31 July 2024

Welcome to the second edition of The Inside Track! I’m thrilled to share that the first edition received excellent feedback. I look forward to building on that momentum.

If a day is a long time in politics, the events of July could be considered a decade.

South Africa’s newly expanded cabinet was sworn in with 32 ministers and 43 deputy ministers. For perspective, South Africa’s current GDP is $380 billion, while the UK has 24 ministers with a GDP of $2.8 trillion, and Germany has 17 ministers with a GDP of $4.01 trillion.

The USA narrowly avoided civil chaos following a failed assassination attempt on Donald Trump, however global chaos followed just five days later, when a US company, CrowdStrike, missed a flaw in its software update, which crippled 8 million Windows computers and resulted in an average loss of $44 million per Fortune 500 company.

South Africa won two Olympic bronze medals in rugby sevens and men’s cross country, and one gold in swimming—well done!

The S&P and Nasdaq had their biggest correction since 2022 following the latest batch of corporate earnings, sliding 2.3% and 3.6%, respectively. The downturn came as major technology stocks, which have driven the market’s record run, faltered, with the “Magnificent Seven” shedding $770 billion in market value on Wednesday 24th July.

Cyril Ramaphosa signed the final legislation to implement the two-pot retirement system starting 1 September 2024. There is a lot of misinformation about its impact. It affects all who invest in a retirement annuity, pension, or provident fund, preservation and public benefit fund. I will discuss this in more detail at the end of the mailer.

Market Indicators

Returns % (to 26 July 2024)

Global Market News

• The US economy remains strong and grew at 2.8% in the second quarter, significantly ahead of forecasts. (Quarter one GDP was up 1.4%)
• The Federal Reserve is expected to keep interest rates steady at between 5,25% and 5,50% but indicators suggest they may be teeing up for a rate cut in September
• The European Central Bank(ECB) kept interest rates unchanged at 3.75%
• U.K. inflation recorded 2% on an annual basis, slightly above the expected 1.9%. This data pushed the British pound past the $1.30 mark against the U.S. dollar for the first time in a year
• Roche’s shares climbed after its experimental weight loss pill, CT-996, demonstrated a 6.1% average weight loss in patients over four weeks. Designed to address obesity and type 2 diabetes, the pill is set to move to mid-stage trials. Competing with Novo Nordisk and Eli Lilly, this oral medication also shows promise for treating conditions such as kidney disease and sleep apnea
• Bitcoin touched the highest level since mid-June after Donald Trump expanded his pro-crypto agenda. Trump pledged at a weekend conference to make the US the “crypto capital of the planet and the Bitcoin superpower” if he returns to the White House following November’s election

South Africa

• SA’s inflation rate slowed to 5.1% in June, down from the previous month’s 5.2%. Food inflation fell to an almost four-year low, with the market now fully anticipating a 0.25% cut in the September meeting
• Judge Anthony Millar’s North Gauteng High Court judgment declared five sections of the
  National Health Act unconstitutional and invalid and ordered their removal from the Act
• Qatar Airways is in talks to buy a stake in South Africa’s SA Airlink as the Doha-based airline seeks to expand its presence on the continent. The carrier is considering buying a stake of as much as 20% in Airlink
• The African Development Bank (AfDB) Group has approved a R18.85 billion and 25-year long corporate loan to Transnet for its recovery and growth plans, which was fully guaranteed by the South African government. The corporate loan will facilitate the first phase of the state-owned freight and logistics firm’s R152.8bn five-year capital investment plan to improve its existing capacity

Food for Thought

• An Olympic gold medal contains as much gold as 177 smartphones – as a result for the 2020 Olympics, 6.21 million used mobile phones were melted down and recycled to make the Olympic medals
• Danish farmers will pay $100 per cow as a carbon tax on livestock starting in 2030
• Apple’s top iPhone has 2.8 billion times more processing power than Apollo 11’s computer, which took astronauts to the moon

Quote for the Month

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”  Robert G. Allen

Chart of the Month

The chart below highlights the impressive growth and rapid expansion of the Big Seven. To put this into perspective, Nvidia’s share price has increased by 2,473.95% over the past 5 years. An investment of R100,000 in Nvidia made 5 years ago would be worth R2,500,730 today (excluding currency fluctuations)

Wrap-Up: Demystifying the 2-pot system

The two-pot system is a new piece of legislation that will impact any individual who invests in retirement funds governed by the Pension Fund Act.

