Silke Financial Monitor, Issue 4

Well, this seams to becoming my regular chat section. After many heated constructive meetings with the Adv Silke, it looks like this part of the Newsletter is mine and will not be vetted, edited, abbreviated, truncated or scrutinize by none other but me. For safe keeping, I will let my wife have a sneak glance.

So what did the markets do for us over the last period? Well in keeping with one of the 2006 Soccer World Cup male protagonists - Zinedine Zidane, VOLATILE.

While we are unsure about global equity markets, the combination of a weaker rand and firm commodity prices seems to suggest that some sectors of the JSE may continue to do reasonably well. We are consequently less defensive than we have been recently but are not ready to return to a fully invested position quite yet. Given our ongoing nervousness, springing from declining global liquidity and tension within the Middle East, we remain poised to hedge at short notice should that seem prudent.

So, keep to the basics:

• Never borrow money to invest or play with money that you cannot afford to lose
• Always use stop losses for capital maintenance and never be afraid to take a loss
• Always feel comfortable with your investments
• DON'T invest on the basis of "hot tips" or "braai" talk
• Set realistic expectations
• Have a plan in place – write it down

"I regard market timing as the investment management business' answer to the Tooth Fairy." - Roger Kirby
On our side: Assets under Management have grown by 2.23% since we last reported. Mandy is now commonly known as our in-house Jack Russell. Once she has made first contact – you're done for and might as well come on in and have a cup of coffee with us. The Para-legal course in Wills and Estate Planning and Administration is over and we all passed with flying colors. Go Trevor. Ken is now taking guitar lessons to sharpen up – I re-iterate, "is he planning for another Blues revival". So if you phone on any given Friday at 12h30pm, rest assured he is not in a meeting with a client! In conclusion, the cold weather has Nicole hibernating for most days, venturing forth into the abyss of light for what is commonly know to us as the little girls room.

Intro done! I hope that you will find the rest of your reading compelling and useful.
To view any of our other newsletters, I invite you to visit our website at www.silke.co.za

Yours
Shane Thom

In this issue

1. Articles The Importance of Professional Financial and Estate Planning Reasons why an Expert must draft your Will and wind up your Estate What is Investment Risk Investment Ratios Why Do You Pay Advice Fees
2. Silke Range of Professional Financial Services
3. Our Sponsorship Program
4. Quote of the Week

Articles

1.1 The Importance of Professional Financial and Estate Planning

– Ken Silke

Financial Planning and Estate Planning is a complicated subject which many people simply do not address adequately. Due to the complexity and legal implications inherent in Estate Planning, not too many people are aware of the importance and benefits of proper Estate Planning.

At Silke Financial Services we are professionally qualified to provide our clients with the full range of services across the spectrum of financial, investment and estate planning.

Professional Financial and Estate Planning takes into account a number of laws such as the Income Tax Act and the Estate Duty Act. Silke Financial Services has the skill and expertise to objectively advise clients on matters such as:

• Ensuring a minimum of Estate Duty payable on death
• Minimising Capital Gains Tax
• Minimising Income Tax
• Calculating the requisite amount of liquidity for an estate to be wound up without compromising the income needs of heirs
• Providing you with the correct amount of cover to suit your particular needs
• Business succession planning and ensuring that business interests are dealt with properly at death.
• Cost-efficient pre-retirement and post retirement planning
• The use of Trusts where deemed appropriate

An essential service which Silke Financial Services also offers is the drafting of Wills and the administrator of
estates and trusts.

1.2 Reasons why an Expert must draft your Will and wind up your Estate

– Ken Silke

• You will be assured of paying the least amount of Estate Duty
• Advice to reduce Capital Gains Tax
• By using the correct wording, your spouse will avoid paying Capital Gains Tax on Unit Trusts or shares
• You will be advised whether you have sufficient liquidity in your estate to pay outstanding Estate Duty, Debts, Income and Capital Gains Tax and Executor's Fees.
• A qualified and experienced executor will ensure that trusts will be set up for minor children
• Business interests can be protected
• Your children's will be managed by licensed professional instead of languishing in the Guardian's Fund administered by our Government.

1.3 What Is Investment Risk

– Ken Silke

In simple terms, investment risk is the possibility that you will not receive the investment returns you are expecting. All investments carry some form of investment risk. The most common are listed below.

Some common types of investment risk

Keep in mind that each asset class responds differently to the different types of investment risk. That's why it's important to diversify, or invest your money in different asset classes.

The risk and return principle
The risk and return principle tells us that the greater an investment's potential return, the greater its potential investment risk, and vice versa. For example, shares or equity unit trusts carry higher risk, but historically they have the potential to generate higher returns over time. Cash investments have lower investment risk, but historically they generate lower returns over time.

Can risk be managed?
You can't avoid investment risk, no matter how conservatively you invest your money. However, there are investment strategies, such as diversification and rand cost averaging, that can help you manage or reduce the effects of investment risk on your portfolio.

Time can also help you manage investment risk, because the longer you keep your money invested, the more opportunity it has to ride out the ups and downs in the market and recover any losses in value that may occur.

