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Investment Education Hub

We understand that the world of investing can be flooded with information. It is great to have a wealth of knowledge at our finger tips however, the correct application of that knowledge is where true success is born. There is much to cover when it comes to financial literacy topics and the frequently asked question is:

“Where do I begin?”

A great place to start would be examining the four pillars below, starting with the basics of sound financial planning, moving into retirement and investment planning tips. For the more technical aspects on portfolio construction and investment principles, navigating through the investment management unit would be of great value.

Our heart is to equip and educate our direct clients to make wise financial decisions that their future selves will thank them for.

What would you like to learn more about?

Financial Planning

Financial planning is a dynamic process of assessing your financial situation and putting a plan in place to achieve your financial goals.

GATHER UP.

To determine your current financial position, you have to gather all of the relevant data, including information on your income and expenses, insurance policies, investment accounts, tax material and any additional information.

GOAL SET.

You also have to set out clear and measurable life goals, such as buying a house, saving for the children’s tertiary education, travelling, retiring comfortably, creating wealth over time and the list goes on.

GAME PLAN.

Depending on your available financial resources and your life goals, you must put together a realistic financial plan on how to attain your goals.

A comprehensive financial plan can often get complicated, as you need to plan holistically for a number of aspects, such as: budgeting, life insurance, investments, retirement, tax and estate planning.

GAIN SKILL.

Some people prefer doing their own planning, and you can access our online material to help you navigate through this process. Should you however need help with your financial plan, please get in contact with a financial adviser to assist you.

Pillars Of Financial Planning

Financial Planning is an extremely broad topic with many overlapping layers. There are however six generally recognized pillars of personal Financial Planning: budgeting, life insurance, investment planning, retirement planning, tax planning and estate planning.

Budgeting is the starting point, as this is where the organisation of an individual’s finances takes place and a greater understanding of their assets, liabilities, income and expenses is derived.

Life insurance provides protection for individuals and their loved ones from the loss of income, impact of death, disability, or severe illness.

Investment and retirement planning include an individual’s entire investment portfolio which caters for a variety of financial goals ranging from saving towards a child’s education to buying a home, wealth creation and growth, retirement, and so forth.

The objective of tax planning is to arrange an individual’s financial situation in a tax-efficient manner, whilst estate planning entails the organising and distribution of individuals assets and liabilities during their lifetime and once they have passed on.

  • Budgeting
  • Life Insurance
  • Investment Planning
  • Retirement Planning
  • Tax Planning
  • Estate Planning

Unpacking spending or having a monthly financial blueprint for your income, savings and expenses is the very foundation of financial success.

The benefits of financial blueprints are endless and will change your outlook on money forever:

  • It helps you to align your lifestyle with your values
  • Provides a plan of action for everyday spending
  • Highlights the pitfalls in your spending patterns
  • Assists in creating healthy money habits
  • Enhances your relationship with money

Educational Material

Life insurance offers financial protection for you and your loved ones in the event of loss of income, death, disability or severe illness. Although Fairtree does not offer life insurance, it remains an important part of holistic financial planning.

Income Protection

Your ability to earn an income is the most valuable asset you’ll ever own. Being unable to work due to sickness, injury or trauma can have a devastating effect on your finances and future aspirations.

An income protection product will provide you with a regular flow of income to provide financially for yourself and your financial dependents.

Death

Your premature death may place your loved ones under serious financial strain, especially if you are the breadwinner of the household or high levels of debt exist.

Life cover policies will pay out the insured amount upon your death, to cover any financial obligations and to provide financial security for your nominated beneficiaries.

Disability

Disability comes in many shapes and forms: the level of severity will differ in each case and your disability could be either temporary or permanent.

A disability policy will pay you a lump sum if you’re unable to continue working, due to a permanent illness or injury that renders you disabled. The proceeds can be used to pay for disability related expenses, settling debt or providing you with future income.

Severe illness

Severe illness cover will pay out should you be diagnosed with one of the specific illnesses as defined and listed by the insurer. Most insurers provide extensive and comprehensive cover, including cover for cancer, heart attacks, strokes, certain trauma events and so forth.

Receiving the proceeds will prove to be extremely helpful in these financial and emotional challenging times, affording you financial peace of mind whilst being treated for or recovering from your condition.

Life insurance companies provide a range of different policies to cater for your unique needs and circumstances. Speak to a financial adviser to assist you in selecting the most suitable products, ensuring that you’re well covered when you need it most.

Investment planning is the process of identifying appropriate and tax-effective solutions which align to your financial objectives. A sound investment plan will set out your objectives in a clear, structured manner, the action steps on how to reach them, as well as track your progress. In addition, it will improve your self-discipline, commitment and motivation to achieve better investment outcomes.

At Fairtree, we specialize in professional investment planning and offer investment solutions that are as unique as you and your financial needs and goals.

To read more about key investment principles and selecting appropriate investment products, visit our Investment Planning Section.

To find out more about our unique investment solutions, visit our Investment Management Section.

Skilful retirement planning will ensure that you have enough money to provide you with a sustainable income throughout your retirement years.

It’s never too early or too late to start saving for retirement – whether you have recently started your first job or have been part of the work force for many years.

At Fairtree, we approach retirement planning differently. Visit our Retirement Planning Section to find out why we don’t believe in “simply retiring”, but rather planning for another phase of your life.

Different types of tax influence all aspects of financial planning. Tax planning should therefore not be treated in isolation, as it plays a fundamental role in your journey to financial success.

Tax planning can be defined in short as: analysing and arranging your financial situation in a tax-efficient manner, taking full advantage of lawful exemptions, deductions, rebates and allowances to reduce your tax to a minimum.

It’s important to note that trying to save tax should never be the starting point of your financial plan, but rather to enhance reaching your financial goals.

By employing tax-efficient strategies in this process, you will inevitably save a substantial amount of money over your lifetime. Each country has tax-friendly structures and products available to help individuals to reduce their tax liability and the secret is to make the most of these opportunities.

Types of tax that impact personal financial planning the most:

Income Tax

Capital Gains Tax

Dividend Withholding Tax

Donations Tax

Estate Duty

Transfer Duty

 

Income Tax

Personal income tax is levied on your taxable income, which includes all streams of worldwide income. Some forms of income that an individual can receive: salaries, commission, bonuses, fringe benefits, director’s remuneration, investment income, annuity income, pension income, rental income or losses, profits or losses from a business or trade, income from royalties, certain capital gains and so forth.

Individuals are liable to pay income tax based on their annual taxable income and will fall within certain tax brackets – the more you earn, the higher your tax bracket will be.

From a tax savings point of view, it is important to note that there are certain exemptions, deductions and rebates available to individuals and capitalizing on these benefits will reduce the amount of tax you need to pay.

Capital Gains Tax

Capital Gains Tax forms part of income tax and is not a separate type of tax. When you dispose of an asset (that attracts Capital Gains Tax) on or after 1 October 2001, you will be taxed on the proceeds that exceed the asset’s base cost (which we refer to as the capital gain).

Capital gains are included in an individual’s income tax calculation at a certain rate and the effective tax rate pertaining to these gains will be lower than on ordinary income. It is also possible to make a capital loss if the base cost was higher than the proceeds from the sale.

Dividend Withholding Tax

A dividend is any payment made by a company to a shareholder (beneficial owner) as a return for holding a share in that specific company. Tax is levied on the dividend payments at a certain fixed rate and usually withheld by the company before paying the dividends over to the shareholders. The company will pay the tax over to the South African Revenue Service.

Dividend Withholding Tax is applicable to dividends paid by companies that are South African tax residents or foreign companies that list on a South African Exchange.

Donations Tax

Donations Tax is payable on the value of property disposed by way of a donation. A donation is defined as a disposal free or at no charge (receiving nothing in return) and includes any renunciation of rights or gratuitous waivers.

Under normal circumstances, the donor must pay the donations tax, but the donee can also be held jointly and severally liable if the donor fails to pay the tax.

Certain exemptions apply, for instance donations made between spouses are completely exempt from donations tax and a fixed minimum amount are exempt in each financial year where a natural person donated property.

Estate Duty

An “estate” in this case refers to the deceased estate of a natural person who was ordinarily resident in South Africa for tax purposes, as well as on the property of non-residents situated in South Africa.

All the property and deemed property of the deceased person will form part of the estate and certain deductions, as well as a prescribed abatement amount will reduce the value of the estate. The estate duty will be calculated on the dutiable amount and must be paid by the deceased estate (and / or by the beneficiaries in some cases).

Transfer Duty

Transfer duty is payable by any person who has acquired any immovable property, by way of a transaction or otherwise. Property, for the purpose of Transfer Duty, is defined as land and fixtures thereon and includes: real rights in land, shares or member’s interest in a residential property company, a share in a share-block company and rights to minerals / the right to mine for minerals.

The tax payable is levied on the fair value of the property, referring to a fair market value between a willing, non-related buyer and seller in an open market. Rates on a sliding scale apply and a fixed prescribed minimum amount is taxed at 0%.

Estate planning involves arranging and managing your financial affairs in such a way that you can benefit from your estate during your lifetime and that it will be dealt with in accordance with your wishes in the unfortunate event of your death.

Effective estate planning will assist to protect the value of your growth assets and from those assets being sold to provide for liquidity purposes in your estate. It will furthermore reduce exposure to Estate Duty and Capital Gains Tax, limit additional estate expenses and ensure a smooth transition of your estate upon death. Your will, trust(s), assets and liabilities, deemed property and liquidity requirements all form part of estate planning.

Making use of other structures and strategies, like setting up inter vivos trusts (created while you’re still alive), play an integral part to protect your assets and the financial security of your loved ones, whilst simultaneously ensuring that your wealth is preserved for generations to come.

Having a valid will ensures that your assets are handled and distributed by the executor in line with your requests. Special instructions regarding the establishment of testamentary trusts, protecting the needs of your beneficiaries and setting up funeral arrangements also form part of this invaluable document.

Making use of other structures and strategies, like setting up an inter vivos trust(s) (created while you’re still alive), play an integral part to protect your assets and the financial security of your loved ones, whilst simultaneously ensuring that your wealth is preserved for generations to come.

A trust is an accumulation of assets, held and managed by the trustees for the benefit of the trust beneficiaries.

The donor / founder of the trust must transfer full control and ownership of the assets to the trustees who will hold the trust’s assets in their capacities as trustees (not in their personal capacities). They have the duty to manage the assets solely for the benefit of the trust’s capital and income beneficiaries and must act in accordance with their rights and responsibilities as set out in the trust deed.

Trusts are mainly used to protect personal or business assets and are widely included in estate planning strategies to ensure a seamless transfer of wealth and to reduce tax.

Your deceased estate will be distributed in terms of the Intestate Succession Act. This piece of legislation sets out the rules of intestate succession, describing how your deceased estate must be distributed to your heir(s), as there is no will to draw your wishes from. This means that you effectively have no control over who will receive your assets after you pass away, as the rules will determine the order, starting with your closest relatives first. If there is no one that could inherit from your deceased estate, the proceeds will be place in the Guardians’ Fund and if no legitimate heirs come forward within 30 years, it will be forfeited to the State.

Comprehensive estate planning is beneficial when you have a large estate and significant estate duty may be payable when you pass away, your financial affairs are complicated due to being for instance a business owner, you have difficult family dynamics, distributing your assets may be very complex and so forth. If your financial matters are not very complicated, you can focus on drafting a valid will and making use of trust structures as needed. An important aspect to keep in mind, no matter what the size of your estate is, is to ensure that there’s enough liquidity to cater for all the fees associated with your death.

An inter vivos trust is created by the founder, when he / she is still alive and the trust deed is the document that contains the terms of the trust. Inter vivos trust are usually set up to protect the trust property during the founder’s lifetime or for future generations, to support the beneficiaries financially, to be used as a tool for estate planning purposes and so forth. A testamentary trust is only established upon the testator’s / testratix’s death and the terms of the trust are written into his / her will. Testamentary trusts are suitable to protect the interest of minors or beneficiaries that are particularly vulnerable (a disabled or elderly family member) when the testator / testatrix is not around anymore.

