the financial services regulatory structure

Transcription

1 the financia services reguatory structure The Financia Services Board (FSB) The Bank Supervision Division (BSD) of the Reserve Bank Banks Insurance Long-term and short-term Retirement Funds Coective Investment Schemes The Nationa Credit Reguator(NCR) Registered and Unregistered Credit Providers Financia Markets JSE Limited BESA (Bond Exchange of South Africa) Financia Intermediaries and Advisors 1

2 What is GOOD money MANAGEMENT? Good money management is about understanding the difference between needs and wants, and then spending your money wisey and not incurring debt unnecessariy. As ong as we ive from hand to mouth, we wi never gain contro over our money. A cyce of earning and spending that goes on and on doesn t aow anyone to pan for the future. Add to that the temptation of getting into debt (spending money you haven t earned yet), and good money management becomes amost impossibe. Needs and Wants. Because credit is easiy avaiabe, we are tempted into borrowing when we shoudn t. Incurring iabiities shoud be done responsiby for ongterm assets which you wi sti possess after the debt has been paid off. The money we earn from empoyment shoud first be spent on the famiy s essentia needs before we satisfy the ess essentia wants, which are just nice to have. Draw up your budget, work out your sums unti you have a bit of money eft over every month. Save this, invest it, or work with it and you wi graduay achieve security for yoursef and your famiy. We shoud aim to have something eft so that we can save. We shoud avoid spending more than we earn so that we have to borrow just to maintain our everyday iving expenses. A of us are capabe of managing our affairs we by using a budget. You think it is impossibe? No, it is a ski that anyone can earn no matter how much (or itte) money you have. Read this booket and find out what you can do to make your dreams come true and how the forma financia services sector (banks, insurance companies, etc.) can hep you do it. 2

3 The money probem: What can we do about it? As Individuas and Famiies We can budget. We can decide together what the famiy reay needs. What is more important: new bikes for the kids, or a savings account for their education? We can pan carefuy how to reduce our debt (if we owe more than we can afford to repay). With some advice from the bank, and possiby an intermediary, we can work out carefuy how to get out of debt. We can stop borrowing to buy things that we do not need, especiay if they have a short ife. If we get a windfa (a bonus, overtime, an inheritance) we can invest it or repay our debts with it. Money saved today can make ife easier and better when you retire! Above a, we can avoid get-rich-quick schemes. The ony peope who get rich quick are the peope who run the scheme. As South Africans We can a hep to make our country strong through hard work, honesty, and the desire to improve our ot. We can say: My famiy and I can make a difference. We can improve our famiy ife and then our town and our province and eventuay South Africa wi benefit from the commitment of a its citizens. Our savings can hep the economy. MOST PEOPLE CAN IMPROVE THEIR LOT IN LIFE BUT IT DOES TAKE EFFORT! 3

4 The debt trap Do you know that South Africa is a nation of peope in serious debt? Debt is the number one financia probem for high and ow income earners aike. The more we borrow, the more interest we pay and the ess disposabe income we have. Debt brings worry, stress, marita probems and a sense of hopeessness about the future. Debt can aso ensave us especiay if we do not honesty face the probem and make a pan to get out of it and stay out of it. Getting out of debt where do you start? 1. Face the probem Make a ist of a your creditors and write down how much you owe each one. 2. Draw up a budget Paying off your creditors has to be your first priority. Put fixed expenses (eectricity, water, schoo fees and rent or bond repayments) and a imited grocery expense at the top of your ist. From what you have eft, work out how much you can afford to pay each creditor each month. 3. Discuss the situation with your famiy One of the biggest obstaces to overcoming debt is ack of co-operation among famiy members. This is not something you need to discuss with the chidren. But if you have adut famiy members depending on your income, discuss the situation with them. If your famiy is to get out of debt, a the members must co-operate. A must agree on the budget you have drawn up and stick to it. It takes discipine, but it can be done. If your probem is serious Unmanaged debt can and you in serious troube. If you are afraid to open etters from the bank, and reguary throw away bis, you are running away from a probem. The probem wi eventuay find you. Peope who do not pay their debts end up being negativey isted. This means your name is forwarded to the Credit Bureau, which keeps a ist of a debt defauters. (More about Credit Bureaux on page 15.) Being negativey isted seriousy restricts your financia freedom. On page 33 are detais about what you can do if this happens. If you are in serious financia troube, and you own a home, your first priority is aways to protect your home. Face up to the probem and contact your bank. Expain the seriousness of your situation. Ask them to work out the owest possibe repayment pan for your home oan that is acceptabe to them. Then stick to the agreement. Don t run away from the probem! 4

5 managing debt Most of us have discovered that to ive entirey debt-free is amost impossibe in our modern word. Overdraft faciities and retai accounts can be extremey usefu, making ife easier when cash is short. The danger is in seeing credit as a free-for-a. Credit gives icence to a most basic human urge the urge to buy and own things. This urge, if unchecked, can grow out of a proportion. Buying things that we do not need can become a way of ife. This is fine if we have unimited money. But if money is imited, we have to prioritise. Many peope never earn to prioritise, and as a resut find themseves in quite a mess. How do you manage debt we? First, by reducing the amount of debt that you are in. An acceptabe eve of debt is if you can pay the fu instament every month, without defauting on other obigations. Remember, aways pay off the debt with the highest interest rate first! Prioritising means paying for essentias first. Bond repayments, rent, car repayments, schoo fees and food are essentias. If these are not paid, the consequences are serious. These are often negected because uncontroed spending on credit has swaowed haf our saary. If you are spending so much on paying off cothing and appiance accounts that you cannot afford essentias and have to resort to your credit card to pay for groceries, you are getting into deeper troube every month. If you pay ess than the fu monthy instament, you incur interest. This makes the foowing month s instament higher making it even ess ikey that you can afford the fu instament. In this way, a vicious cyce begins. Do not be tempted by the promises of debt mediators. They may fai to distribute your money to creditors, causing you further financia difficuties. And remember, it is iega for them to charge you an upfront fee. 5

6 ways to reduce your debt As debt eats further and further into our imited resources, we need a strategy to reduce debt. 1. Know your debt The first ine of defence is knowedge. Know each debt, and its terms of repayment. Most importanty, know the interest you are paying each month on each debt. Then you wi know which debts are a priority to pay off as soon as possibe, and which you can afford to carry a itte onger. For exampe: Gerad owes R5 000 on his credit card and R on his home oan. The bank charges 24% interest per year on his credit card, and 15% per year on his home oan. This works out to 2% interest per month on the credit card (R100 a month) versus just over 1% interest per month on his home oan (R625 a month). Which debt is the priority to pay off first? The one with the higher monthy amount may seem to be more important, but this is miseading. The answer is the one charging the higher interest! Gerad woud be wise to pay off more than the minimum monthy payment on his credit account to cear this debt as soon as possibe. 2. Consoidate your debt One way to reduce one s monthy debt repayments is to consoidate one s debts. You borrow enough from your bank to pay off the many smaer debts at once. You then have ony one creditor the bank (see page 13). Do your homework carefuy. Check that the overa interest you wi be paying is ess than the tota on your individua accounts! You wi have to convince the bank that you can stick to your agreement in other words, that you are serious about your pan. 6

