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Business owners are wealthy, aren’t they? Most of them are in terms of equity in their own business, their main focus. But personal finance as a business owner goes much deeper and that’s where we’ve seen neglect. Here are two of the biggest mistakes I’ve seen business owners make with their personal finances: Neglect personal finances: Businesses need cash to expand. And all too often, the decision is made to invest all the cash back into the business instead of using a portion to expand personal portfolios. The thinking is always: “expanding the business will provide higher future income”. But this cycle only continues and compounds the personal finance neglect. We see business owners start planning for retirement after building the business their entire life. The retirement plan is to sell the business, but there is no buyer and no personal investment portfolio to fall back on. Insurance overcontribution: Life insurance will most definitely provide for loved ones on your passing and protect your finances against disability and illness. It’s a crucial part of financial planning and the first step towards moving toward financial certainty. But big insurance premiums will not bring you closer to financial freedom. I don’t blame you, there are many financial advisors who use business owners as an opportunity for large premium policies with large upfront commissions. Life insurance should be anchored in financial planning principles, only take out cover for the need identified through comprehensive analysis. Business owners understand risk, and to not diversify your own retirement income is a mistake you’ll come to realize when it’s too late. There can be a healthy mid-point between investing back into your business and investing in your personal finances. We often forget that financial planning provides solutions to problems around tax and estate planning, it’s not merely about insurance and investments. From operational effectiveness to successful distribution, business owners need to prioritize their time. Making it extremely important to have a trustworthy Wealth Manager who can effectively navigate the pitfalls and challenges of a successful business owner’s personal finances. What steps can you take with your Wealth Manager? Review your personal budget. Assess your level of risk and only cover what’s needed. Do a stock take of your investment portfolio. Set financial goals and allocate funds from your budget to reach them. Ruvan J Grobler RFP™ (PGDip Financial Planning)

After the COVID lockdowns, the SARB pushed up interest rates to fight rising inflation. This made money market rates rise and investors rushed to take advantage. Billions were moved from shares into savings account even though share prices and dividend growth were on the horizon. Many South African investors choose to earn interest through bank savings and fixed deposits but neglect to take taxes into account. Interest earnings are taxed as income, effectively increasing your taxable income. A shock to many when their tax returns are due. SARS does however give you a small annual exemption on interest earnings: Under 65 years of age – The first R23 800 of interest income is exempt. 65 years of age and over – The first R34 500 of interest income is exempt. Here is an example to illustrate the post-tax rate and pay out for three different income tax rates. The conclusion being that high earners should be careful of interest earnings. 

We remain positive on the South African equity market and the renewed positive sentiment driven by resilient earnings and political reform. The JSE (Johannesburg Stock Exchange) however, constitutes less than 1% of global stock markets. If your portfolio only consists of South African assets, your overall portfolio risk may be concentrated in region specific factors. You may also run the risk of losing out on opportunities not offered by local markets. As we head towards the final quarter of the year, this may also serve as a reminder that your annual R1m discretionary allowance and the foreign capital allowance of up to R10m expires on 31 December 2024. It may also be a good time to capitalise on US Dollar weakness for long-term currency hedging. What should you be careful of when investing directly offshore? One of the risks in offshore investing is probate. Offshore probate refers to the process of applying for the right to deal with a deceased investor’s foreign assets and proving their will as a valid legal document in the foreign jurisdiction. The second risk is situs tax that will be encountered in both the US and UK. Situs tax refers to the taxation of assets based on their location or situs. In other words, it is the jurisdiction where the property is located, or deemed to be located, that determines the taxation of that property. What structures provide solutions? Structures where the foreign assets are held by a local nominee company. “Wrapped” structures like sinking funds or endowment policies. Estate planning benefits? It’s important to consider the estate planning benefits of using the correct structure. Normally structures that allow beneficiary nomination provides regulatory- and tax benefits. It can be useful in lowering estate related costs but also provide cash flow to beneficiaries before the estate is wound up. The above considerations may also not be applicable to certain investors. There are structures for those investors who have ceased or are ceasing to be South African tax residents. It may also be suitable for the investor’s adult children living abroad (non-SA tax resident). Estate duty or the equivalent may be payable in their country of residence. Ruvan J Grobler RFP™ (PGDip Financial Planning)

The below is a basic scenario I recently worked on for a client. The individual had around R7mil in the specific Retirement Annuity and needed R55k per month after tax as income from it. One of his concerns was if he should take the 1/3 lump sum allowed or if he should reinvest his entire retirement savings in a post-retirement structure. The below looks at these two scenarios. There are many complexities around structures, disallowed contributions, asset allocation and income percentages that are ignored and simplified in this example. Scenario 1: Invest full retirement savings in post-retirement product. First year income: R77 000 (R924 000 annually) After tax: R55 062 (R660 744 annually) Monthly tax payable: R21 938 Scenario 2: Take R900 000 in cash and reinvest in flexible investment. Lump sum after tax: R825 300 Voluntary income from lumpsum : R10 000 (R120 000 annually, no income tax on withdrawal) Retirement Lump Sum tax table:

