Investment Planning
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Important Principles To Follow When Investing!
- Know Yourself
Before you begin investing, you need to know your goals. You should have well-thought-out goals. Goals are critical to knowing yourself, because they will help you understand what you are trying to accomplish with your investment.
Investment Planning Products
- Endowment Policy
- Guaranteed Investment Plan
- 5 Year Investment Plan
- Unit Trust Linked Investment Plan
Risk Profile Description And Features
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Know Yourself!
Before you begin investing, you need to know your goals. You should have well-thought-out goals. Goals are critical to knowing yourself, because they will help you understand what you are trying to accomplish with your investment. As part of knowing yourself, you need to know your budget. You cannot invest without funds. You also need to understand your ability to tolerate risk, because this ability will determine what kind of an investor you are. You want to develop a “sleep well” portfolio – a portfolio that is planned, so that even when investments go wrong, as they sometimes do, you can still sleep well at night.
Understand Risk
Risk is inherent in all investment activities. Some risks include inflation risk, business risk, interest-rate risk, financial risk, market risk, political and regulatory risk, exchange-rate risk and liquidity risk. The key to managing risk is understanding the different types of risk, and investing at a risk level that is comfortable for you. It is critical for you to find the risk level at which you are most comfortable.
Stay Diversified
Diversification is your best defence against risk. You should invest in a variety of assets and asset classes. Diversification does not mean investing in ten different banks. It means investing in different companies, industries, and perhaps even countries. Bank shares will all tend to go up and down together. To truly diversify, you need to invest in different industries, and perhaps countries that will not be subjected to the same economic factors or risks. Make sure you understand the risks of each of your investments. Investing is risky and uncertain: minimise risk by diversifying your portfolio. All our product providers have risk profiled managed funds, which are managed by experienced fund managers. These risk profiled funds could be the best solution for the not so experienced investor, as these funds are not only managed according to your tolerance towards risk, but you have peace of mind that your money is in a diversified investment managed by professionals.
Invest Low-Cost and Tax-Efficiently
Watch your costs very carefully, including management fees and taxes. Remember that regarding investment, a rand saved is worth more than a rand earned; this is because while you have to pay taxes on every new rand you earn, every rand you save is already taxed, and can earn interest on income. It is not the amount of money you make, but the amount of money you keep after costs, taxes and inflation that makes you wealthy.
Invest for the Long Run
Invest for the long run: this is how you will achieve your goals. Invest wisely: there are no “get-rich-quick” schemes that work, and short-term investing is expensive in terms of time, transaction costs, and taxes. Keep at least part of your funds in the market for the long run. Keep in mind, that taking money out of the market, as well as discontinuing saving, may not only slow your progress but could stop it altogether.
Use Caution If You Are Investing in Individual Assets
If you must invest in individual assets (and this is not a given), know what you are investing in. Do your homework. If you do not have the time to research individual investments, invest in unit trust funds that have many individual assets. Know who you are investing with. Make sure you invest with unit trust companies that have built a tradition of meeting the needs of their investors. Work with good companies that have good products. Be very careful with your money, and invest it wisely, considering all the principals of investing.
Invest Only with High-Quality, Licensed, Reputable People and Institutions
When you need help, do not be afraid to ask for it. But get help from good people, whose actions and beliefs are consistent with the principles discussed. Good help, from qualified, licensed, and experienced financial planners, financial advisors and brokers, may help you in your investment plan. Use the best resources available, but be aware of how those resources are compensated. In addition, make sure advisors have the required licenses to counsel you on the broad range of investment assets you are (and should be) considering. Work only with licensed and registered advisors. In some circumstances, fee-only financial planners or advisors may be a better choice than financial planners or advisors that are paid on commission.