How risk tolerant are you?
When making investment decisions, it's important to understand your risk tolerance, or how much risk you are willing to take with your investments.

For example, are you willing to accept a low return by taking a very low risk? Or, are you prepared to take more risk with your investments in exchange for the potential of significantly higher returns? There is no right or wrong answer here – you just need to know what's comfortable for you and that your investment expectations are met.

Tips
Don't fall victim to procrastination risk, or the risk of not investing at all. The longer you wait to invest, the less time you have for your money to grow.

Always keep in mind how much time you have. If you have a low risk tolerance, but a long-term investment goal, you may want to take on more risk than you're normally comfortable with in exchange for potentially higher returns

1.4 Investment Ratios

– Ken Silke

Some unit trust funds and hedge funds often use technical terms which the average person is not familiar with. If you are interested in improving your understanding of investment terms, here is a guide to help you.

Sharpe Ratio
A ratio measuring return per unit of risk. The return (numerator) is defined as the incremental average return of an investor over the risk rate. Risk (denominator) is defined as the standard deviation of the investment returns. The Sharpe ratio tells us whether the returns of a portfolio are due to smart investment decisions or as result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been.

Sortino Ratio
Another ratio measuring return per unit of risk. Return (numerator) is defined as the incremental compound average period return over a Minimum Acceptable Return (MAR). Risk (denominator) is defined as the downside Deviation below a Minimum Acceptable Return (MAR).
The Sortino ratio is similar to the Sharpe ratio, except it uses the downside deviation for the denominator instead of the standard deviation, the use of which doesn't discriminate between up or down volatility.

Active Premium
A measure of an investment annualized returns less the benchmarks annualized returns.

Information Ratio
A ratio of the Active Premium divided by the Tracking Error. The measure explicitly relates the degree by which an investment has beaten the benchmark to the consistency by which the investment has beaten the same benchmark. It is a straightforward way to evaluate the return a fund manager achieves, given the risk they take on.

Tracking Error
This is a measure of the unexplained portion of an investments performance relative to a benchmark. Annualized Tracking Error is measured by taking he square root of the average of the squared deviations between the investments returns and the benchmarks returns, then multiplying the result by the square of root of 12. Basically, it tells you the difference between the return you received and that of the benchmark you were trying to copy.

Correlation
In the world of finance, statistical measures of how two securities move in relation to each other.

1.5 Why do you pay advice fees?

– Ken Silke

At the moment there is much debate and negative publicity about advice fees charged by financial advisors. We believe that such blanket criticism is unjustified as there is no real understanding of how financial advisory companies manage to stay in business to provide a valuable and essential service to the investing public.

At Silke Financial Services we do our clients the service of seeking out those investment companies who charge no initial cost or possibly a very low initial fee. In this way, our clients receive appropriate advice at the most reasonable costs in the industry resulting in a substantial saving.

Clients must appreciate that there is always a cost for advice and the ongoing service related to the advice. At Silke Financial Services, we charge an initial fee for advice given plus an annual fee in order to service our clients and to be able to comply with legislation.

Initial Advice Fees: these are professional fees related to the endeavours related to investment research, knowledge, experience and qualifications of the advisor and include the handling of all the administration relative to the placing of that investment by our staff.

Annual ongoing fees: these fees reimburse Silke Financial Services for ongoing advice, consultations and administration by our staff during the course of the investment inclusive of any extraneous ongoing advice relating to tax and capital gains tax, drafting of Wills as well as some legal advice.

The advice fees also partly cover overheads such as fees paid to the Financial Services Board, compliance costs, stationary, phone bills, tax, staff and rent.

The universal purpose of running a business is to make a profit, otherwise a business might as well close it doors.

Our Range of Services

We offer the following range of services to provide a one-stop service:

• Financial Planning
• Retirement Planning
• Tax efficient investments
• Approved offshore investments
• Legal & Broker Protection Services
• Pensions and Provident Funds
• Collective Investments - Unit Trusts
• Wills, Trust and Estate Administration
• Tax Structuring - Private and Corporate
• Medical Aid Schemes - Private and Corporate (accredited consultants by the Dept. of Health)
• Life, Disability, Dread & Severe Illness Assurance
• Tax friendly investments for high tax bracket clients

Silke Sponsorship Program – Ikwezi Art Centre

We are proud to be the Main Sponsors to the Ikwezi Art Centre situated at the Montebello Design Centre in Newlands, Cape Town.

Please feel free to contact Joel Zwane, manager, should you require any further details. Cell: 073 608 9984. Bring this Newsletter to get a 10% discount at the Ikwezi Art Centre.

Quote of the Week

"I will greet this day with love in my heart. For this is the greatest secret of success in all ventures. Muscles can split a shield and even destroy life itself but only the unseen power of love can open the hearts of man. Love is my greatest weapon and none on who I call can defend upon its force...my love will melt all hearts liken to the sun whose rays soften the coldest day." – Author Unknown

Authorised Financial Services Provider FSP No. 12462Accredited Health Care Broker: BR 3440