INVESTMENT PROPOSAL
Strictly confidential
Mr D Dummy Client
August 2012
Prepared by
Liron Mazor CFP
An authorised financial services provider
Mr D Dummy Client
28 February 2012
Dear Mr Dummy Client
INVESTMENT PROPOSAL
I refer to our previous discussion in this regard. Thank you for granting me the opportunity to be of
service to you.
Our primary objective with this proposal is to offer you an investment framework based on
fundamentally sound principles and to empower you to make an informed investment decision. We
would like to keep the advice process as simple as possible, but due to minimum requirements
prescribed by the Financial Services Board of South Africa the process may appear to be elaborate.
We are fully committed to the prescribed legal process since its primary objective is serving your
interests and it enhances the integrity of the financial services industry. This means that we will have
to follow a comprehensive process and will have to compile appropriate documentation which will
explain our advice. This process implies that you also have some responsibilities, but we will guide
you through it.
Our advice process is based on timeless investment principles which have stood the test of time and
we continually do research with regards to investment theory to ensure that our advice and value
proposition to you stays relevant and offers the best possible solutions taking risk and return into
account.
Our proposal contains the recommended investment strategy as well as the necessary information
regarding the proposed investment funds. This is necessary because the recommended funds are
mere instruments that are used in a highly regulated environment to achieve your investment
objective.
We fully understand how important it is for you to make an informed decision and as a result we focus
mainly on the following key aspects to assist you in the process:





Your specific investment needs and objective(s)
Explaining the composition of an appropriate investment solution (strategy and portfolio
construction) which is aimed at achieving your investment objective
Disclosure of the relevant assumptions, terms and conditions pertaining to our proposed
solution
Our service model
Disclosure of the relevant fees
I trust that the contents of this proposal will serve your needs. If you need more information, please do
not hesitate to contact me.
Thank you for your consideration and I look forward to your response.
Yours faithfully
Liron Mazor CFP
Wealth Manager
+27 82 347 93 77
Copyright Reserved
Confidential
2
Executive Summary
Need
You want to retire at age 65 and have various investments that must be utilised to save capital for
this purpose. On retirement you want to withdraw a monthly income of R75 000 in present value.
You requested that we prepare a proposal for you in order to help you achieve your investment
objectives over the investment term.
Risk Profile
Investment Term
Target Return per annum (inflation +)
Maximum Drawdown (over any rolling 12 month period)
10+ years
7%
20%
Capital available for investment
The proposal is based on the following investable capital
Description
Momentum Endowment
AIMS Investment
Satrix Investment
Cash
Shares
Momentum Retirement Annuity
Alexander Forbes Pension Fund
Contract number
Rand
R 68 949
R 81 064
R 60 000
R 20 000
R750 000
R346 795
R 5 858
Projection
Income
R75 000 p.m (present value form age 65)
Capital (Future value)
Nominal
R12 277 619
Real
R666 532
Projection note: Although you have a balance left at the end of the investment term, this balance is
part of your living annuities. As the income percentage that you need to withdraw from your
investment becomes far greater than the growth that you will get on the capital, the value of the
investment will start decreasing, leading to a decreasing income. As your income withdrawal from
the living annuities is not enough to sustain your income need, you will need to draw the shortfall
from your voluntary investments. As you do not have enough voluntary capital to cover this
shortfall, the voluntary capital will run out in year 34 (age 74). The only logical solution would be to
decrease your income needs as taking a more aggressive approach in your asset allocation, will
increase your risk substantially – see page 26 for more details on a recoomend withdraw amount.
Investment Proposal
Proposed Portfolio’s target return (average)
Proposed Portfolio’s maximum drawdown (rolling 12 months)
11.6%
18.2%
Proposed Portfolio asset allocation
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Confidential
3
Proposed Portfolio Structure and Funds
Risk category
Cash
Preserver - Cpi + 2%
Prudent – CPI + 4%
Long Term Growth – CPI + 6%
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Category weighting
0%
0%
18.04%
81.96%
Confidential
Proposed Fund
See section 5 for fund allocation
4
Index
Page
1.
Financial needs, objectives and risk profile ..................................................................................... 6
2.
Financial calculations and projections ............................................................................................. 7
2.1.
Description of the cash flow projection ................................................................................... 7
2.2.
Analysis of cash flow projection .............................................................................................. 7
2.3.
Cash flow information and assumptions ................................................................................. 8
2.4.
Cashflow projection ............................................................................................................... 10
2.5.
Living Annuity Projection ....................................................................................................... 12
2.6.
Pension Fund Projection ....................................................................................................... 14
2.7.
Retirement Annuity Projection............................................................................................... 15
2.8.
Voluntary Projection .............................................................................................................. 16
2.9.
Total Investment Projection ................................................................................................... 20
2.10.
Projection Graphs ................................................................................................................. 22
3.
Investment principles and our investment solution ........................................................................ 24
4.
Financial planning and recommendations ..................................................................................... 26
4.1. Proposals and Recommendations ............................................................................................. 26
4.1.1.
Financial Planning ......................................................................................................... 26
4.1.2.
Portfolio Structure.......................................................................................................... 26
4.1.3.
LISP ............................................................................................................................... 27
4.1.4.
Proposed funds ............................................................................................................. 27
4.1.5.
Taxation ......................................................................................................................... 27
4.2. Product specific recommendations ............................................................................................ 27
5.
Proposed investment solution ........................................................................................................ 28
5.1.
Source of funds ..................................................................................................................... 28
5.2.
Proposed category allocation ................................................................................................ 28
To achieve the stated objectives and target return the portfolio should be allocated to the risk
categories as follows: ........................................................................................................................ 28
5.2.1.
Voluntary Capital ........................................................................................................... 28
5.2.2.
Compulsory Capital ....................................................................................................... 29
5.3. Proposed funds ....................................................................................................................... 29
5.4.
Portfolio asset allocation ....................................................................................................... 29
5.5.
Portfolio risk analysis ............................................................................................................ 30
6.
Fund fact sheets ............................................................................................................................ 31
7.
Service model ................................................................................................................................ 32
8.
Fees ............................................................................................................................................... 32
9.
Glossary of Investment terminology .............................................................................................. 34
9.1.
Product descriptions .............................................................................................................. 34
9.2.
Asset Classes........................................................................................................................ 37
9.3.
Role-players in Investments .................................................................................................. 38
9.4.
General terms, conditions and exclusions pertaining to collective investment schemes: .... 39
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Confidential
5
1. Financial needs, objectives and risk profile
To conduct an analysis or recommend an appropriate investment solution, our first responsibility is to
determine your investment needs and objectives. You indicated the following during our previous
discussion:
Needs


You requested a proposal limited to your investment assets. The proposal therefore
specifically excludes any advice regarding insurance or medical aids.
You require a proposal with specific reference to the following investment capital:
Voluntary Capital
Product
Momentum Endowment
AIMS Investment
Satrix Investment
Cash
Shares
Total
Contract nr
Rand
R 68 949
R 81 064
R 60 000
R 20 000
R750 000
R980 013
Contract nr
Rand
R346 795
R 5 858
R352 653
Compulsory Capital
Product
Momentum Retirement Annuity
Alexander Forbes Pension Fund
Total

Your income requirement is:
You require a income of

Value
R75 000

Start date
02/2037
Escalation
6%
You require lump sum withdrawals:
Description
N/A

Frequency
Monthly
Value
N/A
Withdrawal Date
N/A
You have an emergency fund available to the value of RXXXXX. (We made the assumption
that the client already have an emergency fund set aside and therefore we have not made
provision for this form the capital available.
The investment proposal must be tax efficient.
Objectives
The fundamental point of departure of any sound investment strategy is that capital growth must
outperform inflation after costs and taxation over the investment term have been taken into account.
This should also be your objective. Our task is to achieve this objective without exposing you to
inappropriate risk.

The objective of this investment is to provide:
(Tick appropriate option below)
Income
X
Capital growth
X
Risk Profile
In answering the risk profile questionnaire you indicated the following:
Your investment must beat inflation
Your investment term is
You prefer a target return of inflation +
Your portfolio should not be exposed to a drawdown over any 12 month period of more than
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Confidential
Yes
10+ years
7%
20%
6
2. Financial calculations and projections
2.1. Description of the cash flow projection
The following tables indicate to what extent the portfolio can achieve the objectives you expressed
earlier, subject to long term growth and inflation assumptions.
The projection highlights all the assets that can contribute to income and growth.
