An article published on Maya on Money about the 10 key themes investors must not ignore in 2017 inspired thought about a word that gets used a lot in the world of investments — commodities.

The key takeaway from this should be that commodities traditionally move in opposition to stocks, so they can be a good way to diversify an investment portfolio — either for the long-term, or during unusually volatile periods.

Let’s take this opportunity to review what a commodity is and how they affect investments.

What is a commodity?
A commodity is a marketable good or service that is produced to meet a demand. A commodity is essentially uniform across producers, and this uniformity is referred to as ‘fungibility’. For example, oil would be considered a commodity, but Levi’s jeans would not be, as consumers would consider them to be different from jeans sold by other companies. When traded on an exchange, a commodity must meet specific standards, which is known as a basis grade.

A commodity market is a virtual or physical marketplace that is dedicated to the buying, selling and trading of raw or primary products. There are currently about 50 major commodity markets in the world that facilitate trade in approximately 100 primary commodities.

Types of commodities
Traditional commodities fall into two main categories — hard and soft commodities.
The term ‘hard commodities’ tends to refer to natural resources, such as metals (eg. gold, silver and copper) and energy (eg. crude oil and natural gas). While ‘soft commodities’ comprises of livestock (eg. cattle and sheep) and agricultural products (eg. wheat, rice, sugar and cotton).

Over the past few years, however, the definition of ‘commodities’ has expanded to also include financial products, such as foreign currencies and indexes. Technological advances have also led to new types of commodities, such as mobile phone minutes and bandwidth, being exchanged.

Why are commodities of interest to investors?
Commodities can have a big effect on investment portfolios, which is why “continued support for commodities” was listed in the article on Maya on Money as a trend not to be ignored. The article highlighted that commodities “have been trending higher for a year now. The demand side has been strong, which has been driven by China over the past three quarters. A supply contraction and potential consolidation, which is not yet materialised, will be incremental key drivers.”

Basic economic principles of supply and demand tend to drive commodities markets, so lower supply increases demand, which equals higher prices (and vice versa). For example, a major disruption, such as a health scare among cattle, might lead to a spike in the generally stable demand for livestock.

Slumping commodity prices can also provide opportunities for investors. However, investing in commodities can easily become risky because they can be affected by eventualities that are difficult to predict, such as weather patterns, epidemics, natural disasters, and even politics. Donald Trump’s proposed policies, for example, have kept commodity traders and producers on high alert recently. As a result, it is important to carefully consider your risk appetite and the length of time you have until you wish to achieve your goals, as this will affect the recommended allocation of your portfolio to commodities.

As with all parts of your portfolio, it is important to ensure you have a solid understanding of what you have allocated and why. Don’t hesitate to arrange a meeting to discuss commodities further, and don’t be afraid to ask questions if you’re ever unsure of any terminology.

When you were younger, did you have any idea what you wanted to do when you grew up?

Perhaps you now have children who at some point will need to consider their options and will need guidance, or perhaps you are at a stage in your life when you’re considering a change in career yourself. You may simply be interested in developing your understanding of which way the world is heading.

Whatever your incentive, an article that we found in a recent issue of HSBC’s magazine, Liquid, gives a good insight into five growing industries that could provide a successful career.

The author of the article emphasises how it’s important to focus on the big picture when choosing a degree, as any time spent at university will pave the path of learning – both socially and academically. Most business leaders are interested in well-rounded graduates who are adaptive to change and devoted to continuous development.

It is, therefore, important for anyone looking to continue with higher education to explore beyond the boundaries of their course curriculum and develop a range of skills that are of interest.

Here is a brief summary of the five fields that HSBC consider to have the most potential for growth in the future.

1. Alternative energy
Concerns about climate change and our carbon footprint have instigated greater research into alternative energy, which has led to notable developments in hydrogen power, wind power and solar power. Solar energy has become more efficient and less expensive in some parts of the world over the past five years, making solar power a US$3-billion industry. As these new technologies become more widely accepted, these industries will potentially create more careers for scientists, mechanics and managers.

