Inflation Can Destroy Your Savings

Inflation Can Destroy Your Savings

Over the past few years, it seemed that inflation had been tamed throughout the world. Now it is back in the news and back in our lives. Experts are divided on whether the recent surge in prices is a temporary phenomenon or the start of a longer-term trend of structurally higher inflation.

We have a look at these arguments because understanding the effects of inflation on your investments is vital to preserving and growing your wealth in real terms. The South African inflation rate is now 4,9%, in line with long-term trends, while in the United States inflation surged to 6,2% last month – the highest in 30 years.

The developed world’s enormous monetary stimulus packages in response to the pandemic more than made up for the incomes lost to widespread shutdowns, without making up for the supply that those incomes had been producing. The result is higher inflation.

Initially, it was expected that the rise in inflation was the result of strong growth in the global economy recovering from the Covid shocks of the past 18 months, and would be short-lived. Now the US Federal Reserve believes that inflation will be transitory and should start to fall in the New Year, but it will remain higher than it has been in the recent past.

Energy prices have surged over the past 6 months, partly due to the global recovery, but also due to other factors including problems in transitioning to greener alternatives. Oil, coal, and natural gas still provide the base-load power essential for electricity grid stability and their prices have more than doubled in 2021, further increasing inflationary pressures.

Savers and investors feel the effects of inflation in several ways, but primarily through the erosion of spending power – if your lifestyle costs R100 today and costs R150 in 10 years’ time, you want your investments to keep up so that you can still afford the lifestyle you desire.

Nowadays, nearly everywhere in the world, government debt is enormous. The interest on this debt needs to be paid, and naturally the lower the interest rate, the lower the cost of repayment. We can understand then, why governments want ultra-low interest rates and are even happier if those rates are below inflation – negative real rates.

Low-interest rates with high inflation are known as financial repression and destroy savings.

Investors on the other hand want interest rates above inflation otherwise their investments cannot keep up with the rising cost of living.

Most developed countries now have negative real interest rates of 3% pa, which means that for every year you leave your money in the bank you would lose 3% of your spending power. Here in South Africa interest rates for a bank deposit are around 4% and inflation is now 5%, which locks in a loss of spending power of 1% every year, before taxes. So, the lesson is that cash in the bank alone is not a viable long-term solution for most investors.

Investing a portion of your portfolio in equities is an inflation-beating strategy over the long term.

While the stock market is volatile, the JSE has returned more than 12% pa for the past 120 years, which is on average 7% higher than the inflation rate. Having a portion of equities in your portfolio is an essential strategy to maintaining the purchasing power of your portfolio over time.

Speak to your financial advisor about how to balance your risk profile and the realities of long-term investing.

The Importance of having a valid Will

The Importance of having a Valid Will

Sadly, if the news headlines of the past few months have taught us anything, it’s that death is inevitable and we’re never too young to plan for it. Death is never a nice thing to think about, but having a valid will in place can give you peace of mind knowing that when you die, your loved ones will be financially looked after, and your wishes carried out.

A will is a legal document that specifies how you want your estate, that is your possessions, money, and property, to be divided and distributed to whom after you die

Apart from the financial aspects, details of property, and other assets, your will would typically include other instructions to those tasked with winding up your affairs, such as:

  • Your beneficiaries – who you want to receive your assets when you die, including any charities
  • What happens if any beneficiaries die before you?
  • Care plans for children under 18, as well as dependants with disabilities and plans for your pets
  • Appointment of the executor – the person/s who you want to carry out your wishes as expressed in your will
  • What will happen to your digital assets?

Dying without a legally valid will in place is known as dying “intestate” and the law decides how your estate will be divided up

If you don’t have a valid will then you don’t have a say in who receives your property and other assets after your death. This means that someone you may never have wished to inherit might do so, while those who you genuinely care for and would want to benefit might be left with no legal entitlement to your estate or assets.

A case in point is a partner you are not legally married to.

Remember: There is no such thing as a common-law spouse in the eyes of the law of intestate succession

No matter how long you have been together, South African laws of intestate succession do not confer any legal status on cohabitating partners, and therefore, they are not recognised as beneficiaries of an estate. This could result in the surviving partner potentially losing their home or not having enough money to raise children. The only way to safeguard against this is to ensure that both partners have a valid will in place which specifically names the other partner as a beneficiary.