It is also important to note that the assumptions pertaining to the growth of the different asset classes
and risk categories are based on the average actual historical returns that the different asset classes
achieved over the long term.
Nominal values indicate the actual rand value and real values show the buying power in today’s
money terms (after inflation has been taken into account).
2.2. Analysis of cash flow projection
When we conduct a cash flow projection we have to assume that you will be investing your capital
over a specific term. A term of 50 years is merely used to give us an indication of whether your capital
is sufficient to provide for your income requirements over the long term. The projection shows that
based on the assumptions used, your capital will not be sufficient to provide you with an income of
R75 000 per month from age 65 until age 90.
The growth assumptions of each of the risk categories are based on the asset allocation of each
category and the long term historical growth rates of the asset classes. The returns used as
assumptions in the projection are as follows:
Risk Category
Cash
Preserver
Prudent
Long term growth
Growth rate
6%
8%
10%
12%
These growth rates are illustrated after all costs have been taken into account and are based on the
assumption that the long term inflation rate will be 6% per annum.
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Confidential
7
2.3. Cash flow information and assumptions
Cashflow name:
Start date
Term
Inflation rate
Currency
Advisor's ongoing fee (incl. VAT)
LISP's ongoing fee (incl. VAT)
Category
Voluntary
Minimum
Term
Cash
Conserver
Prudent
Growth
3
3
5
0
Description
Cash
Shares
Satrix
Momentum Endowment
Absa Aims Investment
Description
Momentum Retirement Annuity
Alexander Forbes Pension Fund
Description
Momentum Retirement Annuity
Alexander Forbes Pension Fund
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Parameters
Investment Proposal February 2012
01/03/2012
50 year(s)
6.00 %
ZAR
As per quote (scale applies)
As per quote
Yield
Pre-retirement
Minimum
Yield
7.00%
9.00%
11.00%
13.00%
20%
80%
Entities
Tax table
South Africa
Entity name
Dummy Client
20%
80%
Post-retirement
Minimum
Term
7.00%
9.00%
11.00%
13.00%
3
3
5
0
Retirement funds (pre - retirement)
Current value
Contribution
Frequency
346 795
4 171 Monthly
5 858
4 740 Monthly
Retirement value
15 674 369
11 881 062
Retirement fund (flows at retirement)
Cash
Tax
Confidential
Frequency
Escalation
6.00%
6.00%
Living annuity
15 674 369
11 881 062
Yield
7.00%
9.00%
11.00%
13.00%
Voluntary investments and sources included since inception / Immediate applications
Entity
Current value
Income / Contribution
Dummy Client
20 000
Dummy Client
750 000
Dummy Client
60 000
Dummy Client
68 949
Dummy Client
81 064
Entity
Dummy Client
Dummy Client
Tax rate
Retirement date
2037-01-01
2037-01-01
Preservation fund
Escalation
Retirement value
15 674 369
11 881 062
Retirement annuity
8
Description
Entity
Living annuity flowing in from Momentum
Retirement Annuity
Living annuity flowing in from Alexander Forbes
Pension Fund
Living annuity (post - retirement)
Amount flowing in
Current value
after inception
Linked retirement fund
Inflow date
Dummy Client
15 674 369
Momentum Retirement Annuity
2037-01-01
Dummy Client
11 881 062
Alexander Forbes Pension Fund
2037-01-01
Income
Description
Satrix monthly contribution
Momentum monthly investment
AIMS monthly investment
RA premium counter
Entity
Dummy Client
Dummy Client
Dummy Client
Dummy Client
Amount
1 650
834
1 000
4 171
Start date
2012-03-01
2012-03-01
2012-03-01
2012-03-01
Term
24y
9y
24y
24y
10m
10m
10m
10m
Frequency
Monthly
Monthly
Monthly
Monthly
Escalation
Taxable %
Retirement
funding %
Trade in %
Tax
deductible %
6.00%
6.00%
6.00%
6.00%
Expenses
Description
Monthly income required
Momentum Retirement Annuity
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Entity
Dummy Client
Dummy Client
Amount
75 000
4 171
Start date
2037-02-01
2012-03-01
Confidential
Term
50y 0m
24y 10m
Frequency
Monthly
Monthly
Escalation
6.00%
6.00%
9
2.4. Cashflow projection
Year/Age
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
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Cal. year
Total income before tax
2012/2013
2013/2014
2014/2015
2015/2016
2016/2017
2017/2018
2018/2019
2019/2020
2020/2021
2021/2022
2022/2023
2023/2024
2024/2025
2025/2026
2026/2027
2027/2028
2028/2029
2029/2030
2030/2031
2031/2032
2032/2033
2033/2034
2034/2035
2035/2036
2036/2037
2037/2038
2038/2039
2039/2040
2040/2041
2041/2042
2042/2043
2043/2044
91 866
97 378
103 220
109 414
115 978
122 937
130 313
138 132
146 420
152 386
146 589
155 385
164 708
174 590
185 066
196 170
207 940
220 416
233 641
247 660
262 519
278 270
294 967
312 665
276 187
1 653 326
1 752 525
1 857 677
1 969 138
2 087 286
2 212 523
2 345 274
Tax: Mr Dummy Client
-
341 465
361 953
383 670
406 691
431 092
456 957
484 375
Confidential
Total income after tax
91 866
97 378
103 220
109 414
115 978
122 937
130 313
138 132
146 420
152 386
146 589
155 385
164 708
174 590
185 066
196 170
207 940
220 416
233 641
247 660
262 519
278 270
294 967
312 665
276 187
1 311 861
1 390 572
1 474 007
1 562 447
1 656 194
1 755 565
1 860 899
Total expense
50 055
53 058
56 242
59 616
63 193
66 985
71 004
75 264
79 780
84 566
89 640
95 019
100 720
106 763
113 169
119 959
127 157
134 786
142 873
151 446
160 532
170 164
180 374
191 197
472 560
3 662 261
3 881 997
4 114 917
4 361 812
4 623 521
4 900 932
5 194 988
Surplus/Shortfall
41 811
44 320
46 979
49 798
52 785
55 953
59 310
62 868
66 640
67 820
56 949
60 366
63 988
67 827
71 897
76 211
80 783
85 630
90 768
96 214
101 987
108 106
114 592
121 468
- 196 373
- 2 350 401
- 2 491 425
- 2 640 910
- 2 799 365
- 2 967 327
- 3 145 366
- 3 334 088
10
Year/Age
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
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Cal. year
Total income before tax
2044/2045
2045/2046
2046/2047
2047/2048
2048/2049
2049/2050
2050/2051
2051/2052
2052/2053
2053/2054
2054/2055
2055/2056
2056/2057
2057/2058
2058/2059
2059/2060
2060/2061
2061/2062
2 485 991
2 635 150
2 793 259
2 960 855
3 138 506
3 326 816
3 526 425
3 738 011
3 962 292
4 200 029
4 452 031
4 574 071
4 107 109
3 687 711
3 311 023
2 972 493
2 668 226
2 394 723
Tax: Mr Dummy Client
-
513 437
544 244
576 898
611 512
648 203
687 095
728 321
772 020
818 341
867 442
919 488
923 879
725 478
569 259
429 917
321 414
220 045
139 682
Confidential
Total income after tax
1 972 553
2 090 906
2 216 361
2 349 343
2 490 303
2 639 721
2 798 105
2 965 991
3 143 950
3 332 587
3 532 543
3 650 192
3 381 631
3 118 451
2 881 106
2 651 079
2 448 181
2 255 041
Total expense
5 506 687
5 837 088
6 187 314
6 558 552
6 952 066
7 369 189
7 811 341
8 280 021
8 776 823
9 303 432
9 861 638
10 453 336
11 080 536
11 745 368
12 450 090
13 197 096
13 988 922
14 828 257
Surplus/Shortfall
-
3 534 134
3 746 182
3 970 953
4 209 210
4 461 762
4 729 468
5 013 236
5 314 030
5 632 872
5 970 845
6 329 095
6 803 144
7 698 905
8 626 917
9 568 984
- 10 546 017
- 11 540 740
- 12 573 215
11
2.5. Living Annuity Projection
