COVID Investment Planning

2020 will be a year to remember. Unfortunately, not for all the right reasons. The year we find ourselves in the middle of a pandemic, that has changed the world. However, with every thunderstorm, much needed rain follows. The silver lining in these dark clouds, is the value that can be mined with markets at low prices. The best time to invest is when markets are at the weakest.

However, there is also financial strain. Unemployment is climbing in South Africa and globally. We are looking at the possibility of it even reaching 50%. That is a scary figure. A lot of employees are facing, salary cuts, short time or retrenchments. There is an increase in the number of businesses cutting back or closing their doors. The dilemma most of us face as individuals or as entities, is lack of accessible savings to carry us through these tough times. It is a valuable lesson we should take heed of. It also leaves us looking at a potential of gold, in the opportunity the markets have, with little means to invest, if we do not have the funds available.

The harsh reality is that there is no end in sight in the short term to this pandemic and its consequences. And, it will not be our last financial challenge faced. But, lets be wiser going forward. The lesson learnt, is the value of putting funds away for that rainy day. Also, structuring your portfolio to protect yourself from creditors.

Being tax efficient I suspect will be part of that lesson in the year ahead. I say that as I believe there will be austerity measures government will need to put in place, to fund its Covid relief measures, in the next tax budget. Nothing is for free. This itself will burden the economic recovery needed to pull us out of the crisis we find ourselves in.

Bank and creditors offer relief for those in financial strain without savings. But one must be careful when taking these measures unnecessary. If you can cope without it, then try not use it. Reason being, that while they help in the short term, they add to the long-term debt trap. Whether its interest the institution charges or extending the term of the finance, it means you paying interest and not earning interest. Remember, in the next few months when the “relief period” ends, the debt will be increased, and the normal monthly requirements will return but not the availability of funds.

On the Insurance side, the various institutions do offer a “holiday break” from your monthly contribution for your portfolio. But not without consequences. On the Risk benefits such as life cover, disability and dread disease, your can stop the premiums or reduce it, but so does the cover reduce or stop. On the investment side, you can do the same. The difference is that your full capital should still fully available at market related pricing, it does not stop or reduce in value if you stop or reduce the premiums. Unless it is a life product that may have a penalty. But LISP wrapper products will not have any penalties.  But most institutions will waiver or reduce the penalties during these times. To find out more, chat to your advisor or call the relevant call centre to confirm.

Living Annuities are also currently allowing one to increase your drawings to 20%, which is normally capped at 17.5% per annum. And you can do so during this Covid period, even if your anniversary date is not due yet.

On the short-term insurance side, some Insurers will reduce the premium, but then the excess during claim stage will be higher. On the medical aid side of things, you can reduce your medical aid to a lower plan, you do not need to wait till the end of the year. But you cannot go to a higher plan till the end of the year.

I would strongly urge that with all these products you sit with your financial advisor and discuss it. There are implications that you need to be aware of.

On the planning for future crisis and financial strain, there are two things to consider. Accessibility and protection from creditors. Investment products are broken down into two categories, discretionary and compulsory.

On the Compulsory side, these are monies towards retirement savings. Usually only accessible at age 55 or older. The exception is Preserver Funds. Preservers offer a once off withdrawal access before age 55, but the proceeds are taxed as per early withdrawal tax tables. You do have a once off tax free portion of R25K across your overall portfolio, the balance is taxed as per retirement withdrawal tables.

The three advantages of these products are that they tax efficient is that there is no tax within the product and contributions are tax deductible at a rate of 27.5%. A preserver does not allow for additional contributions. The other two advantages are that it allows for a beneficiary, so it does not draw executors fees unless the estate is the beneficiary. And lastly it is protected from creditors.

But the advantages come with one disadvantage, being accessibility. These are not product for short term needs or for emergency funding. They meant to provide for retirement in a tax effective manner.

If you are looking for a savings vehicle that can cater for hard times such as these we are going through, then you need to look at discretionary savings. This comes in the form of one of 4 products. That being:

  • An endowment
  • A unit trust
  • A bank product like a Money Market or Fixed Deposit
  • A Share Portfolio.