An executor plays a vital role in the winding up of your estate as he / she must carry out the instructions and wishes contained in your will. Acting as an executor requires a certain level of knowledge and skill as this person must report the deceased estate to the Master of the High Court, give notice to the creditor(s), take control of the estate, draft the liquidation and distribution documents, ensure that the assets are correctly rounded up and transferred to the heir(s) and pay the creditors. Nominating a family member as an executor, who has no legal or financial background, may cause unnecessary issues and delays in the administration of the deceased estate. Consider nominating an attorney, trust company or accounting firm to assist. 

Estate duty is a type of tax that is levied on the dutiable portion of your deceased estate. Once deceased, all your property and deemed property will form part of your deceased estate and certain deductions, as well as a prescribed abatement amount will reduce the value of the estate. Estate duty is calculated on the dutiable value of the estate at certain fixed rates.

When you pass away, you will be deemed to have disposed of your assets and Capital Gains Tax will be levied. Furthermore, the executor is entitled to a fee for winding up the estate, based on the gross value of the assets that he / she will deal with, plus a fee calculated at a certain rate on the income the estate has earned after your death. In addition, fees must also be paid to the Master of the High Court, to the newspapers for publishing the notices, for providing the Master with security (if necessary), transferring fixed property, cancelling bonds, arranging the funeral and any other charges (bank accounts) that may apply.

Frequently Asked Questions

Yes, reputable financial advisers can add great value by helping you to simplify and take charge of your finances. It is prudent that you choose a financial adviser who carries the CFP® designation, as they are Certified Financial Planners who are suitably qualified to provide advice. They are required to maintain technical competence and fulfil ethical obligations as set out by the FPI (Financial Planning Institute of Southern Africa) and these strict requirements ensure that they provide sound, professional advice to clients.

They can assist you to reach your financial goals, identify ways to save costs, minimize tax, capitalize on the best investment strategies, ensure that you and your loved ones are taken care of in case of an unfortunate life event, guide you through difficult economic cycles, help you to avoid costly mistakes, provide peace of mind during and after your lifetime and the list goes on.

The popular saying goes: “If you fail to plan, you plan to fail” and there’s no exception when it comes to financial planning. Having a financial plan will set out your financial goals in a clear, structured manner, as well as the action steps on how to reach those goals.

These measurable goals will help you to make better financial decisions, increase your level of commitment and motivation, improve your mental and emotional wellbeing, as well as track your progress. In financial terms, you will save and preserve, reduce risk, achieve better investment outcomes and strengthen your relationship with money.

Although financial plans have a certain structure to it, there is no right or wrong way to set it up. If your financial affairs are simple, you can start by identifying your goals and doing research on how to achieve each goal. If one of your goals is to set up an emergency fund, you can do research on the best investment vehicle to use and available funds / solutions to invest in. We have a wide range of material available to guide you on this journey – be sure to explore our website and social media platforms.

Should your finances be complicated and you’re not sure what the best way forward will be, please be sure to reach out to a financial adviser.

We have developed a Financial Goal Grid to assist you with setting clear and measurable goals. In 10 easy-to-follow steps, you will be able to identify and refine your objectives.

View Your Financial Goal Grid PDF here.

Review your budget, or financial blueprint as we like to call it, on a regular basis. “Review” does not refer to inserting your income and expenses monthly, but going through each line item to ensure that your target amounts are still realistic and align with your current financial position and values. In our material on “cash flows and financial blueprints” you will find some helpful pointers on how to adjust your spending patterns, whether it’s inviting friends over for dinner instead of eating out or getting creative when it’s your friend’s birthday.

Educational Material

Yes, as it all starts with you and protecting your most valuable asset: your ability to earn an income. Remember, life insurance also refers to income protection, disability cover and severe illness benefits, not only cover for when you pass away. Even if you don’t have any financial dependants, ask yourself the following question: whose financial dependant will I become if I’m unable to work? If the answer is your parents – would they be able to support you financially, whether temporarily or permanently? The younger you are, the higher the risk as you still have your entire career / life ahead of you.

Tax avoidance is legal, whereas tax evasion is illegal.

Avoiding tax is making use of the country’s tax regime to reduce the tax you have to pay. Each tax regime has certain tax benefits that taxpayers can employ, whilst fully disclosing all information to the revenue service in the process. For instance, deducting your contributions to a Retirement Annuity is legal, and so is making donations to a Public Benefit Organisation.   

Tax evasion undermines the government’s efforts to collect tax, by concealing information and / or misrepresenting it, in order to escape paying tax. Evading tax is a serious crime and offenders will be fined or imprisoned. Some examples are: renting out a property without disclosing the rental income, claiming personal expenses as business expenses, wilfully fails to pay tax, using a fake identity and many more.

South Africa residents, subject to certain exclusions, are taxed on all streams of worldwide income, regardless of where this income was earned. For individuals, this will include salaries, commission, bonuses, fringe benefits, director’s remuneration, investment income, annuity income, pension income, rental income or losses, profits or losses from a business or trade, income from royalties, certain capital gains and so forth. There are certain exemptions, deductions and rebates available to individuals and making the most of these benefits will reduce the amount of tax you need to pay.

Allowable tax deductions are one of the most common ways to minimize your tax liability, for instance: contributing to retirement funds (pension fund, provident fund, retirement annuity), deducting expenditure incurred for carrying on a trade (under certain circumstances) and donations to Public Benefit Organizations. You can also claim for a medical tax credit if you’re a member of a registered medical aid scheme. Lastly, ensure that your investments are structured in such a way that you will benefit from exemptions, like the partial exemption on interest earned and the fact that dividends received from South African companies (and JSE dual-listed non-resident companies) are exempt in your hands as the taxpayer.

PAYE (Pay-As-You-Earn) is tax that is deducted by the employer from an employee’s salary. The employer will pay it over to SARS every month, as an advanced payment. This tax will then be off set against the final tax liability for that individual at the end of the tax year.

Provisional tax is a method of paying income tax during the tax year in which income is earned by an individual. Taxpayers pay two instalments in advance, based on estimated taxable income for that year of assessment. This is usually paid by people who receive income other than a salary as they have to declare their income to be taxed. If you receive a salary and PAYE is deducted, but you also have other sources of income (like rental income), you will have to register as a provisional taxpayer as well.

Each scenario will be different and restrictions apply, but in general: if you’re an employee working from home and you use a room that is regularly and exclusively occupied for your employment, you may be allowed to deduct certain expenses. Expenses that will qualify include: rent, cost of repairs to the premises and other related expenses, rates and taxes, wear-and-tear, office equipment, cleaning, internet and stationery. These expenses must be adjusted on a pro-rated basis (square metres of home office area versus total square meters of home) as the tax deduction is only allowed for the area utilised for your employment.

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Retirement Planning

At Fairtree, we approach retirement planning differently. We do not only believe in “simply retiring”, but rather “rerouting” into the next phase of your life. We also understand that preparing yourself for the next chapter, involves so much more than getting your financial affairs in order. Your relationships, health and wellness, personal development, career paths, social and spiritual lives are equally important when planning for the future. Learn more about the most important factors to consider when planning for your financial and overall wellbeing before and after retirement.

Which phase of life do you find yourself?

  • 20 – 40
    Starting out

    Career, Marriage, Children
  • 40 – 70
    Settling down

    Career, Maturity, Legacy
  • 70+
    Slowing down

    Comfortable, Content

 

Optimising this Phase

Starting to save toward your retiring years while you are young is beneficial for a number of reasons.
Tax benefits and the power of compound growth work together to generate great growth inside of your investment portfolio.

Phase Challenges

Time is tight
Time is a precious commodity, and the most time-demanding phase of life is usually these “Starting out” years. How do you excel at your career, raise children, maintain a healthy marriage and other relationships, without neglecting your financial wellbeing in the long run?

Money must multi-task
Taking it one step further, how do you juggle putting food on the table, buying a house, paying school fees, going on holiday, whilst saving toward your retirement years?

Frequently Asked Questions

The below includes engaging material to help you navigate this phase and make wise
financial decisions that your future self will thank you for.

The earlier, the better. The reason for this is compound growth and tax benefits.

Making Money Work For  You

YearsPrinciple AmountExpected ReturnGrowthCompound Amount
1R1000,008%R80.00R1080,00
2R1080,008%R86.40R1166,40
3R1166,408%R93,31R1259,72
4R1259,728%R100,78R1360,49
5R1360,498%R108,84R1469,33
6R1469,338%R117,55R1586,87
7R1586,878%R126,95R1713,82
8R1713,828%R137,11R1850,93
9R1850,938%R148,07R1999,00
10R1999,008%R159,92R2158,92

R1000 invested over 10 years (interest rate of 8%) becomes R2 158.92
R1000 versus R2 158.92 more than doubled up on your money, just by being patient.

 

R1000 invested over 40 years (interest rate of 8%) becomes R21 724.52

Perhaps there is a way in which you could free up some money inside your monthly financial blueprint (budget). Adjusting your existing lifestyle, eating out less, closing some credit accounts, shopping at different stores and so forth. If you do not have a monthly financial blueprint, perhaps start with laying one out. You could be surprised to figure out where your monies is being spent each month. 

Download our Budgeting tool.

The amount of money needed for retirement will be different from person-to-person. The answer, of course, will be based on anticipated life expectancy and different needs during your retirement years. This will all depend on your post-retirement lifestyle. While some people will want to travel and spoil their grandkids, others will want a different lifestyle. You can use a calculated cash flow estimate and a blend of strategies to forecast how much you need to invest today, in order to generate above-inflation growth to sustain you throughout your post-retirement years.

Download our Retirement calculator.

*For some thought-provoking trigger questions about retiring expenses, please see below.

Trigger questions for adjusting financial blueprint for retirement

Your level of debt at retirement:

  • Will the mortgage bond be repaid?
  • Will you have motor financing in place?
  • Will all other loans/overdrafts be repaid in full?

How will lifestyle expenses look compared to pre-retirement?

  • Will there be additional expenses (like domestic help / frail care)?
  • Are you planning on travelling or entertaining more?
  • By how much would your medical costs increase?
  • Where will you want to live and how much will it cost?

Will you need any lump sums at retirement?

  • Would you need to purchase a new car at retirement, etc?

Will you have financial dependents at retirement?

  • Will all your children be able to take care of themselves financially?
  • Is there perhaps a disabled family member you have to take care of?
  • Will your spouse be dependent on your retirement funding?

What obligations will fall away at retirement?

  • By how much would your tax obligations decrease?
  • Contributions to retirement funding will fall away.
  • Any debt that has been repaid.

There are a number of critical factors (term to retirement, current age, inflation, taxes, income drawdown at retirement, life expectancy, current provisions, escalation rates and lifestyle) that one needs to take into consideration when answering this question. For example, someone who begins their monthly retirement savings at 45-years-of-age, will need to contribute larger monthly amounts, than someone who started saving toward retirement at 26-years-of-age. Personalised calculations are required to better determine this answer.

Do a basic retirement calculation using our tool. 

Download our Retirement calculator.

Contributing to a pension fund at work is highly beneficial, but it might not be enough to provide you with a sustainable income during retirement. Contributions by yourself, the employer or both, are usually based on a certain percentage of your current remuneration and is not calculated based on your desired lifestyle once retired. You can calculate how much you need to save in addition to your monthly pension fund contribution by using our tool. 

Download our Retirement calculator.

Making use of a Retirement Annuity is not the only option, but given some of its benefits, it remains one of the preferred investment vehicles for this purpose. Contributions to your Retirement Annuity are tax deductible up until a certain percentage of your remuneration or taxable income (whichever is greater) and you are not taxed on interest, dividends or capital gains while being invested. Furthermore, when you retire from the fund, you can take a certain lumpsum amount without being taxed on the withdrawal. 

Fairtree has a large product offering of long-only funds and alternative investments like private equity, hedge funds and commodities. We see balanced investing differently. We are the first in South Africa to combine alternative asset classes together with traditional asset classes inside of bespoke portfolios for our clients. This provides our clients with a unique diversified portfolio which includes best of breed long-only strategies and award-winning hedge fund strategies.

Please feel free to contact us and one of our consultants will assist you with setting up your investment.

Contact us

 

If you are already in retirement, please go to the “70+” section.

Optimising this Phase

There is usually a lot more stability in your career and personal life in this phase. You’ll feel that you’ve reached a certain level of maturity, knowing who you are and what you truly value in life. This is very powerful, as the “slowing down” phase is fast approaching. Utilise this phase to think about the legacy you want to leave behind, how you envision your “slowing down” years to look like and how to prepare yourself for it.