Living annuity projection: Mr Dummy Client
Withdrawal
Year / Age
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
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Cal. year
2012
2012/2013
2013/2014
2014/2015
2015/2016
2016/2017
2017/2018
2018/2019
2019/2020
2020/2021
2021/2022
2022/2023
2023/2024
2024/2025
2025/2026
2026/2027
2027/2028
2028/2029
2029/2030
2030/2031
2031/2032
2032/2033
2033/2034
2034/2035
2035/2036
2036/2037
2037/2038
Inflow
% (calculated)
Growth
Amount
%
Balance
Amount
27 555 430
6.00
- 1 653 326
Confidential
9.81
2 627 525
Nominal
27 555 430
28 529 629
Real
6 420 378
6 271 099
12
Living annuity projection: Mr Dummy Client
Withdrawal
Year / Age
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
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Cal. year
2038/2039
2039/2040
2040/2041
2041/2042
2042/2043
2043/2044
2044/2045
2045/2046
2046/2047
2047/2048
2048/2049
2049/2050
2050/2051
2051/2052
2052/2053
2053/2054
2054/2055
2055/2056
2056/2057
2057/2058
2058/2059
2059/2060
2060/2061
2061/2062
Inflow
Growth
% (calculated)
Amount
%
6.14
6.30
6.48
6.67
6.90
7.15
7.43
7.76
8.14
8.58
9.09
9.70
10.43
11.33
12.43
13.82
15.63
17.50
17.50
17.50
17.50
17.50
17.50
17.50
-
9.75
9.69
9.63
9.56
9.48
9.39
9.28
9.16
9.05
8.92
8.79
8.65
8.50
8.35
8.21
8.07
7.97
7.93
7.92
7.92
7.91
7.90
7.88
7.85
1 752 525
1 857 677
1 969 138
2 087 286
2 212 523
2 345 274
2 485 991
2 635 150
2 793 259
2 960 855
3 138 506
3 326 816
3 526 425
3 738 011
3 962 292
4 200 029
4 452 031
4 574 071
4 107 109
3 687 711
3 311 023
2 972 493
2 668 226
2 394 723
Confidential
Balance
Amount
2 704 101
2 775 616
2 840 623
2 897 456
2 944 198
2 978 655
2 998 320
3 001 412
2 989 405
2 959 609
2 909 030
2 834 352
2 733 946
2 612 602
2 467 242
2 296 557
2 108 584
1 905 717
1 710 547
1 535 212
1 376 564
1 233 825
1 105 352
988 211
Nominal
29 481 205
30 399 144
31 270 630
32 080 800
32 812 474
33 445 855
33 958 184
34 324 446
34 520 592
34 519 346
34 289 870
33 797 406
33 004 927
31 879 518
30 384 469
28 480 997
26 137 550
23 469 195
21 072 633
18 920 134
16 985 674
15 247 006
13 684 132
12 277 619
Real
6 113 457
5 946 989
5 771 205
5 585 592
5 389 608
5 182 683
4 964 219
4 733 737
4 491 309
4 236 931
3 970 533
3 691 990
3 401 340
3 099 397
2 786 834
2 464 387
2 133 598
1 807 341
1 530 928
1 296 744
1 098 265
930 043
787 462
666 532
13
2.6. Pension Fund Projection
Year / Age
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
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Cal. year
2012
2012/2013
2013/2014
2014/2015
2015/2016
2016/2017
2017/2018
2018/2019
2019/2020
2020/2021
2021/2022
2022/2023
2023/2024
2024/2025
2025/2026
2026/2027
2027/2028
2028/2029
2029/2030
2030/2031
2031/2032
2032/2033
2033/2034
2034/2035
2035/2036
2036/2037
2037/2038
Contribution
56 880
60 293
63 910
67 745
71 810
76 118
80 685
85 526
90 658
96 098
101 863
107 975
114 454
121 321
128 600
136 316
144 495
153 165
162 355
172 096
182 422
193 367
204 969
217 267
191 920
Growth (amount)
3 704
10 913
19 365
29 229
40 694
53 973
69 307
86 963
107 245
130 491
157 082
187 444
222 057
261 458
306 247
357 100
414 771
480 106
554 055
637 676
732 158
838 832
959 184
1 094 879
1 037 963
Confidential
Growth (%)
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
Balance
Outflow
Living annuity
5 858
66 442
137 647
220 923
317 896
430 400
560 492
710 484
882 973
1 080 876
1 307 465
1 566 410
1 861 829
2 198 340
2 581 119
3 015 966
3 509 382
4 068 648
4 701 920
5 418 329
6 228 101
7 142 681
8 174 880
9 339 033
10 651 180
- 11 881 062
- 11 881 062
14
2.7. Retirement Annuity Projection
Year / Age
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
Copyright Reserved
Cal. year
2012
2012/2013
2013/2014
2014/2015
2015/2016
2016/2017
2017/2018
2018/2019
2019/2020
2020/2021
2021/2022
2022/2023
2023/2024
2024/2025
2025/2026
2026/2027
2027/2028
2028/2029
2029/2030
2030/2031
2031/2032
2032/2033
2033/2034
2034/2035
2035/2036
2036/2037
2037/2038
Contribution
50 055
53 058
56 242
59 616
63 193
66 985
71 004
75 264
79 780
84 566
89 640
95 019
100 720
106 763
113 169
119 959
127 157
134 786
142 873
151 446
160 532
170 164
180 374
191 197
168 890
Growth (amount)
42 889
53 831
66 399
80 805
97 284
116 101
137 552
161 971
189 730
221 248
256 992
297 488
343 322
395 152
453 715
519 834
594 433
678 543
773 319
880 053
1 000 190
1 135 346
1 287 328
1 458 156
1 373 443
Confidential
Growth (%)
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
Balance
Outflow
Living annuity
346 795
439 739
546 628
669 268
809 689
970 166
1 153 251
1 361 807
1 599 042
1 868 552
2 174 367
2 520 999
2 913 506
3 357 548
3 859 463
4 426 346
5 066 139
5 787 729
6 601 058
7 517 250
8 548 748
9 709 470
11 014 980
12 482 682
14 132 035
- 15 674 369
- 15 674 369
15
2.8. Voluntary Projection
Year / Age
Cal. year
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
2012
2012/2013
2013/2014
2014/2015
2015/2016
2016/2017
2017/2018
2018/2019
2019/2020
2020/2021
2021/2022
2022/2023
2023/2024
2024/2025
2025/2026
2026/2027
2027/2028
2028/2029
2029/2030
2030/2031
2031/2032
2032/2033
2033/2034
2034/2035
2035/2036
2036/2037
2037/2038
2038/2039
2039/2040
2040/2041
2041/2042
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
Copyright Reserved
Total income
91 866
97 378
103 220
109 414
115 978
122 937
130 313
138 132
146 420
152 386
146 589
155 385
164 708
174 590
185 066
196 170
207 940
220 416
233 641
247 660
262 519
278 270
294 967
312 665
276 187
1 311 861
1 390 572
1 474 007
1 562 447
1 656 194
Total
expense
50 055
53 058
56 242
59 616
63 193
66 985
71 004
75 264
79 780
84 566
89 640
95 019
100 720
106 763
113 169
119 959
127 157
134 786
142 873
151 446
160 532
170 164
180 374
191 197
472 560
3 662 261
3 881 997
4 114 917
4 361 812
4 623 521
Voluntary
saving /
withdrawal
Voluntary
saving
41 811
44 320
46 979
49 798
52 785
55 953
59 310
62 868
66 640
67 820
56 949
60 366
63 988
67 827
71 897
76 211
80 783
85 630
90 768
96 214
101 987
108 106
114 592
121 468
- 196 373
- 2 350 401
- 2 491 425
- 2 640 910
- 2 799 365
- 2 967 327
Voluntary
withdrawal
Growth
(amount)
115 904
134 333
155 198
178 800
205 476
235 603
269 602
307 945
351 160
399 688
453 341
512 716
579 386
654 221
738 195
832 395
929 215
1 026 125
1 131 589
1 243 311
1 332 318
1 423 270
1 511 699
1 558 663
1 584 270
1 540 472
1 431 949
1 297 683
1 134 670
970 029
Confidential
Growth
(%)
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.60
11.49
11.28
11.08
10.87
10.43
10.01
9.60
8.97
8.38
7.98
7.76
7.50
7.14
6.85
Inflow
Voluntary
value
(Nominal)
980 013
1 137 728
1 316 381
1 518 558
1 747 156
2 005 417
2 296 973
2 625 885
2 996 699
3 414 499
3 882 007
4 392 296
4 965 378
5 608 751
6 330 800
7 140 892
8 049 498
9 059 496
10 171 251
11 393 608
12 733 133
14 167 438
15 698 814
17 325 106
19 005 237
20 393 134
19 583 205
18 523 729
17 180 502
15 515 807
13 518 509
Voluntary
value (Real)
980 013
1 073 329
1 171 574
1 275 010
1 383 911
1 498 565
1 619 275
1 746 364
1 880 166
2 021 037
2 167 692
2 313 807
2 467 641
2 629 602
2 800 119
2 979 645
3 168 655
3 364 374
3 563 435
3 765 736
3 970 251
4 167 429
4 356 501
4 535 665
4 693 886
4 751 572
4 304 585
3 841 228
