How women can invest to sustain their lifetime

8/24/2016


Albert Einstein declared compound interest to be the eighth wonder of the world. “He who understands it, earns it … he who doesn’t … pays it,” the renowned physicist once said. With research showing that women live longer than men in developed and emerging economies, and that they are the most risk-averse group when it comes to investments, educating them on available options can be beneficial.

When we consider the impact of time on investing, even on relatively humble amounts, it is necessary for any woman to start at a young age to benefit from the effects of compound interest. But where does one start given the number of solutions available? Money market accounts? Stocks? Offshore investments? A retirement annuity or Tax Free Savings Account?

“All of these are reasonable instruments for the average investor with a decent level of disposable income, and so is property,” says Preenay Sathu, Financial Advisory Channel Head at FNB. “A global transactional or currency account can also be added to the mix, giving you access to foreign exchange when travelling or investing abroad.”

Sathu adds, “one can open a number of different investment accounts with varying underlying strategies attached to them, which could be aligned to the different needs and goals of the woman across her lifetime.”

Alternative investments
here investments become more complicated, and options accelerate, this moves into the sphere of ultra-wealthy clients. For these individuals, the planning would likely require the formation of an inter vivos or living trust. Such a vehicle allows for assets to be housed in a trust where a spouse, children and the woman herself can be nominated as beneficiaries.

Sathu explains that, using an inter vivos trust, a high-net-worth investor could “buy and house assets such as art, property or other investments, locally or offshore within the trust. An inter vivos trust presents an opportunity to invest in a broader range of alternative options. “You can build an asset base depending on the individual’s preferences,” he explains.

There are also investment options like endowments, which could be considered by high net worth individuals, although Sathu notes that due to the tax rate of 30%, it may not be advisable for individuals taxed at 20%. “Used appropriately for individuals in the high net worth space, endowments do have a role to play in that they give the investor the option to nominate a beneficiary or transfer ownership,” explains Sathu.

“You can also invest in an endowment with a trust, which would see the endowment taxed at 30% rather than the 41% for trusts. The structuring of such assets and investments to be housed within trusts is crucial. There are vehicles out there and a market for every product; it is just how we use, structure and manage the portfolio that determines the outcome.” explains Sathu.

“There is also a lot of misunderstanding around trusts in the market and how they can and should be used. We are often faced with clients who want to set up a trust but do not understand the cost and complexity associated with the process. So advice and education have a huge role to play in this market.

Throughout the entire process, the role of a professional is essential to help implement and manage one’s portfolio, guided by a goal-based financial planning strategy to ensure that women and all clients achieve their needs and objectives over their lifetime.

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