7 3. Rationaise your insurance If you fee you are paying for too much insurance, you can possiby reduce the tota amount of your premiums. Get advice. If you cance (apse or surrender) a risk poicy, you ose your cover. But if it is an investment poicy, you coud ose what you have aready paid into it. Find out the best way to get your ife or endowment poicy to fuy paid-up status, or whether you can reduce the premiums. Don t apse or surrender a poicy without checking what the impications are. Ask your insurance intermediary for advice, but think carefuy if he or she suggests repacing one poicy with another. If you want to confirm that the advice is in your own best interest, you can phone the insurance company s Customer Hepine. 4. Pay off your home oan Pan A If you pay just 10% more than your monthy instament, you wi pay off your home oan in a much shorter time. Pan B Take any windfa and pay it on your home oan. Use your annua bonus or se the second famiy car! An extra once-off payment of R5 000, for instance, wi eventuay save you thousands more over the term of your bond, because you wi not have to pay the compound interest on it! 5. Spend ess Pan C Uness you have a fixed interest rate, your instaments wi change with the current rate of interest. When it drops, keep up the higher payment. You wi be surprised how much interest it wi save you in the ong run! The quickest and most sustainabe way to get out of debt is to practise sef-contro. We ive in a word that promotes spending. We are subjected to an amost constant bombardment of TV, radio and magazine advertisements urging us to spend, spend, spend. We need to become more aware of how we are tempted by advertisers to want things that we do not reay need. We need to remember other expenses that may become a priority in the near future, e.g. schoo fees, bond repayments, a car. We simpy cannot buy everything our hearts desire. Many peope have expensive cars, grand homes and designer cothes. We tend to ook at them and want what they have. But, remember, rea happiness and success come with managing what we have not trying to have things we cannot afford. 7

8 a few basic concepts This section introduces some basic concepts. We wi ook at a of them in greater detai further on. Borrowing and ending When we borrow something, we are given permission to use it for a period of time and we usuay have to pay for this. For exampe, if we are hiring a car, we are, in fact, borrowing it and we pay to do so. Credit Credit is borrowed money. When we buy something on credit, whether it is a fridge or a car, we are using it before we have paid for it. When we borrow money, we are spending money before we have earned it. We can aso borrow money. Borrowed money is caed a oan or credit. The price we pay to borrow money is interest. The actua amount that we borrow is the principa or capita amount. It s easy to understand why many peope want to borrow money. Very few of us have enough money to pay cash for something as expensive as a house or a car, so we borrow money and agree to pay back the amount, pus interest, over time. If we can ive without something, though, it is better to wait unti we have the money to pay cash. Interest rates Interest is either money we earn when we deposit money at the bank, or it is the price we pay for credit. The interest percentage that we earn or pay per year is caed the interest rate. For exampe, we may borrow R at an interest rate of 20% per year to buy a car. In simpe terms, the cost of borrowing that money for the first year of the oan is 20% of R which is R (R833 a month). But why woud someone end us money? To make it worth their whie to end their money to a borrower, enders must earn something for the service that they provide and for the risk that they take. The interest that they get from the borrower is their reward or return. Interest is usuay written as a percentage of the principa amount over a period of time, e.g. for a R oan you may have to pay 24% interest p.a. That is R200 a month in addition to what you have borrowed. However, interest rates are sometimes a bit more compex, depending on whether a the interest is cacuated at the beginning of the period of the oan, or whether you pay interest on the baance of the debt after every monthy repayment. Ask your bank to expain to you exacty how the interest on your oan wi be cacuated. Never borrow money if you are not sure that you can afford the repayments. 8

9 Goods and services The things we buy are either goods or services. For exampe, items such as food, furniture and cothes are goods, whie medica care, banking and education are services. Suppy and demand Producers suppy goods and services to meet customers demand. For exampe, if a ot of peope buy appes, producers wi produce a ot of appes. If there is a strong demand for appes, but a imited suppy, the price wi rise. As producers suppy more appes to meet demand, the price wi fa again. When peope are buying a the appes they can afford, and producers are seing a the appes they can produce at a profit, we say that demand and suppy are in equiibrium (or baance) and the price of appes is stabe. Return A return is basicay income. Investors must make a return on their money or they may as we keep it under a mattress and not invest it. The money that investors invest in businesses is caed capita, or equity. Investors expect a return on their equity. If a business cannot provide the expected return on equity (ROE) to the investors who have put money into it, the investors wi take their money out of the business and the business wi have to find new investors or cose down. Banks, just ike other businesses, must attract investors by ensuring an adequate return on their money. Risk and reward The more risk an investor takes, the bigger the reward he or she expects. If there is a high risk that investors wi ose part or a of their capita, they wi expect a higher return on equity to compensate for that risk. Never risk money you cannot afford to ose! Producers go to great engths to ensure a baance between suppy and demand. Intermediary In the financia word, an intermediary is someone who faciitates business between the consumer (the cient) and the suppier of the service (a bank or an insurance company or the JSE Limited, for exampe). Intermediaries incude insurance brokers, bank officias and stockbrokers. Find out more about them on page 17. Infation Infation is an overa, ongoing rise in prices. Prices are aways rising and faing as suppy and demand change, but a price increase on a singe product is not infation. Infation is usuay given as the percentage increase in overa prices over a year. This refects the reduction in the purchasing power of your money. If you divide 72 by the infation rate (say 10%), you get the number of years it wi take before your money buys ony haf of what it buys today! 9

10 THE Banks and you Banking is as important to a country s economy as industry and commerce. When peope manufacture products and when they buy and se these products, they need banks to hande the money the financia transaction. Can you imagine the owners of a big god mine seing their god output for cash, and then ocking the cash in a cupboard unti they need it to buy new machinery? South African banks have branch networks a over the country. Shop around to find the one that offers you the best services and fees. Private individuas aso need banks. Banks act as intermediaries between customers who want to save (invest) money and customers who want to borrow money and between customers who want to dea with one another, e.g. buyers and producers. THE main services that banks OFFER Modern banks provide a wide range of services to the pubic. The services isted here are the main ones that most peope are ikey to use. As your needs grow, you can ask your bank about any other services it offers. It is good to estabish a persona reationship with your bank. Get to know your persona banker or consutant. He or she wi get to know your particuar circumstances and wi be abe to ensure that you get the best advice at a times. Savings account This is mainy for saving, but you can aso use it to make other transactions. You need ony a sma amount of money to open a savings account and maintain a minimum baance and you are paid interest on your money. Some banks aow you to make a certain number of cheque withdrawas from your savings account. ATMs (Automatic Teer Machines) give you access to your savings 24 hours a day. Cheque account and overdraft With a cheque account (or current account) you receive a cheque book, and you can pay peope by cheque. But there is a fee for every transaction. Your cheque account often pays no interest, but your bank may aow you an overdraft (a type of oan) on it, depending on your credit record. Interest is payabe on an overdrawn baance. Persona oans When you have a good track record with your bank, they may aow you to take out a persona oan. 10

11 Debit cards A debit card gives you the benefits of eectronic banking without the danger of spending money you do not actuay have. Managing your finances is easy you can ony spend money that you have in your account and it comes out of your account immediatey! You aso get a printout once you have finished your transaction, showing how much money is eft in your account. You Hire Purchase (HP) accounts Certain banks speciaise in hire purchase oans which are registered over the items you buy. If you don t pay your instaments, the items you have purchased are repossessed. Usuay the deaer negotiates the oan with the bank on your behaf, but you can tak to the bank directy to try to get a better interest rate. Before you take out an HP, the company usuay checks your credit record. A bad credit record may mean the HP appication is turned down. Credit cards With a credit card, you can pay for your shopping without having to carry a cheque book or cash. A your purchases go onto your account (you buy on credit ) and you pay the bank once a month. You wi ony quaify for a credit card once you have a good credit record. Don t use it for term purchases and avoid ony paying the minimum instament. If you can t pay the fu amount, pay as much as possibe. The interest rate on credit cards is very Notice deposit accounts Notice deposit accounts earn you higher interest, but there are restrictions. The minimum amount needed to open the account is higher than for an ordinary savings account. The main difference is that you have to give the bank an agreed period of notice (e.g. 32 or 60 days) before you can draw the money in your account. Fixed deposit accounts This account offers a fixed interest rate over a fixed period of time (say 12 or 24 months). The money must remain in the account for the specified period of time. This protects you from the temptation of drawing the money, and is a good form of saving for a particuar goa, such as education or a new car. DORMANT ACCOUNTS Some accounts have no upper or ower imits, as ong as you keep them open and you use them reguary. When an account has been dormant (not used) for a certain period, the banks have the right to cose it and keep your money uness, and unti, you caim it. The Financia Sector Charter: Access to Financia Services The financia sector, through the Financia Sector Charter, has to introduce easiy avaiabe and affordabe financia products and services. Some of these products meet certain standards such as the Zimee brand for ong-term insurance products, the Mzansi short-term insurance standards and the Fundisa fund, which is a savings product for students. If you are interested in accessing these products, tak to your bank or insurance intermediary. 11