2. Financial Services
There are several careers that deal with the management of finances, besides the traditional banking roles. Accountants are still in high demand, as are financial planners and analysts, due to more and more people needing help with their retirement planning and personal finances in unstable climates.

3. Information Technology
Our reliance on computers and mobile devices is greater than ever, and the world of technology continues to be one of the fastest growing industries in the USA, with unemployment at a steady low of 2.6% in this sector. The five most valuable companies in the world are all technology companies, so IT skills are incredibly valuable and can lead to careers in network and data analysis, or software development.

4. Healthcare
In addition to doctors and nurses, the healthcare industry relies on a diverse array of other professions, such as home health aides, pharmacists and physical therapists. With an increasing aging population, healthcare workers are in high demand, and “data from the US Labor Department indicates that 4 millions jobs will be added to this sector by 2018” to fill in the gaps in this industry.

5. Agriculture
Interestingly, agriculture is currently the fastest growing course at UK universities. This is arguably because it is a very diverse industry, which is not only for farmers. Graduates can go on to offer consulting services, develop agricultural technology, and work in research. The strong business focus of the subject teaches students how to forecast cash flows, put together business plans, and calculate margins, making them highly employable to food retailers and suppliers.

In a world filled with more course and career options than ever, it is advisable to start planning for the future to ensure that goals can become a reality. Annual undergraduate fees can be very expensive in countries like the UK, USA and Australia, so if one of your dependents wishes to study overseas, it is important to start saving sooner rather than later, and review your options to maximise your financial capacities.

Before we chat about the current asset allocation environment, let’s quickly roughly describe the term for those of us who may be unsure of what this means. Asset allocations broadly refer to the actual investment options – ie. when you invest money, it needs to go somewhere, and some of these options are called asset allocations.

Since South Africa was relegated to ‘junk status’ by two credit ratings agencies, investors have witnessed some currency depreciation, a shaken local equity market and a jump in bond yields. However, the aftermath hasn’t been quite as apocalyptic as some may have feared. This is mainly because the downgrades didn’t come as a huge shock, and many people had followed advice to prepare in advance and structure their portfolios in a way that would handle an uncertain investment environment.

Negative investor sentiment is still a major issue in South Africa, but fortunately, most people’s long-term investment strategies remain relatively unscathed. An article by Moneyweb summarises the current situation well, and provides some interesting insight to asset allocations.

Here’s a brief overview of some interesting considerations:

1. Bonds
Since the downgrades, bond yields have seen a significant leap, but some investors see this as market overreaction and consider it as an opportunity to increase exposure to this asset class.

It may seem contradictory to buy bonds at a time when many people are concerned about the government’s ability to repay capital and service its debt, but some investors believe that the potential yield is still worth the risk.

2. Geography
Post-downgrade, the South African Rand has come under pressure, but many investors believe that the currency is still strong enough to justify moving some funds offshore. If you have limited international exposure, the window of opportunity is arguably still open to add to your offshore assets.

3. Equity
Share prices of companies that don’t have a significant offshore component to their earnings, such as banks and retailers, have come under severe pressure in South Africa. It’s, therefore, worth considering some exposure in your local equity portfolio to ‘safe’ Rand hedges that earn most of their income outside of South Africa.

Since the credit downgrades, pockets of potential value have emerged in the South African market. It is challenging to get the timing right on these cheap local shares but they may provide nice rewards in the long-term if you do.

In our post-downgrade society, it is important to not have emotional reactions to crises. Rather, you should maintain an active interest in your portfolio and stay true to your investment philosophy once you have ascertained your risk appetite and financial goals. Don’t hesitate to arrange a meeting to discuss your asset allocations and investment opportunities in this post-downgrade environment.

Dealing with money matters can feel like negotiating a minefield for many couples, which is highlighted in this article by Maya on Money.

