Author Topic: My investment/retirement plan moving forward - 27 Year Old  (Read 3653 times)

investing4wealth

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Hi Everyone

Have been really enjoying the knowledge on this forum since signing up and would appreciate anyone's feedback. 

Back in 2010 when I started working at my first (real 9 to 5) job after uni I started to invest in the PSG Flexible fund, lumpsum/regular monthly recurring payments. To date this has grown to just shy of 200k. Also have a RA at Allan Gray and recently started purchasing ETFs on the Absa Stock platform. Buying the following: CSEW40 (25%) / DIVTRX (15%) / PTXTEN (15%) / DBXWD(45%), each month since the start of 2016, this seems to be the best option to save on fees. What are your thoughts of this ETF basket?

My plan going forward would be to max out my RA first then top up my tax free savings account until I reach the cap of R30k, and then invest in pure equity funds, however the fees are ridiculous these days. (thanks to erwintwr's financial independence calculator - http://shareforum.co.za/shares/tfsa-vs-ra-vs-satrix-calculator/ )

Furthermore should I be buying ETFs or go for one of the Sygnia products, perhaps the " SYGNIA SIGNATURE 70 FUND " at CPI +7%? Was also looking at the option of moving R30 K out of my PSG fund each year and investing that in the tax free savings account. Or should I use this as a property down payment, however I will then have to pay CGT. If I withdraw less than R40k per year I will not be triggering CGT, is this assumption correct?

The other option would be to move my PSG investment in to three different equity funds: foord equity fund, 36One Equity fund and leave the remaining 1/3 in the PSG fund.

Currently renting and I have started to investigate the option of possibly purchasing a property, what are you thoughts on property as this would not really be an investment, more a lifestyle asset. However with the interest rate hikes and possible down grade was wondering if this would not be the correct time, cheaper/safer to rent at this point in time. Maybe hold out and get the property cheaper after down grade etc?

Pleased to hear your thoughts/advice.

Thanks in advance

Orca

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Re: My investment/retirement plan moving forward - 27 Year Old
« Reply #1 on: May 24, 2016, 12:56:26 pm »
Welcome and congrats on your financial decisions. Firstly no CGT is paid on retirement funds but Government has proposed that the capital gains tax (CGT) inclusion rate for individuals be raised from 33.3% to 40% from March 1 this year. Whether this has been done...I don't know.
The first 40k of the gains can be excluded every year.

I am not a fan of UT's due to the costs involved and I am not a boffin on Index funds but I'm sure someone here will help.
« Last Edit: May 24, 2016, 05:31:39 pm by Orca »
I started here with nothing and still have most of it left.

Patrick

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Re: My investment/retirement plan moving forward - 27 Year Old
« Reply #2 on: May 24, 2016, 01:54:06 pm »
Welcome, it's fantastic that you started so young!

When you say you're using ABSAs stock platform, I hope you mean the ETF only account/TFSA, the regular account is too expensive. If it's the ETF only account, you also need to make sure you're not splitting up your funds too much every month. Ideally you'd buy R10k per ETF at a time, otherwise you're paying too much in fees.

For example, ff you're buying say R500 in 4 ETFs, you'll pay R80 in fees on R2000, which is 4% in fees. Far too high! If on the other hand you buy one ETF for R10 000 a month, you only pay 0.2%.

I have STXIND and DIVTRX in almost a 50% 50% locally, but in my international account I have 100% VWRD (similar to DBXWD but cheaper). That's what I do, but I can't recommend anything here, it's all up to you. If I could do it over again, knowing how useless the government has ended up being, I'd probably have moved all my money offshore as I earned it, and would have gone 100% into VWRD.

Sygnia has the best RA in the country. The one I recommend is the Sygnia Skeleton Balanced 70 Fund. I personally only like them for RAs as I like my other investments in 100% equity, and normal ETFs.

Like Orca, I also think unit trusts are a waste of time. Here's my reasons: http://investorchallenge.co.za/only-idiots-still-own-unit-trusts/

Property is a personal choice, and while I don't think I'll ever own another one, a lot of people like to. I think it's more a question about your lifestyle wants than an investment choice. Another link: http://investorchallenge.co.za/the-last-house-ill-ever-own/

investing4wealth

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Re: My investment/retirement plan moving forward - 27 Year Old
« Reply #3 on: May 24, 2016, 02:12:54 pm »
Thanks Orca & Patrick. Really appreciate the thorough replies.

@Patrick , yes I opened the ETF only TFSA account with ABSA. They are definitely one of the cheapest platforms as discussed here on the forum. When I invest on the platform I always try to keep my total fees to less than 1% of my investment, however will maybe need to rethink this. Again thanks for the replies and I definitely have some decisions to make.