Develop a Good Investment Plan and Follow It Closely
Complying to the principals discussed above, you can develop a good investment plan that is consistent with your goals and your budget. Follow this plan closely. An investment plan is a detailed road map of your investment risk and return, constraints and investment strategy.
| Definition and Main Characteristics | The investor’s chief goal is a stable level of income and capital preservation. The investor does not plan to draw an income of more than the annual investment return. The capital is not guaranteed. The growth might not out-perform inflation. |
| Capital Growth | Capital Preservation |
| Short term volatility & risk appetite | Expect stability with minimal capital movement – low risk appetite |
| Investment Portfolio | Very Low Equity component (5% – 20%) |
| Income generation | Very important |
| Personal circumstances | 70+, retired & drawing an income or short investment horison |
| Main objective | Regular income & capital preservation |
| Investment Term | 2-3 years |
| Withdrawals requirements | Consistent income required throughout total investment term |
| Expected return over full term | Inflation plus 1% – 2% |
| Income & Capital gains | Only income distributions |
| Best expected return over 1 year | As high as 15% in a good year |
| Worst expected return over 1 year | Can under perform money market in a bad year |
| Definition and Main Characteristics | A cautious investor needs a regular income with capital preservation as well as some capital growth. Stability in the investment is important. The investor chooses reasonable earnings over riskier investments. |
| Capital Growth | Capital preservation with some growth expectations |
| Short term volatility & risk appetite | Capital will only show movement over short term – low risk appetite |
| Investment Portfolio | Low Equity component (0% – 40%) |
| Income generation | Very Important |
| Personal circumstances | ±60, close to retirement or recently retired |
| Main objective | Regular income with some capital growth |
| Investment Term | 3-5 years |
| Withdrawals requirements | Some income required throughout investment term |
| Expected return over full term | Inflation plus 3% – 4% |
| Income & Capital gains | Mostly income distributions |
| Best expected return over 1 year | 15 – 20% in a good year |
| Worst expected return over 1 year | Can underperform money market in a bad year |
| Definition and Main Characteristics | This investors primary investment goal is to grow the underlying capital. Require inflation beating capital growth and little to no income. The investor is not worried about short term fluctuations but not the maximum drawdown. |
| Capital Growth | Reasonable but stable growth |
| Short term volatility & risk appetite | Some fluctuations – moderate risk appetite |
| Investment Portfolio | Medium Equity component (40% – 65%) |
| Income generation | Moderate priority |
| Personal circumstances | ±50, employed, steady stream of income – growth important |
| Main objective | Inflation beating capital growth & low level of income |
| Investment Term | 5 years + |
| Withdrawals requirements | Low income required but ad hoc withdrawals probable |
| Expected return over full term | Inflation plus 5% – 6% |
| Income & Capital gains | Combination of income distributions and capital gains |
| Best expected return over 1 year | As high as 35% in a good year |
| Worst expected return over 1 year | As low as -10% in a bad year |
| Definition and Main Characteristics | Investors needs good capital growth with little or no income. The investor can handle market volatility. The type of investor is willing to take a degree of risk for higher earnings. |
| Capital Growth | Expect good capital growth |
| Short term volatility & risk appetite | Accept moderate capital fluctuation – fair deal of risk |
| Investment Portfolio | High Equity component (60% – 75%) |
| Income generation | Low importance |
| Personal circumstances | Younger with at least 20 years to retirement |
| Main objective | Moderate – High capital growth with little to no income need |
| Investment Term | 7 years + |
| Withdrawals requirements | Opportunistic withdrawals at the right time |
| Expected return over full term | Inflation plus 7% – 8% |
| Income & Capital gains | Mostly capital gains |
| Best expected return over 1 year | As high as 45% in a good year |
| Worst expected return over 1 year | As low as -15% in a bad year |
| Definition and Main Characteristics | The investor needs aggressive capital growth. The term of the investment is usually 10 years + and no access to the capital is required. Investors are more comfortable with short-term capital volatility because they not require immediate access to the capital. |
| Capital Growth | Expect high capital growth |
| Short term volatility & risk appetite | Expect high capital fluctuation over the short term with a high level of risk |
| Investment Portfolio | Very High Equity component (75% – 95%) |
| Income generation | Low importance |
| Personal circumstances | Young with 20 years+ to retirement or with excessive capital to invest for long term growth |
| Main objective | High capital growth & no income |
| Investment Term | 10 years + |
| Withdrawals requirements | No capital required over investment term |
| Expected return over full term | Inflation Plus 9% – 10-% |
| Income & Capital gains | Only capital gains |
| Best expected return over 1 year | As high as 55% in a exceptional year |
| Worst expected return over 1 year | As low as -20% in a bad year |
Features of an Endowment Policy
Your Payment
Achieving your life goals can start with as little as R250 per month for an investment term of 10 years or longer, or R400 per month for an investment term shorter than 10 years. The minimum lump sum is R10,000. Or you can choose a combination of a lump sum and recurring payments, in which case the minimum lump sum is R2,500.