A letter of wishes

Any preferences regarding the funeral should rather be written in a separate document as the will is often only read after the funeral. And the more you decide upon the better. Providing your requests are not unreasonable your family will thank you for it because if you don’t think of it, someone else will have to. At a time of already heightened emotional stress, the last thing you want is for your family and friends to be agonising over, or worse still, arguing over what you would have wanted. Your guidelines for bringing up children, notes for trustees and where to find specific items can also be included here. 

The importance of ensuring that your will is drawn up within the context of a comprehensive estate plan cannot be overemphasised

There are quite a number of statutory costs and other expenses involved in the winding up of an estate. It is therefore essential that your estate financial plan provides liquidity for such costs so as to avoid forced sales of estate assets, at a fraction of their true value, to cover costs. A good estate plan not only protects your estate and family after you die but should also minimise the amount of estate duty payable.

 Contact us at Rutherford on 021 870 1555 or This email address is being protected from spambots. You need JavaScript enabled to view it. for assistance with financial and estate planning and drafting your will

Rutherford Model Portfolios (FAQ)

Rutherford Model Portfolios (FAQ)

Frequently Asked Questions

What is a model portfolio?

Our model portfolios are a professionally blended combination of market-leading unit trust funds which are designed to provide a broad diversification of asset classes and management styles to help investors consistently achieve their target returns.

Why are model portfolios now international best practice?

Many clients around the world experience poor investment returns even when stock markets have performed well, and this is usually a result of inconsistent fund selection. The professional approach of model portfolios provides more dependable investment returns.

How are Rutherford model portfolios different to what I have now?

Our model portfolios benefit from a rigorous fund selection process and ongoing rebalancing to ensure optimum asset allocation at all times. You should therefore enjoy better long term returns and lower volatility.

How will they lower my risks?

Our model portfolios are always aligned with your risk profile you do not have the risk of being over- or under-exposed to any one type of asset. You will essentially own a basket of assets which are well suited to your financial objectives and stage in life.

What performance can I expect?

Each model portfolio is designed to achieve a target return, taking into account a specified amount of risk as defined by your personal risk profile. This means that you will have a clear idea of the expected returns of the model portfolio before you invest.

How to achieve my investment goals?

Humans have evolved to follow the herd (and so we end up buying yesterday’s winners) and this behavioural bias leads to poor investing habits, which is why really disciplined investors like Warren Buffett are so famous. Model portfolios provide a professional and disciplined framework, which will help you achieve more consistent returns and reach your investment goals.

Why is diversification so important? 

One of the key benefits of our model portfolios is a high level of diversification.  The various asset classes (such as property or cash) perform very differently over market cycles. Our investors gain access to all the core benefits of multiple asset classes and fund manager expertise, with the added layer of diversification through our blend of fund managers.

Do I have to change my investment?

No. Using model portfolios is only a fund choice, so your existing RA, Living Annuity, Endowment or TFSA stays exactly the same – only the fund selected changes.

Looking to Structure your Business or Family Wealth Offshore?

South Africans love South Africa!

That is an undeniable truth. The country has its problems - but it is our home.  And for many of us, leaving the country is just not an option. Our families are here. Our friends are here. Our businesses are here. Our lives and hearts are here.

The spate of unrest and subsequent looting that was triggered by the incarceration of Jacob Zuma has however demonstrated that our country is becoming increasingly vulnerable.  And while we live here, and continue to want to live here despite the challenges, there is no reason for us to be completely exposed to this vulnerability.  

It is entirely possible for a family or a business to remain in South Africa while benefiting from international income streams through a company or trust that is situated in another country.  In the case of Mauritius, it is possible for an individual or a family to obtain their residency through a company there as well.  While we all hope we never have to use it, it does provide us with peace of mind to know that we have a plan B in the unlikely event that we will need it.

It is somewhat of a misconception that setting up offshore is for the very wealthy or large corporations. A small business can also take advantage of the laws and regulations in a suitable jurisdiction

For many of us, the idea of creating a presence outside of South Africa is an exotic concept or it seems like a risky venture.  The reality is that it is a fairly straightforward process. And there are many laws and agreements with other countries which, in fact, encourage South Africans to do business outside of South Africa’s borders. And doing business and investing outside of South Africa opens up a whole new world of opportunity - quite literally.  To illustrate, the GDP of South Africa in 2020 was $ 306 billion.  The world’s GDP was $ 84.54 trillion.  That means that we limit ourselves to participating in only 0.36% of the world’s activity by not being part of the global economy.

