By Colin Horwitz
I trust that this article finds you and your families safe and well. Who would have ever thought that in our lifetime we would experience something like Covid-19? It is akin to living in a horror movie!
But, on the plus side it’s allowed us time to spend with our families, those living with us as well as those that we cannot physically be with, via WhatsApp, Zoom and the many other platforms that were not available to us a few years ago. It’s also allowed us time to do the many other things that we ordinarily do not have the time to do. I have been able to catch up on maintenance around the home and have become an expert on things such as mowing the lawn (it looks like the Ellis Park grounds) cleaning, cooking and of course eating. I have also found time to pick up my guitar and get strumming again, catch up on reading, learning and my favourite shows on TV.
We at Morebo, have continued to work remotely and using technology, have tried to maintain contact with as many of our clients as possible. Our administration staff are keeping all the administrative functions up to date and there are daily meetings taking place thanks to the internet.
All staff have a program of learning whilst on lockdown and our service providers, on the whole, have provided us with a lot of information via webinars, blogs, and e-mail. Just a note of thanks to our Short-Term service providers who have passed on a discount to our clients. Any savings in these trying times are welcome.
At this stage it is impossible to predict when we will get back to normality or what the new normality will look like. Hopefully we will be able to open the office on 4 May, although, with a limited amount of people on the premise. I suppose that we are lucky in a way, as our systems allow many of us to work remotely.
I am sure that many of you have been following the markets with trepidation. Here’s a bit of an overview as to what goes on in my head.
- The JSE is performing like a giant roller coaster.
- On 1 January 2020, the All Share closed at 57 718. It reached a high of 59 001 on
17 January. This all disappeared and on 19 March, just one month ago when it sank to 37 963. That is a decline of 35,7%.
- On Friday 17 April, the JSE All Share was sitting at 49 134, a gain of 29,5% in 1 month.
- This volatility is going to be with us for quite a while.
- That brings us to the question of should I be selling and investing in liquid assets, such as income funds or even call accounts. Here’s my take:
- The Reserve Bank have slashed the repo rate by 22.5 basis points so far this year. This creates a huge problem for investors who are living off interest. It means that the income that you have been living off has just dropped by between 25-30% and that’s before tax.
- A further problem will be the timing of the market. When do you get back in and how quickly can you do this? Chances are you will miss the upturn!
- Maybe we should be buying Gilts:
- Moody’s downgraded South Africa’s credit rating to sub-investment grade (Junk) on 27 March. Although, being expected for some time, this caused a record slump in the value of the rand and it is yet to recover. It also pushed the yield of SA bonds up as interest rates of government lending increases.
Unfortunately, this has the opposite effect on the underlying value of the bond and this declines. The result of this is that capital growth is stinted whilst the interest is higher. The problem with this is that interest is taxed at your marginal rate of income tax, whilst Capital Gains tax is taxed at 40% of the gain. Here is a simple example:
- Let’s say you are 60 years old and make R200 000 interest and R200 000 capital gain with marginal tax rate of 35%;
- Interest: The exemption is R R23 800 (R34 500 for over 65).
((R200 000 – R23 800) X 35%) + R23 800 = nett return
R138 330 is your nett return. Tax was 31% (R61 670)
- Capital Growth: The exemption is R40 000.
(((R200 000 – R40 000) X 40%)) X35%) + R40 000 = nett return
R180 400 is your nett return. Tax was 9,8% (R19 600)
- Your return on Capital Growth is 30% higher than it would be on interest
- Should I be buying shares? This is a loaded question. The answer can be put into that lovely Afrikaans saying…. “Ja-nee”. There are definitely good buys available, but you need to know what you are doing. The economic outlook is grim. We don’t know which companies are going to survive or not and dividends have been put on hold.
I have always been a long-term investor and have firmly believed in a basket with a good spread when it comes down to my investments. This said, I have just had a look at my own investment with Stanlib. I am invested in the MPowered CPI + 6% Targeted Solution and compared my returns against the JSE ALSI for the period 2 January 2020 to 17 April 2020: Here’s what I found
This is a big difference and is the reason I am always advocating that we at Morebo are in the long-term investment business and have and always will have you, our valued client’s interest at heart. Simply put, you are the heart of our business. We love you and will always put your needs first, legally of course.
I would like to end off by making an appeal to all those that can assist. There are many people going hungry in South Africa and the situation is getting worse. Please, if you can, donate to any of the many NGO’s or funds that are assisting the less fortunate in our wonderful country.
On behalf of all of us at Morebo, who are working from homes all over Gauteng, I wish you and yours all the best. Be careful and be safe.