I have excluded Bonds, as they are not as easily accessible. They can offer a guaranteed return, but you need to lock in for the period that the debt instrument is based upon.

An endowment is a 5-year period investment. It can be accessed before that time but will draw penalties if taken earlier. It does offer three advantages. Firstly, a little fact not widely known, it allows protection from creditors after 3 years. This includes the proceeds when taken out. The 2nd advantage compared to the other mentioned discretionary products, is that it allows for the nomination of a beneficiary. This again, takes this out of the estate as far as executors fees go. The last advantage is a tax one, but limited to only high-income earners. While it does pay out tax free, do not be fooled by this. It is taxed, but within the funds under the 5-fund approach. This means at company tax rate. So that rate would be lower than the rate your high-income earners will pay.

Bank products such as fixed deposits offer a guaranteed return, but then you lock yourself in for the selected term. The longer the term, the better the rate. Just bear in mind that under current circumstances, being July 2020, rates will be low. They will increase going forward. Another bank product will be a Money Market account. This may not offer as good a return as the fixed deposit, but it will provide accessibility. Just also bear in mind that this is not a place to put long term monies that must outperform inflation. The disadvantages are that it has no beneficiary and that earnings over a long-term will not be a great as other categories of discretionary investments that are outside of fixed interest.

A share portfolio can offer good returns over a long period but is not suited for short term needs. Accessibility is not a problem. But you may need to access when markets are down, locking in loss. Also, this is a product that also does not have a beneficiary and is not suited for smaller investment amounts. Reason being that the smaller the basket of shares, the higher the risk, as you lessen diversification. If you want the diversification, and have limited funds, invest in a Unit Trust rather.

Unit trusts are possibly the best suited product that ticks most boxes. Its accessible, cost effective and can give you the diversity, giving you exposure to the markets to have inflation beating returns over the long term, while not taking the flexibility and accessibility away on the short term. Just bear in mind that they do not offer guarantees as they are market related, especially those which are equity based or have equity as one of the asset classes it invests in. The disadvantage is that it also does not allow for a beneficiary, so on death it will form part of your estate and pay according to your last wishes in your will.

It can be used in a tax efficient way, by using the first R36K per tax year, into a Tax-Free Savings account Unit trust Platform. This means all proceeds and capital are totally tax free as long as its capped-on contributions not exceeding R36K per tax year and R500K per lifetime of the policy owner. Any contributions over that are taxed at the highest tax rate.

Unit trusts also offer you the ability to take or add lump sums or draw an income. During hard times like we are experiencing now; they can be used to supplement our income or to add for shortfalls in our businesses or households. Accessibility takes about a week from when you submit the withdrawal requirements.

The horse may have bolted from the stables now but let us learn from this and be efficient going forward. Plan for difficult times by building your savings as shown above. If there is spare cash lying around, now is a good time to also invest. Buy low not high.

Your best bet is also to chat to a financial advisor, who can help set up a financial plan for you. It should be tailor made to your circumstances. Budgets, liability, taxes, and marriage regimes are some of the factors that will drive you towards a particular product. These factors all have an influence on where you invest. If you do not have an advisor, please let us assist you.

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Financial Planning, from a Father’s perspective (Part 2)


This, to me is the area that is something we must cater for, regardless if we have life-cover or not. A common mistake I believe we make is putting funds into an endowment or long-term product that provides for tertiary education. I don’t believe that it is necessarily wrong, but I believe we could use other tools more effectively to get to the same result and provide for more needs along the way. An example of this is a Tax-Free Savings Account. This product uses a unit trust as it’s base and will be more tax efficient and be a huge savings vehicle for education if managed right. The bonus is that it is fully accessible prior to the varsity years. So, if little Johnny needs speech therapy, or Lerato requires extra classes to get those university entrance criteria, you can use the funds immediately. Bear in mind that you are limited to R33,000 per person, per tax year, and a total of R500K in his/her lifetime as a contribution. This again highlights the need for a financial planner to tailor-make a solution to the need.


