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If your grandmother had 3mil in a bank money market account earning a meager 5.5% how would you invest it? Keep in mind that this is her sole income.

Any opinions on the following funds:

Prescient Income Provider Fund
Nedgroup Investments Flexible Income Fund

I have no experience with income funds so this is more an idea of what I would do if I had a family member in a similar situation and I had to make a call right now. I'd probably try set them up to get as much tax free income as possible while keeping the fees as low as they can.

This example was based on a younger person, so for someone older you could adjust the numbers up due to the increased tax breaks: http://investorchallenge.co.za/can-you-retire-by-40/

Obviously you could only put R30k per year into the TFSA, and I would do that, and then every year move another R30k from the taxable account to a TFSA.

The tax thresholds increase a fair amount as you go over 65 or 75 years, so you could take advantage of that if you wanted for REITs:
Under 65 ​R73 650
65 an older ​R114 800    
75 and older ​R128 500

If she's 75+ she could put R2,138,177 into a low cost property ETF like the stanlib sa propert ETF for R128,500 income a year, R30k into a TFSA fund like the DIVTRX for another R1000 or so dividend income a year, and the rest of the funds, R831,000 or so into a taxable account. If you used the STXIND there and sold shares for capital gain, you could sell R33,240 a year and never run out, while earning another R10,595 for dividends after taxes. That would give an income per year of R173,335 with very low risk of ever running out. In fact I think the income would actually increase year to year. That works out to about R14,400 a month.

The most important thing though is to do is get it out of that money market account as it's actually losing her money to inflation, and into something inflation beating.

Quote from: Patrick on October 19, 2015, 01:00:23 pm

The tax thresholds increase a fair amount as you go over 65 or 75 years, so you could take advantage of that if you wanted for REITs:
Under 65 ​R73 650
65 an older ​R114 800    
75 and older ​R128 500

What are these tax thresholds you speak of and what do they mean?

Quote from: Patrick on October 19, 2015, 01:00:23 pm

...you could sell R33,240 a year and never run out...

Can you maybe write a blog post explaining this in simple terms for my small mind to grasp? You told me about this before but I really struggle to wrap my mind around the concept of selling shares and they just never run. If you already have written something about this mind sharing the link with me?

The tax threshold is the level of income you need to make where you'll actually start paying tax. This is because under that level, any tax you pay will be given back to you thanks to the rebate: http://www.sars.gov.za/Tax-Rates/Income-Tax/Pages/Rates%20of%20Tax%20for%20Individuals.aspx

The selling of shares and never running out is actually a reference to the 4% rule. What this says is that you can sell 4% of your invested net worth, and thanks to growth you won't ever run out. I've written about it a little before here: http://investorchallenge.co.za/the-only-way-to-get-rich/ but JL Collins has a great article just on it: http://jlcollinsnh.com/2012/12/07/stocks-part-xiii-withdrawal-rates-how-much-can-i-spend-anyway/

Otherwise you can find more information on Go Curry Cracker: http://www.gocurrycracker.com/what-is-your-retirement-number-the-4-rule/ or to Mr Money Moustache: http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/

Basically, you will end up selling less and less shares every year for the same amount of income. Eventually going in to infinity, you'll end up selling fractions of shares for the same amount of money (or the shares will split so you have more to sell). You literally never will run out.

Patrick - there are two issues which are under consideration at present by treasury:-
1) older people may be allowed to make their life time investment into TFSA as a once off consideration - still needs to be discussed more fully
2) SARS are looking to discontinue giving tax payers who receive interest income the tax break in future - in other words interest will be fully taxable in the hands of the tax paying recipient
Also the way medical aid deductions are being treated these days does not auger well for many tax payers so this this ladies cash pile needs to be invested very astutely

Hi Graham, yes I saw the rumours, and I think it's great. I know you haven't been a fan of the TFSAs up to now, but I imagine you would be if the new rules are put in place. With the interest now being taxable, I think it's even more reason to get the money out of the money market asap.

I'm afraid I don't have too many answers to the high cost of medical care in SA. Perhaps the best advice indexer could get is to go to a trustworthy once-off fee based adviser (the only I know of is and would trust myself is Warren Ingram) to get professional advice. Just stay far, far away from anyone wanting to sell any policies, or anyone who offers a free evaluation for an ongoing annual fee.

Thanks for the thought-provoking response Patrick.

Making use of a TFSA is a great idea.

I'm cautions of property funds at the moment given the amazing run it's had. How will property funds be affected once interest rates start rising.

Given that the DIVTRX also did so well in recent months, is there not a case to be made to rather go with Satrix Divi? It's done badly recently but there was a time that it was the second best-performing ETF.

Any opinions of PREFTX?

Personally I don't think there's ever a case to be made for the satrix divi. I believe it's a badly designed index, and I wouldn't touch it with a barge pole. Here's a good writeup on why: http://fspinvest.co.za/articles/etfs/beware-this-top-apstrphe-dividend-paying-etf-will-cut-its-dividends-in-2015-5554.html

I'll leave the other questions for the rest of the bunch. I've never looked into preftrax, and I can't really predict what will happen to the property stocks once the interest rates rise.

Thanks for the thought-provoking response Patrick.

Making use of a TFSA is a great idea.

I'm cautions of property funds at the moment given the amazing run it's had. How will property funds be affected once interest rates start rising.

Given that the DIVTRX also did so well in recent months, is there not a case to be made to rather go with Satrix Divi? It's done badly recently but there was a time that it was the second best-performing ETF.

Any opinions of PREFTX?

My 10c on REITS - you should be buying for the income/yield and for future income/yield - not for any serious capital growth . Any capital growth is just a bonus. Obviously, there are some property shares which are not REITs and you do look for capital growth - Attaq, Balwin.
and of course some oversea properties give a decent return in dollars/pounds or euros, always nice - but is taxed.

My 10c on REITS - you should be buying for the income/yield and for future income/yield - not for any serious capital growth . Any capital growth is just a bonus. Obviously, there are some property shares which are not REITs and you do look for capital growth - Attaq, Balwin.
and of course some oversea properties give a decent return in dollars/pounds or euros, always nice - but is taxed.

Overseas dual listed REITS like Nepi  are only subject to 15% withholding tax - same as dividends on your JSE shares.

Over 5 years Nepi and NPN have provided roughly the same capital appreciation, but Nepi's dividends were much higher. (Dividends not taken into account in the graph).