the investment and thus we can categorise this as a long-term portfolio.

The next factor to consider is the type of product to use when the funds are invested. Aspects to keep in mind when choosing an investment product include liquidity and tax efficiency. Keep in mind that the full proceeds of the investment must be available to ensure that the objectives are met.

While there are many products available, I would recommend that you consider using a voluntary investment product which offers flexibility and no restrictions on withdrawals or contributions.

Voluntary investment products can be tailored to your needs. You can decide how you want to contribute to this investment: single lump-sum payments, regular and ad hoc contributions are allowed. You can also choose and adjust the investment strategy to fit your investment needs.

Due to the time frame of the investment, a focus on equities is essential. This could provide stronger long-term growth results. Interest-bearing funds could attract a higher level of taxation, denting the growth prospects.

You can enjoy unlimited international exposure in a voluntary investment, which is not the case in some other investment products.

Finally, remember that a well-qualified financial adviser can help you with this process and be your partner on your financial journey.

Jac de Wet, Wealth Manager at PSG Wealth Somerset West:

As a freelancer grappling with the unpredictability of income streams, I find it challenging to manage finances and plan for retirement effectively. What tailored advice can you offer to help navigate the fluctuations in income and establish a sustainable strategy for saving towards retirement amid this uncertainty?

The first step is proper budgeting, which leads to increased saving and better investing. Creating a detailed budget and sticking to it allows you to manage personal finances more efficiently, and highlights when there is a surplus or a shortfall.

Once your budget is in place, the next step is to focus on building an emergency fund. This is a short-term savings fund that acts as a financial safety net that can aid you in months when you need to supplement income. Your emergency fund should eventually feed your longer-term investments, which includes retirement planning.

Determine how much you can afford to save in your emergency fund each month or week. Commit to a fixed minimum to contribute regularly and stand by it. Try to contribute more than your minimum amount whenever you can. You should only allow yourself to contribute less than your minimum when you really can’t afford to cover your basic fixed expenses.

Emergency funds should be able to cover three to six months’ expenses.

When you have mastered this and have built up a steadily growing emergency fund, it is time to look at wealth planning. This is where the surplus of your short-term savings, additional cash flow and any windfall income will go.

An approach where you invest surplus funds into both a voluntary investment and retirement annuity will benefit you. Voluntary investments give you access to capital for unforeseen capital requirements, and retirement annuities are ideal for retirement savings. Both investments should be flexible, allowing for debit orders, ad hoc investments, and temporary halts in contributions, due to the unpredictability of your income streams.

Consult a qualified and experienced financial adviser to assist you in setting up the right plan and strategy for your specific needs, objectives and circumstances.

Alexi Coutsoudis, Wealth Adviser at PSG Wealth, Umhlanga Ridge:

My family recently faced an unexpected financial emergency, and I’m considering tapping into our emergency fund. Before doing so, what steps should we take to ensure we’re making the most informed decision? Are there alternative resources or options we should explore first to mitigate the impact on our long-term financial health?

Facing a financial emergency can be challenging, and tapping into your emergency fund is a serious decision. Before you do so, there are a few options you could consider to ensure that you are making an informed choice.

Contact your creditors: If the emergency involves debt payments, communicate with your creditors or a debt counsellor to discuss relief options. Many creditors are willing to work with individuals facing financial difficulties.

Consider low-interest loans: Explore the possibility of accessing a low-interest loan from sources such as an access bond if you are fortunate enough to own a property or a low-interest overdraft if your bank offers this. While taking on extra debt is not ideal, if you can afford the extra monthly repayments it may be a more palatable option than depleting all your savings.

Evaluate your insurance coverage: Review all your insurance policies to check if any provide coverage for the specific emergency. This could include medical, household or car, life and disability as well as insurance through your employer.

Create a repayment plan: If your only option is to use your emergency fund, make a plan for replenishing it. Try and set a realistic timeline and budget to build your fund up to the desired level.

Talk to a Certified Financial Planner ®: If you are uncertain about the best route to take, it is best to talk to a financial professional who will help you weigh up the pros and cons of each option and guide you in making the best choice for your unique situation.

Jonathan Fisher, Wealth Adviser, PSG Wealth, Sandton Grayston, Johannesburg:

My mother is considering giving us a portion of our inheritance early to help with a house deposit. How might receiving this inheritance now have an impact on our financial stability and long-term goals?

Getting a helping hand and an early inheritance like this should certainly assist you in achieving long-term financial stability and your long-term goals, one of which I assume is creating long-term wealth. It will reduce your liability to the bank and enable you to pay off the remainder of the debt sooner rather than later.

Generally, people aged between 25 and 45 are still building up wealth and tend to be servicing some type of debt, which comes at an opportunity cost, i.e. paying off interest instead of using that money to achieve long-term capital growth.

An early gift or inheritance from your mother to help with your house deposit would be a welcome gesture from her. Bear in mind this is seen as a donation and the amount would be subject to donations tax. It is usually the donor (in this case your mother) that would be liable for the donations tax, being the said amount less R100 000 annual exclusion, multiplied by 20% (for a donation up to R30 million).

Donations tax must be paid by the end of the month following the month during which the donation takes effect or such longer period as the SA Revenue Service (Sars) may allow (Section 60(1)). Although donations tax is generally payable by the donor, it is important to note that if the donor fails to pay the tax within a certain period, the donor and donee can become jointly and severally liable for the tax.

If it is a substantial amount be clear with your mother about the disclosure of the donation to Sars and that it is her responsibility to pay the tax.

In conclusion, the early gift should assist you going forward to become financially stable as well as achieving one of your long-term goals such as wealth creation.

Shreekanth Sing, Wealth Adviser, PSG Wealth, Northcliff, Johannesburg:

I am a 30-year-old female interested in investing. However, I have little to no knowledge of what to look for in a good investment opportunity. Can you advise me what the three core things are that are crucial when deciding which investment to go with?

Making a decision regarding your financial planning, including investment decisions, is crucial for you and your family’s financial well-being. A poor decision or lack thereof can have significant consequences, so it’s important to consider the following three points:

Understand your needs: Our needs evolve over time, and it’s essential to recognise and work towards fulfilling them.

When you start working, two important considerations are saving for retirement and insuring yourself against the risk of not being able to earn an income due to sickness or disability. As your needs change, such as purchasing a home and starting a family, you may want to consider adding life cover.

Working with a professional financial planner can help you understand your needs and put a plan in place, which should be reviewed at least annually to stay up to date.

Choose a reputable, licensed professional: With many scams and get-rich-quick schemes out there, it’s crucial to protect your hard-earned money by working with a reputable financial services provider licensed with the Financial Sector Conduct Authority (FSCA). Select a financial adviser who is registered with the regulatory body and is a certified financial planner to ensure that you invest in reputable investments with a proven track record.

Diversification: Matching your investments to your needs is essential. For long-term investments, being too conservative, like investing in a money market fund, may not beat inflation and hinder your capital growth. On the other hand, investing in high-risk assets like equities in the short term is unwise due to fluctuating values.

As your investment time horizon increases, you can afford to take on more risk. Investing in a unit trust fund, for example, is wise as it offers diversification across asset classes, investment styles, and a team of fund managers, lowering your risks while helping you achieve your goals.

In conclusion, understanding your financial needs, working with a reputable and licensed professional, and diversifying your investments are three crucial factors to consider when making financial planning decisions.

A reliable financial adviser can help guide you through these considerations and ensure that your financial planning needs are met, providing peace of mind and a secure future for you and your family.