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  1. 1. M. . SACKS & ASSOCIATES C.C. N AV I G AT I N G YOUR FINANCIAL WEALTH APPROVED FINANCIAL SERVICES PROVIDER INTRODUCTION TO MJ SACKS & ASSOCIATES The financial services industry is becoming more complicated by the day. Every Investment Company, Insurance Company, Asset Manager and even Retail Chain stores are bombarding the unsuspecting investor with a myriad of investment products and marketing jargon Investors have never before had such a wide choice of investment options. The Asset Managers who all have different styles of investing are not making these choices any easier. Their styles vary from Momentum vs. Contrarian, Relative vs. Absolute, Active vs. Passive, Growth vs. Value, Top down and Bottom up and it seems any other fanciful style that may evolve in the future. On top of this one finds that there are more that 400 different Unit Trusts in the South African market, all with different mandates and strategies. The financial press is filled with performance figures and advertorials proclaiming that a particular investment is best, urging investors to invest now before it is too late. Flavour of the month investments are broadcast all over, with commentators suggesting one should invest in property one month and the next in a particular share or even in a particular currency. I suppose one cannot blame somebody saying that a particular product or investment is best if they have an interest in promoting such a product. The Ford motorcar salesman will always maintain that the Ford he is trying to sell you is best. Then there is the question of risk? We expose ourselves to risk everyday, whether it is by investing, driving down the road or just getting out of bed. Yet, many investors and their guru's do not understand the concept of risk or how to manage it. It is a nightmare trying to make sense of all the clutter in the financial planning environment. It is for this reason that we are a fiercely independent financial advisory service not driven by or owned by any product supplier that can and will focus on our client and his or her lifestyle goals and needs. We differentiate ourselves from the market in that we offer advice as opposed to a product. We will work with our client's to find solutions for their investment scenarios. We believe that the purpose of financial planning is to assist investors to achieve the lifestyle that they want to live. Building wealth takes patience, planning and a process that delivers reliable investment results over time. page 1
  2. 2. M. . SACKS & ASSOCIATES C.C. N AV I G AT I N G YOUR FINANCIAL WEALTH APPROVED FINANCIAL SERVICES PROVIDER OUR PROCESS We follow a very simple but effective process consisting of three critical stages: Consulting Stage Firstly we would work in partnership with you to develop your lifestyle goals. We would conduct in depth interviews and discussion with you to gain a clear understanding of your objectives. We will help formulate your goals and then design a strategy to achieve those goals. This will enable us to draft a working document that will form this basis of our discussion going forward. Implementation Stage Employing a conservative invest-ment philosophy based on quality, value and diversity and in time we would develop an investment strategy that will allow good quality asset allocation, at the right price to achieve your desired results over time. We will ensure that this process is seamlessly implemented and that all administrative functions are carried out professionally. Monitoring Stage The success of any financial plan depends on the continued care exercised to ensure that the plan adequately meets with the changing environment. We are acutely aware of this fact and to ensure that your customized plan satisfies your particular objectives we monitor the strategy regularly and as a standard would supply quarterly updates on the performance plus have an annual review meeting with you. To ensure impartiality we believe in working on a fee structure and will declare all commission earned on any business placed with a financial institution. To bring you the quot;best of breedquot; investment vehicles, we have access to and use the intellectual capital research capabilities of the leaders in the investment arena.This allows us to concentrate all our effort and service on you, our client. page 2
  3. 3. M. . SACKS & ASSOCIATES C.C. N AV I G AT I N G YOUR FINANCIAL WEALTH APPROVED FINANCIAL SERVICES PROVIDER SERVICE PROVIDERS All investments are placed IN THE NAME OF THE CLIENT. To facilitate the management of funds we have service level agreements and contracts with the following major investment houses: acsis, Coronation, Investec Asset Managers, Fairbairn Capital, Old Mutual, Stanlib, Momentum, Liberty Life, Sanlam and Discivery :ife. The investments that we place do not form part of the assets of any of the Service Providers. All the institutions with which we place investments are bound by the Financial Services Board regulation and the Long Term Insurance Act. The Financial Advisory and Intermediary Services Act regulate the manner in which we conduct our business. we have appointed Strategic Compliance services (Pty) Ltd as an independent compliance officer to ensure that our practice is compliant with all the legal regulation requirements. Our service offering includes: Goal setting, Investment strategy, Retirement, Estate and tax planning, Risk management, Cash flow management and Lifestyle counseling. We strive to add value by the quality of the execution of our duties, unquestionable ethical standards, impeccable standards of service and the respect we show towards every individual. In doing so we will cherish every moment, as we only have this one chance! Risk is a concept that most people are familiar with. We expose ourselves to risk everyday, whether it is by investing, driving, or just walking down the street. Yet, many investors with don't want to, or don't know how to avoid unnecessary risks. page 3