Phase Challenges


Paradigm Shift
During this phase, the majority of people become acutely aware of the fact that their current savings will not be able to support their retirement years and that they will have to work for longer. “Working longer” comes with its own challenges in this day and age, due to the exponential rate of change we experience: increased life expectancy, adopting continuous learning and development as opposed to “traditional education periods” and remaining engaged beyond the traditional retirement age of 55 has become more of a requirement.


Rethink, repurpose, reroute
Transitioning into retirement can be more emotionally challenging than most people realize. Retiring involves large changes to lifestyle and habits. As sudden shifts take place in daily routines, finances and relationships, some retirees struggle to stay mentally and physically active, to maintain their sense of worth, to find new purpose and a place of belonging in different circles of society. Preparing yourself for the “slowing down” phase requires more than financial planning, it calls for you to rethink, repurpose, reroute.

Frequently Asked Questions

The below includes engaging material to help you navigate this phase and make wise
financial decisions that your future self will thank you for.

The amount of money needed for retirement will be different from person-to-person. The answer, of course, will be based on anticipated life expectancy and different needs during your retirement years. This will all depend on your post-retirement lifestyle. While some people will want to travel and spoil their grandkids, others will want a different lifestyle. You can use a calculated cash flow estimate and a blend of strategies to forecast how much you need to invest today, in order to generate above-inflation growth to sustain you throughout your post-retirement years.

Download our Retirement calculator.

*For some thought-provoking trigger questions about retiring expenses, please see below.

 

Trigger questions for adjusting financial blueprint for retirement

Your level of debt at retirement:

  • Will the mortgage bond be repaid?
  • Will you have motor financing in place?
  • Will all other loans/overdrafts be repaid in full?

How will lifestyle expenses look compared to pre-retirement?

  • Will there be additional expenses (like domestic help / frail care)?
  • Are you planning on travelling or entertaining more?
  • By how much would your medical costs increase?
  • Where will you want to live and how much will it cost?

Will you need any lump sums at retirement?

  • Would you need to purchase a new car at retirement, etc?

Will you have financial dependents at retirement?

  • Will all your children be able to take care of themselves financially?
  • Is there perhaps a disabled family member you have to take care of? 
  • Will your spouse be dependent on your retirement funding?

What obligations will fall away at retirement?

  • By how much would your tax obligations decrease?
  • Contributions to retirement funding will fall away.
  • Any debt that has been repaid.

There are a number of critical factors (term to retirement, current age, inflation, taxes, income drawdown at retirement, life expectancy, current provisions, escalation rates and lifestyle) that one needs to take into consideration when answering this question. For example, someone who begins their monthly retirement savings at 45-years-of-age, will need to contribute larger monthly amounts, than someone who started saving toward retirement at 26-years-of-age. Personalised calculations are required to better determine this answer.

Do a basic retirement calculation using our tool. 

Download our Retirement calculator.

Perhaps there is a way in which you could free up some money inside your monthly financial blueprint (budget). Adjusting your existing lifestyle, eating out less, closing some credit accounts, shopping at different stores and so forth. If you do not have a monthly financial blueprint, perhaps start with laying one out. You could be surprised to figure out where your monies is being spent each month. 

Download our Retirement calculator.

Contributing to a pension fund at work is highly beneficial, but it might not be enough to provide you with a sustainable income during retirement. Contributions by you, the employer or both, are usually based on a certain percentage of your current remuneration and is not calculated based on your desired lifestyle once retired. You can calculate how much you need to save in addition to your monthly pension fund contribution by using our tool. 

Download our Retirement calculator.

Making use of a Retirement Annuity is not the only option, but given some of its benefits, it remains one of the preferred investment vehicles for this purpose. Contributions to your Retirement Annuity are tax-deductible up until a certain percentage of your remuneration or taxable income (whichever is greater) and you’re not taxed on interest, dividends or capital gains while being invested. Furthermore, when you retire from the fund, you can take a certain lump sum amount without being taxed on the withdrawal. 

Fairtree has a large product offering of long-only funds and alternative investments like private equity, hedge funds and commodities. We see balanced investing differently. We are the first in South Africa to combine alternative asset classes together with traditional asset classes inside of bespoke portfolios for our clients. This provides our clients with a unique diversified portfolio which includes best of breed long-only strategies and award-winning hedge fund strategies.

Please feel free to contact us and one of our consultants will assist you with setting up your investment.

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Optimising this Phase

At about 70 years old, the majority of people would have stopped working and most desire slowing down in life, being comfortable and content. To remain active and relevant, you can volunteer to help out where the need arises or serve a mentoring role within the community, sharing your skills and experience. Pursuing your hobbies and enjoying time with friends and family (especially the grandchildren) can all be done at your own pace and leisure.

Phase Challenges


Money Must Stretch
If you have “officially retired” it means that you will not be receiving an active, regular income (except if you receive money from another pastime) and you would be reliant on your retirement savings to provide a sustainable flow of income. It is crucial to ensure that your retirement savings are invested in the most constructive investment portfolios, to provide capital protection and optimal growth opportunities. Furthermore, have a good understanding of how long your money will last and plan accordingly.

Frequently Asked Questions

The below includes engaging material to help you navigate this phase and make wise
financial decisions that your future self will thank you for.

Ensuring that your retirement savings will last for your lifetime is, from a financial perspective, a key aspect to consider. You will need to consider a number of factors, such as: the amount of income you withdraw to fund your lifestyle, how long you live, the return on your retirement portfolio, any taxes payable and the risk of inflation. Inflation risk is often overlooked and by definition means that the “actual value” / “buying power” of your investment returns will be reduced by increasing inflation. This will especially pose a threat to your retirement savings if the return generated by your investment portfolio(s) does not out-perform the inflation rate, as you will gradually draw down on your capital until you eventually run out of money.

Make sure that your retirement plan and portfolio are well-constructed to protect your capital, whilst achieving much-needed growth.

Fairtree is the first in South Africa to blend traditional long-only unit trusts together with alternative asset classes like hedge funds and commodities. Our Personalised Income Portfolio (PIP) Strategy allows for monthly withdrawals and long-term capital growth simultaneously. This allows for safe short-term income withdrawals to take place without disrupting the overall portfolio’s growth for the long term. The portfolio is divided into three parts, one-part income and two-parts growth, each serving a different purpose to maximise capital growth, increase investment longevity and sustain income for as long as possible. This portfolio is designed to rebalance once the income part needs to be replenished.

Watch our video on Post Retirement Strategy here.

View our Living Annuities section 

This is a very difficult question to answer and will be based on your specific scenario and certain assumptions: what is your current age and your life expectancy, how much retirement capital do you have available, what is the rate of return on your investment portfolio, how much would you need to withdraw every month to fund your lifestyle, what is the rate of inflation and so forth. A cash flow calculation will give you a good idea of how long your retirement savings will be able to provide you with a sustainable income.

Fairtree is the first in South Africa to blend traditional long-only unit trusts together with alternative asset classes like hedge funds and commodities. Our Personalised Income Portfolio (PIP) Strategy allows for monthly withdrawals and long-term capital growth simultaneously. This allows for safe short-term income withdrawals to take place without disrupting the overall portfolio’s growth for the long term. The portfolio is divided into three parts, one-part income and two-parts growth, each serving a different purpose to maximise capital growth, increase investment longevity and sustain income for as long as possible. This portfolio is designed to rebalance once the income part needs to be replenished. A combination of our award-winning hedge funds has been included in the third growth portion of the portfolio. There is also a third growth portion option that holds long-only unit trusts rather than hedge funds, should that be your preference.

Watch our video on Post Retirement Strategy here.

View our Living Annuities section 

A Living Annuity is a post-retirement product and is available to you if you’re retiring from a Pension Fund, Provident Fund, Preservation Fund or a Retirement Annuity. It is essentially an investment in your name, which will pay you a regular income (which is taxable), whether monthly, quarterly, bi-annually or annually. You have the flexibility to set your income amount on an annual basis, however legislation permits withdrawals only within a certain band. This is to protect investors from depleting their retirement funds too quickly and being left without any financial means.

Living Annuities are very attractive as you can decide on the investment composition within the product without being restricted in terms of asset class exposure, jurisdictions and so forth, giving you the freedom to invest as conservatively or aggressively as you’d like. In the event of your death, the capital can be left to your nominated beneficiaries without attracting any estate duty.

Please feel free to contact us and one of our consultants will assist you with setting up your investment.

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Investment Planning

We all have financial goals we wish to achieve in life, whether it’s saving for a dream holiday, funding our children’s education, starting a small business, buying a home, retiring comfortably and everything in between.

Sound investment planning enables you to attain your financial goals by matching it with your available financial resources.

Further benefits of investment planning:

Align your goals with your values. Make wise investment decisions and achieve better outcomes. Increase your level of commitment and motivation. Track your progress. Manage your expectations during turbulent economic cycles.

If you are new to the world of investments, the below process will enable you to start a seamless investment journey. If you are an experienced investor, you can select your own investment products and solutions. Should you have any questions or require assistance in setting up an investment, our team of investment consultants and specialists would love to assist you.

  • Start your investment journey
  • Set your financial goals
  • Select suitable investment products
  • Choose appropriate investment solutions
  • Implement and review

If you are new to the world of investments, it might seem like navigating your way through a dense financial forest: overwhelming and somewhat intimidating. There would be different routes to take, uneven terrain and unusual elements lurking in the shadows.

Learn more about starting your own investment journey, conquering this unfamiliar ground and growing your own financial forest.

The Fairtree Financial Forest

  • Soil (financial reality, including “emotions” and “values”)
  • Seed (money personality)
  • Roots (financial literacy)
  • Unpacking spending/ budgeting
  • Basic investment concepts (what is an investment, contributions, time and patience, compound growth, including certain projections, risk and return).
  • Saving versus investing.

Educational Material

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Setting financial goals begins with identifying what is important to you in life. Whether it is a desire to grow and advance your career through furthering your studies, buying a house to create a place of safety and stability for your family, traveling overseas or saving for a comfortable retirement so that you can spend time with your grandchildren.

Like with goal setting in general, financial goal setting also involves identifying a specific objective, which is measurable, attainable, realistic and linked to a certain time horizon.

A few examples could be the following:

Short (0 – 36 months)

– Emergency Fund
– Plan a holiday or travel overseas
– Buy furniture for your apartment
– Saving for your wedding

Medium (3 – 7 years)

– Buy a new car
– Save towards buying a home
– Starting your own business
– Further your studies

Long (7+ years)

– Provision for your children’s education
– Setting yourself up for retirement
– Create wealth over time

To lay out your financial goals we have provided you with a Goal Grid document to help you write down your financial vision clearly.

View our Financial Goal Grid pdf here.

Once you have identified your financial goals, the next step would be to select suitable investment products for your goals.

Investment products are also referred to as investment vehicles and are in essence “containers” that house an investment strategy or solution. Each investment product is governed by different pieces of legislation, rules and regulations, which determine how the product must function pertaining to contribution limits, access to the funds, tax, asset class exposure and so forth.

To select a suitable investment product, you must look at certain aspects of your financial goal as you need to match it with the characteristics of the products: time horizon to invest, reason for investing, liquidity, how much you want to invest, level of risk provided for and so forth.

Most popular investment products:

Unit Trust

Tax-Free Investment

Bespoke (Structured Note, Offshore, etc)

Endowment

Retirement Annuity

Pension / Provident Fund

Preservation Fund

Living Annuity

Table of comparison on products

To assist you in matching your financial goals to a suitable investment product the below table has been included:
Financial Goal Investment Product
Emergency Fund, plan a holiday or travel overseas, buy furniture for your apartment, save for your wedding, save towards buying a home, buy a new car, start your own business, further your studies, provision for your children’s education. Unit Trust
Setting yourself up for retirement Retirement Annuity, Pension Fund, Provident Fund, Preservation Fund
Create wealth over time Tax-Free Investment, Unit Trust, Bespoke Products, Endowment
Provide post-retirement income Living Annuity

The above are only examples and must not be perceived as financial advice. Furthermore, this is not an exhaustive list and only certain options are highlighted, as traditionally used across the industry. For instance, unit trusts can also be used to save for retirement.

Educational Material

Once you have selected your investment product(s), you need to choose the most suitable investment solution to “fill” the product(s) with. Remember that the product is only the “container” and the investment strategy / solution would provide the actual substance.