The primary reason for this legislation is to provide emergency liquidity for those who need access to their investments before retirement and to prevent individuals from withdrawing their pension when they resign or are retrenched.

Until now, if you belonged to a pension or provident fund and resigned, you could withdraw your investment, which is taxed and then becomes discretionary money. This will no longer be possible for two-thirds of the contributions made after September this year.

So how does this all work in practice?

All monies currently invested in any of the pension vehicles up until September 1st will be vested. The current pension fund rules you are familiar with will apply to this “vested pot.” For example, should you leave your employment, you can leave the money in this fund, transfer it to another fund, or withdraw, pay the tax, and invest or spend as you deem fit.

By default; the lesser of 10% of the vested pot or R30,000, will be automatically transferred to a second pot called the savings pot (this is called seeded capital) on September 1st.

All future contributions from September 1st will then be split: one-third to your savings pot, and the balance to your new pot called the retirement pot.

You will be entitled to make one withdrawal per year ‘before retirement’ from your savings pot including the seeded capital ( as long as its over R2000), however you will then be taxed at your marginal rate of tax.

At retirement, withdrawals from the savings pot are taxed according to the ‘retirement tax tables”. Any withdrawals made before retirement age will not affect the R550,000 tax-free portion which will still be available at retirement across the vested pot, the savings pot and the retirement pot.

The two-thirds of the contributions that have been made to your retirement pot cannot be withdrawn (unless you financially emigrate – if you require more info on this, contact me directly). It will have to be annuitized in a life or living annuity at retirement and paid out per the prevailing rules of these funds.

That’s the new system, “simplified’. For detailed advice on the tax, etc., please contact me directly.

I hope the mailer has been valuable to you. As always, I am readily available to answer any questions and assist where possible.

Kind Regards
Robert Taylor

Reference: Morningstar, Forbes, NinetyOne, Blackrock, Bloomberg

Please be aware that the contents of this blog include the opinions of Robert Taylor and are not to be construed as advice or acted on before consulting with Robert Taylor or any other licensed Financial Services Provider where professional process and the FAIS act and General Code of Conduct are applied.

31 July 2024

Welcome to the second edition of The Inside Track! I’m thrilled to share that the first edition received excellent feedback. I look forward to building on that momentum.

If a day is a long time in politics, the events of July could be considered a decade.

South Africa’s newly expanded cabinet was sworn in with 32 ministers and 43 deputy ministers. For perspective, South Africa’s current GDP is $380 billion, while the UK has 24 ministers with a GDP of $2.8 trillion, and Germany has 17 ministers with a GDP of $4.01 trillion.

The USA narrowly avoided civil chaos following a failed assassination attempt on Donald Trump, however global chaos followed just five days later, when a US company, CrowdStrike, missed a flaw in its software update, which crippled 8 million Windows computers and resulted in an average loss of $44 million per Fortune 500 company.

South Africa won two Olympic bronze medals in rugby sevens and men’s cross country, and one gold in swimming—well done!

The S&P and Nasdaq had their biggest correction since 2022 following the latest batch of corporate earnings, sliding 2.3% and 3.6%, respectively. The downturn came as major technology stocks, which have driven the market’s record run, faltered, with the “Magnificent Seven” shedding $770 billion in market value on Wednesday 24th July.

Cyril Ramaphosa signed the final legislation to implement the two-pot retirement system starting 1 September 2024. There is a lot of misinformation about its impact. It affects all who invest in a retirement annuity, pension, or provident fund, preservation and public benefit fund. I will discuss this in more detail at the end of the mailer.

Market Indicators

Returns % (to 26 July 2024)

Global Market News

• The US economy remains strong and grew at 2.8% in the second quarter, significantly ahead of forecasts. (Quarter one GDP was up 1.4%).
• The Federal Reserve is expected to keep interest rates steady at between 5,25% and 5,50% but indicators suggest they may be teeing up for a rate cut in September.
• The European Central Bank(ECB) kept interest rates unchanged at 3.75%.
• U.K. inflation recorded 2% on an annual basis, slightly above the expected 1.9%. This data pushed the British pound past the $1.30 mark against the U.S. dollar for the first time in a year.
• Roche’s shares climbed after its experimental weight loss pill, CT-996, demonstrated a 6.1% average weight loss in patients over four weeks. Designed to address obesity and type 2 diabetes, the pill is set to move to mid-stage trials. Competing with Novo Nordisk and Eli Lilly, this oral medication also shows promise for treating conditions such as kidney disease and sleep apnea.
• Bitcoin touched the highest level since mid-June after Donald Trump expanded his pro-crypto agenda. Trump pledged at a weekend conference to make the US the “crypto capital of the planet and the Bitcoin superpower” if he returns to the White House following November’s election.

