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In this issue:
Retirees- managing living annuities
Foreign investors flock to JSE
Opportunity In Listed Property
Gold Fever Back??
Too often retirees rely on the increase in the value of their investment to make up shortfalls
It is not only a time of adjustment in your working career; it is also a time to make financial decisions that will impact on your lifestyle for the rest of your life.
Knowing whether you have enough money set aside to support your desired lifestyle, estimating what your future living costs will be and making investment choices for your savings are decisions that can weigh heavily on any retiree.
Of critical importance is the need to invest savings in such a way that you will have a reasonable lifestyle for your retirement years.
There are many investment choices to help you achieve this, one of which is a living annuity.
This is a policy issued by a life company whereby the savings from your retirement funds are used to pay an annuity in such a way that the capital is protected as much as possible.
Guidelines have been created to assist the retiree to set the amount to be drawn every month so that the capital of the investment lasts over the life time of the retiree.
What can be disastrous for a living annuity is when an investor draws too much income and hence erodes the capital base of the investment to such a position where it is no longer able to provide a living income.
Often retirees rely on the continued increase in the value of their investment to make up any shortfall between annuity drawn and income earned.
While this works when the market is rising, it can be dangerous when the market suffers losses.
Research conducted by Marriott has demonstrated that drawing more annuity than income earned during periods of market weakness, particularly in the early stages of a living annuity, can lead to so much capital being reduced both by income drawn and market weakness that the capital base is unable to sustain a reasonable standard of living.
Marriott has created an approach to living annuities based on the principle of matching the income drawn from your living annuity to the income that the investments produce.
This methodology strongly recommends that the capital of the investment is never touched until the retiree reaches a stage in their retirement years when it is safe to do so.
To assist retirees and their financial advisors in this process, Marriott has created an online Living Annuity Tool which enables the retiree to implement this methodology.
It not only assists the retiree to set their annuity at a level which ensures that it matches the income from the underlying investments; it also provides an estimate of future income and annuities and hence assists the retiree in planning future years.
This tool is able to give an idea of what the future might hold as a result of Marriott's Income Focused Investment style. A benefit of this is the generation of predictable and growing income from the funds into which the retiree would invest.
This reliability in income is a hallmark of Marriott and sets their investment style apart from other asset managers.
It also provides the retiree with high levels of reliable and growing income as well as above-average risk-adjusted returns, enabling the retiree to reduce anxieties over investment decisions.
Marriott offers three funds together with this web tool. Each fund offers a particular level of reliable income, an expected growth rate of that income and the expectation that, over time, the value of the investment will grow at the same rate as the growth in income.
The Marriott High Income FOF offers a high yield (currently 9.2%) and an expected income growth of around 2% per annum. The Marriott Prudential Income FOF is a prudentially managed fund suitable for inclusion in products that require a Regulation 28 portfolio.
This fund currently offers a yield of 5% and an expected growth in income of 6%.
The Marriott Worldwide FOF offers exposure to first world capital markets as well as local equities. It has a current yield of 3.5% and an expected income growth of 8%.
Using Marriott's matching methodology in managing living annuities provides the retiree with the confidence to budget for a lifestyle now and into the future and the security of knowing that the capital base of their investment will survive during their retirement years.
(Courtesy: ITINews http://www.itinews.co.za)
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Foreign investors flock to JSE as confidence in dollar wanes
Nearly R70-billion worth of offshore funds have flowed into JSE-listed companies this year, on a net basis, according to George Glynos, the managing director of market analysis firm ETM.
Non-resident inflows already topped the R67.5bn invested in the local stock exchange in the whole of 2007, Glynos said. And they follow a R57bn outflow last year.
Foreign inflows have helped push the JSE's all share index up 18 percent since the start of the year.
Glynos also said that according to technical analysis, the gold price could reach $1 300 (R9 560) within the next few months. The precious metal, which burst through the March 2008 record of $1 033 a week ago, touched a new record high of $1 068.30 yesterday before retreating to just below $1 060. It is 20 percent higher than at the start of the year.
The JSE and the gold price are beneficiaries of unprecedented levels of liquidity abroad, after the series of monetary and fiscal rescue packages in many economies over the past year.
"Large quantities of funds that have been cautiously sitting on the sidelines in risk averse investments ultimately need to be invested to generate stronger returns," Glynos said. Global investors are seeking yield in emerging markets with a better growth outlook.
Glynos attributed much of the JSE's recent gains to foreign investors because local fund managers, he said, "haven't committed to the equity market in a wholesale manner". He said they were more cautious about "rotating away from risk-averse asset classes such as cash" as interest rates in the money market were still compensating for inflation and offered security in uncertain times.
However, he warned the run up in stock markets and commodity prices did not necessarily reflect optimism about economic fundamentals.
To some extent, they demonstrated a lack of confidence in the US dollar and were a response to "ultra loose monetary policies" abroad.
The dollar's role as the global reserve currency is in doubt as central banks round the world increasingly shift into other currencies, particularly the euro. Investors are also following suit.