MoneyChief

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Re: My investment/retirement plan moving forward - 27 Year Old
« Reply #4 on: May 24, 2016, 02:22:22 pm »
As a minimum I would recommend you follow the 7 baby step plan by Dave Ramsey (modified for SA).

1. Build your starter emergency fund (1 months' expenses in a savings account)
2. Pay off all your debt except the bond on your house (if you have one).
3.a) Finish your emergency fund by saving 3 to 6 months' worth of expenses.
3.b) Save toward your house deposit, minimum 10% down, 20% ideally. Don't spend more than 25% of your after tax income on the bond payment.
4. Contribute 15% of your income to your "pension fund" (25% satrix top40, 25% DBX world, 25% RMB midcap, 25% div trax). Preferably ETFs in ABSA ETF only account.
5. Save for your kids university (if you have kids)
6. Pay off your house
7. Invest and give to people less fortunate.

I have been following these steps since 2008 and so far it has worked really well for me. I have been on step 7 now for just over a year.
« Last Edit: May 24, 2016, 02:29:10 pm by MoneyChief »

Moneypenny

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Re: My investment/retirement plan moving forward - 27 Year Old
« Reply #5 on: May 24, 2016, 02:43:57 pm »
The fact that you've started at 27 will make an enormous difference in future, well done.  :TU:

gcr

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Re: My investment/retirement plan moving forward - 27 Year Old
« Reply #6 on: May 24, 2016, 02:44:50 pm »
Congratulations on at least addressing your future wealth creation and committing to investing. You will get diverse opinions on this forum due to the circumstances of the individuals i.e. some are still working and some are near to retirement, whilst others are retired - I fall into the latter category

Over the last number of years property has done very well for people as have industrial U/T's - I don't invest in property funds or equities, but, I do own my own house and prefer this route to rental as all rental agreements have quite steep annual escalations in rentals and levies, and, at the end of the day you have no value from/or in that rented property. You could also approach your own bankers and any bank for that matter and seem what properties they have as Properties in Possession as this can also be an avenue to getting into the property market and you are pretty sure of getting a bond from the bank especially if it is a PiP.
I too am not keen on U/T's and have sold down a substantial portion of my portfolio and have moved into equities and ETF due to them having a better fee structure.
I would review the RA you have taken out as the only people who are going to get rich are the providers - look at the fee structure and especially what internal rate of return they are achieving and what the fees will be if you extend its life i.e. the earliest you can access the RA is at age 55, but you can roll the RA over on 5 year periods to age 70 if necessary - I found that each time I rolled mine over it cost me about 3.5 to 4% in fees.

My advice to you would be to create 2 portfolios the primary one which addresses a retirement package of at least 75% of you last salary - this would require that you set aside some 23% of gross salary to achieve this. Your secondary portfolio is self managed and will compensate in the future to augment you primary portfolio which over time will be eroded through cost increases associated with being on pension. This secondary portfolio should in my opinion be invested in riskier instruments over simple bank stable investment instruments - so buy shares which have a fair bit of risk - any of the top 40 counters fall into that category. The objective of this portfolio is to grow it by between 12 - 20% p.a. but at the same time keep an eye on inflation and adjust your target growth accordingly.
Having funds offshore is another portfolio for consideration but maybe at an appropriate time you need to move funds out of your secondary portfolio for this purpose - but the reality is that you need to move these funds to a foreign currency account not a Rand denominated type account

I could probably babble on for hours on this subject but I think it is important that you map out where you want to be when you decide that its time to retire - the only hurdle that will restrict your retirement is whether you have provided for your immediate family needs and can sustain a reasonable retirement life style. Also as you get there you will find that your greatest earning potential comes between 45 and 55 so factor in this time frame into your retirement planning, and, plan your retirement - I planned mine 5 years before I actually took early retirement, otherwise you will go on retirement and end up doing nothing, vegetate and probably end up in an early grave
Not everything that counts, can be counted, and, not everything that can be counted counts - Albert Einstein

Orca

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Re: My investment/retirement plan moving forward - 27 Year Old
« Reply #7 on: May 24, 2016, 05:33:28 pm »
I made a typo in my post. The first 40k is exempt and not 40%. Nobody even noticed the error.
I started here with nothing and still have most of it left.

conradl

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Re: My investment/retirement plan moving forward - 27 Year Old
« Reply #8 on: May 26, 2016, 09:15:06 am »
I made a typo in my post. The first 40k is exempt and not 40%. Nobody even noticed the error.

I understood what you meant ;)