Momentum Protected Index Plan (PIP)

This is a brand new fund offered by Momentum Wealth and does the following:

• Gives you 100% capital protection over a 3 year term.
• Participate in the growth of the JSE Top 40 index for the 3 years.
• Trades once a month and the current cap on growth participation is 35% after costs.

Why it serves a purpose?
The JSE is close to its all time high. A lot of investors do not want to venture into shares because they believe a correction is imminent, so they carry on making the mistake of keeping their longer term money in cash. This product provides them with an alternative to cash!

What I think:

• Let's say cash gives you a taxable 7% effective every year for 3 years. That is 4.2% after 40% tax for 3 years which is 12.6% for the period.
• Let's say inflation creeps up and settles on an average of 6% pa for 3 years. Then you should earn an 18% effective return over 3 years to break even.
• Clearly you lose money in cash!
• If you invest in Momentum's PIP, and the markets do perform, you get 35% return after 3 years. If they muddle through you might only get the cash rate (12.6%) and if they crash and burn, you get 0% return but all your capital back. You get anything between 0% and 35%.

So, the worst you can do is to not earn the after tax interest return on your capital if you stayed in cash, but you can also get 35% return if the JSE Top 40 companies recover as we all expect they will.

This is just a summary and there are some technical issues as well.

Conclusion: If you have R50 000+ which you want to invest for at least 3 years, rather invest in PIP than cash.

Stock picks Jan 2011

                   current        Price       Forward      Dividend
Share          price       Earnings        PE              Yield
Peregrine     11.70         9.50          8.14             2.68%
Basil Read   12.30         4.33          4.33             3.47%
Old Mutual  13.97        16.71         8.24             2.11%

These are the shares I would buy for 'n longer term portfolio. The only one which I would buy at a lower level is Old Mutual at round R13.20. They are all lagging the market and Peregrine will publish good results for Y/E 2011. Basil Read is cheap and when construction recovers in a year or two I would like to have this one in my portfolio. Old Mutual might benefit from corporate action.

Peregrine might go down to R11.50 which is a very good level and Basil might go to R12.20. If this should happen I would buy some more.

Later
G

Investing 2011

Better than expected!

That sums up 2010. The 10 shares I chose in April 2009 and discussed in my June 2009 Blog returned 64% over the last 20 months and you can add 6% for dividends paid by them. At the beginning of 2010 I thought the JSE All Share Index would give us 9% for the year, it gave us 16% to which you can add 3% dividends. This year my crystal ball tells me that we should end the year 7.42% up at 34 503 points on the JSE. You can add another 3% for dividends so the return on an investment in the SA share market should give you 10.42% after tax. The market always over react so add a 10% to the 34 503 and the JSE ends on 37 953 points, that is a return of 18% excl dividends.


Cash will probably give you the same as 2010 which was a taxable 6.9% which is just pathetic.


So, you can clearly see that 2011 should be another good year for equities. As I mentioned in my November 2010 Blog, the companies which I think will perform well are American Multi Nationals and SA companies with a well established footprint in Africa.

"What about the Rand!"......you shout. Well, what about it? Who cares. It is overvalued and will get back to parity sometime. Don't delay making international investments just because you think the Rand will go to R6 against the US$. This is a long term game and the investment in the company you buy will always outperform the short term value of a currency!

When do I invest? I think the markets will come down about 7% before end of Feb 2011 which will give us a better buying opportunity. I have to mention that I thought the markets would come down at the end of September 2010 as well and lost some good money when I bought a Put option on the JSE Top 40 index to hedge my long term portfolio!

So, if you have cash you want to invest for the longer term (5 years plus), perhaps invest one third every month for the next 3 months.

If you do not have any investable cash but you have a job, fab! Earning an income not only provide us with pride in our abilities but also the most powerful financial tool. Just remember not to spend any money on buying a new car if you have one that does what it needs to do just because some dog tells you to!

I will cover a new product from Momentum Wealth in my next blog which gives you protection on the downside of the JSE Top 40 index but also participation in the growth over the next 3 years.

I will also use this Blog in future to share with you some stock tips (shares I believe offer value) and would appreciate the same from you.