Silke Financial Monitor, Issue 6

My children continue to ask, in high pitched excitable voices: "When is Santa Clause coming, dad?" Their genuine innocence is heart-warming to my soul. With complementary decorations, I am reminded of the imminent festive season. Is it really that time of the year again? I can hardly believe that this is to be our last Silke Financial Services Newsletter for 2006.

We are pleased to say that during this eventful year of Micro, Macro and Political contradictions, I take pride in the fact that we at Silke Financial Services was successful in supporting our clients 100% during this most eventful year. This year saw us employ four additional staff and initiate and successfully introduce a new service in the line of wills and estate administration under the guidance of Ken Silke.

As a result of our increased efforts, the Ikwezi Art Centre, our social responsibility program, has also benefited and grown tremendously over this period. Subsequently - Ikwezi turned 3 years old last month. Thanks to Joel (our tireless manager), Right, Luvuyo and Moment and the rest of the artists for keeping the dream true. A special mention must be made to Alistair who has volunteered some of his time once a week to help tutor our artists. The Ikwezi journey has been an unbelievable crossing for me and I implore anyone who has time on their hands, to use it to help others.

To Ken, Trevor, Mandy, Sylvia, Ryan, Leigh-Anne, Joel and Ima and your families - honestly' without you our Silke Ship would have sunk - so: "thank you!" for all your hard work (a lot of it was after hours for Trevor) that you have put into Silke Financial Services. Much appreciated.

2006 for me:

Great friends – new and old have filled my heart with joy.
Inspiration from Family members - especially from my wife and daughters who have the winning formula to my heart.
Noticeable event: Georgia Thom being nominated as a finalist and winning her age category in the Nedbank Art competition, which was held in support of the 16 days of Activism for the No Violence against Women and Children Campaign. To see her picture and others – you must buy a 2007 calendar from Nedbank. All funds will go to fighting causes that say NO to Women and Child Violence.
Noticeable Quote: Morganne Thom "Dad, kids don't eat porridge, they eat cereal! Bears eat porridge"

To all our clients, thank you for the trust you have with us at Silke Financial Services and your loyal support.
We wish you a happy holiday season. Please drive safely during this period.

Best wishes for 2007
Shane Thom

In this issue

Articles Managing your loans and your mortgage Is it cool to have a share portfolio rather than unit trusts Divorce and Maintenance
Silke Range of Professional Financial Services
Silke Sponsorship Program – Ikwezi Art Centre

Articles

1.1 Managing your loans and your mortgage

– Shane Thom

Getting into debt is far easier than getting out of it. If you shop around and manage your loans, they won't make a mess of your finances.

When should you borrow?
Look at the total cost including all the interest before you borrow. Only borrow if you are sure you can afford the repayments.

For things you just want, such as a holiday, it's cheaper to save up for them. Even for things you may need, such as a car, it's cheaper to pay in cash if you can. If you do borrow, pick the shortest repayment period you can afford, especially for anything that you use up quickly, like a holiday, or which loses value like a car.

How much should you borrow?
It pays to be cautious. Lenders may offer you a bigger loan than you would feel comfortable with. They may increase your credit card limit without asking and without checking if you really can repay higher debt.

Interest rates could go up, and if you borrow too much even a small rise could get you into trouble.

What's the best loan?
Usually it's the loan with the lowest interest rate. This is often the single most important thing to get right, so shop around. Check that your loan allows you to make extra payments, and if there are any fees for doing so.

Why pay loans and mortgages off faster?
Paying off your loan faster can save you thousands in interest payments. One simple way to get ahead is to pay your bond fortnightly instead of monthly. You will cut four years off a 20 year home loan.

Be careful about claims that refinancing will pay off your loan faster. You can only pay off loans faster by paying more money. Only refinance if you are sure the savings outweigh the cost.

In the next issue I will discuss protecting yourself, your family and your property

1.2 Is it cool to have a share portfolio rather than unit trusts

– Ken Silke

Marketing experts tout the radical importance of creating consumer perceptions over and above actual reality.

For example, we are often prepared to pay for a more expensive item because of its perceived worth rather than spend less on something similar which is equally good or an even better than the lesser-known product.