Money has been cited to be the biggest reason for divorce, and differing attitudes towards money in any relationship can cause friction. So let’s take a look at some basic ‘money personalities’ and you can decide with which you most identify. This may not only help you to manage your relationships, but also how to go about managing your wealth creation.

1. The Spendthrift
A spendthrift tends to be extravagant and spontaneous with regards to money matters. However, sometimes they can be irresponsible and need protection from making financial mistakes and getting into debt that they can’t afford.

2. The Saver
Someone who saves may have quite modest tastes and needs, and long-term they may well reap the rewards of their cautious approach. However, their financial prudence and love for budgeting could be a turn-off for someone who is not that way inclined.

3. The Cinderella
Maya Fisher-French refers to the ‘Cinderella Complex’ in her article when she considers a woman’s unconscious (or conscious) desire to be cared for. Some people are simply looking for a partner who can spoil them, which Fisher-French refers to as a Blesser.

4. The Financially Independent
Other people make it their main focus to become financially independent so that they can manage their money and responsibilities on their own. They pride themselves on working hard to become financially organised and not needing to rely on anyone else. This type of person may fret about being pulled down by someone who is less financially astute.

5. The Power Hungry
Power plays can arise if someone uses money to wield power over their partner. The adage, “he who holds the gold, makes the rules,” may be true in some relationships – especially if there is a big difference in earnings. Money can create a shift in power that can be easily abused if both parties are not careful.

According to the article, sometimes “different money personalities can be compatible” as a balance can be achieved so long as each partner recognises the strengths they are bringing to the relationship. For example, a Saver can help a Spendthrift to avoid some financial miscalculations, while a Spendthrift can teach a Saver to loosen up and enjoy splashing a bit of cash sometimes. Likewise, someone who enjoys spending money on their partner could be compatible with someone who enjoys money being spent on them.

However, at other times, opposing attitudes can create contempt or power struggles. According to the article, difficulties sometimes arise when it is the woman who is the main breadwinner, as some men find this emasculating. This is a challenge that is increasingly being faced by high earning women. When the shoe is on the other foot, however, many women do not mind having a strong, financially successful partner.

The key is knowing what type of money personality you and your partner have, and to find synergy in your relationships. It’s not necessarily a question of having the same attitude and approach to money issues, but rather finding compatibility and compromise.

We live in uncertain times, so it is natural for many parents to want their children to have financial security, without money worries on top of everything else. Many parents also wish to build their wealth to such an extent that it will be passed down for generations to come, and a recent article published in Maya on Money examines the use of trusts to create intergenerational wealth and ensure a financial legacy.

No matter how much money you wish to leave for your offspring, here are eight basic points to consider if you’re thinking about setting up a trust.

1. Due to the high investment tax paid by trusts, they are only efficient if you definitely intend to leave the assets in the trust for future generations. If you plan to sell the assets during your own lifetime, then setting up a trust isn’t necessarily the best move for you.
2. There is no minimum amount to set up a trust, but it needs to be registered at the Masters’ Office in the region where the majority of assets will be held.
3. A trust can be set up on death, so long as you make this provision in your will.
4. It is only possible to donate ZAR100,000 a year to a trust without incurring donations tax.
5. It is important to be adequately insured, and the proceeds of a life insurance policy can be paid to the Trust.
6. It is also important to note that a South African Trust cannot hold offshore assets.
7. A trust cannot own a tax-free savings account so these would have to remain separate to the trust.
8. A trust must have an independent trustee – such as a trust company, auditor or lawyer – to deal with legal requirements and administration. This comes with additional costs to bear in mind.

A new section of the Taxation Laws Amendment Act, 2016 came into effect in March 2017, with the intention of preventing people from using trusts to avoid or reduce donations tax and estate duty.

In an article published on MoneyWeb, a certified financial planner clearly emphasises that “if a trust was created simply to save taxes, it may not serve that purpose any longer. Depending on the reasons for establishing a trust and the value it offers, it may be worthwhile considering more cost- and tax-effective alternatives to hold your shares or any other asset(s) in a trust.”

