Silke Financial Monitor, Issue 5

Writing to you today is easily accomplished. It is from my Garden on this beautiful Saturday morning at 6.30am (30 September) For many, this period is a time of devotion, focusing on ways to lead a good life on earth. My prayers are with you.

So Instead of staring of with the markets, my thoughts lie in the heart of the latest book that I have just read -The Monk who sold his Ferrari.

"This is a fun, fascinating, fanciful adventure into the realms of development, personal effectiveness and individual happiness. It contains treasures of wisdom that can enrich and enhance the life of every person."
Brian Tracy, author of Maximum Achievement

SA Markets: I am going to stay on my "happy drive" and look at all – What's good with South Africa:

• Stable economic policy.
• Sound macro-economic policy.
• Advanced telecommunications, transport and energy provision infrastructure.
• Electrical power at one of the cheapest rates in the world.
• 100% ownership permitted.
• Government approval not required.
• A large market with strong growth.
• Rich natural resources.
• Modern banking and financial services.

On the lighter side of things

• Woolies has officially re-launched its cosmetic department.
• Hijackers have their own car stolen by hyjakee.
• For all the Nicole fans out there. Nicole had a "toe nail medical emergency" and was promptly rushed off to doggie emergency. Returning with the required meterage of bandage and a convincing limp. She has recovered from her ordeal.

To end my "yes, yes, yes" intro, I leave you with this: Einstein used to be a patent clerk.

Yours
Shane Thom

In this issue

1. Articles Budgeting and dealing with unexpected events Quo Vadis the Rand Wills and Estate Planning
2. Silke Range of Professional Financial Services
3. Silke Sponsorship Program – Ikwezi Art Centre
4. Quote of the Week

Articles

1.1 Budgeting and dealing with unexpected events

– Shane Thom

What if you're not saving any money, or unexpected events throw your finances into disarray? Budgeting and being prepared for unexpected events can change things for the better, often without much pain.

Budgeting – what you need, and what you want.
– Look at the things you need, the essentials, such as housing and food – and those you simply like to have or want.

The best tool for finding extra money is a budget.
– When you need to trim a budget, cut back on the ‘wants' first – things that aren't essential for everyday life.

How can you save more?

There are essentially 2 types of people: those who save first and then spend what's left; and those for spend first and try and save what's left over [usually not much or just plain nothing!] Naturally the best way to save is to put money away as soon as you are paid and before you spend.

Here are some practical steps, highlighting potential savings:

• Have your salary deposited into an easy access cash account, with a debit card attached. This account can be used for everyday needs, reducing the need to use credit cards.
• Save or invest a fixed amount of money and pay it into a separate account. This may be used as an emergency source of money or for your future goals.
• Save your salary increases, bonuses, special payments or tax refunds. These savings build up significantly over time as you continue to live within your existing budget.
• Pay your home loan fortnightly, and pay an extra 5-10% on your loan every month. The term of your home loan reduces and thus saving interest costs.
• Make retirement annuity contributions from your pre-tax salary (salary sacrifice). Less personal income tax is paid and more money is available for retirement.

What if you can't pay your bills?

• Stay calm and work out what you can reasonably pay each creditor, considering all living costs, and all debt.
• Contact your creditors promptly and discuss repayment arrangements. Offer only what you can reasonably afford, and offer something to each creditor.

What if you get retrenched?

• Find out your entitlements and the best way to deal with any money you may receive before making any decisions or taking any money.

What if you get a windfall?

• Look at your personal goals. Consider paying off personal debts first and then your home loan.

In the next issue I will discuss managing your loans and your bond.

1.2 Quo Vadis the Rand

– Ken Silke

From the darling of the investment world back to being the runt of the litter in eighteen very volatile weeks,
the South African Rand now finds itself languishing at the bottom of the recent performance tables. Since 11 May the currency has about 25% of its value against the US dollar and the other major currencies in the western world.

