“Street Notes” – February 2021
Quote of the Month
“Not everything that counts can be counted and not everything that is counted, counts.”
– Albert Einstein
January a promising start to the year
SA Equities, as measured by our FTSE/JSE All Share Index, had an extremely strong start to 2021. The one-year return is starting to look much better albeit off a low base. The disparities in our local equity market though are substantial. Industrials and Financials which are really the barometer of our economy are still struggling over the 1-year period, down 12.7% & 17.4% respectively. The Basic Material sector though is up 31.8% over the last year. It goes to prove that there are still sectors of our market where a very decent return can be made.
Diversification is the name of the game when these “crocodile jaws” start to open up between the various sectors.
A great example of these crocodile jaws opening and closing shut over a short period has been the current Rand/Dollar exchange rate. From massive depreciation in March 2020, we now see that the one-year comparison between these 2 currencies viewed in the table above is now firmly shut.
Globally, all eyes were on the US Capitol as President -elect Biden took over the reins from Trump and revealed details of his economic stimulus, infrastructure, climate change and other plans. Personally, I really like the guy and how he has gone about doing things in his life. Despite the vitriol Trump threw at him, I think his way of being will be a breath of fresh air for the US and the world. I have recently listened to his audio book called “Promise me Dad” where Joe Biden narrates the tragic story of watching his son Beau Biden die of a brain tumour while he was serving as Vice-President under Obama. This was not the only tragedy in his life as his 1st wife and daughter were killed in a car crash. His wish and belief were for Beau to be President one day. He certainly knows about overcoming tragedy and hardships.
On the global market side, global equities did take a breather in January as the vaccine-led cyclical recovery stumbled on the emergence of more contagious and more virulent Covid-19. Notably we witnessed a swing from developed markets to emerging markets, led on by China. China will probably be the only nation to report positive GDP growth in 2020.
Return on Life
You Only Live Once (#YOLO), So Plan Well.
Since the end of January, #YOLO has been a rallying cry on internet message boards, where amateur investors have driven up stock prices for video game retailer GameStop and movie theatre chain, AMC. And while everyone should have opportunities to build wealth via the markets, I believe this particular group of rebels are only half-right about their investment strategy.
It’s true that “you only live once,” and you need to make the most of the financial opportunities available to you. But that’s exactly why I prefer measured, long-term financial planning to short-term speculation.
How much can you earn? How much could you lose?
Setting aside the larger implications of #YOLO for our financial system, let’s focus on the individual.
Yes, some GameStop and AMC investors are cashing out large multiples of their initial investments. But many others are letting their investments ride, hoping for even greater returns. Others who came late to the party have bought these stocks at much higher prices than the original investors did. If enough current holders decide to cash out quickly, the price of these stocks will fall dramatically. The losses for some investors could be catastrophic, especially young people who are betting their rent money or emergency savings.
Also, while we generally support people getting more interested in investing, managing your finances using apps and message boards isn’t foolproof. A second wave of investors who thought they were joining the movement to boost AMC Theatres, mistakenly purchased stock in the AMC television network. It’s doubtful that misclick is going to pay off.
What’s your plan?
Rather than debate the merits of those motivations, let’s think about all the things that aren’t on that list of reasons to #YOLO:
- Buying a new house.
- Sending your kids to university.
- Paying down debt.
- Topping up your RA.
- Starting your own small business.
- Supporting an infirmed parent.
- Saving for a dream family vacation.
- Moving to your ideal retirement destination.
If there are individual companies that you want in your portfolio, we are happy to help you assess potential investments and make informed decisions. But our big-picture strategy is much bigger than any one stock or any one market fluctuation. Instead, we structure your Life-Centred Financial Plan to meet the goals, challenges, and transitions that you and your family will face throughout every stage of your lives.
We’d also love to help your family’s next generation get a head start on their planning as well. If your kids or grandkids are asking you about #YOLO or have a new interest in finance, let’s schedule a group meeting or video call to keep their allowance money pointed in the right direction.
Pic of the month –
A Close Encounter!
Last month I asked clients to submit photos for our Pic of the Month section. I know that I have some really excellent amature photographers in our client base, so I was excited to see what we were going to get in.
The amazing photo above was part of a series taken by client Eugene Kleynhans. His story is below:
“While enjoying a hot cup of coffee under a shady umbrella tree alongside the crocodile infested Shingwedzi river in the Kruger Park, I spotted a lone zebra slowly making its way to the waters edge and knew instantly that it had come to the wrong place at the wrong time. As the Zebra approached, so too did one of at least a hundred crocs. I grabbed my Nikon, set it to 12 frames per second, then, just as the Zebra lowered its head to get its lips wet, saw the croc lunge. This was the 3rd last photo in an action filled sequence of about eight, that thankfully shows how the Zebra only just barely managed to escape.”
Eugene did tell me that this photo came from a 10-day trip he took on his own to the Kruger, travelling from the extreme southern point to extreme northern point. He spent 2 days at 5 camp sites. He loved this trip so much he has done it twice and the interactions we have had recently about this photo, has spurred him on to seriously think about doing it a 3rd time!
Thank you, Eugene! Looking forward to the photos from your next trip. Please feel free to send in your interesting pics with a story.
Tip of the Month – Emigration Withdrawal from Retirement Annuities and Preservation Funds
Over the last couple of years, I have had many enquiries from family, friends and clients living temporarily or permanently overseas, to ask me what options they have with their SA Retirement Annuities (RA’s) Pension Preservation funds and Provident Preservation funds prior to them reaching retirement age.
The current situation:
Up until now (changing from 1 March 2021), SA ex-pats have been only able to make a full withdrawal (subject to withdrawal tax) in the event that they have formally emigrated from South Africa and such emigration was recognised by the SA Reserve Bank (SARB). Emigration, in my experience, has been the least followed journey for South Africans who move overseas as there is a Capital Gains Tax (CGT) burden on their worldwide assets on formal emigration, so many South Africans living overseas who have not emigrated, have been unable to access their retirement funds prior to retirement age.
Situation as of 1 March 2021:
Now that President Ramaphosa has signed the Taxation Laws Amendment Act into law, effective 1 March 2021, the situation has changed. The result is that members of RA’s and Preservation funds will be able to take full withdrawal (subject to withdrawal tax) when a member ceases to be a South African tax resident and has remained non-tax resident for a period of at least 3 consecutive years. The intention with the change is to de-link the ceasing of tax residency from SARB emigration.
The consequence is that from 1 March 2021, retirement benefits will be locked in a for a minimum period of 3 years. How the new system will practically work, is yet to be set out.
If you require further information, please contact your tax consultant alternatively, we can arrange for a consultation with a specialist for you.