3 361 024
2 863 547
2 353 709
16
Year / Age
Cal. year
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
2042/2043
2043/2044
2044/2045
2045/2046
2046/2047
2047/2048
2048/2049
2049/2050
2050/2051
2051/2052
2052/2053
2053/2054
2054/2055
2055/2056
2056/2057
2057/2058
2058/2059
2059/2060
2060/2061
2061/2062
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
Copyright Reserved
Total income
1 755 565
1 860 899
1 972 553
2 090 906
2 216 361
2 349 343
2 490 303
2 639 721
2 798 105
2 965 991
3 143 950
3 332 587
3 532 543
3 650 192
3 381 631
3 118 451
2 881 106
2 651 079
2 448 181
2 255 041
Total
expense
4 900 932
5 194 988
5 506 687
5 837 088
6 187 314
6 558 552
6 952 066
7 369 189
7 811 341
8 280 021
8 776 823
9 303 432
9 861 638
10 453 336
11 080 536
11 745 368
12 450 090
13 197 096
13 988 922
14 828 257
Voluntary
saving /
withdrawal
- 3 145 366
- 3 334 088
- 3 534 134
- 3 746 182
- 3 970 953
- 4 209 210
- 4 461 762
- 4 729 468
- 5 013 236
- 5 314 030
- 5 632 872
- 5 970 845
- 6 329 095
- 6 803 144
- 7 698 905
- 8 626 917
- 9 568 984
- 10 546 017
- 11 540 740
- 12 573 215
Voluntary
saving
Voluntary
withdrawal
Growth
(amount)
797 554
598 726
408 931
215 588
- 2 429
Confidential
Growth
(%)
6.60
6.21
6.00
6.00
6.00
Inflow
Voluntary
value
(Nominal)
11 170 697
8 435 335
5 310 132
1 779 539
Voluntary
value (Real)
1 834 841
1 307 118
776 268
245 419
17
Voluntary Allocation
Year / Age
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
Copyright Reserved
Cal. year
2012
2012/2013
2013/2014
2014/2015
2015/2016
2016/2017
2017/2018
2018/2019
2019/2020
2020/2021
2021/2022
2022/2023
2023/2024
2024/2025
2025/2026
2026/2027
2027/2028
2028/2029
2029/2030
2030/2031
2031/2032
2032/2033
2033/2034
2034/2035
2035/2036
2036/2037
2037/2038
2038/2039
2039/2040
2040/2041
2041/2042
2042/2043
2043/2044
Nominal Balance
980 013
1 137 728
1 316 381
1 518 558
1 747 156
2 005 417
2 296 973
2 625 885
2 996 699
3 414 499
3 882 007
4 392 296
4 965 378
5 608 751
6 330 800
7 140 892
8 049 498
9 059 496
10 171 251
11 393 608
12 733 133
14 167 438
15 698 814
17 325 106
19 005 237
20 393 134
19 583 205
18 523 729
17 180 502
15 515 807
13 518 509
11 170 697
8 435 335
Real Balance
980 013
1 073 329
1 171 574
1 275 010
1 383 911
1 498 565
1 619 275
1 746 364
1 880 166
2 021 037
2 167 692
2 313 807
2 467 641
2 629 602
2 800 119
2 979 645
3 168 655
3 364 374
3 563 435
3 765 736
3 970 251
4 167 429
4 356 501
4 535 665
4 693 886
4 751 572
4 304 585
3 841 228
3 361 024
2 863 547
2 353 709
1 834 841
1 307 118
Cash (6.00 %)
174 772
2 277 106
4 631 092
7 051 202
7 474 274
7 922 731
8 398 095
8 901 980
9 436 099
10 002 265
8 435 335
Confidential
1.11
13.14
24.37
34.58
38.17
42.77
48.88
57.37
69.80
89.54
100.00
Conserver (8.00 %)
133 648
1 743 984
3 579 124
5 494 455
5 824 122
6 173 569
6 543 983
6 936 622
7 352 820
7 793 989
6 613 827
4 082 410
1 168 432
1.17
13.70
25.26
35.00
33.62
32.48
32.09
35.42
39.69
45.37
42.63
30.20
10.46
Prudent (10.00 %)
196 003
227 546
263 276
303 712
349 431
401 083
459 395
525 177
599 340
682 900
776 401
878 459
993 076
1 121 750
1 266 160
1 428 178
2 048 961
3 272 042
4 678 523
6 168 476
6 538 584
6 930 900
7 346 754
7 787 559
8 200 576
6 797 948
5 172 308
3 248 178
988 418
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
25.45
36.12
46.00
54.14
51.35
48.92
46.80
44.95
43.15
33.33
26.41
17.54
5.75
Growth (12.00 %)
784 010
910 183
1 053 105
1 214 846
1 397 724
1 604 334
1 837 579
2 100 708
2 397 359
2 731 599
3 105 605
3 513 837
3 972 302
4 487 001
5 064 640
5 712 714
6 000 537
5 787 454
5 492 728
5 091 484
4 450 565
3 657 415
2 682 835
1 436 319
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
74.55
63.88
54.00
44.69
34.95
25.82
17.09
8.29
18
Year / Age
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
Copyright Reserved
Cal. year
2044/2045
2045/2046
2046/2047
2047/2048
2048/2049
2049/2050
2050/2051
2051/2052
2052/2053
2053/2054
2054/2055
2055/2056
2056/2057
2057/2058
2058/2059
2059/2060
2060/2061
2061/2062
Nominal Balance
5 310 132
1 779 539
Real Balance
776 268
245 419
Cash (6.00 %)
5 310 132
1 779 539
Confidential
Conserver (8.00 %)
Prudent (10.00 %)
Growth (12.00 %)
100.00
100.00
19
2.9. Total Investment Projection
PROJECTION
ALLOCATION
VALUE
Yr
Age
Cal. year
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
2012
2012/2013
2013/2014
2014/2015
2015/2016
2016/2017
2017/2018
2018/2019
2019/2020
2020/2021
2021/2022
2022/2023
2023/2024
2024/2025
2025/2026
2026/2027
2027/2028
2028/2029
2029/2030
2030/2031
2031/2032
2032/2033
2033/2034
2034/2035
2035/2036
2036/2037
2037/2038
Copyright Reserved
Saving /
withdrawal
148 746
157 671
167 131
177 159
187 788
199 055
210 999
223 659
237 078
248 484
248 453
263 360
279 162
295 911
313 666
332 486
352 435
373 581
395 996
419 756
444 941
471 638
499 936
529 932
164 437
- 4 003 727
Growth
Nominal
162 498
199 076
240 962
288 834
343 454
405 677
476 461
556 880
648 135
751 427
867 415
997 648
1 144 765
1 310 831
1 498 157
1 709 329
1 938 418
2 184 774
2 458 962
2 761 040
3 064 666
3 397 447
3 758 210
4 111 698
3 995 676
4 167 997
1 332 666
1 643 909
2 000 656
2 408 749
2 874 741
3 405 983
4 010 716
4 698 176
5 478 714
6 363 927
7 363 838
8 479 705
9 740 713
11 164 640
12 771 382
14 583 205
16 625 019
18 915 873
21 474 228
24 329 187
27 509 982
31 019 590
34 888 675
39 146 821
43 788 451
47 948 564
48 112 834
Cash
Real
1 332 666
1 550 858
1 780 577
2 022 432
2 277 064
2 545 149
2 827 396
3 124 555
3 437 413
3 766 799
4 111 929
4 467 003
4 840 836
5 234 419
5 648 794
6 085 062
6 544 377
7 024 682
7 523 362
8 041 113
8 577 743
9 124 580
9 681 785
10 248 530
10 814 808
11 171 950
10 575 683
Amount
174 772
2 277 106
4 631 092
12 011 180
12 731 851
Confidential
Conserver
%
0.50
5.82
10.58
25.05
26.46
Amount
133 648
1 743 984
3 579 124
5 494 455
5 824 122
6 173 569
11 147 172
11 816 002
Prudent
%
0.55
6.34
11.54
15.75
14.88
14.10
23.25
24.56
Amount
266 533
328 782
400 131
481 750
574 948
681 197
802 143
939 635
1 095 743
1 272 785
1 472 768
1 695 941
1 948 143
2 232 928
2 554 276
2 916 641
3 764 065
5 243 318
6 939 118
8 755 592
9 493 954
10 301 330
11 184 726
12 151 902
13 157 219
12 952 970
11 696 631
Growth
%
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
20.00
22.64
27.72
32.31
35.99
34.51
33.21
32.06
31.04
30.05
27.01
24.31
Amount
1 066 133
1 315 127
1 600 525
1 926 999
2 299 793
2 724 787
3 208 573
3 758 541
4 382 971
5 091 142
5 891 070
6 783 764
7 792 571
8 931 712
10 217 105
11 666 564
12 860 954
13 672 555
14 535 110
15 439 947
16 272 045
17 139 136
18 034 723
18 893 691
19 826 572
11 837 243
11 868 351
%
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
80.00
77.36
72.28
67.69
63.46
59.15
55.25
51.69
48.26
45.28
24.69
24.67
20
PROJECTION
ALLOCATION
VALUE
Yr
Age
Cal. year
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
2038/2039
2039/2040
2040/2041
2041/2042
2042/2043
2043/2044
2044/2045
2045/2046
2046/2047
2047/2048
2048/2049
2049/2050
2050/2051
2051/2052
2052/2053
2053/2054
2054/2055
2055/2056
2056/2057
2057/2058
2058/2059
2059/2060
2060/2061
2061/2062
Copyright Reserved
Saving /
withdrawal
-
4 243 950
4 498 587
4 768 502
5 054 613
5 357 889