An educational plan in the form of an endowment is limited to a maximum of 20% extra contribution per year. It also becomes a problem, in my opinion, if you get retrenched or hit tough times. If you can’t continue with the premiums, you may face penalties being charged on the investment, eating away at the saved capital. Another factor is the type of funds that you use within the LISP or investment product. The funds determine the return. The time-period will also be a determining factor towards the risk profile of the fund.

Wrapping up

Having a child brings great responsibilities. These responsibilities, if planned for correctly, need not be something that keeps us up at night. As parents, we hope and dream for the best, and half the time wish we could bubble wrap our children to protect them from the world. We may not be able to stop them from falling, but we can keep them up when we fall and can’t get up, by ensuring our life cover and Wills are in place. We can also set up a firm foundational platform for their dreams by diligently investing. As I’ve said throughout, just like a parent guides a child, we need financial planners to guide us on what to do in getting a tax-effective-plan, catering for our kids’ needs in the future.

Financial Planning, from a Father’s perspective

I am a new and very Proud Dad. I am also a financial advisor (FA) and in recent months have had many changes, some planned and many more unplanned, to weave my way through. My viewpoint in terms of life, finances, goals, and concerns has changed considerably. Let me share and give insight towards key decisions I am making, which I hope will guide and assist you too.

Even the brave

Even the brave can stand shaking in their boots at the news that they will soon be responsible for their very own child. Whether you have planned carefully for the event and are overjoyed, or even more so when the news is unexpected, you undoubtedly spend time contemplating how your life will never be the same and run through the many adjustments and sacrifices in your head.

Reality sets in

Having a child is a scary and wonderful prospect for most new parents. I am extremely fortunate to have a wonderful, supportive wife to lean on and help in deciding on life’s next steps. My daughter is now a few months old and we’ve considered numerous eventualities in the preparation for the cost of living, schooling and the dreaded “what if I’m no longer around to take care of her?”.

It has made me relook my own financial plan, from a completely different perspective.

Why Planning Matters?

Recent studies have shown that to send your child to a private school from grade R (0) to 12 (Matric), would cost you an estimated R3.7 Million. Then, paying for your little one to get a BA Degree at a tertiary facility, costs in the region of R190K – R470K. And this is just the educational aspect―forget about the day to day―of raising a child. I was rather surprised to find out that sending my daughter to a crèche (nursery school), cost more than the current primary school fees. I am sure parents reading this article, who are currently paying these fees, will support this point. I was shocked!

The planning advice that I will use

So, what can I as a financial planner and new parent, offer in terms of advice? Advice, which I believe I should be following too.

I would break it into two areas; one being Risk and the other being an Investment.


We run the usual risk of dying too soon, becoming disabled, and getting sick or being retrenched. It’s the reason we have grudge purchases called life cover etc.

It’s critical to have these measures in place, together with a proper Will and Testament (not a CNA special). I say this, as it has been my experience that trying to take shortcuts with our financial planning usually leads to shortfalls.

You need an experienced financial planner, who understands not just the legislation and products, but also your situation. Too often, we have sales people and not financial planners guiding clients.

So, my first piece of advice is that you should look at your liabilities, and the costs of providing for your family, including your child’s needs and education. Ask yourself, “What if I’m not around to take care of them?

Something many people forget

One must bear in mind that just providing for your kids, and not factoring your spouse or children’s guardians in, will not necessarily mean that your intended goal of making provisions for kids, will be achieved. If you have minors, they can’t manage the funds you leave behind. This will be managed by a guardian, spouse or Trust. This also highlights why we need a Will.

Will allows for the provision of a Testamentary Trust, that will impartially oversee the funds and make payments to the elected beneficiary/ies, while the funds are held by the Trust and the child is considered a minor. School fees, child maintenance, etc. can be provided for from the Trust while there are sufficient funds.

How much life cover, disability protection etc. is required, will be determined by your financial situation, affordability, and lifestyle. All factors a financial planner will take into consideration. There are products specifically designed to provide for education on a risk product too. But bear in mind that if you don’t die early, or become disabled, the full educational cost or even a portion may not be provided for with such a product. And the likelihood of death or disability happening is less than it would be that your child reaches those needs while you are still alive and kicking.


That leads me to my next area…investing.