12 Home oan account (mortgage bond) A home oan account, or mortgage bond, is probaby the most important contract, apart from marriage, that you wi sign in your ife. It is a ong-term agreement between you and your bank. If you quaify, the bank ends you money to buy or buid a home. The oan, with interest, is repayabe over 20 or 30 years. If you repay it sooner, you wi save on interest. (Remember Pan B on page 7.) Your home is the bank s security. If you fa behind with your repayments, the bank may repossess your home to recover any money that you sti owe and to protect its other cients deposits. Most banks nowadays offer customers the convenience of re-borrowing as much of the origina bond amount as they have repaid. If you have paid off enough, you can draw money from your home oan to pay for new furniture, trave, or even a car at a much ower interest rate than norma. This is a convenient and economica way of buying on credit. But it is dangerous, too. You can find yoursef in a position where your home oan never gets paid, and you eventuay face retirement with a massive amount sti outstanding and the risk of osing your home in your od age. A much better idea is to use your home oan as a savings pan. Pay off extra each month. This is often the most efficient way of investing unti your bond is fuy paid. In so doing, you can save huge amounts of interest. If you want to renovate your home, you coud access your bond. Ask your bank to hep you work out the detais if you want to use your home oan to pan for a future expense. A home oan is the biggest singe debt the average South African wi incur in his or her ife. You shoud aim to have repaid your home oan by the time you retire. Society or group accounts Designed for a group of peope who want to save together, this type of account is simiar to a stokve. Bank costs are ow and your savings earn interest. A minimum amount has to remain in the account to keep it open. REMEMBER THE GOLDEN RULE: MONEY THAT YOU SAVE MAKES YOU MONEY. MONEY THAT YOU BORROW COSTS YOU MONEY AT HIGHER INTEREST RATES THAN YOU EARN ON YOUR SAVINGS! 12

13 other usefu banking services Internet and teephone banking If you have a computer (and you subscribe to the Internet) or your own touch-tone phone, you can do a ot of your banking from home or from your office. Foreign exchange payments In the modern word of internationa trave, the banks pay a key roe in advising you and arranging for you to have access to your money when you are out of South Africa. There are reguations regarding the amount of money you are aowed to take out of the country and in what form. The appropriate bank staff member wi expain the ega requirements and what can and cannot be done, as we as organise traveers cheques in the currency you wi need and arrange for you to be abe to use your credit cards in other countries. There is a charge for these services, which may vary from one bank to another. The banks aso arrange for purchases made outside the country and the transfer of funds. Investment advice If you have arrived at a point where you woud ike to invest money directy overseas, your bank wi be abe to expain the Reserve Bank s requirements to you. Whenever you are ready to pan your investment strategy for the next few years, one of your first stops may we be at your bank. Bank staff members are professionay trained to provide good advice on different forms of investments. They wi aso be abe to refer you to a reiabe insurance broker, if you do not have one yet. Choosing the right investment account can make a big difference to the interest you earn and to the future vaue of your investment portfoio. Consoidating your debt When one is in financia troube, it is sometimes appropriate to consoidate one s debts. In certain circumstances your bank may be wiing to hep you do this by ending you enough money to pay a your accounts and then you need to repay ony one oan, i.e. the bank. If you think this may be a good idea in your case, tak to your persona banking advisor. She or he wi expain the conditions to you. Keeping banking fees down Banks charge their customers banking fees for the services they provide. By carefuy seecting the services or accounts that you need, you can minimise these fees. You can aso shop around and compare the fee structures of the different banks. Finay, you can ask the bank you have chosen to offer you the best possibe fee structure. 13

14 THE IMPORTANCE OF BEING A GOOD CUSTOMER In a word where we are being encouraged to spend, spend, spend (even money we haven t worked for yet) we forget that everything we borrow or buy on credit wi have to be paid for eventuay. Most banking or credit customers keep their affairs in order but there are sti far too many who get caught in the debt trap. You can ask anyone who has been there, and they wi te you how difficut it is to get out of financia troube once you are in it. It is much easier, they wi te you, to stay out of troube in the first pace! HOW TO BE A GOOD CUSTOMER IN GENERAL If you buy anything on credit, foow these rues: Make sure that you reay need the item. The test is to ask yoursef: Can I ive without it? And if the answer is yes, think very carefuy about it. Make your repayments punctuay and in fu on or before the due date. If you cannot afford the payment for any reason, write to your creditor, expain the situation, incude the amount that you can pay, and undertake to catch up the next month. If you reay are in troube and you cannot afford your repayments, write to your creditor, expain the situation, and commit yoursef to such smaer reguar amounts as you can afford. As ong as you keep to your new promise, the creditor is not ikey to take ega steps against you. HOW TO BE A GOOD BANK CUSTOMER In the course of your career, your bank manager can become a very important person in your ife. It is therefore worthwhie to keep your reationship with your bank sound and heathy come what may! Keep to a the rues. Be honest with your bank. If your job status or saary changes, et them know. If you make a promise to your bank, confirm it in writing and fax or post it to them. A handwritten etter is fine. If you have an overdraft faciity, treat it with care. Don t use it for unnecessary expenditure, and don t exceed the imit. How you are managing your overdraft is the bank s best way of teing what kind of customer you are! 14

15 WHATEVER YOU DO, STAY OFF THE NEGATIVE LIST! If you do not manage your accounts propery, your bank wi give you a poor credit rating. Even if you do not have a bank account, if you do not pay your accounts reguary, your creditors wi give you a poor credit rating. They wi give that rating to any business that contacts them to find out whether you are a reiabe customer or a poor risk. But it gets worse. If you fai to pay more than one instament, your creditor can take ega steps against you. Summons wi be issued against you, and then judgement. Then your name wi automaticay be handed over to a Credit Bureau and you wi be negativey isted. Once this happens, you wi not be abe to open any account anywhere or take out a bank oan (incuding a home oan). It usuay takes five years for your name to be ceared. The Nationa Credit Reguator (NCR) was estabished under the Nationa Credit Act 34 of 2005 to reguate credit providers, credit bureaux and debt counseors. The NCR aso enforces compiance with the Act. The Act provides for different periods for which a credit bureau can keep your information. A credit bureaux must be registered with the Nationa Credit Reguator. Athough you can negotiate to have this done earier, it is a ong and frustrating process which requires great patience. (Find out how to chaenge unfair negative isting on page 33.) In effect, a judgement against your name might affect your financia standing and your abiity to get credit and open accounts. SOME OF YOUR FURTHER RIGHTS AND OBLIGATIONS AS A DEBTOR When you borrow money or buy on credit, you accept responsibiity for your actions. Make sure that: You dea ony with a registered credit provider (see ast page) You demand a written contract expaining the terms of the dea You know whether a cooing-off period appies, and how ong it is You have not signed any bank forms for the credit provider to compete afterwards You are aowed to pay the debt off sooner than the contract states, if you want to. Check with the creditor to find out if there are specia conditions governing eary settement. The credit provider does not keep your ATM card or ID book. It is against the aw. You are abe to keep to the terms of the contract. DEBT COUNSELLING In the event of over-indebtedness, the Nationa Credit Act provides for a debt counseing process. The purpose of debt counseing is to hep consumers to meet their debt commitments with their credit providers. A consumer who has setted a his or her debts through the debt counseing process wi receive a Cearance Certificate from the debt counseor. This certificate wi aow you to have information hed by a credit bureau ceared. Ony dea with debt counseors that are registered with the NCR. Pease note that debt counseing has impications for the consumer. During the period that you are under debt counseing, your name wi be isted with a credit bureau. You may aso not get any oans unti you have repaid a your debts. It is better to negotiate with your creditors first to try to resove the probem before considering debt counseing. For more information on debt counseing, ca the NCR at