The composition of the investment strategy / solution will determine the performance of the investment, as the solution is a collection of investment assets. These assets which are invested in, are responsible to generate the actual return on the investment.

Asset classes

Investment assets are divided into asset classes, based on similar characteristics and behaviour in the market, whilst being governed by the same laws and regulation. Watch our video on Asset Classes here. 

The most widely recognized asset classes:
Cash and cash equivalents
Fixed Income (Bonds)
Property
Equites
Alternatives

Asset allocation

How these asset classes are blended together within your strategy / solution is the biggest driver behind generating poor or good returns. This is called asset allocation and refers to the ratio / percentage each asset class holds, for instance: 50% equities, 20% property, 20% bonds and 10% cash. YPG Session 3 video

The risk-return characteristics of the various asset classes cause a “risk-return trade-off”. The higher the risk, the greater the expected return. Creating an efficient portfolio means that ideally, you want the asset allocation to generate the highest return for the least possible risk taken.

Since different assets have different risks and market fluctuations, proper asset allocation insulates the entire portfolio from the ups and downs of one single class of assets.

Combining Different Assets

The assets that a fund / portfolio is invested in, will also reveal the suitability of the solution as each asset class has its own qualities and the combination of asset classes are carefully considered by portfolio managers. Medium to long-term funds / portfolios will have a much larger exposure to equities and property, compared to short-term funds / portfolios, as they are growth assets and carry a higher risk profile. Funds / portfolios geared for the short-term will consist mainly of interest bearing and fixed income instruments, as growth assets (like equities and property) are too volatile.

Diversification
Diversifying across different asset classes, jurisdictions, industries, companies or sectors brings down the risk of a portfolio and ensures that “not all is lost” when for instance a specific sector plummets. True diversification is therefore measured when looking at correlation – how did the different assets behave in relation to one another? YPG Session 3 video

Correlation
Correlation examines the relationship between various assets and how they move in relation to one another. In other words, we can predict the movement of one asset by looking at the movement of another asset. There are different correlations: the assets can move together exactly, move similarly but not exactly the same, the movement of the one is not influenced by another asset, they move totally opposite and lastly, opposite movement but not exactly opposite.

A well correlated portfolio is key to successful investing and generating a good return, without taking any unnecessary risk. Watch our video on Correlation here.

How all of this comes together to choose an appropriate investment solution
Portfolio managers are experts in picking and blending financial securities and it’s their responsibility to construct solutions that will provide the best possible return, for the least amount of risk taken.

This makes matching an investment goal with a fund or portfolio easier as an investor needs to take only the few below factors into account:

Investment Horizon and Risk
Time in the market and risk goes hand-in-hand: you can take more risk over the long-run as your investment will have time to recover from periods of high volatility. Therefore, funds and portfolios with risk profiles of “high” / “medium to high” will have investment horizons of 5 years and longer. On the other hand, funds / portfolios with investment horizons of 1 – 3 years, will typically have a “low” risk profile. If you’re saving for a trip overseas in 24 months from now, it would be unwise to invest in a fund that has a “high” risk profile with an investment horizon of 7 years.

Investment Objective
Each fund / portfolio will have a specific investment objective, whether it’s providing a high level of income, protecting or preserving capital and providing investment stability, or seeking aggressive growth over the long-term. This will be a good indication of whether your goal aligns with the specific fund or portfolio. If you are 40 years of age and saving for retirement, you would need an investment solution that is aimed at growth, not providing an income or promising low volatility in the short-term.

Return / Performance
The historic performance of the fund / portfolio should never be the primary reason for selecting it. Historic performance is not indicative of future performance and investors are often disappointed if the investment’s return does not meet or exceed their expectations. If the portfolio manager’s investment strategy is sound, good performance will follow. It is however worthwhile to compare the fund’s / portfolio’s performance with its benchmark to determine whether it’s tracking well and not constantly underperforming.

If your investment goal matches the characteristics of the particular fund / portfolio, you can consider it a suitable solution.
To find out more about our unique investment solutions, visit our Investment Management Section

Take action and implement your investment plan

Once you have decided on your investment product(s) and solution(s), you can implement your choice by opening the investment account(s). Investing directly with Fairtree will provide you with a range of investment products to choose from, as well as giving you access to our award-winning funds and portfolios.

Review your investment plan Reviewing and updating your investment plan is important, but do not make any emotional or impulsive decisions. As your priorities in life shift over time, your financial goals will undoubtedly change, and a number of unforeseen events may have a massive impact on your initial plan.

However, be careful of not abandoning your initial investment plan too quickly, as it could cost you dearly in the long-run. For instance, don’t stop saving towards retirement, because you want to buy a car that you cannot really afford in the first place. Remember the “why” when it comes to your financial goals – it will help you to stick to your strategy.

When you review the performance of your investment(s), be careful of not falling into the trap of switching strategies, because the return did not meet or exceed your expectations. Investors tend to make irrational decisions when performance is down and miss out on the upside in the future. Typically, investors would sell equities when there is a dip in the equity market and resort to cash, only to find that the market always recovers and that they have missed out on the growth that took place. If your investment strategy is sound, stick to it right to the end – don’t forsake a 7-year plan, if the performance after 1 year is not what you’ve hoped for.

Frequently Asked Questions

Investment planning might seem like a dense and overwhelming forest: the terrain is uneven, there would be no clear paths to take, unusual and unfamiliar species are calling it home and the lack of natural light in some spots doesn’t help either.

 

At Fairtree, we understand that starting your investment journey can be challenging. Our material has been specifically designed to help you grasp the basic investment concepts, set your investment goals, select suitable investment products and to choose appropriate investment solutions. Take the first step with us and explore our plethora of investment material.

Saving” refers to putting money away over the very short term to cater for future purchases or having a buffer for emergencies. Future purchases can include anything from wanting to buy a new television set in two months or travelling overseas before the end of the year. An emergency fund will protect you and your investments, as you’ll be able to cover any unforeseen expenses without having to withdraw from your investments earmarked for other goals.
Investing” entails planning to achieve specific investment goals, whether over the short, medium or long term. Some of these goals would be buying a new home in 3-5 years, planning to send your child to university in 15 years, retiring comfortably at the age of 65 years, creating wealth over your lifetime to leave a legacy to future generations and so forth. In essence, you make your money work for you over time.  

We have developed a Financial Goal Grid to assist you with setting clear and measurable goals. In 10 easy-to-follow steps, you will be able to identify and refine your objectives.

View our Financial Goal Grid pdf here.

Short-term investing would typically refer to an investment made for a period of 0 – 36 months. Examples are: planning a holiday or travelling overseas, buying new furniture for your apartment or saving for your wedding.

Medium-term investments are aimed to achieve goals set for about 3 – 7 years from now. These goals could include: buying a new car or a house, starting a business, or furthering your studies in a couple of years.

Long-term investing defines investments made for an extended period of time, usually longer than 7 years. For instance, making provision for sending your children to university, setting yourself up for a comfortable retirement and creating wealth to leave a legacy.

There are a number of different investment products available. Traditionally the most commonly used are:

  • Unit Trust
  • Tax-Free Investment
  • Bespoke (Structured Note, Offshore, etc)
  • Endowment
  • Retirement Annuity
  • Pension / Provident Fund
  • Preservation Fund
  • Living Annuity

View our product comparison here. 

Unit Trusts are investment vehicles mostly used for discretionary investing, proving flexibility and unrestricted access to your money. The product itself does not offer any tax benefits and you will be taxed on net realized capital gains and interest after individual exemptions. 

They can be used to achieve most of your investment objectives, to name a few:

– Setting up an emergency fund

– Plan a holiday or travel overseas

– Buy furniture for your apartment

– Buy a new car

– Save towards buying a home

– Starting your own business

– Provision for your children’s education

– Setting yourself up for retirement

 

A Retirement Annuity is specifically aimed at saving for your retirement, in a tax efficient and prudent manner. Certain investment restrictions apply as Retirement Annuities are governed by Regulation 28 of the Pension Funds Act, ensuring that no unnecessary risks are taken with your retirement money. Accessibility to your money is however limited as you can’t access the funds before the age of 55 (unless in exceptional circumstances) and certain restrictions will apply when you retire from the retirement fund.

Many investors believe that spreading their investment money across different funds or asset managers is diversification. Diversification is much more complicated and includes specific risk-return characteristics, asset class exposure, relationships between funds and correlation. Combining and being exposed to different assets classes will insulate your investment portfolio against the ups and downs as no asset, industry or sector performs the same at any given period in time. Furthermore, holding assets that behave differently from one another is key and this is known as correlation. Watch our short videos on correlation and diversification.

Any type of risk indicator on a fund fact sheet or minimum disclosure document works like a sliding scale and will range from low to high or conservative to aggressive. A “high” or “aggressive” risk indicator implies that you should be comfortable with volatility in the short-term as the fund or portfolio is aimed to provide growth over an extended period and will include a substantial exposure to asset classes like equities and property. A “low” or “conservative” fund or portfolio will consist mainly of asset classes such as cash and bonds and caters for short-term investment horizons, without much volatility. It is important to take the risk indication of a fund or portfolio into account when making your selection, as it needs to align with your investment goal(s).

It is important to review your investment plan at least annually to ensure that you’re still on track to reach your financial goals. If your circumstances or priorities have changed during the course of the year, like getting married or a child being born, it is advisable to adjust your plan as these changes will have a considerable impact on your finances.

If you’re keeping a close eye on the performance of your investment(s), be careful not to become fixated on the performance over short periods of time. Instead of checking your investment statements every month and worrying about the ups and downs in the market, rather focus on the overall objective that the investment should achieve over its duration.

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Investment Management

Investment management involves the specialised ability of a portfolio manager to handle financial assets and other investments on behalf of the client, whether the client is an individual or an institution. Asset managers / portfolio managers are responsible for formulating and executing strategies and solutions, with the main objective of maximizing returns for a given level of risk.

Achieving Excess Return

Creating these efficient portfolios, requires a hands-on approach by the experts and can be referred to as “active investing”. Portfolio managers and their teams of analysts will study qualitative and quantitative factors to identify opportunities to generate excess return and actively trade (buy and sell) to achieve this goal.

The portfolio management process is more complex than it might sound. A portfolio manager must take the investment time horizon, risk tolerance and diversification into account when constructing and overseeing the investment portfolio. When it comes to building portfolios, portfolio managers use their expertise and experience to blend different investment philosophies, strategies, processes and analytics to create elite solutions.

  • The general basics of Investment Management
  • Fairtree’s unique approach to Investment Management

As diversifying a portfolio is one of the key drivers behind generating performance, proper asset allocation is of the essence. Spreading the holdings across different jurisdictions, industries, companies or sectors (sometimes even different asset classes), reduces the risk and ensures that “not all is lost” when for instance a specific sector may plummet. True diversification is however not about spreading the portfolio as thinly as possible, but ensuring that the underlying assets behave differently to one another in response to market events or news. This is measured by correlation. Watch our video on Asset Classes here.

Correlation

Correlation examines underlying portfolio holding relationships and helps portfolio managers to predict how one asset will behave, based on the movement of another asset. If two securities move in the same direction, they have a positive correlation. When they move in opposite directions, they display negative correlation. Ideally, a portfolio should hold some securities that behave differently to one another as it manages the risk within a portfolio. A well correlated portfolio is key to successful investing and generating a good return, without taking any unnecessary risk. Watch our video on Correlation here.

Top-down, Bottom-up

Portfolio managers have different approaches to ensure a diversified selection of investments in the portfolio.

The top-down method studies the wider economic and macroeconomic factors first, such as the total production, income and expenditure in the economy, level of employment, interest rates, taxation and so forth. If a country’s economic outlook is positive, investors would be more enthusiastic to invest in that country and does not pay too much attention to the underlying companies that they are investing in.

The bottom-up method works the other way around and starts by evaluating the potential of a specific company and not the wider economic factors. The company’s products and services, management team and financial structures play fundamental roles in determining if the company would generate the expected returns.

Strategic and tactical tilting

One of the strategies that portfolio managers use is a dynamic approach to asset allocation, using both strategic and tactical methods.

Strategic asset allocation is a portfolio manager’s fixed, long-term view on the mix of assets to achieve the objective of generating the highest possible return for the level of risk taken.

Tactical asset allocation allows for adjustments to the asset mix to capitalize on opportunities that present themselves in the market and subsequently enhance returns.

