Annuity

When must I make an annuity choice?   What is the difference between guaranteed annuities & investment linked living annuities? What is important principals to follow when investing? What does investment risk mean? Why don’t investors just utilise ‘risk-free’ investments? What does ‘real return’ mean?   What is the advantage of using the RA Direct website and the experience of the RA Direct broker? What big brand, high-quality, reputable product providers are represented on this website? For what audience is this investment webpage intended? How do you deposit your investment money if you use Plandirect to place your investment?   

When must I make an annuity choice?

In South Africa on retiring from a retirement annuity or pension fund you are obliged to purchase an annuity with at least two thirds of the capital value. This annuity must provide you with an income for life. In South Africa there are mainly two products or combinations thereof available to provide such income, namely a Guaranteed Annuity’ or an ‘Investment Linked Annuity’. In making the decision of which one of these products to choose/purchase it is very important that you understand the risk associated with each product.

What is the difference between guaranteed annuities & investment linked living annuities?

What is important principals to follow when investing?

Know yourself! Before you begin investing, you need to know your goals. You should have well-thought-out goals. Goals are critical to knowing yourself because they will help you understand what you are trying to accomplish with your investment. As part of knowing yourself, you need to know your budget. You cannot invest without funds. You also need to understand your ability to tolerate risk because this ability will determine what kind of an investor you are. You want to develop a “sleep well” portfolio—a portfolio that is planned so that even when investments go wrong, as they sometimes do, you can still sleep well at night. Understand Risk Risk is inherent in all investment activities. Some risks include inflation risk, business risk, interest-rate risk, financial risk, market risk, political and regulatory risk, exchange-rate risk and liquidity risk. The key to managing risk is understanding the different types of risk and investing at a risk level that is comfortable for you. It is critical for you to find the risk level at which you are most comfortable. You can use our risk- tolerance calculator to assist you to find the level of risk that is right for you. Stay Diversified Diversification is your best defense against risk. You should invest in a variety of assets and asset classes. Diversification does not mean investing in ten different banks. It means investing in different companies, industries, and perhaps even countries. Bank shares will all tend to go up and down together. To truly diversify you need to invest in different industries and perhaps countries that won’t be subject to the same economic factors or risks. Make sure you understand the risks of each of your investments. Investing is risky and uncertain: minimise risk by diversifying your portfolio. All our product providers have risk profiled managed funds which are managed by experienced fund managers. These risk profiled funds could be the best solution for the not so experienced investor as these funds are not only managed according to your tolerance towards risk but you have peace of mind that your money is in a diversified investment managed by professionals. Invest Low-Cost and Tax-Efficiently Watch your costs very carefully, including, management fees, and taxes. Remember that regarding investment, a rand saved is worth more than a rand earned; this is because while you have to pay taxes on every new rand you earn, every rand you save is already taxed and can earn interest on income. It is not the amount of money you make, but the amount of money you keep after costs, taxes and inflation that makes you wealthy. If you decide to find your investment direct on the Plandirect website you will enjoy big savings not only on the initial fees but also on the ongoing advise fee compared to the traditional fees charged! Invest for the Long Run Invest for the long run: this is how you will achieve your goals. Invest wisely: there are no “get-rich-quick” schemes that work, and short-term investing is expensive in terms of time, transaction costs, and taxes. Keep at least part of your funds in the market for the long run. Keep in mind that taking money out of the market, as well as discontinuing saving, may not only slow your progress but could stop it altogether. Use Caution If You Are Investing in Individual Assets If you must invest in individual assets (and this is not a given), know what you are investing in. Do your homework. If you do not have the time to research individual investments, invest in unit trust funds that have many individual assets. Know who you are investing with. Make sure you invest with unit trust companies that have built a tradition of meeting the needs of their investors. Work with good companies that have good products. Be very careful with your money and invest it wisely considering all the principals of investing. Invest Only with High-Quality, Licensed, Reputable People and Institutions When you need help, do not be afraid to ask for it. But get help from good people whose actions and beliefs are consistent with the principles discussed. Good help from qualified, licensed, and experienced financial planners, financial advisors and brokers may help you in your investment plan. Use the best resources available, but be aware of how those resources are compensated. In addition, make sure advisors have the required licenses to counsel you on the broad range of investment assets you are (and should be) considering. Work only with licensed and registered advisors. In some circumstances, fee-only financial planners or advisors may be a better choice than financial planners or advisors that are paid on commission.As discussed elsewhere on this website, Plandirect’s direct offer is intended for the DIY orientated investor that know exactly what they want and wants to do their investment direct with Quality, Licensed, Reputable People and Institutions. Not only will this investor have peace of mind but he/she will be benefiting from our fee for service approach. Remember that every rand discount you receive on fees increase your investment positively and ultimately your return and/or income will be more compared to full commission charged! Develop a Good Investment Plan and Follow It Closely Complying to the principals discussed above you can develop a good investment plan that is consistent with your goals and your budget. Follow this plan closely. An investment plan is a detailed road map of your investment risk and return, constraints and investment strategy.

