Your investment and retirement questions answered

I’m looking at investing in equity shares, however, I’m unsure of how to start this journey. What are the do’s and don’ts to watch out for? Any advice on where to start?

Chrisley Botha, Wealth advisor at PSG Wealth answers:

Beginning your investment journey in equities (or shares) is a great step towards wealth-building. Here are some key dos and don'ts:

Dos:

• Research: Understanding the market, types of shares, and influential factors is paramount. Self-education via reading, courses, or consultations with professionals is highly recommended.
• Diversify: Minimise risk by investing across different sectors and companies.
• Maintain a long-term focus: Successful investors focus on long-term growth, not short-term fluctuations. Be patient, growth can take time.
• Consult experts: Guidance from a financial adviser can be invaluable in achieving your financial goals.

Don’ts:

• Avoid impulse buying: Let your investment decisions be driven by research, not emotions or trends.
• Avoid psychological biases: To build an optimal portfolio, stay aware of counter biases such as loss aversion, overconfidence, and herd behaviour.
• Don’t neglect risks: Over-exposure to trending stocks can be risky. Prioritising capital protection is as important as seeking high returns, and a balanced ‘risk-reward’ approach is essential.
• Don’t expect quick profits: Investments grow over time; hasty expectations can lead to disappointment.

Getting started:

Consider opening a brokerage account with a reputable firm. This allows access to online share trading. If possible, practice with virtual trading before venturing into real money investments.

Investment journeys are unique, what works for one may not work for another. Educate yourself, start small, and grow gradually. Happy investing!

I will be retiring within the next three years, and I’ve managed to save just over R3.5 million over my lifetime. With the two-pot retirement system coming into effect next year, how will this affect my contributions and pay-out?

Richus Nel, Financial Advisor at PSG Wealth, Old Oak answers:

Retirement reforms are sometimes necessary to ensure relevance and improve flexibility. The existing retirement legislation of South Africa currently provides for many things, but not for emergency access without a resignation/retrenchment, etc.

Emergency access to retirement funds is earmarked for introduction by 1 March 2024 by way of the suggested “2 Pot system”. The two pots system refers to a 2/3 “retirement pot” and “1/3 savings pot” structure. Withdrawals can be made from the “savings pot” prior to retirement without having to terminate your employment.

The suggested system will apply to all retirement fund contributions going forward from the implementation date. 10% of funds accrued prior to the implementation date can be transferred to the savings pot as seed capital, to a maximum amount of R25 000.

Withdrawals:

Funds accrued prior to implementation date will still be subject to the current retirement regime. This is sometimes referred to as a separate third pot. Vested and non-vested rights arising as a result of the annuitisation reform which came into effect from 1 March 2021 will be retained in this third pot which means that retirement interests in provident and provident preservation funds prior to 1 March 2021, will still be available for 100% withdrawals in lump sum at retirement, and taxed accordingly.

One withdrawal a year can be made from the “savings pot”. The minimum amount that can be withdrawn is R2 000 and there is no set maximum. Withdrawal from the “savings pot” will be added to your taxable income and taxed at marginal income tax rates.

The 2/3 retirement pot is compulsory for retirement funding and must be invested to provide a retirement income in the form of an annuity (a living annuity or a guaranteed life annuity, or a combination thereof).

Note that the legislation is still in the development phase and further changes are possible.

I’m going on maternity leave soon and found out that the institution I work for has a 6-month work-back policy after the maternity leave. I don’t feel comfortable with this policy and am considering resigning and relying on my pension pay-out to support me while I find other employment after our child is born. What is the best way to manage this lump sum of money during this period so that I don’t use all of it or potentially run out before I find a job again?

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

Congratulations on your upcoming arrival! While the maternity policy may come as a surprise, it’s crucial to grasp the implications of accessing your pension fund prematurely. Withdrawing the funds will result in withdrawal tax as well as a reduction in your tax-free lump sum at retirement (currently R550 000). Experts generally advise against cashing in your retirement savings when changing jobs as it’s challenging to replenish your retirement account, which in turn can lead to a decrease in your retirement income and pension.

If you decide to withdraw the funds, it’s expected that you’ll utilise them within a short-term period, probably less than a year. To mitigate market risk, consider investing in a high-yielding savings account or a money-market linked collective investment scheme. This approach guarantees an interest rate linked to inflation throughout your maternity leave and until your return to work. Any remaining funds should be reinvested into your long-term retirement strategy.

To ensure you don’t run out of money, estimate the duration of your job search and plan accordingly. For instance, if you have R60 000 in net proceeds and anticipate a six-month job search, restrict your monthly withdrawals to R10 000. Keep in mind that accessing your pension fund has long-term consequences, so carefully evaluate your options and seek professional advice from a Certified Financial Planner® to make well-informed decisions about your financial future.

It looks like winter is going to be quite a wet one in Cape Town this year and I’d just like to know whether my insurance covers me adequately for something like a water leak at my home. Can you help?

Karen Rimmer, Head: Distribution at PSG Insure answers:

The short answer is yes, your homeowners insurance will cover you for something like a sudden and accidental leak. But when it comes to leaks that could have been avoided by proper maintenance, this is where things get difficult. One of the most common mistakes that homeowners make heading into the colder seasons is failing to perform maintenance checks and duties like checking that roof tiles are secure and cleaning all gutters to allow for the free flow of water. This is one of the factors that insurers will look into when considering claims related to water damage. Failure to produce proof that you have made efforts to maintain and repair your roof when needed, may lead to your claim being repudiated.

If you need any further advice on the subject, your insurance adviser can help ensure you have the cover you need.

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