Blending these two methods means that the portfolio manager will have a set, strategic view for the long run, but may deviate from the fixed asset allocation for a short period, taking advantage of certain market movements. This dynamic approach integrates the best of both worlds: enhancing returns, whilst simultaneously mitigating risk over time.

Volatility

Volatility measures how much an asset’s return will deviate from its average performance or benchmark. In essence, it examines the frequency and extent at which an asset’s price will rise or fall. Volatile assets, like equities, are considered to be riskier, because their performance tends to be unpredictable as there can be sudden or large changes in their prices. When the price of an asset changes at a slower rate over a longer period, it is considered to be less volatile. Volatility creates opportunities for portfolio managers to take advantage of the markets and to generate a profit.

At Fairtree, our approach to investment management is unique, as we manage a diversity of long-only and alternative investment portfolios across all global asset classes. Adhering to Fairtree’s sound investment philosophy, our acclaimed specialist teams blend different investment philosophies, strategies, processes and analytics to create elite solutions.

A Top-down and Bottom-up view

We follow a meticulous top-down and bottom-up analysis to ensure a diversified selection of investments in each fund.

The top-down method studies the wider economic and macroeconomic factors first, such as the total production, income and expenditure in the economy, level of employment, interest rates, taxation and so forth. If a country’s economic outlook is positive, investors would be more enthusiastic to invest in that country and does not pay too much attention to the underlying companies that they are investing in.

The bottom-up method works the other way around and starts by evaluating the potential of a specific company and not the wider economic factors. The company’s products and services, management team and financial structures play fundamental roles in determining if the company would generate the expected returns.

Quant driven funds

A number of funds include complex quantitative algorithms, time-tested to derive market value through unique strategies to generate wealth for our clients. This is combined with a hybrid model of human expertise and experience in decoding the quantitative models, adds another layer in deciding final portfolio inclusions.

First in South Africa to include alternative assets in blended portfolios

Standard portfolios in the financial industry largely consist of a blend of conventional assets, such as equities, property, fixed income, as well as cash and cash equivalents. Alternative assets are however a range of unconventional / “non-traditional” financial securities to invest in, which include Hedge Funds, Private Equity and Commodities.

Fairtree is the first in South Africa to follow an exceptional and influential approach to portfolio construction: blending traditional asset classes with alternative strategies and assets. Our portfolios include directional equity, quantitative and directional equity, directional fixed income and credit, equity diversifiers and soft commodity diversifiers.

As asset allocation primarily drives performance, these combinations in portfolios provide outstanding diversification opportunities and has proven to generate superior excess return for investors.

Strategic and tactical tilting

By blending strategic and tactical tilting, our portfolio managers remain true to their strategic view for the long-term, whilst taking advantage of certain market movements in the short-term.

Our tailored investment portfolios have a “core”, which is invested in a diverse range of multiple asset classes, including local and offshore investments in equity, property and fixed income. Around the “core” we invest in “satellite” funds, which usually specialise in specific asset classes, enabling us to up-weigh or down-weigh across asset classes. This provides us with the opportunity to tilt the portfolio in accordance with different economic conditions, whilst staying true to our strategic view inside the core.

*The core itself does also contain a degree of tactical tilting.

This approach integrates the best of both worlds: enhancing returns and creating long-term wealth, whilst simultaneously mitigating risk.

Frequently Asked Questions

The principle of “risk-return trade-off” means that potential return rises with an increase in risk. Differently put, if you take more risk, you can expect a higher return. For instance, if you invest in equities, you face the risk of losing some of your capital, however the probability of receiving a high return is good. Keeping your money in cash will likely preserve your capital, but you will earn a low return on you investment.

Active managers are usually in pursuit of outperforming the market over the long-term, taking advantage of short-term market inefficiencies. Exploiting market fluctuations requires a high level of expertise and portfolio managers are supported by their team of analysts, who study qualitative and quantitative factors. Consequently, investors benefit from this ‘hand-on approach’, as these experts have the ability to capitalize on opportunities, avoid specific risks and adjust the clients’ portfolios in order to meet their specific needs. Although active investing is more costly than most passive strategies, research has shown that there are portfolio managers who can add substantial value to your investment portfolio, relative to what passive strategies have achieved.

Correlation examines the relationship between various assets and how they move in relation to one another. In other words, we can predict the movement of one asset by looking at the movement of another asset. There are different correlations: the assets can move together exactly, move similarly but not exactly the same, the movement of the one is not influenced by another asset, they move totally opposite and lastly, opposite movement but not exactly opposite. A well correlated portfolio is key to successful investing and generating a good return, without taking any unnecessary risk. Watch our video on Correlation here.

Different factors contribute to a fund or portfolio’s performance, such as asset allocation, security selection, asset class timing, different styles within asset classes and fees. Portfolio managers take all of the beforementioned into account when building a portfolio to ensure that they achieve the specified objective and generate the highest possible return for the level of risk taken. Once you have chosen a suitable fund / portfolio for your investment goal, you need to trust the expertise of the managers and remain invested for the duration of the required investment period. Trying to time the market yourself, by switching in and out of investments to profit from market surges, may in reality cause you to miss out on market growth.

In general, hedge funds have been said to have more risk associated with it compared to other investment strategies. It is however important to note that by including hedge funds in your portfolio, you can actually reduce your overall risk levels. Hedge funds provide exceptional diversification within a portfolio as they can contain alternative assets like soft commodities, directional equity and directional fixed income and credit that will behave differently in similar market conditions, compared to conventional asset classes. Other important factors which have influence on the level of risk within the hedge fund is what asset classes the hedge fund is trading in as well as the nature of the derivative structure/gearing employed within it.

Many investors try to time the market by moving their money in and out of certain investments, usually basing their decisions on the latest trends or changes in the economy. Truth be told, by the time most investors hear about the “next big opportunity” or the “hot off the press” topic, the window of opportunity has already begun to close or the rest of the market has already reacted to the news. It is wise to stay committed to your investment strategy, even if it means losing out on some opportunities along the way. You will gain more by staying invested throughout the duration of your investment goal(s), than incurring unnecessary costs and suffering disappointments for choosing the “wrong share at the wrong time” and trying to recover by making impulsive moves.

Many investors believe that spreading their investment money across different funds or asset managers is diversification. Diversification is much more complicated and includes specific risk-return characteristics, asset class exposure, relationships between funds and correlation. Combining and being exposed to different assets classes will insulate your investment portfolio against the ups and downs as no asset, industry or sector performs the same at any given period in time. Furthermore, holding assets that behave differently from one another is key and this is known as correlation. (Watch our short course Session 3 for more on how to achieve diversification inside of your portfolios.)

Choosing a suitable investment solution involves much more than only looking at the performance. Here are a couple of key aspects to consider in order to help you interpret a fund fact sheet, minimum disclosure document or portfolio sheet:

Time horizon

If your goal is to save for buying a new car in 18 months from now, it would be unwise to invest in a fund / portfolio with a time horizon of 5 years or longer. Such a fund / portfolio would experience volatility over the short-term and may not meet your expectations after 18 months.

Risk Profile

A risk profile goes hand-in-hand with the time horizon and asset allocation. It works like a sliding scale and will range from low to high or conservative to aggressive. A “high” or “aggressive” risk indicator is associated with a fund or portfolio aimed to provide growth over the long-term and will include a substantial exposure to asset classes like equities and property.

Description / Policy / Objective

This section explains what assets the fund / portfolio may invest in, what it aims to achieve, for which type of investor it would be best suited and any related information. This short extract (for example) would immediately indicate that this fund is for short-term investing: “The fund is a largely domestic, high yield, fixed income portfolio, which aims to return STeFI +3% after fees through the interest rate cycle”.

Asset Allocation

A fund / portfolio will consist of a blend of different assets/asset classes, in certain ratios and is inherently linked to the time horizon and risk profile. A high exposure to equities will be associated with a longer investment time horizon and a more aggressive risk profile.

Performance

It is important to remember that past performance is not indicative of future results and you may be very disappointed if the fund / portfolio doesn’t meet your expectations. Furthermore, be mindful of the benchmarks being used when the performance of one fund / portfolio is being compared to another as you need to compare “apples with apples”. Lastly, be realistic in terms of the expected return and your goal – you cannot expect to double your money in a year or two.

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What would you like to learn more about?

  • Financial
    Planning

    This involves helping you gather relevant financial information, examining your current financial position and setting investment goals.
  • Retirement
    Planning

    This process happens prior to retirement to make sure that you have sufficient savings at retirement to provide for future capital and income needs.
  • Investment
    Planning

    The process of identifying appropriate and tax-effective solutions which align to your financial goals and risk appetite.
  • Investment
    Management

    The specialised ability to build outcome-based portfolios determined by time horizons and risk appetite.

Financial Planning

Financial planning is a dynamic process of assessing your financial situation and putting a plan in place to achieve your financial goals.

GATHER UP.

To determine your current financial position, you have to gather all of the relevant data, including information on your income and expenses, insurance policies, investment accounts, tax material and any additional information.

GOAL SET.

You also have to set out clear and measurable life goals, such as buying a house, saving for the children’s tertiary education, travelling, retiring comfortably, creating wealth over time and the list goes on.

GAME PLAN.

Depending on your available financial resources and your life goals, you must put together a realistic financial plan on how to attain your goals.

A comprehensive financial plan can often get complicated, as you need to plan holistically for a number of aspects, such as: budgeting, life insurance, investments, retirement, tax and estate planning.

GAIN SKILL.

Some people prefer doing their own planning, and you can access our online material to help you navigate through this process. Should you however need help with your financial plan, please get in contact with a financial adviser to assist you.

Pillars Of Financial Planning

Financial Planning is an extremely broad topic with many overlapping layers. There are however six generally recognized pillars of personal Financial Planning: budgeting, life insurance, investment planning, retirement planning, tax planning and estate planning.

Budgeting is the starting point, as this is where the organisation of an individual’s finances takes place and a greater understanding of their assets, liabilities, income and expenses is derived.

Life insurance provides protection for individuals and their loved ones from the loss of income, impact of death, disability, or severe illness.

Investment and retirement planning include an individual’s entire investment portfolio which caters for a variety of financial goals ranging from saving towards a child’s education to buying a home, wealth creation and growth, retirement, and so forth.

The objective of tax planning is to arrange an individual’s financial situation in a tax-efficient manner, whilst estate planning entails the organising and distribution of individuals assets and liabilities during their lifetime and once they have passed on.

  • Budgeting
  • Life Insurance
  • Investment Planning
  • Retirement Planning
  • Tax Planning
  • Estate Planning

Unpacking spending or having a monthly financial blueprint for your income, savings and expenses is the very foundation of financial success.

The benefits of financial blueprints are endless and will change your outlook on money forever:

  • It helps you to align your lifestyle with your values
  • Provides a plan of action for everyday spending
  • Highlights the pitfalls in your spending patterns
  • Assists in creating healthy money habits
  • Enhances your relationship with money

Educational Material

Life insurance offers financial protection for you and your loved ones in the event of loss of income, death, disability or severe illness. Although Fairtree does not offer life insurance, it remains an important part of holistic financial planning.

Income Protection

Your ability to earn an income is the most valuable asset you’ll ever own. Being unable to work due to sickness, injury or trauma can have a devastating effect on your finances and future aspirations.

An income protection product will provide you with a regular flow of income to provide financially for yourself and your financial dependents.

Death

Your premature death may place your loved ones under serious financial strain, especially if you are the breadwinner of the household or high levels of debt exist.

Life cover policies will pay out the insured amount upon your death, to cover any financial obligations and to provide financial security for your nominated beneficiaries.

Disability

Disability comes in many shapes and forms: the level of severity will differ in each case and your disability could be either temporary or permanent.

A disability policy will pay you a lump sum if you’re unable to continue working, due to a permanent illness or injury that renders you disabled. The proceeds can be used to pay for disability related expenses, settling debt or providing you with future income.

Severe illness

Severe illness cover will pay out should you be diagnosed with one of the specific illnesses as defined and listed by the insurer. Most insurers provide extensive and comprehensive cover, including cover for cancer, heart attacks, strokes, certain trauma events and so forth.

Receiving the proceeds will prove to be extremely helpful in these financial and emotional challenging times, affording you financial peace of mind whilst being treated for or recovering from your condition.