What does investment risk mean? 

Investing entails risk, and risk means different things to different investors. Risk could mean the possibility of losing all your money. Risk could also entail the possibility of not achieving a return. Risk has many different meanings. In the past, the main risk of investing was considered to be “default risk,” or the risk that a company would not be able to pay back an investment due to default or bankruptcy. Government securities were considered risk-free investments, because investors knew the government could always print money.In more recent years, analysts began to use variance, or standard deviation, to better measure risk; they found that even government securities are risky. This measure of risk is not concerned with the possibility of default; rather, it is concerned with the volatility of the investments, or the risk that the investment’s return may be lower than expected. Currently, investors also use a system which measures the way a specific instrument moves in relation to a specific market or benchmark. There are a few important concepts that an investor should understand related to risk: Investment risk is the probability of not achieving some specific return objective. The risk-free rate is the rate of return that will definitely be obtained. It is often assumed to be the return on fixed investment at bank institutions. The risk premium is the difference between the expected return and the risk-free rate. Risk aversion is the reluctance of an investor to accept risk. Risk is inherent in all investment activities. Some risks include inflation risk, business risk, interest-rate risk, financial risk, market risk, political and regulatory risk, exchange-rate risk and liquidity risk. The key to managing risk is understanding the different types of risk and investing at a risk level that is comfortable for you. It is critical for you to find the risk level at which you are most comfortable. You can use our risk-tolerance calculator to assist you to find the level of risk that is right for you.

Why don’t investors just utilise ‘risk-free’ investments? 

If you assume that the rate that you receive on a fixed deposit at a bank as a ‘risk-free’ investment the reasons all investments must not be made only in these vehicles are: If you compare your after cost and tax rate of return on the interest you receive on these investments with the current inflation rate you will notice that if you’re rate of return is more that the inflation rate that it is hardly significant. If you are not earning a better interest rate than the inflation rate you have no real return. (A real return is the rate of return you receive after the impact of inflation - see next faq) If you have a negative or no real growth in your investment you are not getting richer and you can even become poorer every year.

What does ‘real return’ mean?

A real return is the rate of return you receive after the impact of inflation. Inflation has a negative impact on your investments because your money will buy less in the future. If, for example, an investor earned 8% growth on his investment in a year and the inflation rate was 6%, the real return would be 2%. However if the investor received 6% or less he would not have had any real growth!

What is the advantage of using the RA Direct website and the experience of the RA Direct broker?