Term
After the initial term (minimum five years) your investment continues open-ended, which means that you can continue your investment until you eventually decide to claim the proceeds.
Tax
Your lump sum payout, at the end of your investment term, is currently tax free in your hands. The insurance company pays the income and capital gains tax of the plan.
Guarantees
If you are a conservative investor who prefers a low-risk investment, some of the endowment plans that we offer have a range of portfolios with investment guarantees, so that your money is protected during times when the investment markets are volatile.
Surrender, Partial Withdrawal
Subject to the conditions under Section 54 of the Long-Term Insurance Act, the following apply and loan during the initial period of 5 years:
The surrender value or loan value is limited to the once-off payment amount(s) plus 5% interest compounded annually. The balance plus investment growth will be paid at the end of the restricted period of 5 years. Only one partial withdrawal and one loan is allowed.
Benefits of Endowment Plans
Expert Management
Your money is in safe hands. The big brand product providers, the financial planners represent, have skilled in-house and external fund managers, putting years of knowledge and experience to work for you, to make sure you earn the maximum possible growth.
Transparency
You are informed upfront of all the fees and costs involved in your investment. You will also receive regular information on how your investment is performing.
Safeguarding Your Investment
Your appointed beneficiary will receive the death benefit on your investment, in the event of your death.
Switching Your Investment
The investments the financial advisors offer you on this webpage, give you complete flexibility to switch from one investment portfolio to another, should your needs and circumstances change.
The Benefits of this Investment are:
Income and/or return is guaranteed. Simple and easy to understand.
Different Types of Guaranteed Investments
Guaranteed Income
The Guaranteed Income Investment provides a guaranteed income for a chosen term.
Features
- Optional purchases only;
- Chosen term can be from 5 up to and including 15 years;
- Income monthly or annually in arrears;
- Optional yearly income growth at a specified rate between 5% and 10%.
Guaranteed Income with Guaranteed Return
The Guaranteed Investment is a combination of a Guaranteed Income Investment and a Guaranteed Return Investment. It provides a guaranteed income for 5 years, and aims to pay the initial purchase sum after 5 years.
Features
- Optional purchases only;
- Income monthly or annually in arrears;
- Optional yearly income growth at a specified rate between 5% and 10%.
Guaranteed Return
The Guaranteed Return aims to provide a guaranteed amount after 5 years.
Features
- A guaranteed lump sum at the end of the 5 year term.
Features of a 5 Year Investment Plan
Investing in 5 year investment plans, of big brand product providers, brought to you by financial advisors found on this website, has a few common features.
Age At Entry
Entry ages start from a minimum age of 1 next birthday right up to a maximum of age 90 next birthday.
Initial Once-Off Payment Amount
Although the minimum investment amount varies between companies, the average minimum initial amount is around R100,000.
Cessions
The investor may cede this plan.
Initial Term
Normally 5 years, and open-ended thereafter. This means that the fund value will not be paid out automatically after the initial term of 5 years has expired, but that the plan will continue until it is terminated by the investor or by us, if this product is no longer available for new business. In the latter case, the investor will be provided with the various options then available.