Life insurance companies provide a range of different policies to cater for your unique needs and circumstances. Speak to a financial adviser to assist you in selecting the most suitable products, ensuring that you’re well covered when you need it most.

Investment planning is the process of identifying appropriate and tax-effective solutions which align to your financial objectives. A sound investment plan will set out your objectives in a clear, structured manner, the action steps on how to reach them, as well as track your progress. In addition, it will improve your self-discipline, commitment and motivation to achieve better investment outcomes.

At Fairtree, we specialize in professional investment planning and offer investment solutions that are as unique as you and your financial needs and goals.

To read more about key investment principles and selecting appropriate investment products, visit our Investment Planning Section.

To find out more about our unique investment solutions, visit our Investment Management Section.

Skilful retirement planning will ensure that you have enough money to provide you with a sustainable income throughout your retirement years.

It’s never too early or too late to start saving for retirement – whether you have recently started your first job or have been part of the work force for many years.

At Fairtree, we approach retirement planning differently. Visit our Retirement Planning Section to find out why we don’t believe in “simply retiring”, but rather planning for another phase of your life.

Different types of tax influence all aspects of financial planning. Tax planning should therefore not be treated in isolation, as it plays a fundamental role in your journey to financial success.

Tax planning can be defined in short as: analysing and arranging your financial situation in a tax-efficient manner, taking full advantage of lawful exemptions, deductions, rebates and allowances to reduce your tax to a minimum.

It's important to note that trying to save tax should never be the starting point of your financial plan, but rather to enhance reaching your financial goals.

By employing tax-efficient strategies in this process, you will inevitably save a substantial amount of money over your lifetime. Each country has tax-friendly structures and products available to help individuals to reduce their tax liability and the secret is to make the most of these opportunities.

Types of tax that impact personal financial planning the most:

Income Tax

Capital Gains Tax

Dividend Withholding Tax

Donations Tax

Estate Duty

Transfer Duty

 

Income Tax

Personal income tax is levied on your taxable income, which includes all streams of worldwide income. Some forms of income that an individual can receive: salaries, commission, bonuses, fringe benefits, director’s remuneration, investment income, annuity income, pension income, rental income or losses, profits or losses from a business or trade, income from royalties, certain capital gains and so forth.

Individuals are liable to pay income tax based on their annual taxable income and will fall within certain tax brackets – the more you earn, the higher your tax bracket will be.

From a tax savings point of view, it is important to note that there are certain exemptions, deductions and rebates available to individuals and capitalizing on these benefits will reduce the amount of tax you need to pay.

Capital Gains Tax

Capital Gains Tax forms part of income tax and is not a separate type of tax. When you dispose of an asset (that attracts Capital Gains Tax) on or after 1 October 2001, you will be taxed on the proceeds that exceed the asset’s base cost (which we refer to as the capital gain).

Capital gains are included in an individual’s income tax calculation at a certain rate and the effective tax rate pertaining to these gains will be lower than on ordinary income. It is also possible to make a capital loss if the base cost was higher than the proceeds from the sale.

Dividend Withholding Tax

A dividend is any payment made by a company to a shareholder (beneficial owner) as a return for holding a share in that specific company. Tax is levied on the dividend payments at a certain fixed rate and usually withheld by the company before paying the dividends over to the shareholders. The company will pay the tax over to the South African Revenue Service.

Dividend Withholding Tax is applicable to dividends paid by companies that are South African tax residents or foreign companies that list on a South African Exchange.

Donations Tax

Donations Tax is payable on the value of property disposed by way of a donation. A donation is defined as a disposal free or at no charge (receiving nothing in return) and includes any renunciation of rights or gratuitous waivers.

Under normal circumstances, the donor must pay the donations tax, but the donee can also be held jointly and severally liable if the donor fails to pay the tax.

Certain exemptions apply, for instance donations made between spouses are completely exempt from donations tax and a fixed minimum amount are exempt in each financial year where a natural person donated property.

Estate Duty

An “estate” in this case refers to the deceased estate of a natural person who was ordinarily resident in South Africa for tax purposes, as well as on the property of non-residents situated in South Africa.

All the property and deemed property of the deceased person will form part of the estate and certain deductions, as well as a prescribed abatement amount will reduce the value of the estate. The estate duty will be calculated on the dutiable amount and must be paid by the deceased estate (and / or by the beneficiaries in some cases).

Transfer Duty

Transfer duty is payable by any person who has acquired any immovable property, by way of a transaction or otherwise. Property, for the purpose of Transfer Duty, is defined as land and fixtures thereon and includes: real rights in land, shares or member’s interest in a residential property company, a share in a share-block company and rights to minerals / the right to mine for minerals.

The tax payable is levied on the fair value of the property, referring to a fair market value between a willing, non-related buyer and seller in an open market. Rates on a sliding scale apply and a fixed prescribed minimum amount is taxed at 0%.

Estate planning involves arranging and managing your financial affairs in such a way that you can benefit from your estate during your lifetime and that it will be dealt with in accordance with your wishes in the unfortunate event of your death.

Effective estate planning will assist to protect the value of your growth assets and from those assets being sold to provide for liquidity purposes in your estate. It will furthermore reduce exposure to Estate Duty and Capital Gains Tax, limit additional estate expenses and ensure a smooth transition of your estate upon death. Your will, trust(s), assets and liabilities, deemed property and liquidity requirements all form part of estate planning.

Making use of other structures and strategies, like setting up inter vivos trusts (created while you’re still alive), play an integral part to protect your assets and the financial security of your loved ones, whilst simultaneously ensuring that your wealth is preserved for generations to come.

Having a valid will ensures that your assets are handled and distributed by the executor in line with your requests. Special instructions regarding the establishment of testamentary trusts, protecting the needs of your beneficiaries and setting up funeral arrangements also form part of this invaluable document.

Making use of other structures and strategies, like setting up an inter vivos trust(s) (created while you’re still alive), play an integral part to protect your assets and the financial security of your loved ones, whilst simultaneously ensuring that your wealth is preserved for generations to come.

A trust is an accumulation of assets, held and managed by the trustees for the benefit of the trust beneficiaries.

The donor / founder of the trust must transfer full control and ownership of the assets to the trustees who will hold the trust’s assets in their capacities as trustees (not in their personal capacities). They have the duty to manage the assets solely for the benefit of the trust’s capital and income beneficiaries and must act in accordance with their rights and responsibilities as set out in the trust deed.

Trusts are mainly used to protect personal or business assets and are widely included in estate planning strategies to ensure a seamless transfer of wealth and to reduce tax.

Your deceased estate will be distributed in terms of the Intestate Succession Act. This piece of legislation sets out the rules of intestate succession, describing how your deceased estate must be distributed to your heir(s), as there is no will to draw your wishes from. This means that you effectively have no control over who will receive your assets after you pass away, as the rules will determine the order, starting with your closest relatives first. If there is no one that could inherit from your deceased estate, the proceeds will be place in the Guardians’ Fund and if no legitimate heirs come forward within 30 years, it will be forfeited to the State.

Comprehensive estate planning is beneficial when you have a large estate and significant estate duty may be payable when you pass away, your financial affairs are complicated due to being for instance a business owner, you have difficult family dynamics, distributing your assets may be very complex and so forth. If your financial matters are not very complicated, you can focus on drafting a valid will and making use of trust structures as needed. An important aspect to keep in mind, no matter what the size of your estate is, is to ensure that there’s enough liquidity to cater for all the fees associated with your death.

An inter vivos trust is created by the founder, when he / she is still alive and the trust deed is the document that contains the terms of the trust. Inter vivos trust are usually set up to protect the trust property during the founder’s lifetime or for future generations, to support the beneficiaries financially, to be used as a tool for estate planning purposes and so forth. A testamentary trust is only established upon the testator’s / testratix’s death and the terms of the trust are written into his / her will. Testamentary trusts are suitable to protect the interest of minors or beneficiaries that are particularly vulnerable (a disabled or elderly family member) when the testator / testatrix is not around anymore.

An executor plays a vital role in the winding up of your estate as he / she must carry out the instructions and wishes contained in your will. Acting as an executor requires a certain level of knowledge and skill as this person must report the deceased estate to the Master of the High Court, give notice to the creditor(s), take control of the estate, draft the liquidation and distribution documents, ensure that the assets are correctly rounded up and transferred to the heir(s) and pay the creditors. Nominating a family member as an executor, who has no legal or financial background, may cause unnecessary issues and delays in the administration of the deceased estate. Consider nominating an attorney, trust company or accounting firm to assist. 

Estate duty is a type of tax that is levied on the dutiable portion of your deceased estate. Once deceased, all your property and deemed property will form part of your deceased estate and certain deductions, as well as a prescribed abatement amount will reduce the value of the estate. Estate duty is calculated on the dutiable value of the estate at certain fixed rates.

When you pass away, you will be deemed to have disposed of your assets and Capital Gains Tax will be levied. Furthermore, the executor is entitled to a fee for winding up the estate, based on the gross value of the assets that he / she will deal with, plus a fee calculated at a certain rate on the income the estate has earned after your death. In addition, fees must also be paid to the Master of the High Court, to the newspapers for publishing the notices, for providing the Master with security (if necessary), transferring fixed property, cancelling bonds, arranging the funeral and any other charges (bank accounts) that may apply.

Frequently Asked Questions

Yes, reputable financial advisers can add great value by helping you to simplify and take charge of your finances. It is prudent that you choose a financial adviser who carries the CFP® designation, as they are Certified Financial Planners who are suitably qualified to provide advice. They are required to maintain technical competence and fulfil ethical obligations as set out by the FPI (Financial Planning Institute of Southern Africa) and these strict requirements ensure that they provide sound, professional advice to clients.

They can assist you to reach your financial goals, identify ways to save costs, minimize tax, capitalize on the best investment strategies, ensure that you and your loved ones are taken care of in case of an unfortunate life event, guide you through difficult economic cycles, help you to avoid costly mistakes, provide peace of mind during and after your lifetime and the list goes on.

The popular saying goes: “If you fail to plan, you plan to fail” and there’s no exception when it comes to financial planning. Having a financial plan will set out your financial goals in a clear, structured manner, as well as the action steps on how to reach those goals.

These measurable goals will help you to make better financial decisions, increase your level of commitment and motivation, improve your mental and emotional wellbeing, as well as track your progress. In financial terms, you will save and preserve, reduce risk, achieve better investment outcomes and strengthen your relationship with money.

Although financial plans have a certain structure to it, there is no right or wrong way to set it up. If your financial affairs are simple, you can start by identifying your goals and doing research on how to achieve each goal. If one of your goals is to set up an emergency fund, you can do research on the best investment vehicle to use and available funds / solutions to invest in. We have a wide range of material available to guide you on this journey – be sure to explore our website and social media platforms.

Should your finances be complicated and you’re not sure what the best way forward will be, please be sure to reach out to a financial adviser.

We have developed a Financial Goal Grid to assist you with setting clear and measurable goals. In 10 easy-to-follow steps, you will be able to identify and refine your objectives.

View Your Financial Goal Grid PDF here.

Review your budget, or financial blueprint as we like to call it, on a regular basis. “Review” does not refer to inserting your income and expenses monthly, but going through each line item to ensure that your target amounts are still realistic and align with your current financial position and values. In our material on “cash flows and financial blueprints” you will find some helpful pointers on how to adjust your spending patterns, whether it’s inviting friends over for dinner instead of eating out or getting creative when it’s your friend’s birthday.

Educational Material

Yes, as it all starts with you and protecting your most valuable asset: your ability to earn an income. Remember, life insurance also refers to income protection, disability cover and severe illness benefits, not only cover for when you pass away. Even if you don’t have any financial dependants, ask yourself the following question: whose financial dependant will I become if I’m unable to work? If the answer is your parents – would they be able to support you financially, whether temporarily or permanently? The younger you are, the higher the risk as you still have your entire career / life ahead of you.

Tax avoidance is legal, whereas tax evasion is illegal.

Avoiding tax is making use of the country’s tax regime to reduce the tax you have to pay. Each tax regime has certain tax benefits that taxpayers can employ, whilst fully disclosing all information to the revenue service in the process. For instance, deducting your contributions to a Retirement Annuity is legal, and so is making donations to a Public Benefit Organisation.   

Tax evasion undermines the government’s efforts to collect tax, by concealing information and / or misrepresenting it, in order to escape paying tax. Evading tax is a serious crime and offenders will be fined or imprisoned. Some examples are: renting out a property without disclosing the rental income, claiming personal expenses as business expenses, wilfully fails to pay tax, using a fake identity and many more.