RA Direct offers potential investors tools and information to empower them to make more informed decisions get more information. You can contact the qualified and experienced brokers represented on this website if you need more information, online advice or make and appointment for an F2F meeting. You can utilise the a fee-for-service approach that the RA Direct brokers follows, and enjoy big savings on fees that will be passed on to you, to increase your income / investment value! You have peace of mind that you are investing with big brand, high-quality, reputable product providers that have proven themselves over decades. Investment money are paid directly to the company who’s investment product you are investing in. This account can easily be verified with the applicable company and at the bank where you make deposit.

What big brand, high-quality, reputable product providers are represented on this website?

The Brokers represented on this website offers products from only big brand, high-quality, reputable product providers with a proven track record. You will find quality solutions from major role players. On these companies platforms you can make choices from more than 900 funds available from fund managers like Absa, Allan Gray, Coronation, Element, Foord, Investec, Nedgroup, Oasis, Old Mutual, Prudential, ect. to enable you to compile a truly diversified investment / portfolio.                                                               

For what audience is this investment webpage intended? 

This webpage is intended for the more informed and experienced investor that knows exactly what he/she wants. This investor also understands and is very aware of costs charged, wanting to utilise the RA Direct brokers fee-for-service approach to pay less fees, boosting their own investment value or income received. Furthermore this investor prefers placing their investment with big brand product providers that have a proven track rekord!   

How do you deposit your investment money if you use RA Direct to place your investment? 

To give investors peace of mind it is important to not that no investment monies are deposited into RA Direct broker’s accounts! Investment deposits are made directly into the account of the product providers chosen. Deposits can be made by EFT or at the bank with a deposit number that you will receive from the product provider when applying for the investment. For peace of mind the account number and deposit number can be verified with the product provider you are placing your investment and / or at the bank where you are making the deposit.
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Annuities

annuity faq’s

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Your choices: Term: Income amount: Risk/s: Disadvantages: Advantages:
Guaranteed Annuity You make your choice once at inception: Choose your annuity type. Choose increase in annuity pa. to counter inflation. Choose single-life or joint-life. Choose guaranteed term. For life + guaranteed term purchased (if you buy an additional guarantee your starting pension will be less but your pension payout will be guaranteed for specific term to protect you if you should die soon after or within the guaranteed term after making your annuity choice. (normally 5 or 10 years) Depends on the type of annuity you buy. All forms of risks is with the South African Life Insurance company that guarantee the payment of the annuity to you. Can't change your choice of annuity later. The annuity rate when you buy it in a low interest rate environment is 'smaller' compared to the opposite. Vitally important to make the correct annuity choice. After your death and/or guaranteed term there will be no capital left. Factors which entail a longer expected period of payment, such as a guarantee term or survivor’s income, will mean a lower monthly income. You have the guarantee of a stream of future income for life therefore never having to worry about running out of income during your lifetime. The insurer carries the investment risk of ensuring they have sufficient funds to pay you for the rest of your life.
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Investment linked living annuities

You choose underlying investment funds initially and it can also be changed throughout the term. Every year you get an once-off option of the income that you want to receive in the next year of between 2.5% and 17.5% of remaining capital. As long as your capital lasts. You decide between 2.5% and 17.5% pa. Exposed to investment risk because of exposure to volatile markets. If you select an inappropriate income level you are exposed to longevity risk where you live longer than expected and run out of money. (See the Cash Flow Calculator) Risk of selecting underperforming investment funds. (use the Risk Profile Calculator to find funds aligned to your tolerance towards risk) Risk of selecting wrong annuity amount and depleting the capital. (use the Cash Flow Calculator) You can vary your income level and the frequency at which you receive your income each year, thus enabling you to match your cash flow to changing needs. You can choose from a range of more than 900 funds managed by leading asset managers. Select appropriate funds to tailor your investment choices to meet your own individual risk profile  and needs. An experienced and qualified stockbroker can manage your portfolio on your behalf. At death, the money available in the living annuity is not forfeited but can be transferred to the policyholder's nominated beneficiaries. The beneficiaries may continue with the income payments or receive a once-off payment. No tax is payable on your investment returns and capital gains.
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