South Africa

• SA’s inflation rate slowed to 5.1% in June, down from the previous month’s 5.2%. Food inflation fell to an almost four-year low, with the market now fully anticipating a 0.25% cut in the September meeting.
• Judge Anthony Millar’s North Gauteng High Court judgment declared five sections of the National Health Act unconstitutional and invalid and ordered their removal from the Act.
• Qatar Airways is in talks to buy a stake in South Africa’s SA Airlink as the Doha-based airline seeks to expand its presence on the continent. The carrier is considering buying a stake of as much as 20% in Airlink.
• The African Development Bank (AfDB) Group has approved a R18.85 billion and 25-year long corporate loan to Transnet for its recovery and growth plans, which was fully guaranteed by the South African government. The corporate loan will facilitate the first phase of the state-owned freight and logistics firm’s R152.8bn five-year capital investment plan to improve its existing capacity.

Food for Thought

• An Olympic gold medal contains as much gold as 177 smartphones – as a result for the 2020 Olympics, 6.21 million used mobile phones were melted down and recycled to make the Olympic medals.
• Danish farmers will pay $100 per cow as a carbon tax on livestock starting in 2030.
• Apple’s top iPhone has 2.8 billion times more processing power than Apollo 11’s computer, which took astronauts to the moon.

Quote for the Month

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”  Robert G. Allen

Chart of the Month

The chart below highlights the impressive growth and rapid expansion of the Big Seven. To put this into perspective, Nvidia’s share price has increased by 2,473.95% over the past 5 years. An investment of R100,000 in Nvidia made 5 years ago would be worth R2,500,730 today (excluding currency fluctuations).

Wrap-Up: Demystifying the 2-pot system

The two-pot system is a new piece of legislation that will impact any individual who invests in retirement funds governed by the Pension Fund Act.

The primary reason for this legislation is to provide emergency liquidity for those who need access to their investments before retirement and to prevent individuals from withdrawing their pension when they resign or are retrenched.

Until now, if you belonged to a pension or provident fund and resigned, you could withdraw your investment, which is taxed and then becomes discretionary money. This will no longer be possible for two-thirds of the contributions made after September this year.

So how does this all work in practice?

All monies currently invested in any of the pension vehicles up until September 1st will be vested. The current pension fund rules you are familiar with will apply to this “vested pot.” For example, should you leave your employment, you can leave the money in this fund, transfer it to another fund, or withdraw, pay the tax, and invest or spend as you deem fit.

By default; the lesser of 10% of the vested pot or R30,000, will be automatically transferred to a second pot called the savings pot (this is called seeded capital) on September 1st.

All future contributions from September 1st will then be split: one-third to your savings pot, and the balance to your new pot called the retirement pot.

You will be entitled to make one withdrawal per year ‘before retirement’ from your savings pot including the seeded capital ( as long as its over R2000), however you will then be taxed at your marginal rate of tax.

At retirement, withdrawals from the savings pot are taxed according to the ‘retirement tax tables”. Any withdrawals made before retirement age will not affect the R550,000 tax-free portion which will still be available at retirement across the vested pot, the savings pot and the retirement pot.

The two-thirds of the contributions that have been made to your retirement pot cannot be withdrawn (unless you financially emigrate – if you require more info on this, contact me directly). It will have to be annuitized in a life or living annuity at retirement and paid out per the prevailing rules of these funds.

That’s the new system, “simplified’. For detailed advice on the tax, etc., please contact me directly.

I hope the mailer has been valuable to you. As always, I am readily available to answer any questions and assist where possible.

Kind Regards
Robert Taylor

Reference: Morningstar, Forbes, NinetyOne, Blackrock, Bloomberg

Please be aware that the contents of this blog include the opinions of Robert Taylor and are not to be construed as advice or acted on before consulting with Robert Taylor or any other licensed Financial Services Provider where professional process and the FAIS act and General Code of Conduct are applied.