When meeting people at social occasions, I am often told by "proud" investors that they have a share portfolio. These very same people scoff at the very notion of having a unit trust portfolio and suggest that using unit trusts as an investment portfolio is "uncool".

While I am not by any means saying that having a share portfolio is, in itself, a bad investment, unit trusts deserve the same notion of respect.

Some people like to have a share portfolio and not actively trade it and rely on the tax-free dividends no matter what the share price is. This is ideal if you have a large portfolio from which you can derive your dividends to fund your lifestyle on a tax efficient basis. Ideally, your share portfolio would have to have a value of about R5m plus to be a worthwhile consideration.

Let’s look at the major differences between the holding a share portfolio versus unit trusts:

Direct Share Portfolio	Unit Trust Portfolio
When you or your stockbroker sell a share because that share has hit an all-time high and that its time to take profits, you will pay Capital Gains Tax on the profit you made.	No Capital Gains Tax is paid when the unit trust Fund Manager sells that very same share to lock in profits within the portfolio.
Your Stockbroker makes money when you buy and when you sell shares. If you sign a Mandate for your Stockbroker to manage your portfolio there is usually about a 1% per annum fee.	Except for very reasonable advice fees, the Unit Trust Fund Manger makes money when he out-performs his bench mark. There is an incentive to perform. Some unit trusts do have a fixed annual fee and is not performance-based.
When you invest directly in shares without giving the discretion to make decisions to your stockbroker, you make key decisions, such as what and when to buy and/or sell and the price at which you want to buy and/or sell. Shareholders have the potential to earn higher returns, particularly because unit trust portfolio managers generally do not invest in smaller, illiquid shares, which may provide healthy returns. But you need to know what you are doing!	When you invest in unit trusts, you effectively hand over the control of your investment to someone else. Holders of unit trusts have no say in the underlying investments (such as shares or bonds), nor do they have any influence over how the portfolio manager trades them. Here you have to rely on the wide variety of unit trusts on the market and the advice of a qualified financial advisor who will take care to suggest unit trusts appropriate to your tolerance for risk.
Investment in shares limits you to investments in listed companies. Although you can buy bonds on a stock exchange, you need fairly large amounts of money, usually about R1 million.	One of the advantages that unit trusts have over shares is that some funds, such as asset allocation funds, invest across all the asset classes of cash, bonds, equities and property and are constantly managed by experts.
Ideally you should invest in between 10 and 20 individual companies, spread across the sectors represented on the JSE to ensure proper diversification. Your spread would include shares in the retail, industrial, mining and listed property sectors.	General equity unit trust funds provide you with diversification across all sectors of a stock exchange (or exchanges in the case of worldwide and foreign funds). Unit trusts also allow you to invest smaller amounts monthly and achieve the same diversification from as little as a R5000 lump sum.
Direct share investment can be risky if you do not spend time analysing the potential investments. Relying on tips from friends is imprudent.	Expert unit trust Fund Managers have to correctly determine the intrinsic value of shares they buy. In-house analysts are trained to concentrate on understanding the economics of the underlying business of any company and to mainly ignore any financial engineering or temporary windfalls or setbacks.

1.3 Divorce and Maintenance

– Ken Silke

If you should divorce your spouse, you may be obligated to pay maintenance. These obligations may be placed on your estate on death as well. Some of the issues that may come to the fore:

If a spouse is left needing maintenance, he or she could lodge a claim against your deceased estate. Factors that may influence such a claim are, inter alia, the duration of your marriage, the age of the living spouse, his or her ability to find work, the degree to which he or she has assets to put towards own care, the extent of your estate and the degree to which your spouse contributed to that estate.

A testamentary trust is by far the best mechanism to comply with all the maintenance demands. By placing a capital amount in a trust that can generate sufficient income, the maintenance claim will be served and the capital also protected to your eventual heirs.

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

"Look to this day, for yesterday is but a dream, and tomorrow is only a vision. But today, well lived, makes every yesterday a dream of happiness, and every tomorrow a vision of hope. Look well therefore to this day" – Author Unknown

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

Editor: Shane Thom, Silke Financial Services
E-mail: shane@silke.co.za
Tel: +27 21 683 3380 · Fax: +27 21 683 3872
www.silkefinancialservices.com · X · LinkedIn · Facebook

FSP No. 12462 · An Authorised Financial Services Provider