While there was no doubt that the rand was overvalued at the levels of around R6 to the dollar, the magnitude of the recent depreciation helps nobody but the currency traders. Many South African companies have taken pain over recent years and re-structured their businesses to cope with the six rand level. This can be good news because it makes them especially competitive at almost R8 to the USD, but one cannot help but feel that some job losses could have been avoided if management had not thrown in the towel on the strong rand.

So, what bearing will this have on interest rates? When our currency moves weaker, as we have recently experienced, we tend to see companies in certain sectors passing on price increases as fast as they possibly can, despite the fact that the stock was purchased on the stronger Rand. As a result, a weaker rand has a habit of passing pretty quickly through from producer to consumer level which is why a PPI figure like yesterday’s increase to 9.2% has everyone looking a tad uneasy with Tito’s recent rhetoric in mind. High inflation means high interest rates!

Speculating on the depreciation or appreciation of the Rand is a very important part of investing as a South African and something that very few people can regularly call correctly. When the rand moves sharply weaker, it is bad for inflation, bad for interest rates, but good for rand hedges and good for offshore investments.

What you tend to experience in times like these, and recent months have proved to be no different to late 2001, is that the currency’s depreciation invokes a frenzy for any share that looks or even smells like a rand hedge. This is because the earnings of the company, in rand terms, are going to improve as the currency depreciates. The problem we have right now, is that after a 25% decline in our currency in nineteen weeks, it is extraordinarily difficult to call where to from here, and the movements of the rand hedges relative to the rest of the market have been extreme.

So what do you do if you are thinking of investing? Has the horse already bolted? Maybe?

The Answer: The old adage of DIVERSIFICATION applies. Speak to us about a well diversified portfolio so that you can take advantage of all market conditions. We only place investments with companies who either charge no initial fee or a minimal initial fee. Our advice fees are highly competitive.

1.3 Wills and Estate Planning

– Shane Thome

The old proverb says "The proof of the pudding is in the eating" but when it comes to Testamentary trust set up in terms of a Last Will and Testament - the taste may not be what the recipe promised.

Let use an example. Mr X was an honest to goodness working class man who laboured all his life to leave his daughter a modest inheritance. In terms of his Will he requested that the monies be put into a trust where the interest would be paid for her lifetime and when she died, any surplus should paid into her Estate.
The Trust Deed allowed for the Trust Company to structure the investments at their sole discretion, which eliminated any possible participation in the investment process by the beneficiary or her advisors.

It also meant that as long as the Trust company carried out those precise wishes they were entitled to receive an ongoing administration fee for the duration of the trust without fear of ever being sacked!

A few years ago, during times of high interest rates the income was reasonable, but today, with lower interest rates, the income is much less and the trust company insists on exercising its prerogative to leave the money invested in the money market. In fact the annual administration fee now amounts to a significant percentage of the total income.

To set up a testamentary trust would, at first sight, seem to be a reasonable choice, and most people would find no problem with the concept, to the point that many small estates are still being arranged this way in terms of a Last Will and Testament.

What the erstwhile Testator needs to understand is that where the amounts of money to be left are not large (say less than R500 000) there are better and more economical ways to structure the inheritance.

For instance, the daughter would be far better off financially had the Will allowed for the purchase of a voluntary life annuity because it allows for the partial repatriation of capital (as well as investment growth) over the life expectancy of the beneficiary.

In other words, she would still receive a guaranteed fixed or escalating income for her lifetime, and even though there might be nothing for her heirs, the original objectives of her father would most likely have been met. There would also be a significant saving of the annual administration fees of the Trust company.

In this case the father’s good intentions have not worked out for the maximum good of his daughter.

The moral of this story is that it is not always straightforward when drafting a simple Last Will and Testament.

First published in Sunday Times – Business Money Section - 10th September 2006 (P18)
Author: John Williams

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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

"Some people are too tired to give you a smile. Give them one of yours as none needs a smile so much as he who has no more to give" – Author Rabbi Samson Raphael Hirsch

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