16 retirement can be disappointing Most peope do not have enough money to maintain their standard of iving when they retire and they are faced with a choice between continuing to work or adapting their ifestye. There are a number of things that can contribute to your finding yoursef in this position. 1. Lack of proper panning It is very important to review and adjust your financia pan and goas reguary. 2. Longevity We ive onger than our parents, so wi probaby have more retirement years, which means we wi need more money when we retire. 3. The retirement gap There is usuay a shortfa between the benefits of an empoyer-sponsored pension savings scheme and what you need to retire on. 4. Heathcare costs Medica infation is higher than ordinary infation, and high medica costs can be expected after retirement. 5. Non-preservation The worst mistake you can make is to spend your retirement payout when you change jobs. Reinvest it so that it wi remain part of your retirement pan. 6. Eary retirement/retrenchment Taking eary retirement or retrenchment packages five years before norma retirement means you have to add five years to your retirement years and subtract five years from your retirement savings! 7. Too itte, too ate Sefempoyed peope eave saving for their retirement too ate. This resuts in too itte capita being accumuated for a comfortabe retirement. 8. Poor investment decisions Making poor investment decisions when investing your retirement savings and capita can undo the work of a ifetime. Be especiay carefu of investment scams that target senior citizens. 9. Increased incidence of ife threatening iness Athough it depends on the type of fund, an increasing proportion of retirement fund contributions goes to fund death and disabiity benefits, and ess goes towards the investment portion. Your retirement scheme wi therefore grow more sowy than expected and you have to make up for it by putting away a itte more each month for your od age. 16

17 panning for the future Most peope dream of a financiay secure future. But not everyone who has the income and quaifications to reaise that dream is wiing to give what it takes: carefu panning and a ot of determination. Start now! Whether you are 20 or 50, you have the idea within your grasp. Discipine yoursef. Once you have found the right risk cover and investment to suit your current needs, maintain it. And as your savings grow and circumstances improve, study new investment options. Get advice! A retirement annuity? An endowment poicy? Coective Investment Schemes? There are many options to choose from. Buid a secure financia future today! Athough some companies se insurance and investment products directy to the pubic, most make use of the services of professiona intermediaries. Some intermediaries are associated with a particuar company whie others are independent, marketing the products of a variety of companies. Financia Advisory and Intermediary Services Codes of conduct for intermediaries have been prescribed by The Financia Advisory and Intermediary Services Act, 2002 (FAIS) to ensure professiona service. The main focus of the Act is to provide a greater measure of consumer protection. The Act states that intermediaries must anayse your individua needs, provide the information you need to make an informed decision, recommend appropriate products and discuss the costs and financia impications in other words, provide you with professiona advice and service. It is an intermediary s responsibiity to ensure that: your best interests are served and protected you understand the financia impications of your poicy or transaction, incuding the benefits you can expect and repercussions of canceation or surrender (where appicabe) you have provided a the information required a documentation reaches you within 30 days of issue (where appicabe). Take responsibiity for your insurance and investment portfoios, even if you make use of a financia consutant. Dea ony with a icensed financia services provider (intermediary) and/ or representative of a icensed provider. The Act aso provides for an Ombuds Office to hande cients compaints against improper actions of intermediaries. Intermediaries form the ink between the companies (insurers, the JSE Limited, banks, etc.) and the consumer (you). Most financia services and products are marketed and sod through intermediaries. Intermediaries incude financia advisors, insurance brokers, bank officias, stockbrokers and investment managers. 17

18 insurance and you Insurance is a word we use so often that we don t ever stop to ask what it means! With insurance, you basicay protect yoursef against risk. When you insure something, you ensure that you won t suffer a big oss if anything happens to that thing! Let s say you buy a new car for R Now you are at risk. What wi you ose if it is stoen or written off in an accident? R ! But what if you start protecting yoursef against that risk by saving R500 per month? We it wi hep a bit! After 12 months, for instance, you wi have saved R But R6 000 doesn t hep much when you ve ost R No, there is a better way: insurance. Imagine someone comes to you and says, Give me R500 per month, and I take over the risk of your car right from day one! In other words, if your car is stoen, I wi pay you what it is worth! If you have an accident, I wi have it repaired! It sounds too good to be true, but this is exacty what insurance companies do! They have thousands of cients, each paying a monthy premium. If you ose your car, even within the first day of buying it, your insurance company wi pay you if the conditions of the poicy appy! This is the basis of a insurance, both ong-term and short-term. Short-term insurance is insurance that you take out on possessions such as your house, your car or your ceuar phone or for a heath or disabiity event any insurance poicy that you can cance either when you dispose of the insured artice or no onger wish to insure it. It can aso cover you for ega iabiity to others. The purpose of short-term insurance is to protect you against osses that you have suffered as a resut of events such as accidents, crime and powers of nature (foods or fires). The benefit is intended to pace you in the same position as you were prior to the event. Long-term insurance incudes ife insurance, funera insurance and savings for events such as retirement, in cases of a heath event or disabement. It is insurance that you woud usuay expect to pay over a ong period of time unti you die or the poicy matures (for exampe, at a specific age). The benefits are in the form of sums of money. When you decide to buy insurance, it is important to first ook at your insurance needs. Once you have worked out your priorities, you are in a position to find the products that suit you best. If you have a famiy, your priorities wi probaby be different to those of someone who is singe. You can take out insurance on amost anything but your choice wi depend on your needs and what you can afford. You can buy insurance either from the insurer directy or through an intermediary who wi pace your business with an insurer. Some insurers wi ony work through intermediaries. It s important to understand the terms and conditions of a your insurance poicies, and to be honest when fiing in appication forms or making caims. Don t make fase statements. Don t be embarrassed to ask questions you have a right to know! Look on page 34 for an expanation of how tax appies to insurance products. 18