It is important to understand the consequences of these tax changes if you have an existing trust, and to be aware of the implications of new trust structures if you’re considering whether it is the appropriate choice for you.

Do you nod along blankly when someone talks about unit trusts, or do your eyes glaze when you hear the word ‘annuity’? Do you wish investment terms weren’t so complicated or full of abbreviations?

It’s easy to get confounded by the use of financial jargon if you haven’t been trained in the financial services industry or been exposed to the world of investments before. But don’t let that put you off.

It’s just a question of learning the language, as you would try to speak German if you went to Berlin. No one is born with an innate knowledge of how to order in a Bavarian restaurant if you’re not from Germany; first you have to learn the vocabulary and then you need to experience it firsthand to cement your understanding.

So, to simplify matters and avoid any confusion, here is a quick explanation of five key terms that you’ll hear crop up again and again if you take an interest in your wealth management.

1. Dividend
A dividend is a portion of a company’s earnings that are distributed to shareholders. The dividends can take various forms but is most commonly a distribution in cash or as a portion of a share of the company. Furthermore, companies have their own policies as to when and how much of earnings are distributed in the form of dividends.

2. Bonds
There are many types of bonds, but in simple terms, a bond is a way of borrowing a sum of money – to be repaid by a fixed date in the future, with interest in the meantime. The buyers of bonds are essentially lenders, which means that if you buy a government savings bond, you become a lender to the federal government.

The interest rate received is often referred to as the bond’s yield, and is the compensation that the investor receives for ‘lending’ their hard-earned money. According to an article published by Investopedia, “bonds are often referred to as fixed-income securities because the borrower can anticipate the exact amount of cash they will have received if a bond is held until maturity.“

3. Annuity
An annuity is a type of investment account that uses retirement savings to generate a regular income stream after you retire.

There are two types of annuities – fixed and variable.

The key feature of a fixed annuity is that you enter into a contract with an insurer who subsequently guarantees a set income for life. This income is dependent on a number of factors such as your age, gender or whether the payment will be level or increasing. The annuity payment is guaranteed by the insurance company, so it is a good option for those who are risk averse (don’t like risk).

With a variable annuity, the risk of the investment is transferred to the annuitant in that his capital and subsequent annuity is dependent on market performance.

4. Unit Trusts (called Mutual Funds in the US and UK)
According to an article published by The Balance, a “mutual fund (unit trust) is a pooled portfolio. Investors buy shares or units in a trust and the money is invested by a professional portfolio manager” who invests the capital in an attempt to produce an income and capital gains (profit) for the investors. The pool of funds is collected from many investors who wish to invest in stocks, bonds and similar assets.

One of the main advantages of unit trusts is that it offers investment vehicles where small investors have access to diversified, professionally managed portfolios in which each shareholder participates (wins or loses) proportionally in the gain or loss of the fund.

5. Asset Allocation
In order to invest your money, you essentially need to give it to someone who will in theory use it to make a profit by working with your assets (invested money), and you then enjoy the profits from that. If they make a loss, you make a loss too. That’s the risk you take.

Asset allocation is therefore the process of deciding how much money, based on your appetite for risk and objectives, is invested in the different available asset classes – such as equities (stocks), real estate (land and property) or commodities (eg. gold and silver).

These are just five key terms in a lengthy glossary, but this summary serves to emphasise that if you’re ever unsure of anything, don’t continue with just a vague understanding. There’s nothing to be embarrassed about, so please do not hesitate to ask for clarification to ensure that you completely understand any terminology used and how it applies to your financial situation.

Many South Africans are currently feeling the financial pinch and, as belts tighten, it’s natural for households to review where they can cut back on expenses. It may be tempting during such times to send life cover payments to the bottom of the priority list, but this could have dire financial consequences for your loved ones.

