In this post we wish to share some of our favourite financial product solutions and strategies.
1. The Power of Rand-Cost Averaging – Drip-feeding money into an investment to get a better average price and smoother return
Basically, instead of braving the virtually impossible task of perfectly timing an entry into the markets, an investor could phase, say R1mil, into the markets over 12 months.
This is a great way to invest in a market that is falling or riddled with uncertainty… The goal here is to look back over time and realise that your average cost of buying was fairly low. Buying at lower prices is one way to get great returns. Another way is patience and letting the market work its magic.
More often than not, retail investors lack the vision to phase a lump sum in over time, however clients who invest via monthly debit orders are, albeit unknowingly, benefiting from this power of Rand-Cost Averaging.
2. Discovery’s Cash Conversion
This is an investment solution linked to your Vitality status and amount of Life Cover. The returns you can achieve can range anywhere from 5% p.a. up to 22% p.a.
As an example:
You have R10mil life cover…You can have qualify for Cash Conversion of up to 40% (R4mil).
If you were 65 today you would receive your first R1mil, and then three further R1mil instalments at 69, 73 and 77.
Your life cover and your minimum tax-free payout of R4mil, due from age 65, will grow based on your Vitality Status. Furthermore, these Cash Conversion payments do not reduce or impact your life cover.
We are big fans of this solution as it helps a lot toward retirement funding and isn’t dependent on market performance. In other words, it adds powerful diversification to any person’s portfolio, given that we are all very much dependent on the market and the economy for our returns.
Our main caveat is that you should not take it out if you intend to cancel the policy before retirement because if you cancel your policy early, you will lose all contributions. But with this in mind, we feel that most policyholders intend to hold their policies for life (at least to age 65) and so this product could enable a genuine win-win scenario
3. Discovery Paid Up Standard – Another way of reducing stress in retirement
Discovery offers a solution where clients can be spared the onerous responsibility of paying their life cover premiums for whole of life. As advisers, we often come across policyholders whose life premiums have become so expensive, as they grow older and live longer, that their premiums have been likened to the responsibility of paying monthly bond instalments.
Using Paid-Up Standard, like most good financial products, requires foresight and a long term mindset. Essentially, your premium will be more expensive for a while (say 10 years or so) and then from age 65 or 20 years after taking out the solution*, your life cover premiums fall away and your cover amount remains fixed for life.
We understand that it may not be ideal for cover to remain fixed from age 65, but we find that many people can’t really afford the additional expense in their later years and, hence, are at risk of losing all their hard earned life cover by having to cancel the entire policy or, at least, reduce cover substantially.
For many, the plan should be to have life cover to settle some debt, provide liquidity for taxes and also leave a legacy when winding up their estate.
*Assuming you added this to your policy at age 45 or older.
4. Your Last Will and Testament
As you know, most of our work is all based on future preparation such as how long will my money last (Investment planning) and what if an event impacts the ability for me to provide for myself and my family (Insurance Planning). In this regard, there is another vital financial planning aid which a surprising number of people continue to overlook – Your Last Will and Testament.
Your Will is the blueprint of your legacy planning. It is the directive which must be followed by the executor of your estate to be enforced by The Master of The High Court; and without it, you can be rest assured that; at best, any specific wishes will be ignored and, at worst, your most important dependents will be left at a loss.
Your Will is also a financial planning document in that, if carefully considered, can help save your estate from plenty of cash flow and liquidity risks.
With the above in mind we implore you to make contact with us. We have a range of cost effective solutions (from templates to attorneys) and can point you in the right direction based on the complexity of your wishes. Jonathan and I, both have the Post Graduate Diploma in Financial Planning and as such are able to be a powerful ally to practitioners who, at times, don’t consider the most tax effective structures.
If you already have a will and wish to keep us in your circle of trust, you can send us a copy so that we can have a look, share some insight and perhaps just get to know you and your plans a bit better.
To conclude, Kanan Wealth is here to help and discuss the various ways we can help you live your best life, with financial affairs being the least of your concerns.
Keep in touch and we look forward to your queries, concerns, and novel ideas.
Stuart and Jonathan