19 ong-term insurance Long-term insurance ensures that your dependants wi be provided for when you die or, in some cases, if you become permanenty disabed. It can aso provide financia security when you retire. Life insurance ensures that a specified amount of money wi be avaiabe for setting your debts or ooking after dependants after your death. Disabiity cover is an additiona option. Retirement pans offer a arge variety of choices for providing for the future, and often incude ife insurance. Life Cover There are different types of ife cover. Term insurance Term or fixed insurance is a risk product and is idea if you need a poicy to provide ife cover for a set period of time, e.g. whie paying off a bond on your house. It is cheap and you can easiy add benefits to it, such as ump sum for disabiity. After the agreed period of time, the cover simpy expires. depends on the nature of the investment. Because it is infuenced by the investment performance, it doesn t guarantee a fixed rate of growth, but the chance of rapid growth makes it a popuar choice, in spite of this. Endowment poicies Life insurance Whoe Life Cover is ordinary ife cover which is vaid unti you die or you surrender the poicy, i.e. it covers you against the risk of death. This is idea for the person who wants to eave a fixed amount of money behind after death, for exampe, to pay estate duty. It s the cheapest form of ife cover. The premium is invested by the insurance company. You can borrow against it if you wish. Universa ife cover is simiar, but has an investment component. The return on the investment portion Endowment ife insurance is in effect a savings pan rather than simpy ife cover, but can combine both risk and investment. You pay a monthy premium for a specified period, after which it matures and you are paid out a ump sum. It is different from other types of ife cover in that it is designed to pay you during your ifetime rather than your beneficiaries after your death. You can aso invest a ump sum in a singe premium endowment poicy. It is an exceent way to save a specific amount of money for a particuar purpose, e.g. for university fees, and the ife insurance portion comes into effect if you die before the poicy is due to be paid out. However, there are imitations on the benefits payabe in the first five years. 19

20 Disabiity cover Retirement annuities Disabiity cover is usuay added to ife cover, but can be acquired separatey. These are discussed in detai on page 26. Capita Disabiity Cover Capita (or ump sum) Disabiity Cover can be added to ife insurance, but cannot be greater than the amount of ife cover on the poicy, e.g. a ife cover poicy of R may have capita disabiity of any amount up to R attached to it. But you wi ony be paid out once you provide proof that disabiity is permanent. You can aso add it to your endowment poicy. Medica insurance Medica insurance pays out a stated benefit every time you undergo a medica procedure covered by the insurance poicy. The amount depends on the procedure. For exampe, an appendix operation may pay out, say, R10 000, whie a heart transpant may pay out, say, R In other words, the amount is cacuated according to what was done rather than how much it cost. Income protector disabiity cover This is the best disabiity risk cover option. One form of cover provides a monthy income with annua increases. In effect, if you are permanenty or temporariy disabed, it can repace your fu saary unti you recover or die, or the poicy matures, whichever comes first, but ony if this option is incuded in your poicy. For exampe, a 25-year-od man has disabiity cover of R5 000 per month, for which he pays a (tax-deductibe) monthy premium of R150. He becomes disabed and caims an income unti he turns 60. He can expect to receive a saary of R5 000 every month for the stipuated period, with a buit-in annua increase ony if this option is incuded in the poicy. So, if you have your appendix removed at a state hospita and it costs R8 500, you keep the difference between R and R But if you choose a private hospita and it costs R11 000, you have to pay the R1 000 difference yoursef. The insurer may not pay doctors or any other service provider directy and must pay the amount to you, the insured. This type of insurance is therefore not the same as a medica aid scheme. Hospita pan Insurance companies aso offer a pure hospita pan insurance poicy. This is not as expensive as a medica aid scheme membership, but payouts are imited to a stated amount (say R200 or R300) that you get paid for every night that you spend in hospita. Paying doctors bis and hospita costs remain your own responsibiity, and you may find that your expenses far exceed your hospita pan payout. 20

21 short-term insurance Different insurance poicies offer different benefits and restrictions make sure you understand your poicy. Read it carefuy before you sign it, and ask about excusions, restrictions and excesses. Note: You cannot caim from more than one short-term insurer for damage to the same asset. Homeowners insurance This is essentia insurance for anyone who owns their own home. It covers you for damage (by fire, ightning, storm, wind, water, etc.) to the actua buiding and a the fixtures and fittings such as ties, fitted carpets, etc. It even covers some types of accidenta damage. There are many other extensions to the homeowners poicy be sure to ask your broker about them! Be aware though that maintenance and deterioration through age (wear and tear) are not insurabe. The poicy may not cover you for subsidence and andside or riot and strike uness you ask for them to be incuded. There are other excusions in your poicy too, so make sure you understand what is and what is not covered! The bank wi insist that you buy homeowners insurance when you take out a bond. They can arrange it for you or you can buy it yoursef through a broker or direct from most insurance companies. It is your responsibiity to make sure that your house is insured for the correct repacement vaue and that you reassess it reguary. Remember, when you do not have a home oan, or you have paid it off, insurance becomes your responsibiity. Househod contents insurance This covers the contents of your home against damage caused by fire, storm, food, theft, water eakage, accident, etc. Some insurance poicies have excusions, or sections may be subject to excesses; for exampe, a theft excess of R1 000, which is the amount you wi have to pay yoursef. Most insurance poicies that cover househod contents require some sort of security system, e.g. burgar bars, security gates or an aarm. Make sure that you know what your poicy demands and insta what is necessary, or the company can refuse to pay out when you put in a caim. Watch out! Make sure you vaue the contents of your home accuratey, that is how much it woud cost you to repace everything if your house burnt down. Vaue your goods on a new repacement vaue basis, which is how much it woud cost you to buy the same (or equivaent) item. Sometimes, peope think they wi save on their premiums by cacuating the vaue of ony the things they think are most ikey to be stoen. This is unwise! If you do not vaue the contents of your home propery you coud be underinsured and if you need to caim, you wi be penaised because of the under-insurance. Ensure that you have adequate cover and adjust on a reguar basis. A risks insurance There are some possessions which we normay carry with us and which may be ost outside the home, e.g. ce phones, cameras, sungasses and bicyces. Most househod contents poicies offer an a risks section to cover these, but specific items may not be covered uness they are individuay isted on the poicy together with their insured vaues. Check with your intermediary whether your insurance incudes this type of cover. 21

22 Motor insurance There are a number of different types of motor vehice insurance, but whichever you choose, you need to make sure you vaue your vehice propery when you take out insurance. The vaue affects not ony your premium, but aso your caim. Unike househod contents, the vaue of a motor vehice decreases every year and is determined mainy by market forces in other words, how much you coud get if you sod it. However, the rate at which it devaues is aso affected by things ike mieage and maintenance. It is important to adjust the insured vaue every year so that it is accurate. If you fai to do this you wi be over-insuring (and paying too much). Factors affecting your cover or premium The insured: Your cover and premium take into account your persona circumstances (e.g. age, caims history, etc.) The type of vehice: Premium and cover can be infuenced by the type of vehice (e.g. year, make, mode and vaue). The security fitted to your vehice: Check whether the security you have fitted is acceptabe to your insurer. Types of insurance Third Party If you have an accident and you are responsibe, your third party insurance covers injuries to other peope (incuding passengers) as we as damage to other peope s property. Shoud a passenger be injured as a resut of your negigence, the insurance company wi cover their injuries too, over and above the Road Accident Fund. Third Party Fire and Theft This provides cover for fire and theft, in addition to ordinary third party cover. There may be an excess that you have to pay. Where you ive: Insurance caims are more frequent in certain areas due to higher risk factors. The pace where the vehice is kept, especiay overnight: Chances of theft are ower if your vehice is ocked and parked in a ocked garage. What you use your vehice for: Is it for peasure, driving to work and back, or for business? Inform your intermediary or insurer if anyone ese woud be driving the vehice. Comprehensive Comprehensive insurance is cover for damage to your own vehice combined with third party, fire and theft cover. This gives you the broadest possibe cover. You usuay have to pay an excess. Read your poicy and make sure that you are propery covered. 22