It’s a question of weighing up what is worse – the current burden of paying your monthly premiums or the potential effect on your family if they were to lose your income entirely in the event of a disaster.

Actuarial modelling indicates that about 380 families in South Africa lose a breadwinner every day. However, Hennie de Villiers, the deputy chairman of the life and risk board committee at the Association for Savings & Investment South Africa, notes that “over two million risk policies, covering events such as death, disability and dread disease, were lapsed within their first year in 2016.”

This means that South Africans are critically underinsured, as is highlighted in this article published on Personal Finance.

The problem with cancelling your life cover isn’t just that it is a massive risk, but that it also may be impossible to replace it as you grow older.

Many people may assume that you can simply cancel your life assurance then reinstate it when it’s easier to afford. However, premiums are likely to be substantially higher when you’re older (cover is said to cost double at the age of 45 what it costs at age 25). Health conditions may also be excluded from the cover and, in the worst case, you may even be uninsurable if you are diagnosed with certain illnesses.

Even missing the payment of a few premiums can have a negative effect. Not only may you need to undergo the underwriting procedure again, but any deterioration in your health would be taken into account when considering policy reinstatement and premiums.

So what are the alternatives?

4 possible alternatives to cancelling life cover (this is not financial advice)

1. Reduce your monthly expenses
   Cut back on items that aren’t essential, such as your television subscription. Critically evaluate your budget and examine what is imperative versus what you just would like.
2. Re-negotiate your debts
   Try approaching creditors or your bank to negotiate terms of any repayments. They may be willing to accept smaller sums over a longer period.
3. Press pause on your savings
   Consider taking a ‘payment holiday’ on your contributions to an investment portfolio.
4. Negotiate your premium payment pattern
   Request to change to an escalating-premium pattern for your life cover, which means that your initial premiums will be lower and increase over time.

Please note that the above four points are suggested options, if you would like to review your plan inside of your changing situation – please arrange a meeting for us to objectively make the best decisions according to your individual needs. It is important to stay educated about life cover and informed about affordable solutions, so please discuss this if it is a concern.

Old Mutual Balanced Fund manager, Graham Tucker, explains in an article published on Fin24 how many investors suffer from something he calls ‘inflation illusion’. This essentially means that many people aren’t completely aware about the effects of inflation or how much it will impact their savings over time.

For example, the average inflation rate of vehicles since 1990 has been 5.8%. This means that a medium-sized sedan that cost ZAR260,000 in 2016 will likely cost ZAR1.05m in 2041. At the same time, the cost of sending your child to a top private school is increasing at an inflation rate of 9.2%, which means that a year’s tuition and board can be expected to cost about R1.81m by 2041.

High increases in the price of private health care and food will also occur as a result of high inflation rates. To give you an idea, a report by Old Mutual Investment Group’s MacroSolutions boutique highlights how a Spur burger that only cost 30 cents in the 1970s was priced at ZAR72.90 in 2016.

It is, therefore, important to take into account the impact of inflation on your investment returns. Tucker emphasises that “if your retirement income does not at least grow in line with inflation, you will either experience a decline in your standard of living or you will run out of money.”

If you budget for a fixed monthly retirement income of ZAR10,000 a month, this will only actually be worth about ZAR1,700 a month in 30 years’ time – taking into consideration an annual inflation rate of roughly 6%.

It is, therefore, important to be aware of the long-term compound effects of inflation. If you’re feeling uncertain about anything, arrange a meeting soon to ensure that you have planned carefully and invested to achieve inflation-beating returns that will secure your future goals.

There is no formula for instant wealth – but for some, it can become a reality overnight and, if not managed correctly, this dream can easily turn into a nightmare.

If you happen to inherit an astronomical sum, receive a massive bonus, or fortuitously sell a property for a lot more than you paid for it, then follow these useful tips that we found in an article published by Fin24 that will help you to successfully handle a financial windfall.