Knowing how to structure your assets offshore could be the most important aspect of going offshore

The key to unlocking this world of potential is to structure your affairs in South Africa and abroad correctly.  Choosing the right partner to guide you every step of the way is therefore very important.

We can highly recommend a company based in Mauritius called Heimdall. They are unique in that they specialise in both the South African tax and exchange control issues, and trust and company set-up and operations in Mauritius. We have found that their depth of experience and professionalism enable our clients to easily create international family and business holdings.

If you would like to hear more about international investing, or offshore structuring, please contact us: This email address is being protected from spambots. You need JavaScript enabled to view it.or This email address is being protected from spambots. You need JavaScript enabled to view it.

Your Will & Estate Plan

Let’s face it, it’s not an easy subject to broach, and planning for your death is intimidating and uncomfortable. But it is something you should prioritise for your loved ones’ sake. Death is inevitable, and its consequences affect your whole family, so it’s best to plan for those around you.

If you die without having a will in place, you leave important decisions up to the courts and the law of intestate succession

If you don’t have a valid will then you don’t have a say in who receives your property and other assets after your death. This means that someone you may never have wished to inherit might do so, while those who you genuinely care for and would want to benefit from might be left with no legal entitlement to your estate or assets.

Plus, not having a will can make it more difficult for your loved ones, both emotionally and financially at a time when the last thing they need is extra stress in their lives.

Your will is essentially a summary of your wishes regarding the distribution of your wealth and a framework to guide those charged with the winding up of your affairs. There are also many other benefits of having a will, such as the ability to appoint guardians for any minor children, keeping a helpful record of assets that surviving relatives might not be aware of, and limiting taxes payable on deceased estates to name but a few.

The importance of ensuring that your will is drawn up within the context of a comprehensive financial plan cannot be overemphasised

There are quite a number of statutory costs and other expenses involved in the winding up of an estate. It is therefore essential that your estate financial plan provides liquidity for such costs so as to avoid forced sales of estate assets, at a fraction of their true value, to cover costs.

These are some of the fees your family will need to cover when you pass away:

EXECUTOR FEES

These are the industry standard fees charged by the executor or assisting professional to wind up your estate. A maximum of 3.5% + VAT of your estate value may be charged. Example: An estate worth R3 million may pay R120 750 in fees.

CONVEYANCING ATTORNEY FEE

This is the fee charged by the conveyancing attorney when property needs to be transferred. Example: A home worth R1 850 000 being transferred to a beneficiary will cost R30 544 in fees to the estate.

TESTAMENTARY TRUST FEES

These are the fees charged by the trustees to administer the trust created in terms of your will, normally to look after the money you leave to your minor children. On average, 1.15% of the net asset value is charged to establish the trust, and 1.6% is charged annually for the ongoing administration of the trust. Example: The total cost with R1.5 million in assets over 15 years is R377 250.

MASTERS FEES

The fee paid to the Master of the High Court regarding the fulfillment of their role in the administration of your estate.

CORRESPONDENCE FEES

Fees associated with corresponding with the Master of the High Court.

CLEARANCE FEES

One of the requirements to transfer a property is obtaining a clearance certificate from the city council or municipality. This will be issued only if the rates and taxes are paid in advance. Some areas require up to 6 months paid in advance.

ADVERTISEMENT COSTS

Two advertisements have to be placed in a local newspaper and the Government Gazette. The costs can vary between R1 000 and R1 500 depending on the publication selected.

INHERITANCE TAX

Not only will all outstanding taxes have to be paid from the estate before it may be finalised, but the executor will have to determine whether capital gains tax (CGT) or estate duty is payable at death. In the event of off-shore assets, situs tax may be applicable.

ONGOING BILLS & OTHER EXPENSES

Bills such as medical aid, school fees, car insurance, water, lights, rates, etc. still need to be paid even though bank accounts are frozen. Costs associated with arranging a funeral such as catering, travel, and other expenses also need to be covered.

These taxes and fees eat away at the legacy you plan to leave behind. Specialised life assurance policies are now available to ensure that your estate has the liquidity required to meet all its financial obligations in the event of your death. Your financial adviser will be able to assist you with this or alternatively contact us at Rutherford on 021 870 1555 or This email address is being protected from spambots. You need JavaScript enabled to view it.

Apart from having a valid will in place in the first instance, it is vital to revise an existing will when significant events, such as marriage or the birth of children take place in your life, so that beneficiary details, in particular, are kept updated.

Source: Capital legacy