Comments on Satrix

I have received plenty of comments regarding Satrix posts. You can have a look at my 10 Jan 2012 post for some of these comments. In short my reply to any questions regarding investing in Satrix at the moment would be:

• Be selective, I prefer Satrix Divi and Satrix Resi at the moment.
• If you have a lump sum to invest, phase it in over the next 6 months.
• I prefer active unit trust fund managers at the moment like Coronation Top 20 or Foord Equity Fund.
• Always remember the 5 year + time frame for these investments.

In general I prefer increasing my direct offshore exposure at the moment especially if you do not have any. This will serve as an investment diversification strategy, protecting you and your children from any unforeseen changes in South Africa.

Retirement Annuities: The sting in the tail!

There are many risks to consider when investing, one of them is the Political risk of the country you invest in. South African investors saw the risk of investing in South Africa as VERY high in 1994 and some of them built bunkers and stocked up on canned food and bottled water.

Well, those who predicted SA to crash and burn were SO WRONG!

R10 000 invested in South African shares for the last 10years gave you back R33 000. The same amount invested in Foreign shares returned only R10 900! But Political Risk is very real and one only needs to look at a country like Zimbabwe to realise how devastating it can be. The Arab Spring also highlighted the risk of investing in a specific country or region.

What has this got to do with investing in a Retirement Annuity then!?

Consider the following. A Retirement Annuity (R/A), like other Pension instruments, are governed by the laws of the country which are drafted by the government in power. The benefit of investing in a R/A is that you can deduct some of your contributions from your taxable income and in the 2012 Budget the Minister declared that no tax on Dividends or Capital Gains will be paid in R/A's while at the same time INCREASED those two taxes for investments in shares outside of a R/A and other Pension instruments!

In short what he did was to make it very favourable for you as a SA citizen to increase your savings towards an R/A, and decrease your savings towards "discretionary" instruments.

The downside of the R/A investment is that when you retire out of the R/A from age 55 onwards, you may only withdraw 1/3 of the capital and with the remaining 2/3 you have to buy another Pension (regulated by the Government off course).

So if you believe in Political risk, you will start thinking about what will happen to your R/A investment if the Government decides in 15 years to CHANGE the legislation and force the manager of your funds in the R/A to buy Government Bonds at some ridiculous valuation? Or, changes the tax law and tax you at a rate of 50% on all the withdrawals you make from your Pension?

Remember, money will flow from the rich to the poor. In a country where only the "rich" have R/A's, what will a government do to maintain the popular vote?

At the end we might have another decade of fabulous returns in South Africa. Just make sure you can decide how you want to access and invest your savings when things change. I would still make use of the great benefits an R/A offers, but carry on investing in discretionary funds as well!