23 Trave insurance Trave insurance pays your hospita and other reated medica costs if you have an emergency whie traveing outside South Africa. You can aso take out cover against the oss of baggage and the curtaiment of your journey. This is especiay vauabe in the case of foreign trave, but it is very important to shop wisey for trave insurance because there can be hidden restrictions or imits. Many peope buy coverage that seems inexpensive, but then they find out that they are not fuy covered when an emergency arises. What you reay want is trave insurance with few restrictions and compications, and expert customer service advisors whom you can ca on for hep in understanding the cover. Lega iabiity insurance A certain amount of ega iabiity cover is usuay incuded in your househod contents insurance poicy. This protects you against caims against you personay, usuay for negigence of some kind or another. For instance, someone may trip on a oose tie on your front steps and suffer severe injuries. This person may accuse you of being negigent and therefore responsibe for her or his injuries, and take you to court to caim for medica expenses, oss of income, etc. As soon as you are aware of an event that has occurred that might ead to a ega caim against you, it is very important that you notify your insurer immediatey. medica aid Medica aids are undergoing continuous change. If you beong to a medica aid today, a basic hospita pan typicay pays out unavoidabe hospita caims, and a separate optiona savings pan covers out-of-hospita expenses. This works on an annua debit/credit basis. So, if you put R100 a month into the savings pan, you have R1 200 a year to spend on out-of-hospita expenses. Aways read your poicy and make sure you know what excess you wi have to pay. 23

24 responsibiities of intermediaries Short-Term Insurance Intermediaries are obiged to provide you with: Information, such as their name, contact phone number, physica address of the intermediary and their ega status (independent or representative intermediary); how to caim; administration fees and commission payabe; written mandate to act on behaf of insurer; Detais of the insurer, e.g. name, physica address and teephone number; detais of how to odge a caim and/or compaint; poicy information, incuding type, premium (manner of payment, due date and consequences of non-payment) Other matters of importance Any information given verbay must be confirmed in writing within 30 days. If any compaint to the intermediary or insurer is not resoved to your satisfaction, you may submit the compaint to the Registrar of Short-term Insurance at the FSB. There are specia conditions if you decide to pay your premium by debit order make sure you find out what they are. The insurer, not the intermediary, must contact you directy if a caim has been rejected or your insurance has been canceed. Short-term insurance intermediaries Many insurance companies appoint intermediaries to coect premiums and administer caims on their behaf. Dea ony with a reputabe intermediary and, if you are paying premiums to this person directy, make sure that he or she is permitted by aw to accept your premiums. Many intermediaries are members of an association, but many are not. If you have a probem with your intermediary, you can approach the FSB for assistance. (See page 36.) Warning Do not sign any bank or partiay competed a p p i c a t i o n f o r m s. Compete a forms in ink. Keep a documents handed to you in a safe pace. Make sure you understand what is said to you and whatever you agreed on is confirmed in writing within 30 days. Don t be pressured into buying the product. Incorrect information or non-discosure by you of reevant facts may infuence any caims arising from your contract of insurance. Sometimes the excess wi be eiminated if you pay a higher monthy premium. Ask about this when you take out a poicy! 24

25 Long-Term Insurance When you are considering taking out ong-term insurance, the intermediary shoud te you his or her name, physica address and teephone number, the name of the insurers represented, what products are being marketed and whether he or she is independent or a representative. Ask for proof of accreditation and check that he or she has professiona indemnity insurance (a professiona indemnity insurance covers an intermediary against a caim from a poicyhoder for professiona negigence, errors or omissions that affected the poicyhoder and it aso covers the intermediary for any potentia compensation to be paid to the poicyhoder in the event of osing a awsuit). Make sure that the product or transaction suits your needs and you know how the decision wi affect you: The intermediary or insurer must provide detais of the premium you wi be paying, the nature and extent of benefits and how they are accumuated. Discuss the terms of the contract and the affordabiity of the poicy. You can usuay cance a poicy in writing within 30 days of receiving the summary. This aso appies to any changes you may want to make. Ask the intermediary for detais. But if the poicy has an investment component, you wi carry any investment oss. The insurer must send you documentation confirming poicy detais, incuding the product being purchased, the cost of the transaction (incuding the initia expense and commission being paid to the intermediary and where an investment eement is invoved, the ongoing expense). You shoud aso receive a summary of the contract and contact number and physica address of the compaints and compiance officers of the insurer. TAKE RESPONSIBILITY Discuss the possibe impact of the proposed transaction on your finances, your other poicies or your broader investment portfoio. Find out how fexibe a proposed poicy is. Where paper forms are required, sign them ony once they are fuy competed. Confirm verba information. Contact the FSB Ca Centre if you have any concerns regarding a product sod to you or advice you have received. (See the back page for detais.) If an intermediary advises you to cance an existing poicy, ask yoursef these questions: Is it reay necessary to repace the poicy? How does canceation affect my benefits under the od poicy? What additiona costs are there? Make sure the change is in your interest! Be a good insurance cient Insurance is conducted on the principe of good faith. Because it is often not possibe for the insurer to estabish whether the cient is reay teing the truth, the cient s word is accepted in the utmost good faith. This faith, or trust, is easiy abused. You may, for exampe, be tempted to te ies on your appication form. This is dangerous as the insurer can invaidate the poicy, and when you make a caim, can refuse to pay you out. Many peope are dishonest when they caim from insurance companies. They don t aways te the truth after a oss and infate their caims. But every time a cient is dishonest, the insurance company oses money. This money is eventuay recovered from a the other honest poicyhoders in the form of increased premiums. Lying to your insurance company (incuding not making a fu discosure when taking out insurance) is equa to fraud or theft. 25

26 investing for the future Why it is important to start panning for your retirement NOW! There are many types of investment which buid up capita or provide monthy income when you retire. Retirement funds Some empoyers offer a retirement fund. This may be a pension fund or a provident fund. Find out more about it and what your responsibiities are. When you retire, your retirement fund benefits wi be paid out to you. By aw, at retirement ony onethird of a pension fund may be taken in cash (after tax) whie the other two-thirds must be invested to give you a reguar income. You may want to invest your one-third ump sum payout as we! If you beong to a provident fund, you may receive either a monthy pension or a ump sum which you shoud use to buy a monthy pension. The important thing is to invest as much money as you can every month to make sure your retirement fund wi be enough to ive on safey and securey when you are od. Avoid cashing in a retirement fund if you change your job but if you do, transfer the money to a preservation fund. Lump sum investments If you have a ump sum to invest, decide what your objective is and choose the appropriate investment, depending on when you wi need the money. Each type of investment has its own risks, rewards, time-frames and advantages, depending on your reasons for investing. Exampe 1: If you become entited to a ump sum payment from your pension or provident fund when you resign from a company, you shoud transfer it to a preservation fund. This woud not ony save you from being taxed on the ump sum now, but aso ensure that it is there for your retirement. Even if you have a retirement fund which guarantees an income for the rest of your ife, it is unikey that you wi have enough money to ive on comfortaby when you retire. How do you make sure your retirement fund beats infation and asts as ong as you do? You wi receive a benefit statement once a year, which wi give you detais of the current position of your fund. Review your situation reguary and make adjustments to your investments when necessary. It is important to invest extra money whie you are sti working. Some retirement funds aow for top-up contributions. If yours doesn t, you shoud make additiona investments (usuay a retirement annuity or an endowment poicy) as soon as you can. Exampe 2: If you wanted to put away a mediumsized ump sum for five years or more, coective investment schemes may be a better option. Exampe 3: If you are interested in investing R or more for at east five years at a time, you shoud consider a singe premium endowment poicy. Retirement annuities Retirement annuities are a good, safe form of investment because nobody wi ordinariy have access to the funds before the seected maturity date. Even in the event of insovency, a retirement annuity is reativey safe. The maturity date may be set anywhere between the ages of 55 and 70. You can aways eave the funds to continue growing unti you are ready to start drawing from them. 26