5 679 363
6 020 124
6 381 332
6 764 212
7 170 065
7 600 268
8 056 285
8 539 662
9 052 041
9 595 164
10 170 874
10 781 126
11 377 215
11 806 014
12 314 628
12 880 008
13 518 510
14 208 966
14 967 939
Growth
Nominal
4 136 050
4 073 299
3 975 294
3 867 485
3 741 752
3 577 381
3 407 251
3 217 000
2 986 976
2 959 609
2 909 030
2 834 352
2 733 946
2 612 602
2 467 242
2 296 557
2 108 584
1 905 717
1 710 547
1 535 212
1 376 564
1 233 825
1 105 352
988 211
48 004 934
47 579 646
46 786 437
45 599 309
43 983 171
41 881 190
39 268 316
36 103 985
34 520 592
34 519 346
34 289 870
33 797 406
33 004 927
31 879 518
30 384 469
28 480 997
26 137 550
23 469 195
21 072 633
18 920 134
16 985 674
15 247 006
13 684 132
12 277 619
Cash
Real
9 954 685
9 308 013
8 634 752
7 939 302
7 224 449
6 489 800
5 740 487
4 979 156
4 491 309
4 236 931
3 970 533
3 691 990
3 401 340
3 099 397
2 786 834
2 464 387
2 133 598
1 807 341
1 530 928
1 296 744
1 098 265
930 043
787 462
666 532
Amount
13 495 762
14 305 507
15 163 838
16 073 668
17 038 088
15 893 307
13 215 583
10 159 316
8 882 564
9 415 518
9 980 449
10 579 276
11 214 033
11 886 875
12 470 965
12 422 505
11 730 752
10 532 881
9 456 826
8 489 974
7 620 982
6 839 630
6 210 342
5 648 756
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Conserver
%
28.11
30.07
32.41
35.25
38.74
37.95
33.65
28.14
25.73
27.28
29.11
31.30
33.98
37.29
41.04
43.62
44.88
44.88
44.88
44.87
44.87
44.86
45.38
46.01
Amount
12 524 962
13 276 460
12 425 246
10 242 514
7 698 142
6 921 493
7 336 782
7 776 989
8 243 609
8 738 225
9 262 519
9 719 530
9 691 474
9 159 687
8 224 360
7 384 153
6 629 218
5 950 695
5 340 607
4 848 071
4 409 564
4 020 496
3 605 886
3 234 032
Prudent
%
26.09
27.90
26.56
22.46
17.50
16.53
18.68
21.54
23.88
25.31
27.01
28.76
29.36
28.73
27.07
25.93
25.36
25.36
25.34
25.62
25.96
26.37
26.35
26.34
Amount
10 163 961
8 319 147
7 770 573
8 236 808
8 731 016
9 254 877
9 754 234
9 992 116
9 952 828
9 616 766
8 960 106
8 044 695
7 222 243
6 483 061
5 850 320
5 284 602
4 779 573
4 329 591
3 929 798
3 524 541
3 161 075
2 835 092
2 542 726
2 280 509
Growth
%
21.17
17.48
16.61
18.06
19.85
22.10
24.84
27.68
28.83
27.86
26.13
23.80
21.88
20.34
19.25
18.55
18.29
18.45
18.65
18.63
18.61
18.59
18.58
18.57
Amount
11 820 250
11 678 531
11 426 780
11 046 319
10 515 925
9 811 513
8 961 716
8 175 563
7 441 591
6 748 836
6 086 796
5 453 904
4 877 177
4 349 896
3 838 823
3 389 737
2 998 007
2 656 029
2 345 403
2 057 549
1 794 052
1 551 787
1 325 178
1 114 322
%
24.62
24.55
24.42
24.22
23.91
23.43
22.82
22.64
21.56
19.55
17.75
16.14
14.78
13.64
12.63
11.90
11.47
11.32
11.13
10.87
10.56
10.18
9.68
9.08
21
2.10.
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3. Investment principles and our investment solution
3.1. Timeless investment principles
Certain investment principles have stood the test of time. These principles should form the basis of
any investor’s fundamental approach to investing:









Determine clear investment objectives
Make sure that you have a long term investment strategy
Understand the impact of inflation on the buying power of your money
Determine the minimum return required over the investment term to achieve your objective.
This should be your benchmark to measure performance.
Make sure that your portfolio is well diversified between different asset classes in accordance
with your investment time horizon
Any investment implies risk and return and as a result, investors should remember that a
successful investment is one that achieves a specific return over the selected investment term
while at the same time the investment risk was carefully considered
Define your overall portfolio risk (potential downside over any one year) and make sure that
you are comfortable with it
Make sure you understand the character, volatility and long term returns of the different asset
classes to ensure that you can make informed investment decisions, not only at the outset,
but also over your entire investment term
Keep to your plan and don’t allow emotion to influence your investment decisions
These principles are key to any successful long term investment strategy and as a result we apply
these principles when we accept the responsibility of managing your investments.
3.2. Our Investment Solution
The lifestyle objective of our client is the starting point of our investment solution. The goal is to
determine the minimum return that will achieve the financial objectives of the client. This target return
dictates the risk budget of the portfolio, which ultimately determines the weighting of the asset
classes in the overall portfolio. This target return is expressed as a percentage above inflation. This
means that each client’s investment solution is unique as it is based on the capital available, the cash
flow requirements, lifestyle needs and risk profile of the client. The cash flow approach for managing
the portfolio means that capital allocated to be used in the short term must be exposed to very low to
no risk asset classes, for example cash. That offers an opportunity to allocate the balance of the
capital to asset classes that may be more volatile over the short term, but on average delivers higher
returns over the long term.
The concept of time diversification ensures that risk is taken where it is appropriate and reduces the
risk of our clients withdrawing money at a loss. There is no argument that equities is the asset class
that produces the best returns over the long term and therefore is the best protection against the
effect of inflation. This is an essential asset class for any investment portfolio that targets inflation
beating returns over the medium to long term. However, it is also the asset class that can be the most
volatile (move up and down) over the short term. Research shows that the market moves in cycles of
between 8 – 10 years and that the probability of achieving a growth rate of 7-8% above inflation over
such a period is high. The principle is therefore to take the biggest equity exposure on that portion of
your capital which will be invested for at least 7-10 years and use progressively smaller weightings of
equity exposure as the investment term decreases.
Our proposed investment solution is based on the following strategy and is best described by the
illustration below:
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3.2.1.Income
We recommend that income should be withdrawn from money market type investments. Based on
your cash flow projection we will invest a portion of your capital equal to the first 3 years income
requirements in a money market investment. This ensures that there is no significant market risk that
may negatively impact these funds. In view of the fact that the investment return (interest) will be
close to inflation, it will not adversely affect the buying power of these short term funds. The purpose
of this investment category is to ensure that the client’s income comes from a secure source that
offers stable returns. During our ongoing investment reviews we will make recommendations about
topping up this part of the portfolio from time to time.
