You can't control the markets, but you can control the bite of costs and taxes.
The lower your costs, the greater your share of an investment's return. So, an important aspect of financial planning is a good understanding of the various fees, costs and taxes which apply to your portfolio. The good news is that our South African financial markets are very sophisticated and highly regulated. This enables investors to easily compare the costs and benefits of the various products offered by asset managers, insurance companies and other registered financial services providers. . 4 key areas to look at to gain more control over your investments:
• What type of product to invest in? Over recent years, the effect of widespread internet access and powerful automation has combined with ever greater regulation to drive down the costs of investing throughout the world, and SA is no exception. As a rule, older products which are often opaque and more expensive, should be looked at to see if their costs are comparable to newer options. Pension funds and retirement annuities are the most popular savings products and provide attractive tax benefits. Unit trusts and direct share portfolios are discretionary investments which have different characteristics and cost structures. Tax-Free Savings Accounts were introduced in 2015 and are a very low-cost option.
• Which fund to choose? Each fund manager and indeed every fund has slightly different fee structures. Many equity funds have a base fee plus performance fees if their benchmarks are achieved. Index funds which merely track the performance of underlying indices generally have lower fees, and are a useful tool for cost control. However, in the South African context, several of our top asset managers regularly outperform the market after all costs, and also provide valuable diversification benefits, so deciding on the best funds for you is not just a simple matter of finding the cheapest funds.
• Partner with an adviser or go it alone? Nowadays with the advent of online advisory services, such as Rutherford Online, it is possible to cut out the investment advisor and save those costs. This makes sense for sophisticated investors who know exactly what they’re doing. However, most of us still require the insights and experience of a professional to guide us through the investment process. In fact, studies prove that a competent advisor could add about 3% per year to your long-term investment performance.
• What are the tax aspects? Looking at the tax consequences of your investments is an often neglected, but extremely important aspect of financial planning.
Structure for tax efficiency to maximise returns
Products such as retirement annuities offer powerful tax benefits. Endowments are tax efficient for larger portfolios and Trusts. An investor should also consider strategies such as using tax-advantaged products to hold high tax assets such as cash and bonds while using tax inefficient products to hold equities. Correctly using these tax benefits can reduce annual investment costs by up to 50%.
Why cost matters In the modern era, the power of IT solutions and the ensuing economies of scale have dramatically reduced platform costs. Therefore, there is no reason to expect more for paying more. Every Rand paid in administration and management fees is a Rand less in your retirement investment.
Submitted March 27, 2017 at 10:04AM by Rutherford_Capital http://ift.tt/2nnmMmN