1. Don’t spend it all at once
The temptation for many people who come into a large sum of money is to blow lots of it in one go. While a bit of indulgence shouldn’t hurt, overspending could result in a lot of wastage and could cost you dearly in the long run. So, instead of splashing cash aimlessly, take a moment to consider carefully how the money could be better spent or invested for, and in, your future.

2. Pay off your debts
First things first, clear off any outstanding debts. Give yourself a clean slate and what Ester Ochse, the channel head for FNB Advisory, calls “the opportunity to live a debt-free life”. And once you are blessed with not having any debt hanging over your head, try to keep it that way to give yourself more freedom and options.

3. Don’t just quit
Coming into an unexpected sum may make you consider throwing in the towel at work, but if you don’t invest your money wisely and plan properly, losing your regular income and benefits could create limitations.

4. Save for a rainy day
You never know what could happen, so it’s important to always have enough money saved for emergencies.This would involve assessing your new lifestyle and ensuring that you always have at least six months of living expenses kept aside in the event of any misfortunes.

5. Seek financial advice
Ultimately, receiving a windfall will change your financial trajectory. You’ll need to review your investment objectives, consider estate planning, and re-evaluate your risk appetite. Don’t hesitate to arrange a meeting to assess any new short-term or long-term goals, and ensure that your investments are in line with your financial situation.

If you do find the pot of gold at the end of the rainbow, it’s important to take the correct measures to protect it and ensure it lasts. Careful financial decisions from the offset could save you a lot of unnecessary trouble in the future, so be sure to ask advice and discuss any change in fortune.

The school holidays are coming and it’s easy to feel overwhelmed with so many things to remember to do before you go away. But here are five quick and easy pointers that will make your holiday as carefree as possible – and even save you money in the long run – so that you can focus on enjoying time with your loved ones.

1. Service your vehicle
If you’re planning to set off on an overland adventure, it’s important to service your vehicle beforehand. This will ensure that everything is running safely and smoothly so that you can enjoy the drive and rely on your car to get you to your destination. By addressing any issues, such as under-inflated tyres and leaks, a good service will not only prevent accidents or the inconvenience of breaking down, but it will also make for a more fuel-efficient car so that you can save money on fuel.

2. Turn your geyser off
Turn your geyser off if you’re going away for a few days so that the element will not periodically kick in to reheat the water. As a result, you’ll conserve energy, use less electricity and save water, which will save you some valuable Rand to put towards your holiday.

3. Pack healthy snack options
Whether you’re going on a long road trip or just driving to the airport, it’s always best to pack some healthy snack options that will keep everyone’s energy levels stable. Nothing’s worse than feeling famished and pulling over at the service station to see that it only stocks overpriced junk food that will have a negative impact on your body and wallet. If you have kids, healthy snacks will also avoid sugar highs that will lead to them inevitably crashing after spending an hour kicking the back of your seat.

4. Pack a source of entertainment
In the same line of thought, bring a CD or upload your favourite music to your iPod to boost endorphins on any long journeys. You may also wish to pack some games or toys to keep the youngsters entertained. Otherwise, you could be in for a headache-inducing few hours, and a trip to Ouma’s house could cost you your sanity.

5. Get currency
It’s advisable to carry a mix of cash and cards with you when you go away – in case of emergency. If you’re off to far away land, arrange to buy the local currency beforehand and do some online research to find out who boasts the best rates and lowest commissions. Although you can exchange money at the airport or in your destination, you can often get better exchange rates if you do this before you leave. You may also want to compare credit cards to see which will give you the best rates and lowest fees abroad, and a pre-paid travel card is worth considering if you need a bit of help sticking to a budget.

The moral of the holiday story is to plan ahead to avoid potential disaster and to save money. Obviously you can’t be in total control of everything, but a bit of forethought and preparation could save you a lot of unnecessary drama and cost. Whatever you’re up to this July, enjoy yourselves, travel safely, and come back feeling happy and refreshed!