3.2.2. Capital growth
The objective of any investment with a medium to long term horizon should be to beat inflation after
taxation and costs. We do however understand that not all investors can handle the ups and downs of
the equity markets. It is for this reason that we follow a strategy of allocating investment capital to
three risk categories. The weighting of each category in your portfolio will be a function of the target
return as determined in the cash flow projection and your risk budget as set out in your risk profile.
These categories can best be described as follows:
3.2.2.1. Capital protection category
The primary objective of this category is to produce stable inflation beating growth over a minimum
investment term of 3 years. The target return of this category is inflation plus 3% over a rolling 3 year
period.
This category is structured to not lose more than 2% of its value in any 12 month period in adverse
market conditions.
3.2.2.2. Capital preservation category
The primary objective of this category is to produce reasonable inflation beating growth over a
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minimum term of 5 years. The target return of this category is inflation plus 5% over a rolling 5 year
period.
This category is structured to not lose more than 10% of its value in any 12 month period in adverse
market conditions.
3.2.2.3. Long term growth category
The primary objective of this category is to produce high inflation beating growth over the long term.
Only funds that has an investment term of 10 years or longer will be invested in this category. The
return objective of this category is inflation plus 7% over a rolling 7 year period.
Short term volatility is disregarded and therefore this category could lose up to 20% of its value in any
12 month period should adverse market conditions prevail.
4. Financial planning and recommendations
4.1. Proposals and Recommendations
The total amount available for investment is R1 326 808.
Based on your requests the following recommendations are made:
4.1.1. Financial Planning
You want to retire at age 65 which is still 25 years away. On retirement you wish to withdraw an
income of R75 000 (present value). According to the cash flows, your current savings will not be
enough to provide you with the required income from age 65 to age 90.
According to our calculations, a more sustainable withdrawal will be R50 000 (present value) so
should you wish not to adjust your income needs on retirement, the only solution will be to increase
your savings towards your retirement funds.
The proposed portfolio before retirement should have an average return of 11.6%.
4.1.2. Portfolio Structure
The proposed portfolio has an average return of inflation plus 5.6% after costs.
In view of your stated investment objective over a term of 50 years, it is recommended that your funds
are initially distributed between 4 risk categories:


Capital preservation
Long term capital growth
The allocation to the different risk categories is determined by:






Your objective
Your needs
Your investment return expectation
Your investment term
Your risk profile
Sound fundamental principles that apply to long term investing
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This structure will expose the portfolio to a maximum potential drawdown of 18.2% over a 12 month
period should adverse market conditions prevail.
The actual weighting into each category is shown in section 5 below.
4.1.3. LISP
It is proposed that your capital be invested with company XXXX. Our company has a good
relationship and has secured good rates for our clients with them. They will be responsible for the
administration of the portfolio.
4.1.4. Proposed funds
The funds to be used for the capital in the preserver category are the Amity Prudent Fund of Funds
The Amity Fund will give you exposure to 4 of the best types of capital preservation funds in the
country while the Coronation Fund will give you exposure to offshore assets.
The capital in the growth category will be invested in the following funds which will provide local equity
exposure: Satrix Divi Plus Fund & Satrix Rafi Plus Fund. The following funds will also be used: 36One
Flexible Opportunity Fund & Coronation Global Managed Fund.
4.1.5. Taxation
Any capital gains or income earned by your investments in the retirement annuity as well as the living
annuity will not incur any tax implications. The funds you withdraw from the living annuity will however
be added to your other sources of income and taxed at your marginal rate.
The voluntary capital will earn interest, which will be taxed. However, the first R22 800 interest earned
will be exempt from tax and the interest earned above this amount will be added to your taxable
income and taxed at your marginal rate.
4.2. Product specific recommendations
Momentum Endowment
The proposal is to keep this investment as well as the monthly contribution but to change the funds
according to the strategy set out in section 5.
AIMS Investment
The proposal is to keep this investment as well as the monthly contribution but to change the funds
according to the strategy set out in section 5.
Satrix Investment
The proposal is that the funds remain with Satrix but that the following funds be used: Satrix Divi Plus
Fund & Satrix Rafi Plus Fund.
Cash
We propose that these fund be added to XXXXX and invested according to the strategy set out in
section 5. (We have assumed that the client has made provision for an emergency fund and therefore
included this in the investable capital.)
Bidvest Shares
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We propose that the Bidvest shares remain unchanged.
Momentum Retirement Annuity
This capital should remain with Momentum but the fund allocation should be changed according to
the strategy set out in section 5 below.
Alexander Forbes Pension Fund
See that we are not the administrators of the pension fund, it will remain unchanged.
5. Proposed investment solution
5.1. Source of funds
The funds available for investment are:
Voluntary Capital
Momentum Endowment
AIMS Investment
Satrix Investment
Cash
Shares
Less: Initial fee
Less: Provision for Emergency fund (Assumption made that this is provided for)
Nett Voluntary capital
R 68 949
R 81 064
R 60 000
R 20 000
R750 000
R
0
R
0
R980 013
Compulsory Capital
Momentum Retirement Annuity
Alexander Forbes Pension Fund
Less: Pension fund (not to be allocated according to strategy)
Less: Initial fee
Nett Compulsory capital
R346 795
R 5 858
R 5 858
R
R346 795
Total Capital available for investment
R1 326 808
5.2. Proposed category allocation
To achieve the stated objectives and target return the portfolio should be allocated to the risk
categories as follows:
5.2.1. Voluntary Capital
Risk Category
Cash
Capital Protection
Capital Preservation
Long term growth
Total
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Rand
R
0
R
0
R170 013
R810 000
R980 013
Confidential
Weighting (%)
0.00%
0.00%
17.00%
83.00%
100.00%
28
5.2.2. Compulsory Capital
Risk Category
Cash
Capital Protection
Capital Preservation
Long term growth
Total
Rand
R 0
R 0
R 69 359
R277 436
R346 795
Weighting (%)
0.00%
0.00%
20.00%
80.00%
100.00%
5.3. Proposed funds
To align the portfolio with the target return, risk budget, category and asset allocation, the following
funds are recommended:
5.3.1 Voluntary Funds - demo
Risk Category
Cash
Capital Protection
Capital Preservation
Long term growth
Proposed Funds
N/A
Nedgroup Core Gaurded ETF
Investec Opportunity
Foord Balanced
Investec Share Portfolio
Coronation Top 20
Nedgroup Quants Core ETF
Rand
R
0
R
0
R85,006.00
R85,007.00
R270,000.00
R270,000.00
R270,000.00
5.3.2 Compulsory Funds - demo
Risk Category
Cash
Capital Protection
Capital Preservation
Long term growth
Proposed Funds
N/A
Nedgroup Core Gaurded ETF
Coronation balanced plus
Allan Gray Balanced
Foord Balanced
Investec Capital Share Portfolio
Investec Opportunity
Coronation Top 20
Nedgroup Quants Core ETF
Rand
R
0
R
0
R23,119.00
R23,119.00
R23,119.00
R69,358.50
R69,358.50
R69,358.50
R69,358.50
5.4. Portfolio asset allocation
If our proposal is implemented your overall portfolio asset allocation will be as follows:
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5.5. Portfolio risk analysis
The following graph shows the target return of the different investment categories, the worst potential
performance of each category in adverse market conditions as well as the best possible performance
of each category should exceptional market conditions prevail. The red bars show the maximum
drawdown i.e. loss of each category over any 12 month period, if adverse market conditions should
prevail. The blue bars indicates the best possible performance of each category based on the asset
allocation parameters of each category and the best historical performance of each asset class. The
highlighted numbers show the average long term target return of each category.
The graph on the far right hand side indicates the maximum potential performance over a 12 month
period, the average long term target return and maximum drawdown over any 12 month period of the
proposed portfolio. The target returns and potential drawdown of each category is determined by the
weighting in each asset class and the long term average growth or drawdown of each asset class
based on 20 year actual statistics.
The graph shows that if the proposed portfolio structure is implemented your target return would be
inflation plus 5.6% after costs (total return 11.6% per annum) and the maximum drawdown of your
portfolio over any 12 month period could be -18.2%. The best possible performance over a 12 month
period of the proposed portfolio is 33%.
However, if you are not comfortable with the proposed risk profile of your portfolio, you are required to
indicate to us what would suite your risk profile better. Please note that, should a lower risk lead to a
lower target return, it may lead to the portfolio not being able to achieve your stated objective. If you
do not wish to implement the proposed investment strategy, please inform us of your request and/or
your proposed alternative strategy in writing.
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6. Fund fact sheets
The key features of each of the proposed funds are shown in the attached fund fact sheets. Please
ensure that you read and understand the character, mandate and the terms and conditions of each
fund.
