thelighthouse At Home with Stone Wealth Management welcome

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1 thelighthouse Issue 8 August 2013 welcome Time seems to be very much on everyone's minds, especially the speed at which this year is passing! We've already been in our new premises for three months and are happily settled in a great environment that suits our needs perfectly. Time is also very important in relation to your financial planning and investments, so our article, Managing your Expectations, provides an interesting perspective on the effect of time on your investments. Enjoy the read. At Home with Stone Wealth Management In April 2013, the Stone Wealth Management team moved to new premises and are now in a space that is ideal for the growth of the company going forward. Why the move? Close to the highway, 68 Old Main Road, Kloof, offers easy access to Stone Wealth Management for all clients, from Pietermaritzburg to Umhlanga. The road is currently being rezoned for full commercial use, so Stone Wealth Management is in a thriving business area with beautiful surrounds. continued over the page 1

2 continued from page 1 Lisa Praschma, Stone Wealth Management's Chief Operations Officer, says, Our carefully designed offices provide us with different spaces to suit our different needs: We have three boardrooms in varying sizes and layouts, to ensure that we have the right spaces to meet with our varied clients and partners, for internal use and for hosting our important events. We have included some photo's throughout the newsletter for those of our clients who have not managed to visit us yet. Linda Stonier, CEO and Head of Advice at Stone Wealth Management, adds, As we grow, we aim to build the Stone Wealth Management brand into becoming the most trusted financial services brand in South Africa. We believe that, through our team of specialists and our inclusion of valuable client feedback, we can offer our clients the highest probability of achieving their financial goals. 2 a professional approach to preparing your future

3 Issue 8 August 2013 The recession is over. Bull. Economic and Market Overview: Quarter 2, 2013 For the period ended June 2013 The following market review looks at the performance over the past quarter of local and global asset classes, as well as currencies, and puts this into perspective relative to longer-term performance. The purpose of this review is to provide a context in which the performance of the investment solutions in which you are invested can be assessed. International The US economy seems to be on a steady path of recovery. GDP growth for the first quarter of the year came in at 1.8%, compared to 0.4% in the last quarter of We have also seen a slight improvement in unemployment numbers, with unemployment claims in the US dropping to their lowest level since early In light of this improvement, Federal Reserve Chairman Ben Bernanke announced that they could start slowing down their bond purchase programme later this year and bring it to a halt by the middle of After the announcement, we saw a sell-off in equity markets and government bond yields were driven up to a 15-month high. Emerging markets were not immune to this risk-off behaviour. The Eurozone is still in recession and declined by 0.2% in the first quarter of the year. Unemployment in the region continues to escalate, peaking at 12% in May. The ECB cut the refinancing rate by 25 bps to 50 bps, in an effort to further stimulate the European economy. The UK, on the other hand, has seen some economic recovery, as the country's GDP expanded by 0.3% in the first quarter of this year, compared to a contraction of the same magnitude in the final quarter of Data coming out of the China has been disappointing. In June, manufacturing activity declined to a nine-month low. Economic growth has also been lower than expected, coming in at 7.7% y-o-y in the first quarter, compared to a consensus expectation of 8%. News of this, combined with the possibility 3

4 that Cyprus would have to sell its sizeable gold reserves as part of their bail out agreement, sparked fears among commodity investors, causing the gold price to fall to its weakest level in two years. Despite the slight uptick we have seen in volatility, global equities were slightly positive for the quarter, while global listed property and bonds were down 4%. Over a one-year period, equities and property have still delivered solid returns for investors of 19% and 16% respectively. Domestic SA GDP data for the first quarter came through in May, revealing that the economy grew by 0.9% q-o-q (annualised), compared to 2.1% in the last quarter of The growth rate came in lower than expected (consensus forecast was 1.6%). Inflation remained elevated at 5.9% for three consecutive months, before slowing to 5.6% in May. The SARB has lowered inflation expectations and CPI is now projected to average 5.8% in 2013 (previously 5.9%), and still expected to breach the upper band peaking at 6.1% in the third quarter (previously expected to peak at 6.3%). The rand weakened substantially in May, breaching the R10/USD level, with several factors contributing to the currency weakness, including slowing growth, labour unrest in the mining sector, and a widening current account deficit. The trade deficit expanded to R15 billion in April, resulting from a significant increase in imports, accompanied by a slight increase in exports. The announcements made by Bernanke on the tapering of the bond-buying programme, triggered an uptick in SA bond yields. We saw a high correlation between property and bonds following the announcement. As a consequence, returns for bonds and property were negative for the quarter. Bonds were the worst performing domestic asset class; down 2.2%. Listed property had a slight negative quarter (-0.4%); however returns for the past year remain elevated. 4 a professional approach to preparing your future