South Africa residents, subject to certain exclusions, are taxed on all streams of worldwide income, regardless of where this income was earned. For individuals, this will include salaries, commission, bonuses, fringe benefits, director’s remuneration, investment income, annuity income, pension income, rental income or losses, profits or losses from a business or trade, income from royalties, certain capital gains and so forth. There are certain exemptions, deductions and rebates available to individuals and making the most of these benefits will reduce the amount of tax you need to pay.

Allowable tax deductions are one of the most common ways to minimize your tax liability, for instance: contributing to retirement funds (pension fund, provident fund, retirement annuity), deducting expenditure incurred for carrying on a trade (under certain circumstances) and donations to Public Benefit Organizations. You can also claim for a medical tax credit if you’re a member of a registered medical aid scheme. Lastly, ensure that your investments are structured in such a way that you will benefit from exemptions, like the partial exemption on interest earned and the fact that dividends received from South African companies (and JSE dual-listed non-resident companies) are exempt in your hands as the taxpayer.

PAYE (Pay-As-You-Earn) is tax that is deducted by the employer from an employee’s salary. The employer will pay it over to SARS every month, as an advanced payment. This tax will then be off set against the final tax liability for that individual at the end of the tax year.

Provisional tax is a method of paying income tax during the tax year in which income is earned by an individual. Taxpayers pay two instalments in advance, based on estimated taxable income for that year of assessment. This is usually paid by people who receive income other than a salary as they have to declare their income to be taxed. If you receive a salary and PAYE is deducted, but you also have other sources of income (like rental income), you will have to register as a provisional taxpayer as well.

Each scenario will be different and restrictions apply, but in general: if you’re an employee working from home and you use a room that is regularly and exclusively occupied for your employment, you may be allowed to deduct certain expenses. Expenses that will qualify include: rent, cost of repairs to the premises and other related expenses, rates and taxes, wear-and-tear, office equipment, cleaning, internet and stationery. These expenses must be adjusted on a pro-rated basis (square metres of home office area versus total square meters of home) as the tax deduction is only allowed for the area utilised for your employment.

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Retirement Planning

At Fairtree, we approach retirement planning differently. We do not only believe in “simply retiring”, but rather “rerouting” into the next phase of your life. We also understand that preparing yourself for the next chapter, involves so much more than getting your financial affairs in order. Your relationships, health and wellness, personal development, career paths, social and spiritual lives are equally important when planning for the future. Learn more about the most important factors to consider when planning for your financial and overall wellbeing before and after retirement.

Which phase of life do you find yourself?

  • 20 - 40
    Starting out

    Career, Marriage, Children
  • 40 - 70
    Settling down

    Career, Maturity, Legacy
  • 70+
    Slowing down

    Comfortable, Content

 

Optimising this Phase

Starting to save toward your retiring years while you are young is beneficial for a number of reasons.
Tax benefits and the power of compound growth work together to generate great growth inside of your investment portfolio.

Phase Challenges

Time is tight
Time is a precious commodity, and the most time-demanding phase of life is usually these “Starting out” years. How do you excel at your career, raise children, maintain a healthy marriage and other relationships, without neglecting your financial wellbeing in the long run?

Money must multi-task
Taking it one step further, how do you juggle putting food on the table, buying a house, paying school fees, going on holiday, whilst saving toward your retirement years?

Frequently Asked Questions

The below includes engaging material to help you navigate this phase and make wise
financial decisions that your future self will thank you for.

The earlier, the better. The reason for this is compound growth and tax benefits.

Making Money Work For  You

YearsPrinciple AmountExpected ReturnGrowthCompound Amount
1R1000,008%R80.00R1080,00
2R1080,008%R86.40R1166,40
3R1166,408%R93,31R1259,72
4R1259,728%R100,78R1360,49
5R1360,498%R108,84R1469,33
6R1469,338%R117,55R1586,87
7R1586,878%R126,95R1713,82
8R1713,828%R137,11R1850,93
9R1850,938%R148,07R1999,00
10R1999,008%R159,92R2158,92

R1000 invested over 10 years (interest rate of 8%) becomes R2 158.92
R1000 versus R2 158.92 more than doubled up on your money, just by being patient.

 

R1000 invested over 40 years (interest rate of 8%) becomes R21 724.52

Perhaps there is a way in which you could free up some money inside your monthly financial blueprint (budget). Adjusting your existing lifestyle, eating out less, closing some credit accounts, shopping at different stores and so forth. If you do not have a monthly financial blueprint, perhaps start with laying one out. You could be surprised to figure out where your monies is being spent each month. 

Download our Budgeting tool.

The amount of money needed for retirement will be different from person-to-person. The answer, of course, will be based on anticipated life expectancy and different needs during your retirement years. This will all depend on your post-retirement lifestyle. While some people will want to travel and spoil their grandkids, others will want a different lifestyle. You can use a calculated cash flow estimate and a blend of strategies to forecast how much you need to invest today, in order to generate above-inflation growth to sustain you throughout your post-retirement years.

Download our Retirement calculator.

*For some thought-provoking trigger questions about retiring expenses, please see below.

Trigger questions for adjusting financial blueprint for retirement

Your level of debt at retirement:

  • Will the mortgage bond be repaid?
  • Will you have motor financing in place?
  • Will all other loans/overdrafts be repaid in full?

How will lifestyle expenses look compared to pre-retirement?

  • Will there be additional expenses (like domestic help / frail care)?
  • Are you planning on travelling or entertaining more?
  • By how much would your medical costs increase?
  • Where will you want to live and how much will it cost?

Will you need any lump sums at retirement?

  • Would you need to purchase a new car at retirement, etc?

Will you have financial dependents at retirement?

  • Will all your children be able to take care of themselves financially?
  • Is there perhaps a disabled family member you have to take care of?
  • Will your spouse be dependent on your retirement funding?

What obligations will fall away at retirement?

  • By how much would your tax obligations decrease?
  • Contributions to retirement funding will fall away.
  • Any debt that has been repaid.

There are a number of critical factors (term to retirement, current age, inflation, taxes, income drawdown at retirement, life expectancy, current provisions, escalation rates and lifestyle) that one needs to take into consideration when answering this question. For example, someone who begins their monthly retirement savings at 45-years-of-age, will need to contribute larger monthly amounts, than someone who started saving toward retirement at 26-years-of-age. Personalised calculations are required to better determine this answer.

Do a basic retirement calculation using our tool. 

Download our Retirement calculator.

Contributing to a pension fund at work is highly beneficial, but it might not be enough to provide you with a sustainable income during retirement. Contributions by yourself, the employer or both, are usually based on a certain percentage of your current remuneration and is not calculated based on your desired lifestyle once retired. You can calculate how much you need to save in addition to your monthly pension fund contribution by using our tool. 

Download our Retirement calculator.

Making use of a Retirement Annuity is not the only option, but given some of its benefits, it remains one of the preferred investment vehicles for this purpose. Contributions to your Retirement Annuity are tax deductible up until a certain percentage of your remuneration or taxable income (whichever is greater) and you are not taxed on interest, dividends or capital gains while being invested. Furthermore, when you retire from the fund, you can take a certain lumpsum amount without being taxed on the withdrawal. 

Fairtree has a large product offering of long-only funds and alternative investments like private equity, hedge funds and commodities. We see balanced investing differently. We are the first in South Africa to combine alternative asset classes together with traditional asset classes inside of bespoke portfolios for our clients. This provides our clients with a unique diversified portfolio which includes best of breed long-only strategies and award-winning hedge fund strategies.

Please feel free to contact us and one of our consultants will assist you with setting up your investment.

Contact us

 

If you are already in retirement, please go to the “70+” section.

Optimising this Phase

There is usually a lot more stability in your career and personal life in this phase. You’ll feel that you’ve reached a certain level of maturity, knowing who you are and what you truly value in life. This is very powerful, as the “slowing down” phase is fast approaching. Utilise this phase to think about the legacy you want to leave behind, how you envision your “slowing down” years to look like and how to prepare yourself for it.

Phase Challenges


Paradigm Shift
During this phase, the majority of people become acutely aware of the fact that their current savings will not be able to support their retirement years and that they will have to work for longer. “Working longer” comes with its own challenges in this day and age, due to the exponential rate of change we experience: increased life expectancy, adopting continuous learning and development as opposed to “traditional education periods” and remaining engaged beyond the traditional retirement age of 55 has become more of a requirement.


Rethink, repurpose, reroute
Transitioning into retirement can be more emotionally challenging than most people realize. Retiring involves large changes to lifestyle and habits. As sudden shifts take place in daily routines, finances and relationships, some retirees struggle to stay mentally and physically active, to maintain their sense of worth, to find new purpose and a place of belonging in different circles of society. Preparing yourself for the “slowing down” phase requires more than financial planning, it calls for you to rethink, repurpose, reroute.

Frequently Asked Questions

The below includes engaging material to help you navigate this phase and make wise
financial decisions that your future self will thank you for.

The amount of money needed for retirement will be different from person-to-person. The answer, of course, will be based on anticipated life expectancy and different needs during your retirement years. This will all depend on your post-retirement lifestyle. While some people will want to travel and spoil their grandkids, others will want a different lifestyle. You can use a calculated cash flow estimate and a blend of strategies to forecast how much you need to invest today, in order to generate above-inflation growth to sustain you throughout your post-retirement years.

Download our Retirement calculator.

*For some thought-provoking trigger questions about retiring expenses, please see below.

 

Trigger questions for adjusting financial blueprint for retirement

Your level of debt at retirement:

  • Will the mortgage bond be repaid?
  • Will you have motor financing in place?
  • Will all other loans/overdrafts be repaid in full?

How will lifestyle expenses look compared to pre-retirement?

  • Will there be additional expenses (like domestic help / frail care)?
  • Are you planning on travelling or entertaining more?
  • By how much would your medical costs increase?
  • Where will you want to live and how much will it cost?

Will you need any lump sums at retirement?

  • Would you need to purchase a new car at retirement, etc?

Will you have financial dependents at retirement?

  • Will all your children be able to take care of themselves financially?
  • Is there perhaps a disabled family member you have to take care of? 
  • Will your spouse be dependent on your retirement funding?

What obligations will fall away at retirement?

  • By how much would your tax obligations decrease?
  • Contributions to retirement funding will fall away.
  • Any debt that has been repaid.

There are a number of critical factors (term to retirement, current age, inflation, taxes, income drawdown at retirement, life expectancy, current provisions, escalation rates and lifestyle) that one needs to take into consideration when answering this question. For example, someone who begins their monthly retirement savings at 45-years-of-age, will need to contribute larger monthly amounts, than someone who started saving toward retirement at 26-years-of-age. Personalised calculations are required to better determine this answer.

Do a basic retirement calculation using our tool. 

Download our Retirement calculator.

Perhaps there is a way in which you could free up some money inside your monthly financial blueprint (budget). Adjusting your existing lifestyle, eating out less, closing some credit accounts, shopping at different stores and so forth. If you do not have a monthly financial blueprint, perhaps start with laying one out. You could be surprised to figure out where your monies is being spent each month. 

Download our Retirement calculator.

Contributing to a pension fund at work is highly beneficial, but it might not be enough to provide you with a sustainable income during retirement. Contributions by you, the employer or both, are usually based on a certain percentage of your current remuneration and is not calculated based on your desired lifestyle once retired. You can calculate how much you need to save in addition to your monthly pension fund contribution by using our tool. 

Download our Retirement calculator.

Making use of a Retirement Annuity is not the only option, but given some of its benefits, it remains one of the preferred investment vehicles for this purpose. Contributions to your Retirement Annuity are tax-deductible up until a certain percentage of your remuneration or taxable income (whichever is greater) and you’re not taxed on interest, dividends or capital gains while being invested. Furthermore, when you retire from the fund, you can take a certain lump sum amount without being taxed on the withdrawal. 

Fairtree has a large product offering of long-only funds and alternative investments like private equity, hedge funds and commodities. We see balanced investing differently. We are the first in South Africa to combine alternative asset classes together with traditional asset classes inside of bespoke portfolios for our clients. This provides our clients with a unique diversified portfolio which includes best of breed long-only strategies and award-winning hedge fund strategies.

Please feel free to contact us and one of our consultants will assist you with setting up your investment.