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7. Service model
Our continuous service value proposition to you include the following:
1. Professional financial planning
a. Develop a sound financial plan in accordance with your objectives and risk profile
based on sound financial planning principles, the latest tax legislation and new
developments in the investment environment
b. Construction of your unique investment portfolio
2. Compliance with legislation, i.e.
a. The Financial Advisory and Intermediary Services Act
b. The Financial Intelligence Centre Act
c. The Consumer Protection Act
d. King III™
e. The Income Tax Act
f. The Estate Duty Act
g. The Long term Insurance Act
h. The Collective Investment Scheme Control Act
3. Research and selection of
a. Trusted investment management companies
b. Quality fund managers
c. Efficient investment administrators
4. Negotiation with fund managers and administrators to optimize fees and
ensure optimal service
5. Continuous portfolio administration
a. Facilitation of investment transactions
b. Facilitation and resolving ad-hoc enquiries
6. Continuous communication
a. Personalised quarterly reports which highlights your progress in accordance with your
investment objectives
b. Regular newsletters
7. Providing ongoing advice and intermediary services
a. You have access to the services of a dedicated professional financial advisor
8. Regular reviews of your financial plan and portfolio construction
9. Continuous monitoring of fund performance and adjustments as required from
time to time
8. Fees
It is always a challenge to find the balance between offering a good service value proposition and to
be paid fairly for quality advice and service. Fees are part of any professional service and as you will
see the fees you pay is market related and competitive.
It is important to understand that there are different role players that are working together to achieve
your investment objectives and as a result there are separate fees that apply to your investments.
Each role player in the investment chain plays a vital role in delivering a quality, safe and secure
investment solution to you within the framework of current legislation. Without the collaboration of
each of the role players it will not be possible to achieve your long term objectives.
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The fees with regards to your portfolio are as follows:
Advisor
Administration (LISP)
Fund manager
Initial Fee (once off)
Annual Fees
See quote
See quote
See quote
See quote
See quote
See fund fact sheet (TER)
Note: Fees exclude VAT
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9. Glossary of Investment terminology
9.1. Product descriptions
9.1.1. Unit Trust
A unit trust is a collective savings vehicle managed on behalf of its unit holders by professional
investment managers. The investor buys units in the trust which is held on behalf of the owner by
trustees. A unit entitles the investor to a proportional ownership in each of the underlying assets held
by the fund and the investor shares proportionally in any income earned by the assets. It allows
individual investors to diversify their portfolio between different asset classes and different shares. A
Unit Trust must register with the Financial Services Board and may only invest in assets as specified
by its mandate.
Unit trusts are classified according to many different categories and investors must familiarize
themselves with the terms and conditions of the fund. It is important for investors to know what the
investment horizon, risk profile and benchmark is of a fund.
Money invested in a unit trust is easily accessible and can usually be withdrawn within days.
Dependent on the underlying asset classes used in the fund, it can earn interest, dividends and have
capital gains or losses. Tax is paid on interest earned or on any capital gains made when the units are
sold.
9.1.2. Living Annuity
Living annuities are used as post retirement investment vehicles. Pre-retirement funds can be
transferred from a pension, provident, preservation fund or a retirement annuity into a living annuity at
retirement. These investments are regulated by the Financial Services Board and in terms of the
Pension Funds Act.
Legislation makes it compulsory for an investor to withdraw between 2.5% and 17.5% of the capital
value annually as a pension income. The withdrawal rate can be adjusted only once a year on the
anniversary date of the Living annuity. No lump sum withdrawals can be made from a Living annuity
Any capital gain and income earned on the funds accrues fully to the investor, however any capital
losses are also for the investors own account. The benefit of the Living annuity is that the capital stays
the property of the investor, but is not subject to estate duty and may be bequeathed to his/her
beneficiaries at death.
Any interest or dividends earned in the Living annuity as well as any Capital gains are tax free. The
investor is taxed in his/her own name based on the withdrawals made from the Living annuity and the
tax rate is dependent on the amount withdrawn and income earned from other sources.
The capital in the Living annuity is invested in Unit Trusts and the investor has the flexibility to move
from one fund to another. It is very important that the Living annuity capital is managed in line with the
return expectation and risk budget of the investor. It is also important to manage the withdrawal rate
to ensure sustainability of income over the long term.
9.1.3. Retirement Funds
The vehicles available for retirement savings are: retirement annuities, pension funds, provident funds
and preservation funds. All these vehicles are regulated by the Financial Services Board as well as
the Pension Funds Act.
These vehicles can be bequeathed to a beneficiary and does not form part of one’s estate at death.
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Contributions made to these vehicles are tax deductable up to certain percentages as prescribed by
tax legislation. Any interest, dividends earned or capital gain made in the retirement fund is tax free.
At retirement there are further tax benefits. The first R315 000 of any lump sum withdrawal at
retirement from an investors retirement fund is tax free. A tax sliding scale is applied to any amounts
above R300 000. Except for a small tax free portion, any withdrawal from a retirement fund before
retirement is taxable at the investor’s marginal tax rate.
The liquidity of these retirement funds are however limited by certain rules dependent on the type of
fund as described below.
9.1.3.1 Retirement annuities
This vehicle is often used by people whose employer does not provide a pension or provident fund.
People who do have a pension or provident fund to which they contribute can however under certain
circumstances also contribute to a retirement annuity.
Present tax legislation determines that any natural person may contribute 15% of their nonpensionable income to a retirement annuity. This contribution is tax deductable. Any contribution
above this amount also has tax benefits but it accrues only at retirement.
There are two types of retirement annuities namely unit trust linked retirement annuities and those
provided by the life companies. The unit trust linked retirement annuities are flexible in that they are
invested with a linked investment service provider (LISP) which allows the investor to move his/her
funds from one unit trust to another allowing for more active management and construction of an
investment portfolio to fit the individual’s personal needs.
The unit trust linked retirement annuity also allows the individual to change his/her contributions, to
make lump sum contributions or even to stop and start contributions without being penalized.
Legislation also allows the transfer of retirement annuities between administrators. If it is a life
assurance (underwritten) retirement annuity, penalties may be payable. If it is a unit trust-based
retirement annuity, penalties are not normally applied.
9.1.3.2 Pension fund
A pension fund is a savings vehicle set up by an employer to help employees save for retirement. The
employee and the employer make contributions to the fund which accrues to the employee at
retirement. These contributions are tax deductable within limits set by the treasury annually in the
budget. The contributions are usually a percentage of the remuneration package or salary of the
employee.
An employee may not withdraw from the pension fund until retirement age which is set by the rules of
the fund. Many funds allow retirement from age 55.
At retirement the employee may withdraw 1/3 of the capital value and the remainder of the funds must
be used to buy a pension i.e. a fixed retirement annuity or a living annuity.
Any interest, dividends or capital gains earned in the pension fund is tax free.
Two types of pension funds can be distinguished namely the defined benefit plan and the defined
contribution plan. Most pension funds today are defined contribution plans.
A defined benefit plan pays a fixed monthly pension and the employer carries all the risk of the fund
not being able to pay all its pension members their monthly income. Any shortfall must then be
financed by the employer.
In the case of a defined contribution plan the employer’s responsibility is limited to the contributions
made while the person was in the employment of the company. At retirement the employee is
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responsible to buy his/her own pension and manage it. Any investment growth and interest or
dividends is for the benefit of the employee. The employee carries the risk that the capital is not
sufficient to provide in his/her pension income.
9.1.3.3. Provident fund
A provident fund is similar to a pension fund but differs in the sense that at retirement the employee
has the option of withdrawing all the pension capital and not only the 1/3 as with a pension fund.
Contributions made by an employee is also not tax deductable and in these cases the employer
makes the full monthly contribution which the company can deduct from taxable income.
9.1.3.4. Preservation fund
A preservation fund is a vehicle in which a pension fund or provident fund payout is “parked” when a
person resigns from a job before reaching retirement age or when someone is retrenched from a job.
The capital is transferred tax free and the rules of the original fund applies to the capital until the
investor retires from the preservation fund. Dependent on the rules of the fund an investor is allowed
to make one withdrawal from the preservation fund before retirement. Any withdrawal will be taxed
according to the ruling tax legislation.
Once the capital has been transferred into the preservation fund no additional contributions can be
made into the preservation fund i.e. monthly premiums or ad-hoc contributions.
