TEN REASONS TO INVEST IN EQUITIES

Dear Client

Welcome to our August 2024 edition of FC Viewpoint.

IN THE NEWS:

  • The JSE All Share Index is on 80 567 as of Monday 12 July 2024.
  • 1 US Dollar will cost you R18.23; 1 Pound = R23.26 and 1 Euro = R19.91.
  • Annual consumer inflation (CPI) is at 2%.
  • The prime lending rate in SA is 75% per annum.
  • The price of Oil is $79 per barrel.
  • Positive news from Transnet on repurposing pipelines, upgrading vehicle import terminals and building a waterfront at Gqeberha.

THIS MONTH’S TOPIC: TEN REASONS TO INVEST IN EQUITIES

In these uncertain times, investors are faced with a very important decision – whether to stay invested in the markets and bear the brunt of the tough economic climate, or switch to cash.

Below, we highlight some of the main reasons to stay invested in the markets and the benefits of moving cash into equities now:

  1. Equities beat inflation over time

Cash diminishes an investor’s purchasing power once taxes and inflation are accounted for. Equities have repeatedly outpaced cash over longer periods.

  1. Equities provide long-term capital growth

Those who remain invested in the markets during market downturns typically see better returns than those who sell out of the markets during those periods.

  1. Dividends from equities provide an income source

A large portion of an investment’s growth during the capital build-up phase can come from re-investing the dividends paid. Dividends can also add to an investor’s income during retirement.

  1. Equity investors benefit from compound growth

In addition to benefiting from re-investing dividends, equity investors also benefit from compound growth. By starting early, investors will see growth compound over time. This is especially true when saving over a very long period, e.g. for retirement, where a large portion of the growth takes place in the last few years of the build-up phase.

  1. Market volatility can work in equity investors’ favour

If investors have a long-term investment horizon volatility can work in their favour. This is because they buy more units when prices fall – provided they stay invested and don’t panic and sell because markets have fallen. Investors needs to remember that markets fall slowly but tend to correct and rise quite quickly. Because of the rapid rise, investors who sell out of the markets and move into cash when markets are down, realise their losses and will almost certainly miss out when markets rise again.

  1. Investing in equities through a unit trust provides liquidity

Certain equity investments, such as collective investments (unit trusts) and shares, can be bought and sold easily. Although investors are encouraged to hold their investments for the longer term, they do have the flexibility to sell should they need to.

  1. Equities enable portfolio diversification

Equities provide diversification in several ways. By investing in a collective investment scheme, investors gain exposure to a number of shares and not just one individual company. Different unit trust funds can be included in a portfolio to provide exposure to different industry sectors as well as offshore exposure. A large percentage of our stock exchange’s earnings are offshore, providing further diversification even when investing in a local fund. We also use different fund managers, gaining exposure to different investment management styles.

  1. Equities provide tax benefits

From a tax perspective, interest-bearing accounts can be very inefficient as the entire return could be subject to income tax for any interest earned over and above the exemption. When investing into asset classes such as equity and property in a discretionary investment, capital gains are taxed at a maximum rate of 18%. The rate at which you’re taxed also depends on your taxable income and marginal rate and the size of the net gain which is made in the tax year. Investors have a capital gain exemption of R40 000 a year which means they can realise a gain of up to R40 000 without any taxation.

  1. Equities could also offer estate planning advantages

Depending on the investment vehicle chosen, equity investments can also play a role in estate planning. In addition to the tax benefits of investing up to 27.5% of the higher of their taxable income or remuneration into a retirement annuity, pension and/or provident fund each year, this amount falls outside of an investor’s estate and therefore attracts no estate duty or executor’s fees. A retirement annuity investment is also protected from creditors in the event of insolvency.

  1. Benefit from qualified and experienced professionals

By investing in a collective investment scheme or a managed share portfolio, investors benefit from having their investment professionally managed by qualified and experienced professionals with proven track records. Combined with expert advice from a qualified financial intermediary, the investor is best-placed to reap the rewards of sticking to their investment strategy

TO CONCLUDE

WHAT SHOULD YOU AS INVESTOR DO?

1. Don’t try to time the market.

2. Don’t make emotional decisions based on short-term uncertainty.

3. Remember that, on average, growth assets will provide a better return over the long term (a minimum of five years, ideally 10).

4. Understand your long-term investment plan…and stick to it.

5. Be disciplined and stay invested.

Take care and remember, the best time to start saving and investing is today!

Wealth regards,

Fanie Jansen Van Vuuren CA (SA), CFP®

Director: FC Wealth and Investments (Pty) Ltd

E: [email protected]  |  T: 083 384 5868

W: www.fcfin.co.za

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