Nedbank Capital said yesterday that the dollar was near a 14-month low against a basket of major currencies.
RMB commodity analyst Josina Oliphant said gold responded more to dollar weakness than most commodities.
(Courtesy: ITINews http://www.itinews.co.za)
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TOP INVESTMENT OPPORTUNITY IN LISTED PROPERTY
Most individuals, owning a property such as their house will be the largest investment in their lifetime. Most individuals are, however, unaware that they can receive the returns offered by property without acquiring additional property. Investments in property have been proven to beat inflation as both the value and rental of property. Investments in property have been proven to beat inflation as both the value and rental of property increase over time.
One is able to buy physical property, invest through syndication or buy listed property on the JSE Securities Exchange. The trouble with buying physical property and syndications is that most individuals don't have sufficient capital to afford these properties. Furthermore, large amounts of money are spent on interest, transfer costs and legal fees. Investments of this kind are also less liquid as the sales process can take some time to complete. Investments in listed property solve these problems and offer a unique investment opportunity to investors and institutions.
Listed property companies buy quality property which include industrial, retail and office space that is leased to firms as commercial property. These properties are also more secure as they are not invested in residential property which is dependent on one person's /family's ability to pay rent. Listed property is considered a unique asset class due to its stable income streams that are achieved through rental income as well as the long term increase in the share price.
(Courtesy: DynamicWeath Theo Langerhoven http://www.dynamic.co.za)
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Is gold fever back to stay?
The gold price has been toying with the magical $1 000 level for more than a week, rekindling interest from both gold bulls and gold bears. With the price up more than 16% in US dollar terms since April, investors are asking why gold is going up and if it will continue its upward path.
According to Dr Prieur du Plessis, Plexus group chairman, gold has been rising steadily over the past eight years. "Few people realise that gold in dollars has outperformed the US stock market fourfold over this period, even with the reinvestment of dividends," he says.
US investment icon Richard Russell of the Dow Theory Letters fame recently published a graph of the weekly Dow-to-gold ratio, a graph that gold-haters are loath to acknowledge.
Gold bulls believe the gold price is increasing mainly due to investors' expectations of rising inflation. Gold predicts inflation because of the relentless wave of money the US Federal Reserve and other central banks are printing and pumping into the system to reignite economic growth and, more importantly, stem the possibility of a global depression and deflation. While Du Plessis believes this may be so, he is aware that the correlation between gold and inflation in the US over the last 25-plus years has been zero.
Legendary US hedge-fund guru John Mauldin believes the rise in gold above $1 000 does not indicate the future of inflation. In his opinion, if the Fed were to withdraw from the current economic battle, the forces of deflation would be felt in short order. Mauldin contends the answer to the question "Will we have inflation in our future?" is "You better hope so!"
Du Plessis agrees with Mauldin's belief that the value of gold is rising against most major fiat (paper) currencies because it is considered a neutral currency. According to Mauldin, the Fed and the Obama administration seem to be pursuing policies that are dollar negative, and give no hint of letting up.
"The declining dollar has been one of the main catalysts for gold's rise. Although the gold price recently reached new highs in dollar terms, it is important to note that the gold price has also been rising in most other major currencies since mid-2007," adds Du Plessis.
Du Plessis believes another driver of the rising gold price is China's loss of confidence in the US dollar. "The Chinese are concerned about their large exposure to the US dollar (most of their foreign reserve holdings are invested in US bonds) and have been diversifying into other currencies such as the euro and yen, as well as gold and other commodities," he says.
"It was recently announced that China has doubled its gold reserves to 1 054 tonnes in the last few years. This makes that country the world's fifth-largest holder of gold, just ahead of Switzerland, and among the six nations plus the International Monetary Fund that have reserves of more than 1 000 metric tons," says Du Plessis.
According to Mauldin, the steady rise in gold over the last eight years to the current level of just over $1 000 has roughly tracked the emergence of China as a superpower in foreign reserve holdings, which now stand at $2 trillion.
With the uncertainty regarding the sustainability of the current improvement in the global economy and the recent strong rally in global stock markets, Du Plessis believes an investment portfolio should include exposure to gold.
He agrees with Richard Russell: "Gold is the standard; it can't go bankrupt, it will rise in value if the dollar tanks or inflation takes off, and it will sky-rocket if the US tries to inflate its debts away."
Investors could gain gold exposure by buying the JSE-listed gold ETF NewGold, which effectively represents an investment in gold in rand terms. "Although a strong rand may negate some of the potential returns from a higher dollar gold price, this holding will provide some hedge against the current uncertainty," says Du Plessis.
Alternatively investors could buy a combination of gold shares or invest in a gold fund. "Keep in mind that gold shares are highly geared and thus tend to show more volatility than the gold price. Also, problems with regard to poor management of mines, such as safety aspects and strikes, could also affect profitability - and your investment return," says Du Plessis
(Courtesy: MoneyMarketing http://www.moneymarketing.co.za)
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