27 Annuities Athough there are many variations to choose from, there are two main types of retirement annuity. Conventiona annuities are managed by ife assurance companies and other service providers. Living annuities are managed by you and a vountary purchase annuity is bought with a ump sum and is a good investment if you unexpectedy find yoursef with money to spare an inheritance, for exampe. The conventiona or fixed-interest annuity With a conventiona or fixed-interest annuity, you pay in your sum of money and, in return, you are paid a fixed income every month for the rest of your ife. The insurer takes responsibiity for fuctuations in the market and the risk that you may ive onger than the average. The iving annuity With a iving annuity, you and not the insurer take both the investment and the mortaity risk. Briefy, the income depends on the growth of the sum of money invested. And that growth depends on the behaviour of the stock market if it does we, your capita wi increase; if it fas, your capita decreases. The question to ask yoursef is, Can I manage the investment and do I have enough capita to survive market setbacks? Chances are your answer wi be no, uness you wi have additiona sources of income. The composite annuity Composite annuities are a mixture of conventiona and iving annuities and to some extent offer the best of both words fexibe income from the iving annuity part and a guaranteed income (security) from the conventiona annuity part. The advantage of a conventiona annuity is that your reguar monthy income is guaranteed for ife. The disadvantages are that you get the same income every month or year, regardess of infation and your investment dies with you. There are variations of the conventiona annuity, which address its disadvantages, but often have drawbacks of their own. These are the conventiona escaating annuity, which provides a guaranteed income for ife and a guaranteed annua increase at a specified rate but initiay pays out ess than a fixed annuity and the conventiona with profits annuity which aso guarantees an income for ife and offers protection against infation. Another option is a joint ife annuity, which ensures that after one spouse dies, the surviving one wi continue to receive an income. You can see that you need to ook at a the options carefuy before deciding what wi suit your needs best. The advantages and disadvantages of a these aternatives need to be baanced against each other and weighed up carefuy. Your own particuar circumstances and needs must be taken into account. Get advice from a professiona advisor before choosing a product. You are making decisions that wi have an impact on the rest of your ife! 27

28 Investment advice from the experts Invest for the ong term and treat recommendations to keep changing your portfoio with caution as changes are costy. Invest in quaity. Whatever you invest in, buy shares with potentia. Past performance is not necessariy a guide to how an investment wi perform in the future. Seek the advice of a professiona. Don t swap investments unnecessariy. Find out about any charges that appy and penaties that wi be incurred if you change an investment. Check a charges and make sure they are expained. Remember, each time you make a change to your portfoio, charges are incurred. Go for growth when you are young and income as you get oder. Young peope can afford to take risks whie oder peope cose to retirement need to be more cautious. Stick to the basics. Gimmicks emerge from time to time, but are based on greed. Avoid them! Diversify your investments geographicay as we as according to investment type. The better the spread, the ess the risk. Don t et investments and markets rue your ife. Enjoy your heath, your famiy and your friends. Time is far more precious than money. So don t et the state of the stock market rue your ife. Watch out for peope who caim to be investment gurus. Nobody can predict with any certainty what is going to happen tomorrow. Take responsibiity for your investments. If you don t understand investments, appoint an advisor, but this does not mean that you abdicate your responsibiity. Make sure you keep up with investment deveopments. A we-informed investor has better contro of his or her future. As your circumstances change, you may want to change the beneficiaries nominated in your poicies, your retirement funds or your wi. You and your beneficiaries must make sure the company where you have your retirement fund aways has your most recent detais. Advise them immediatey of any change of address, teephone number, etc. 28

29 what are shares? A share that you buy on a stock market is exacty that. If you own shares, you own part of that company. Companies issue shares to raise the capita they need. Shares of most of the biggest companies in South Africa are isted on the JSE Limited (JSE), the stock market. This means they are pubic companies. Any member of the pubic can own a part of a isted company by purchasing its shares. A you have to do (if you have the money) is to go to a stockbroker and ask him or her to buy you some shares in Company X. And there you are, you own a part of that company. Other persons have owned shares, not necessariy by purchasing them but through specia schemes such as empoyee schemes. It works ike this A isted company issues shares to the pubic, usuay many miions. These are then traded on the stock exchange. You decide the company is a good investment, so you buy, say, shares. Because the company sometimes does we and sometimes not so we, the price of the shares can vary from one day to the next. Other factors, such as the state of the overa economy, aso affect share prices. Is that a SA Breweries Annua Report on your desk? That ooks coo! Yes, I m one of the owners! As a resut, next month or next year, the shares you bought may be worth more (or even ess) than what you paid for them. Whie you own the shares, you receive any dividends that the company decares. Dividends are the way companies reward sharehoders by making distributions of portions of the profits. Some peope have grown weathy by buying shares when share prices are ow and then seing them when prices go up. Woud you ike to invest in shares? When you invest in shares, you invest indirecty in the economy of the country. But there are a few basic rues to bear in mind. 29

30 How to get started If you want to invest in shares, you first have to open a share trading account with a JSE registered stockbroker/equities trader. Investors do not buy shares directy from the JSE but through a stockbroking firm that is a member of the JSE. When you approach a member firm, one of its stockbrokers wi discuss the proposed investment with you. It is highy ikey that he or she wi aso give you investment advice. You need to decide which shares to purchase and how much to invest, preferaby with a view to a medium or a ong-term investment horizon, generay of not ess than three years. On your instruction, a stockbroker at the JSE member firm executes your order at the price agreed upon. Aternativey, you may impose certain price imits within which the stockbroker must buy or se your shares, but these imits must be reasonabe with regard to price and time. Most stockbroking firms have onine faciities, meaning that you can pace your trades using the internet (secured website) or aternativey, you can sti use the teephone. Basic rues for investing in shares Good morning. Sharemart. How can I hep you? Eh...I woud ike to buy shares! Share prices go up and down. Shares are therefore riskier than investing in a bank or in an investment poicy. Find out as much as you can about the company and its operations. You can get this information from company annua reports and stockbrokers research reports. If you choose a successfu company, the vaue of your shares is more ikey to continue growing. Never borrow money to buy shares and never use money you may need soon. Ony use money that you have set aside especiay for ong-term investment. Shares are not get-rich-quick schemes, they are medium to ong-term investments, ideay five years or more. If your share portfoio oses vaue, get professiona advice, don t panic by immediatey seing your shares. A good investment pan is to put a reguar monthy amount into a specia savings account. As soon as you have enough in your account, buy shares in the company of your choice. Do this each year, and your weath can grow. If you don t have speciaist knowedge, don t chop and change between companies. If the genera share market goes down, ride it out. If your particuar company s shares go down, ask your stockbroker to expain why. If the company is doing bady, it may be wise to se, and buy shares in a better company. Be cautious of buying shares in unisted companies. Consut your advisor before you buy unisted shares. Remember, there are aso costs invoved in buying and seing shares. Be cautious in buying shares in unisted companies due to a ack of a secondary market, which coud mean that one might experience deays in seing one s shares. Dea through stockbrokers or registered intermediaries, as that ensures that they are reguated by some authority and they uphod and compy with high ethica standards. Be carefu especiay if a person cas on you or advertises, encouraging you to buy shares with extraordinary interest or returns. The key to successfu investment is to research before you buy or se shares. Beware of hot tips. Remember, in the stock market, your word is your bond. Be very cear in what you say to your stockbroker. Your verba instruction is a binding agreement between the two of you! 30 Phone the JSE ( ) for the contact detais of a stockbroking firm. How do I buy shares? Where do I start? Open an account with them and deposit the money you have avaiabe into the account. They wi aocate one of their stockbrokers to you.