5 Issue 8 August 2013 Economic and Market Overview: Quarter 2, 2013 market overview The tables below provide a review of key local and international investment indicators for the past quarter, as well as over longer periods. South African asset classes (in rands) (Performance over periods to 30 June 2013) Asset class Indicator 3 months 1 year 3 years 5 years LT-average* Equities All Share Index -0.2% 21.0% 18.1% 8.6% 12.5% Property Listed Property Index -0.4% 24.0% 23.6% 26.0% 11.4% Bonds All Bond Index -2.2% 6.3% 10.7% 12.2% 6.9% Cash STeFI Call 1.2% 4.7% 5.2% 6.6% 6.0% Inflation CPI (one month in arrear) 1.3% 5.5% 5.2% 5.5% 4.9% Source: I-Net and Nedgroup Investments Global asset classes (in dollars) (Performance over periods to 30 June 2013) Asset class Indicator 3 months 1 year 3 years 5 years LT-average* Equities MSCI World Index 08% 19.3% 14.4% 3.3% 10.0% Property S&P Developed Property Index -3.6% 15.6% 16.7% 5.1% 8.2% Bonds JPM Global Bond Index -3.8% -2.1% 5.4% 3.4% 4.7% Cash US 3-month deposits 0.0% 0.2% 0.3% 0.6% 4.0% Inflation US CPI (one month in arrear) 0.3% 1.4% 2.2% 1.5% 3.1% Source: I-Net and Nedgroup Investments Currencies (Performance over periods to 30 June 2013) Currency Value at 30/09/ months 1 year 3 years 5 years LT-average* Rand / Dollar % -21.4% -9.0% -4.9% -5.5% Rand / Sterling % -17.4% -9.5% 0.7% -3.9% Rand / Euro % -24.3% -11.2% -0.9% -5.7% Source: I-Net, Morningstar and Nedgroup Investments * Updated annually from 1900, or longest available period Returns for periods longer than 12 months are annualised. 5

6 Managing your Expectations We have a very important responsibility to manage our clients expectations, as to the nature of the risks they are prepared to take, in order to achieve their expected returns. Ever since the financial crisis, real returns on cash have been negligible and investors' purchasing power has continued to decline. Consequently, clients are continually asking whether now is the correct time to invest. Many investors still seem to be hoping for a reversion to easier times, when low volatility assets produced double digit returns. They are likely to be disappointed - it is essential to recognise that investment risk and potential return go hand-in-hand. Linda Stonier, CEO and Head of Advice of Stone Wealth Management, adds, Stone Wealth Management's philosophy is that, for short-term financial needs, we invest into funds that aim to manage short term volatility. The balance used for long term funding, must be invested in a manner whichaims to manage inflation risk. It is important that clients expectation on the risk return relation be managed. The example of Berkshire Hathaway's mostrecent acquisition of global food giant, Heinz, provides an interesting perspective on returns. The deal guarantees Berkshire a 6% return, which, in a world of near-zero interest rates, looks pretty attractive. It is reasonable to deduce from this that Warren Buffet, founder and CEO of Berkshire Hathaway, clearly is not anticipating any major increase in interest rates any time soon. A decade ago, he demanded his first day premium of 13%, before he would consider a deal. Now Mr Buffet takes 6% for his money - there could hardly be any stronger signal that the investing tide has changed. In conclusion, we still believe that there are great opportunities for investors who will take a long-term view and remain invested continuously, enabling them to benefit from the compound effect of collecting and reinvesting income and dividends. For as Albert Einstein said, Compound interest is the eighth wonder of the world! To prove this, one need only look over extended periods, measured in decades and not days, to see the hugely positive impact of Time on invested capital. 6 a professional approach to preparing your future

7 Issue 8 August 2013 What's all the fuss about FICA? By Tiffany McAdam, Head of Implementation Are you frustrated by FICA? Do you find it annoying when you are asked to produce a utility bill every time you need to make a financial transaction? Why all the fuss anyway? The Financial Intelligence Centre Act (FICA) came into effect in 2001, in order to fight crime, especially money laundering. Successful money laundering leads to more crime, more drugs and more violence, all of which affect each and every one of us. Financial institutions therefore have a responsibility to prevent and deter those involved in money laundering activities from carrying out and profiting from their unlawful activities, by reporting suspicious transactions or individuals. Identifying clients through their ID documents and addresses (via proof of residence) is key - hence the need to supply up-to-date documents. recycling - as every item you recycle contributes to the larger effort and helps the planet, so ensuring that you are FICAcompliant means you are playing your part in combatting the fight against organised crime. Tiffany McAdam, Senior Implementation Consultant at Stone Wealth Management, adds, For financial service providers, not complying with this can lead to severe penalties being imposed by the Financial Services Board, possibly even criminal prosecution, with resulting fines or imprisonment. So next time you sigh with frustration at having to submit yet another 'proof of address', remember that it's the same as 7

8 Everyone has the sense that right now is one of those moments when we are influencing the future. Steve Jobs, Co-Founder of Apple talk to us The Stone Wealth Management team welcomes your feedback. us at or drop your feedback into the box in reception. Stone Wealth Management a professional approach to preparing your future 68 Old Main Road, Kloof PO Box Maytime Centre Kloof 3624 Tel Fax admin@stonewm.co.za VAT reg no Co Reg No 2013/020333/07 Stone Wealth Management is a licensed Financial Services Provider FSP you asked us... Can I open Unit Trust accounts for my children or other persons? Yes you can, but be aware that it does come with risk. When you open a unit trust account in the name of a minor, as the investor you are required to sign all instruction forms. For a minor, a parent or guardian has signing power until the child reaches the age of 18 - which is still young to be responsible for large sums of money. Grandparents who set up a unit trust account for their grandchildren, must be aware that if the parent of the minor runs into financial difficulty, they could access these funds. Do you have any questions that you would like answered? admin@stonewm.co.za and will post the answer in the next issue. did you know? At Stone Wealth Management, we diagnose before we prescribe - ie, before we finalise a client's financial plan, we ensure that we fully understand their circumstances and financial information, in order to establish realistic goals.. 8