Contact us

Optimising this Phase

At about 70 years old, the majority of people would have stopped working and most desire slowing down in life, being comfortable and content. To remain active and relevant, you can volunteer to help out where the need arises or serve a mentoring role within the community, sharing your skills and experience. Pursuing your hobbies and enjoying time with friends and family (especially the grandchildren) can all be done at your own pace and leisure.

Phase Challenges


Money Must Stretch
If you have “officially retired” it means that you will not be receiving an active, regular income (except if you receive money from another pastime) and you would be reliant on your retirement savings to provide a sustainable flow of income. It is crucial to ensure that your retirement savings are invested in the most constructive investment portfolios, to provide capital protection and optimal growth opportunities. Furthermore, have a good understanding of how long your money will last and plan accordingly.

Frequently Asked Questions

The below includes engaging material to help you navigate this phase and make wise
financial decisions that your future self will thank you for.

Ensuring that your retirement savings will last for your lifetime is, from a financial perspective, a key aspect to consider. You will need to consider a number of factors, such as: the amount of income you withdraw to fund your lifestyle, how long you live, the return on your retirement portfolio, any taxes payable and the risk of inflation. Inflation risk is often overlooked and by definition means that the "actual value" / "buying power" of your investment returns will be reduced by increasing inflation. This will especially pose a threat to your retirement savings if the return generated by your investment portfolio(s) does not out-perform the inflation rate, as you will gradually draw down on your capital until you eventually run out of money.

Make sure that your retirement plan and portfolio are well-constructed to protect your capital, whilst achieving much-needed growth.

Fairtree is the first in South Africa to blend traditional long-only unit trusts together with alternative asset classes like hedge funds and commodities. Our Personalised Income Portfolio (PIP) Strategy allows for monthly withdrawals and long-term capital growth simultaneously. This allows for safe short-term income withdrawals to take place without disrupting the overall portfolio’s growth for the long term. The portfolio is divided into three parts, one-part income and two-parts growth, each serving a different purpose to maximise capital growth, increase investment longevity and sustain income for as long as possible. This portfolio is designed to rebalance once the income part needs to be replenished.

Watch our video on Post Retirement Strategy here.

View our Living Annuities section 

This is a very difficult question to answer and will be based on your specific scenario and certain assumptions: what is your current age and your life expectancy, how much retirement capital do you have available, what is the rate of return on your investment portfolio, how much would you need to withdraw every month to fund your lifestyle, what is the rate of inflation and so forth. A cash flow calculation will give you a good idea of how long your retirement savings will be able to provide you with a sustainable income.

Fairtree is the first in South Africa to blend traditional long-only unit trusts together with alternative asset classes like hedge funds and commodities. Our Personalised Income Portfolio (PIP) Strategy allows for monthly withdrawals and long-term capital growth simultaneously. This allows for safe short-term income withdrawals to take place without disrupting the overall portfolio’s growth for the long term. The portfolio is divided into three parts, one-part income and two-parts growth, each serving a different purpose to maximise capital growth, increase investment longevity and sustain income for as long as possible. This portfolio is designed to rebalance once the income part needs to be replenished. A combination of our award-winning hedge funds has been included in the third growth portion of the portfolio. There is also a third growth portion option that holds long-only unit trusts rather than hedge funds, should that be your preference.

Watch our video on Post Retirement Strategy here.

View our Living Annuities section 

A Living Annuity is a post-retirement product and is available to you if you’re retiring from a Pension Fund, Provident Fund, Preservation Fund or a Retirement Annuity. It is essentially an investment in your name, which will pay you a regular income (which is taxable), whether monthly, quarterly, bi-annually or annually. You have the flexibility to set your income amount on an annual basis, however legislation permits withdrawals only within a certain band. This is to protect investors from depleting their retirement funds too quickly and being left without any financial means.

Living Annuities are very attractive as you can decide on the investment composition within the product without being restricted in terms of asset class exposure, jurisdictions and so forth, giving you the freedom to invest as conservatively or aggressively as you’d like. In the event of your death, the capital can be left to your nominated beneficiaries without attracting any estate duty.

Please feel free to contact us and one of our consultants will assist you with setting up your investment.

Contact us

Our Blogs

Our Videos

The Difference between Retirement Funds, Retirement Annuities and Group Retirement Annuities

What is a Platform?

Fairtree What is a Wrap Portfolio

Investment Planning

We all have financial goals we wish to achieve in life, whether it’s saving for a dream holiday, funding our children’s education, starting a small business, buying a home, retiring comfortably and everything in between.

Sound investment planning enables you to attain your financial goals by matching it with your available financial resources.

Further benefits of investment planning:

Align your goals with your values. Make wise investment decisions and achieve better outcomes. Increase your level of commitment and motivation. Track your progress. Manage your expectations during turbulent economic cycles.

If you are new to the world of investments, the below process will enable you to start a seamless investment journey. If you are an experienced investor, you can select your own investment products and solutions. Should you have any questions or require assistance in setting up an investment, our team of investment consultants and specialists would love to assist you.

  • Start your investment journey
  • Set your financial goals
  • Select suitable investment products
  • Choose appropriate investment solutions
  • Implement and review

If you are new to the world of investments, it might seem like navigating your way through a dense financial forest: overwhelming and somewhat intimidating. There would be different routes to take, uneven terrain and unusual elements lurking in the shadows.

Learn more about starting your own investment journey, conquering this unfamiliar ground and growing your own financial forest.

The Fairtree Financial Forest

  • Soil (financial reality, including “emotions” and “values”)
  • Seed (money personality)
  • Roots (financial literacy)
  • Unpacking spending/ budgeting
  • Basic investment concepts (what is an investment, contributions, time and patience, compound growth, including certain projections, risk and return).
  • Saving versus investing.

Educational Material

Download material

Setting financial goals begins with identifying what is important to you in life. Whether it is a desire to grow and advance your career through furthering your studies, buying a house to create a place of safety and stability for your family, traveling overseas or saving for a comfortable retirement so that you can spend time with your grandchildren.

Like with goal setting in general, financial goal setting also involves identifying a specific objective, which is measurable, attainable, realistic and linked to a certain time horizon.

A few examples could be the following:

Short (0 – 36 months)

- Emergency Fund
- Plan a holiday or travel overseas
- Buy furniture for your apartment
- Saving for your wedding

Medium (3 – 7 years)

- Buy a new car
- Save towards buying a home
- Starting your own business
- Further your studies

Long (7+ years)

- Provision for your children's education
- Setting yourself up for retirement
- Create wealth over time

To lay out your financial goals we have provided you with a Goal Grid document to help you write down your financial vision clearly.

View our Financial Goal Grid pdf here.

Once you have identified your financial goals, the next step would be to select suitable investment products for your goals.

Investment products are also referred to as investment vehicles and are in essence “containers” that house an investment strategy or solution. Each investment product is governed by different pieces of legislation, rules and regulations, which determine how the product must function pertaining to contribution limits, access to the funds, tax, asset class exposure and so forth.

To select a suitable investment product, you must look at certain aspects of your financial goal as you need to match it with the characteristics of the products: time horizon to invest, reason for investing, liquidity, how much you want to invest, level of risk provided for and so forth.

Most popular investment products:

Unit Trust

Tax-Free Investment

Bespoke (Structured Note, Offshore, etc)

Endowment

Retirement Annuity

Pension / Provident Fund

Preservation Fund

Living Annuity

Table of comparison on products

To assist you in matching your financial goals to a suitable investment product the below table has been included:
Financial Goal Investment Product
Emergency Fund, plan a holiday or travel overseas, buy furniture for your apartment, save for your wedding, save towards buying a home, buy a new car, start your own business, further your studies, provision for your children's education. Unit Trust
Setting yourself up for retirement Retirement Annuity, Pension Fund, Provident Fund, Preservation Fund
Create wealth over time Tax-Free Investment, Unit Trust, Bespoke Products, Endowment
Provide post-retirement income Living Annuity

The above are only examples and must not be perceived as financial advice. Furthermore, this is not an exhaustive list and only certain options are highlighted, as traditionally used across the industry. For instance, unit trusts can also be used to save for retirement.

Educational Material

Once you have selected your investment product(s), you need to choose the most suitable investment solution to “fill” the product(s) with. Remember that the product is only the “container” and the investment strategy / solution would provide the actual substance.

The composition of the investment strategy / solution will determine the performance of the investment, as the solution is a collection of investment assets. These assets which are invested in, are responsible to generate the actual return on the investment.

Asset classes

Investment assets are divided into asset classes, based on similar characteristics and behaviour in the market, whilst being governed by the same laws and regulation. Watch our video on Asset Classes here. 

The most widely recognized asset classes:
Cash and cash equivalents
Fixed Income (Bonds)
Property
Equites
Alternatives

Asset allocation

How these asset classes are blended together within your strategy / solution is the biggest driver behind generating poor or good returns. This is called asset allocation and refers to the ratio / percentage each asset class holds, for instance: 50% equities, 20% property, 20% bonds and 10% cash. YPG Session 3 video

The risk-return characteristics of the various asset classes cause a “risk-return trade-off”. The higher the risk, the greater the expected return. Creating an efficient portfolio means that ideally, you want the asset allocation to generate the highest return for the least possible risk taken.

Since different assets have different risks and market fluctuations, proper asset allocation insulates the entire portfolio from the ups and downs of one single class of assets.

Combining Different Assets

The assets that a fund / portfolio is invested in, will also reveal the suitability of the solution as each asset class has its own qualities and the combination of asset classes are carefully considered by portfolio managers. Medium to long-term funds / portfolios will have a much larger exposure to equities and property, compared to short-term funds / portfolios, as they are growth assets and carry a higher risk profile. Funds / portfolios geared for the short-term will consist mainly of interest bearing and fixed income instruments, as growth assets (like equities and property) are too volatile.

Diversification
Diversifying across different asset classes, jurisdictions, industries, companies or sectors brings down the risk of a portfolio and ensures that “not all is lost” when for instance a specific sector plummets. True diversification is therefore measured when looking at correlation – how did the different assets behave in relation to one another? YPG Session 3 video

Correlation
Correlation examines the relationship between various assets and how they move in relation to one another. In other words, we can predict the movement of one asset by looking at the movement of another asset. There are different correlations: the assets can move together exactly, move similarly but not exactly the same, the movement of the one is not influenced by another asset, they move totally opposite and lastly, opposite movement but not exactly opposite.

A well correlated portfolio is key to successful investing and generating a good return, without taking any unnecessary risk. Watch our video on Correlation here.

How all of this comes together to choose an appropriate investment solution
Portfolio managers are experts in picking and blending financial securities and it’s their responsibility to construct solutions that will provide the best possible return, for the least amount of risk taken.

This makes matching an investment goal with a fund or portfolio easier as an investor needs to take only the few below factors into account:

Investment Horizon and Risk
Time in the market and risk goes hand-in-hand: you can take more risk over the long-run as your investment will have time to recover from periods of high volatility. Therefore, funds and portfolios with risk profiles of “high” / “medium to high” will have investment horizons of 5 years and longer. On the other hand, funds / portfolios with investment horizons of 1 – 3 years, will typically have a “low” risk profile. If you’re saving for a trip overseas in 24 months from now, it would be unwise to invest in a fund that has a “high” risk profile with an investment horizon of 7 years.

Investment Objective
Each fund / portfolio will have a specific investment objective, whether it’s providing a high level of income, protecting or preserving capital and providing investment stability, or seeking aggressive growth over the long-term. This will be a good indication of whether your goal aligns with the specific fund or portfolio. If you are 40 years of age and saving for retirement, you would need an investment solution that is aimed at growth, not providing an income or promising low volatility in the short-term.

Return / Performance
The historic performance of the fund / portfolio should never be the primary reason for selecting it. Historic performance is not indicative of future performance and investors are often disappointed if the investment’s return does not meet or exceed their expectations. If the portfolio manager’s investment strategy is sound, good performance will follow. It is however worthwhile to compare the fund’s / portfolio’s performance with its benchmark to determine whether it’s tracking well and not constantly underperforming.

If your investment goal matches the characteristics of the particular fund / portfolio, you can consider it a suitable solution.
To find out more about our unique investment solutions, visit our Investment Management Section

Take action and implement your investment plan

Once you have decided on your investment product(s) and solution(s), you can implement your choice by opening the investment account(s