Surrender, Partial Withdrawal
Subject to the conditions under Section 54 of the Long-term Insurance Act, the following apply and loan during the initial period of 5 years: The surrender value or loan value is limited to the once-off payment amount(s) plus 5% interest compounded annually. The balance plus investment growth will be paid at the end of the restricted period of 5 years. Only one partial withdrawal and one loan are allowed. If a partial withdrawal has been made, the plan may not be terminated during the restricted period.
Benefit Payable at Death
Normally, the benefit amount is equal to the fund value, on the date that the company receives notice of the death of the (last surviving) life insured.
Taxability of Benefits
Gross investment returns are subject to life office taxation. The effective rate depends on the asset composition of the underlying investment funds. According to current practice the returns of the investment will not be taxable in the hands of the investor.
Why Invest in an Investment Plan?
What You May Need:
- An investment product tailored to your needs;
- Assurance that the investment choices of your financial advisor are based on reliable research;
- Flexibility in the amount you put in and take out of your investment;
- Transparency and access to information about the investment.
What the Investment Plan Offers
You can choose from a wide range of underlying investments, giving you the ability to customise your investment to your circumstances and risk profile.
The big brand product providers we represent, do ongoing evaluations of the underlying collective investment funds available on their platforms, and give the financial advisors the support they need to make informed investment decisions.
Your contributions are flexible, and you have easy access to your funds.
You receive a comprehensive investment report, which allows you to complete your tax returns easily.
Features of the Investment Plan
Contributions
You may invest:
- A lump sum, with or without recurring investments;
- Recurring amounts;
- Ad hoc amounts.
Investment Term
There is no minimum or maximum term. A term of at least three years is recommended, to reduce the effect of short-term market changes.
Investment Risk
There is no investment guarantees. Your choice of underlying investments allow you to customise the risk level of the investment.
Switches Between Funds
There are normally no administration fees when switching between underlying funds, but some funds may charge initial fees.
The Structure of the Investment
The product providers we represent bring together respective collective fund managers, and a wide range of solutions. There is an almost infinite number of combinations available, and the direct financial advisor or a financial advisor in your town, will be able to assist you to structure your portfolio according to your individual risk profile.
Local Collective Investment Funds
Our product providers offers an extensive range of collective investment funds, which are managed by respective companies such as Sanlam, Investec, Allan Gray, Coronation, Old Mutual and other niche asset managers.
Risk-Profiled Managed Funds
If you prefer not to keep track of markets yourself, you can choose from a range of risk-profiled funds on the product providers’ platforms. These funds are diversified across different asset classes, and are managed by both single and multi-managers.
Shares and Other Underlying Investments
The product providers also offer a range of shares and other financial instruments. These portfolios may include instruments such as exchange traded funds, which track indices on the JSE Limited. An experienced and qualified stockbroker can manage your portfolio and trade on your behalf, according to your instructions.
Tax and Fees
Tax
Income Tax
Income distributions from collective investment funds may be taxed up to a certain limit.
Capital Gains Tax
Capital gains or losses occur on the disposal of an asset. Disposals also include selling or switching units within an investment.
Fees
Product Providers’ Fees
Administration fees (no administration fees for switching between underlying funds).
Other Fees
- Asset management fees for managing and trading the investments;
- Financial advisors’ fees (negotiable with the advisor).
Access to Funds
Regular Withdrawals
You decide the amount and the frequency for regular withdrawals – monthly, quarterly, half yearly or yearly.
Ad Hoc Withdrawals
You may make ad hoc withdrawals at any time.
Estate Planning
If you pass away, the investment will form part of your estate, and estate duty may be payable.
Send us a message
To apply for access to a record, kindly complete Form 2 and email it to admin@jpebrokers.co.za.
Once we have reviewed your request, JPE Brokers will provide you with Form 3, confirming the outcome of your application as well as any fees that may be payable.