31 COLLECTIVE INVESTMENT SCHEMES An easier way of investing in shares and other assets We have a heard stories of individuas becoming weathy by investing in shares on a reguar basis. But, for most of us, the stock market is a confusing, dangerous pace and we don t have the time or knowedge to buid an appropriate portfoio. Coective investment schemes provide a way for you to invest in shares, bonds, cash and other securities, without requiring a detaied knowedge of the markets. Each coective investment scheme has specific objectives and a portfoio manager who aims to achieve the objective of the portfoio through an investment strategy. This is done by investing the poo of money in the fund in a variety of underying assets. Types of coective investment schemes The type of asset cass of each coective investment scheme is argey determined by the objective of that unit coective investment scheme. There are coective investment schemes that speciaise in a particuar market sector, such as god shares, industria shares or technoogy shares. These coective investment schemes are commony known as equity coective investment schemes. Other coective investment schemes may invest in ess risky instruments such as bonds. Bonds are oan instruments, usuay issued by the government to raise money. Unike equities, which may fuctuate daiy, bonds offer a fixed rate of interest for the entire period of the bond (usuay 5 years or more). Money Market coective investment schemes invest in short-term interest-bearing instruments. These funds have a very ow risk profie with very itte voatiity. An investment period of 6 12 months is suitabe. Weath comes sowy Athough there are a number of benefits of a coective investment scheme, such as the fact that a coective investment scheme may be purchased for as itte as R100 a month, it is important to remember that economic markets fuctuate. In order to gain the most from your unit coective investment scheme, equity coective investment schemes shoud ideay be kept for a period of 3 5 years at east. This way the daiy fuctuations are ignored and one can benefit from the expected gradua ong-term growth in the market. 31 Diversification Baanced coective investment schemes invest in a three types of instruments shares, bonds, and cash. This provides important diversification. You shoud aways consider diversifying when investing. This is because, in the event of one company, or even an entire market sector performing poory, your entire portfoio coud ose vaue. However, by investing across different asset casses, as we as both ocay and offshore, you can spread the risk. Risk When purchasing a coective investment scheme, it is advisabe to seek the advice of a financia advisor. The financia advisor wi be abe to determine your risk profie, based on such factors as your age, marita status, dependants, heath, and so on. Such a risk profie wi determine whether an individua woud prefer an aggressive investment or a more conservative type of investment. Generay younger investors shoud have a greater appetite for risk, due to their onger-term investment horizon and may prefer investing in the more voatie equity coective investment schemes with higher growth potentia in the ong term. Diversify your investments Do not pace a your eggs in one basket. By investing in a number of different types of investments, shoud one type of investment, for exampe, shares, not perform, ony the amount of money invested in the shares wi be affected. Money invested in bonds, for exampe, may provide a better return, thereby reducing the amount of vaue in the portfoio that may be ost at any given time. Another option is an exchange traded fund. This is a security that tracks the dividend and the price movement of a particuar stock market index. It represents a basket of shares, but trades as a singe share on an exchange such as the JSE imited.

32 Retai bonds A safe, secure and risk-free investment opportunity RSA Retai Bonds are a savings product issued by the South African Government and give private individuas an opportunity to invest in government-issued securities. Because these bonds are in effect oan instruments issued by the government to raise funds, they are backed by the credit of the government and represent a ow-risk investment. Retai bonds therefore give you an idea opportunity to invest in the country s economy. By making retai bonds avaiabe to the genera pubic, the government aso hopes to create an awareness of the importance to save. Types of retai bonds Retai bonds are avaiabe in three maturities: 2 years (the 2-year RSA Retai Bond), 3 years (the 3-year RSA Retai Bond) and 5 years (the 5-year RSA Retai Bond). The maturity refers to the term of investment, or the ength of time before your investment capita is repaid to you. The retai bond you choose wi depend on how ong you want to save your money, and what the interest rates for the different retai bonds are at the time that you want to buy. Access to three different maturities aows you to choose the investment term to suit your needs. Guaranteed returns RSA Retai Bonds earn a fixed market-reated interest rate which is determined at the time of purchase. This interest rate is caed the prevaiing interest rate. A three retai bonds, that is, the 2-year, 3-year and 5-year, earn different interest rates which is the prevaiing interest rate on the date of purchase. Because the interest rate for retai bonds is fixed for the whoe investment period, you know exacty what the return on your investment wi be. You aso have the option of reinvesting the interest at the same rate as the retai bond, thereby ensuring the guaranteed growth of your capita. Affordabiity Retai bonds are very affordabe. A minimum of ony R1000 is required to purchase a bond. No fees, commissions or charges are payabe when buying these bonds, making them an even more attractive investment opportunity. The ony charge is a penaty charge payabe if you withdraw any portion of the amount before the expiry of the investment period. How to get started... You can buy an RSA Retai Bond at any one of the foowing paces: By purchasing onine on the RSA Retai Bond website at By posting an Appication Form to the Nationa Treasury: The Head, Asset and Liabiity Management Division, The Nationa Treasury, Private Bag x115, Pretoria, 0001 At any Post Office. If you wish to buy an RSA Retai Bond, you wi need: A vaid South African ID book Your persona bank account detais A competed Appication Form An amount not ess than R1000. Remember that you need to be a South African citizen or permanent resident to be abe to buy an RSA Retai Bond. For further information about retai bonds ca the RSA Retai Bond Hepine at (012) , or visit the RSA Retai Bond website at 32

33 Wis and trusts A wi, or a ast wi and testament, is a document in which you describe exacty what you want to happen to your wordy goods and assets after you die. To be vaid, a wi has to be drawn up correcty and you and two witnesses must sign it at the same time. Your wi is part of your overa financia management pan. If you die intestate, i.e. without a vaid wi, your assets can go to the wrong peope and the process can take ages. A cear and practica wi ensures that your assets are distributed quicky and according to your wishes after your death and it is best to have it drawn up professionay. A awyer can do it, or your insurance company, your bank, or a trust company. You must stipuate an executor, which, in the case of a very simpe estate, coud be a famiy member. The purpose of a trust is to provide security for your dependants. Ask your awyer or financia advisor. It can own property, receive donations and inherit money from your estate when you die. What makes a trust so secure is the fact that its decisions are taken by the trustees you appoint when you create it. There are basicay two kinds of trust: An inter vivos (iving) trust, created whie you are sti aive. A testamentary trust, created after your death in terms of instructions in your wi. Whichever type you choose, a trust protects the interests of your dependants. If you think it coud benefit your broader financia pan, tak it over with your financia advisor, bank or awyer. The roe of a Credit Bureau Credit bureaux are companies that keep a record of a consumers who use credit as we as detais of their credit history. The credit bureau provides this information to assist companies to decide who is eigibe for credit. A good credit record is an asset as it reassures the company that you are a good credit risk. However, if you have had a judgement against you for money you owe or you have been decared insovent, this wi be on your record too. A credit bureaux must be registered with the NCR. You can get a copy of your credit information from any registered credit bureau free of charge every tweve months. If you request information to see why you have a bad credit rating more than once within tweve months, you wi be charged a minima fee. Such a fee may not exceed R20. If there is something on your record that is incorrect or that you disagree with, the credit bureau wi investigate it for you. They wi correct your record if they find any mistakes. If you are not satisfied with the assistance given to you at a credit bureau, you have the right to compain to the Credit Information Ombud. The Ombud wi be abe to te you what steps you can take to have your name ceared, and how ong it wi take. Contact detais of the Credit Information Ombud: Te: E-mai: ombud@creditombud.org.za. If your compaint has not been resoved, contact the NCR: Te: E-mai: compaints@ncr.org.za or info@ncr.org.za 33