How To ... Make good financial choices

Investing on a variable income

Katlego writes:

I am 22 years old and employed on a contractual basis. I want to start investing, but don’t know where to start. I was considering investing in unit trusts. My main question is: what would the consequences be if I can’t make payments during the periods when I have no income?

Ndili Mbuli, a financial adviser at Liberty, answers:

Unit trusts would suit your investment horizon nicely as you work on a contractual basis and might have a few months where you can’t make payments. Unit trust investments are chosen to suit your risk profile and are available as and when required.

If you are unable to make payments in a particular month, you should contact the company you are invested with to notify them.

If you’ve missed a month’s contribution for whatever reason, you can always make up the contribution when you have funds available or you can skip the contribution altogether.

City Press replies:

Contacting your investment company if you are going to skip a contribution is particularly important if you have set up a debit order. The last thing you want is a bank charge for a bounced debit order.

Another advantage of investing in unit trusts is you can change the amount you invest each month. So if your income changes, you don’t have to worry about being tied into an investment you can no longer afford.

Bear in mind different unit trust funds have different minimum monthly contributions.

These can range from R50 to R500, so choose your investment carefully.

Offshore

International online payments

Lastmore writes:

I need to start an online home marketing business with an assistance/business coach from the US. What is the easiest way of making an online payment? The banks seem to have some tight conditions when sending money to and receiving money from abroad.

Victoria Ratshefola, the head of forex at FNB, replies:

Paypal is available to FNB and non-FNB clients. If you don’t bank with FNB, you need to create an online banking profile with FNB through www.fnb.co.za:

.?Click “Register” at the top of the screen.

.?Under PayPal for non-FNB customers, select “Register for PayPal”.

.?Choose between “For me” and “For my business”.

.?Select “I do not bank with FNB” and complete registration.

You will be required to fax (011?438?8222) or email (paypalkyc@fnb.co.za) your recently certified copies of the required Fica documents.

Once your FNB online banking profile is set up and validated, you will receive an email from FNB notifying you of this.

You will then be able to link your non-FNB account to your validated FNB online banking profile. With this done, you will get the option to withdraw the funds from your verified South African PayPal account to your verified non-FNB transmission, savings or cheque account.

To link your non-FNB account to your local PayPal account, your PayPal account must be verified. Once you have registered a PayPal account, you can verify it.

Verification can be done at www.paypal.com/za and requires either a cheque or credit card (from any bank).

South African debit cards cannot be used for online transactions and PayPal will not verify a debit card. If you have an existing PayPal Wallet, check if the status of the account is “Verified”.

If not, and if you have the “Get Verified” option, use the credit card number you used when registering with PayPal to complete verification. annuities

Thinking about retirement

Fred writes:

If I get quotations from Old Mutual, Sanlam, Allan Gray, Alexander Forbes or Liberty for a living annuity, do they use the same formula, or will there be differences in their projections? If yes, why?

Ndili Mbuli, a financial adviser at Liberty, answers:

The rates used for a living annuity are the same, regardless of which company you choose. That is, you can choose an income percentage of between 2.5% and 17.5% per year.

The difference will lie in the portfolios chosen and the different charges that might apply, as well as the performance of the underlying assets of the chosen portfolios.

For example, you could choose an income drawdown of 11% a year and the growth of your chosen portfolios would have to match this income percentage so as not to deplete the capital.

City Press replies:

When selecting a living annuity, the Association for Savings and Investment SA recommends a maximum 5% annual drawdown so as not to deplete your capital.

While your question was specifically about living annuities, should you opt for life annuity (a guaranteed income for life), it is best to get several quotes as these do differ between insurance houses. One should always aim for an inflation-linked annuity.

Mortgages

Home loan applications

Akhona writes:

I am in the market to buy a house this year. I bank with Capitec and have been with the bank for a long time. But I’ve been told this will work against me when I apply for a home loan with one of the big banks.

How true is this and are there other institutions that can provide me with the finance should I fail to secure a home loan with the big banks?

Wimpie Potgieter, the head of credit operations at FNB home loans, answers:

The larger banks do offer home loans to those who do not bank with them. We do tend to prefer our own customers as we have a better understanding of their payment history and risk profile.

This does not mean we would not consider non-customers. At FNB, we will consider loans of up to 100% for salaried individuals, even if they are non-FNB customers.

But if you are self-employed and do not bank with us, we would only consider a smaller home loan, which means you will need to put down a bigger deposit. We would also need to consider any risk considerations we might not be aware of.

City Press replies:

Your best approach would be to apply through a bond originator, such as ooba.co.za, which can then send your application through to the different banks.

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