A preservation fund allows for the active management of the fund and if a preservation fund is
selected with a linked investment services provider (LISP) most unit trusts can be selected. Pension
fund legislation however forces investors to have at least 25% of the capital in prudent type asset
classes i.e. money market and bond type investments.
Any interest, dividends or capital gains earned in the preservation fund is tax free.
The preservation fund allows the investor to plan his/her retirement from the fund within the limitations
of the original funds rules.
Two types of preservation funds can be distinguished namely a pension preservation fund and a
provident preservation fund. The type of preservation fund will be determined by whether the original
fund was a pension or provident fund.
9.1.4. Endowment policy
This product is an investment vehicle that holds an underlying investment fund. A client will invest
after tax capital into this product which will then be invested in a unit trust or a life insurance
company’s asset management fund. A decision to use an endowment vehicle should primarily be
made for tax and estate planning reasons, and not for investment reasons.
In the case of an endowment, tax on investment income is withheld at source (in the endowment) by
the administrator at a rate of 30% for a natural person and 40% if the owner of the policy is a trust.
Capital gains tax (CGT) will also be withheld by the administrator once the underlying investment
within the endowment has matured.
An endowment is a long-term investment vehicle by nature, with the minimum maturity period being
five years. It is possible to access some funds before the five year period in the event of an
emergency, but there are some restrictions. It is possible to withdraw contributions plus 5% compound
interest, but there are limited withdrawal opportunities.
It is possible to appoint a beneficiary on an endowment policy. In the event of the owner’s death,
proceeds could therefore be paid relatively quickly to a beneficiary, and no executor fees would be
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paid. It is also possible to cede an endowment policy as security for a loan, and it is possible to have
joint owners on an endowment policy.
An endowment policy could be appropriate for trusts, offshore investments or high net worth clients
whose marginal tax rate exceeds 30%.
9.2. Asset Classes
9.2.1 Money Market
An investment into a money market instrument is very often seen as a low risk investment since the
probability of losing capital is very low. The vehicles used for these kinds of investments are bank
instruments which have a maturity shorter than 12 months. This means that the capital value is repaid
to the bank by the borrower within 12 months. The investment term is usually from as short as 3
months. The investor may be able to withdraw his/her capital within days if required depending on the
type of product used to access the investment.
The investor buys into the money market fund and earns interest as a return. The interest rate is
influenced by the availability of cash in the financial system as well as inflation and the ruling repo rate
as set by the Reserve Bank.
The disadvantage of money market instruments is that the capital value does not grow and the
income stream is always a function of the initial capital invested unless the interest earned is
reinvested. This means that this kind of investment does not protect investors sufficiently against
inflation.
Income tax could be a further disadvantage for investors in higher tax brackets.
9.2.2. Bonds
A bond is an interest-bearing debt instrument, traditionally issued by governments as part of their
budget funding sources. Local authorities, parastatals and companies also issue bonds.
A bond earns interest which is paid bi-annually. A bond can also have a capital gain or loss. The
value of a bond works in an inverse relationship with interest rates which means that when interest
rates goes up the capital value of a bond goes down and vice versa.
A bond usually has a lower risk than equities because the investor has more certainty of the
repayment of the initial capital. The up and down movement (volatility) in the bond price is usually
lower than that of equities.
An investment in bonds should be viewed with a 3-6 year investment horizon.
9.2.3. Inflation-Linked Bonds
These instruments are similar to bonds in that the investor in effect lends capital to the government or
some corporate institution. The borrower will repay the capital at the set maturity date and make
interest payments bi-annually at a fixed interest rate.
The difference however is that the capital is adjusted with the ruling inflation rate and the fixed interest
payment is based on the inflation adjusted capital amount.
The inflation adjusted capital amount is paid out at maturity.
The interest earned and the capital gain is taxable.
9.2.4. Property
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We need to distinguish between physical properties i.e. rental flats, residential houses, office blocks
etcetera, and listed property. When we refer to property as a financial investment the latter is inferred.
An investment in listed property is buying the shares of companies who primarily own and manage
commercial, retail and industrial properties as their main business. These companies will typically own
several properties which is spread geographically across the country or even offshore.
Property shares are volatile and is influenced by interest rate movements, economic cycles and
investor emotions just as any other share.
Property companies earn income through the letting of rental space. After payment for the costs of
operating the properties, rates and taxes and interest on loans, the remainder of the income is paid
out to investors. These payouts is called distributions and are classified by the receiver of revenue as
interest for tax purposes. The distributions increase over time as the rentals escalate.
Over and above the distributions, an investor can also have a capital gain, or loss, on the initial
investment as the share price moves up or down. Any capital gain is taxed according to the ruling tax
tables.
Listed property should be seen as a long term investment appropriate for periods of 5 years or longer.
9.2.5. Equity
By buying the share of a company an investor takes ownership of a piece of the company he/she
invested in. This entitles the shareholder to a proportionate share in the nett profits of the company
after all costs and taxes have been paid.
The share price is influenced by the company’s ability to grow its profits over time. At any given
moment however, a share price can be influenced by many different factors i.e. interest rates,
economic cycles, political factors etcetera. Very often the share price of a company is influenced by
the emotions of investors i.e. fear or greed and the share price can be higher or lower than the fair
value of the company.
Over and above capital gains or losses an investor also receives an income from these investments.
A portion of a company’s profits are usually paid out to the share holders. This is referred to as
dividends.
An investment in shares/equities should be seen as a long term investment typically for periods longer
than 5 years.
9.3. Role-players in Investments
9.3.1 Advisor
Although an advisor has many roles and functions the most important when it comes to
investment planning and management are the following:
9.3.1.1. Obtain information to understand the client’s needs and lifestyle objectives.
9.3.1.2. Identify an appropriate investment strategy with the highest probability of achieving
the
clients objective within the framework of sound principles, market opportunities and
the clients risk profile.
9.3.1.3. To select appropriate financial product 9s) in accordance with the client’s needs,
objectives and risk profile.
9.3.1.4. Regular review of the client’s needs, objectives and adjusting the portfolio in line with
these objectives, return target and risk budget.
A more comprehensive list of the value added by the investment advisor can be seen in
section 7.
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9.3.2.
Linked investment service provider (LISP)
The linked investment service provider (LISP) is the role-player that facilitates the
implementation of an investment. The LISP is responsible for all the administration pertaining
to cash flowing in and out of an account i.e. withdrawals, investments, monthly premiums etc.
The LISP also facilitates the management of a portfolio since it hosts a range of investment
products like unit trusts and retirement annuities. The LISP is responsible for reporting the
costs, interest and dividends earned as well as the number of units a client owns. A client may
have investments on one or more LISP’s.
The LISP also serves as an additional risk management layer ensuring that the investment
vehicles used complies with legislation and are well researched.
9.3.3. Fund Manager
The fund manager’s function is to manage a single portfolio aligned to the registered mandate
of the fund. The fund manager must analyse asset classes, specific investments, economic
conditions and all other factors that could influence the performance and risk of the fund with
the purpose of achieving the funds objective and beating the stated benchmark.
The fund manager does not know the individual client and does not take the clients specific
needs, objectives or risk profile into account. The appropriateness of the fund must be
determined by the advisor.
9.4.
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General terms, conditions and exclusions pertaining to collective investment
schemes:
Investments in unit trusts are generally long term investments and historic performance should
never be seen as a guarantee of future performance.
The investment return from this portfolio cannot be compared to other, more conservative
investment portfolios, e.g. money in the bank or guaranteed investments.
The investment capital is not guaranteed over the investment term and the value of the
investment may go up and down depending on market conditions.
If any income and/or withdrawals by the client from this fund are higher than the nett growth of the
portfolio, it will have a negative impact on the investor’s investment capital.
This portfolio is aimed at achieving higher investment returns than money in a fixed deposit or
money market funds, which would attract higher investment risks than those associated with more
stable investment portfolios.
Income is declared in the fund on a six-monthly basis.
Any investment in the fund may be withdrawn by the investor by giving written notice.
There are generally no penalties in collective investment schemes for early withdrawal of funds.
The current material tax implications in terms of current legislation are as follows:
o Interest declared in the fund is taxable. Certain tax exemptions may apply.
o Dividends are not taxable in terms of current legislation.
o Capital and/or income payable from this investment will be dealt with in accordance
with the legislation that applies from time to time.
Fees:
The fee structure includes the following items:
 Management fees, Brokerage, Securities Transfer Tax, Auditor’s fees, Bank charges, Trustees
fees, Regional Service Council levies and performance fees.
The fees as disclosed above exclude:
 Financial Advisor fees (if applicable)
 Linked Investment Service Provider (if applicable)
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