Liquidity Risk in your Investment Portfolio  There is nothing worse than being in a pickle and you have no emergency funds. This is when people get into unnecessary debt with high-interest unsecured debt via credit cards and personal loans. To avoid this, you must plan your investment portfolio around long-term growth as well as liquidity needs. Setting financial goals in the financial planning process is an effective tool in providing a practical framework. But it also gives wealth managers possible investment horizons and importantly, the liquidity needs of a client. There is a tightrope to walk between providing liquidity and enjoying long-term growth and your age and specific needs will determine how far you lean towards each side. Here are some of the liquidity risks that you may face in your investment portfolio: Product Rules: Certain structures allow partial access to funds, and some offer no access to funds within a certain term. Examples: Compulsory investment products like pre- and post-retirement structures. Discretionary investment products like endowments, sinking funds and structured products. Asset Allocation: With short-term volatility in growth assets like equities you may run the risk of selling during a downturn, locking in losses. It’s important to rather consider the use of conservative interest-bearing assets when planning for short-term or emergency liquidity needs. Demand: All assets are not desirable by investors. An example can include private equity shares that may not be well known or desired. This will make it difficult to sell when funds are needed because there might not be a willing buyer. Availability: In certain instances, investor funds are pooled together in order to buy a large underlying asset. Some of these assets can have a maturity date attached leaving no room for buy-backs before maturity. How can you assess the need with asset allocation in mind? High liquidity – Conservative allocation – Low volatility Low liquidity – Aggressive allocation – High volatility *This is not financial advice. Ruvan J Grobler RFP™ (PGDip Financial Planning)

The Impact of Interest Rates Cuts on your Investments Interest rate cuts have been on our lips since the middle of 2023, but global inflation has been extremely sticky in the current cycle. Now once again it seems that markets are pricing in cuts from September on. These predicted cuts are largely dependant on what inflation does. SA inflation recently cooled down to 5.1% from 5.2% year on year and the overall economy looks to be slowing down. Many are sceptical of the influence that monetary policy has on South Africa. We need intervention that support economic growth, regardless of your opinion on monetary policy. An interest rate cut should promote activity in our economy as capital will once again start moving around searching for opportunities due to lower interest rates. Bonds have an inverse relationship with interest rates while cash has a direct relationship. Listed companies will benefit from lower payments on their own debts while consumer spending picks up. This is positive for shareholders as balance sheets improve and shares become attractive. Especially at this time where valuations show great upside for SA equities. Interest rate cycles often coincide with the economic cycle. Knowing where we are in the economic cycle is essential in identifying opportunities, it gives us a framework on risk and volatility. Just like countless times before, we have made it to the light at the end of the tunnel. “History Doesn't Repeat Itself, but It Often Rhymes” – Mark Twain

Many South African investors choose to invest directly offshore by physically moving capital offshore through their annual allowances (R10 million foreign capital allowance and a R1 million single discretionary allowance). This is done for diversification or financial planning needs and can be full of pitfalls. One of these risks in offshore investing is probate. Offshore probate refers to the process of applying for the right to deal with a deceased investor’s foreign assets and proving their will as a valid legal document in the foreign jurisdiction. There are legislative differences in all jurisdictions and will most certainly provide complications on the investor’s death. Effectively there would be a deceased estate in the foreign jurisdiction and in South Africa. This could also imply that executor’s fees would apply in South Africa and the equivalent thereof in the offshore jurisdiction where it may not be as regulated and capped as in South Africa. If probate applies in the jurisdiction, the investor will need a will that will be legally considered in that jurisdiction and specifically mentions and gives instruction on the proceeds of the assets. This can typically make the already longwinded process even longer and leave dependents without access to assets. How can you avoid probate? Here are two options: Use an open-ended structure where the foreign assets are held by a local nominee company. Use a “wrapped” structure like a sinking fund or endowment policy where beneficiaries can be nominated. There are major differences between these two structures regarding tax and liquidity, making it very important to do effective financial planning around these variables. These structures are carefully designed with the specific jurisdictions in mind. If the requirements are met as set out by the product rules, the risk of probate may not apply. Importantly these structures provide a clear course of action on death and may give dependents access to capital if needed. This does not serve as financial advice* Ruvan J Grobler RFP™

Investment fees should not be difficult to understand and must at all times be transparent. Many years ago, this was not the case but in recent years the industry has standardized the terms and set out clear limits.