  4. 4. M. . SACKS & ASSOCIATES C.C. N AV I G AT I N G YOUR FINANCIAL WEALTH APPROVED FINANCIAL SERVICES PROVIDER WHAT IS RISK? According to the dictionary, risk is defined as the chance that an investment's actual return will differ from the expected return. Risk has several elements. Two of the most important elements are: 1. Although some investments are considered riskier than others, every investment carries some form of risk. Equities are a good example of high-risk securities, while a savings account in the bank would be considered a very secure investment. It does, however, still carry some form of risk, as although your capital is relatively secure in the bank, the after tax return you earn on it will probably not be enough to beat inflation, so you lost purchasing power. This is known as inflation risk. 2. While risk cannot be eliminated, the type and level of risk your expose yourself to can be controlled. Two important factors When developing any investment plan there are two major factors to keep in mind. They are: Your risk tolerance, and Your investment time horizon. Risk tolerance refers to the degree of risk you are comfortable with. If investing in equities makes you pace up and down the hallway every time the market drops, you should probably move your money to a lower risk investment such as bonds or cash. In this regard, it is very important that you know yourself and your attitude towards risk. When assessing your risk tolerance ask yourself how much money you can afford to lose. If you only invest money, in risky assets that is, that you can afford to lose, you won't be pressured to sell off any investments because if panic or liquidity issues. The second important factor, your investment time horizon, relates to how soon you'll need the money you're investing. If you were retiring in one year's time you would be ill advised to invest the majority of your money into equities. Equities tend to fluctuate in the short-term and are therefore better suited to longer term investments where there is more time to achieve higher returns and recoup losses. Money markets, on the other hand, are good short-term investments as they are highly liquid and carry a low level of risk. Eat or sleep well? This is an old adage that ties in well with the risk-reward concept. It basically states that the type of securities an investor should invest in depends on whether they want to eat or sleep well. Investing in high-risk, high-reward securities will ensure that you eat well, but the risky nature of the securities might prevent your from sleeping at night. In contrast, investing safely means that you can sleep well, but the low rate of return will keep you from eating well. page 4
  5. 5. M. . SACKS & ASSOCIATES C.C. N AV I G AT I N G YOUR FINANCIAL WEALTH APPROVED FINANCIAL SERVICES PROVIDER This is in essence what the risk-reward concept states. The higher risk of a particular investment, the higher the possible return. This makes sense. Any investor would expect a higher return for taking on extra risk, because the possibility of losing his/her money becomes greater. The graph below illustrates the risk-reward concept. The different types of risk. There are two fundamental types of risk. These types are: - Systematic risk - a risk that influences a large number of assets such as political risk. - Specific risk - a risk that affects a very small number of Low Risk assets, such as strikes at a specific company. Low Return RETURN The main difference between these two types of risk is that investors are able to diversify away the specific risk, High Risk but not the systematic risk. The benefits of diversification High Potential will minimize this risk. Return Now that we have considered the basic types of risks, let STANDARD DEVIATION (OR RISK) us focus on specific types of risk that explicitly influence Source: www.investopedia.com equities and bonds. - Country Risk - This refers to the risk that a country will not be able to meet its obligations and influences all the asset classes in the economy. - Political Risk - This entails the financial risk that a country will suddenly change its policies. Second and Third world countries have higher political risk than developed countries and subsequently experience lower levels of foreign investment. - Foreign Exchange Risk - This represents the risk that an investment in another country might lose value due to a depreciation (weakening) in the foreign country's currency relative to the domestic currency. This applies to all investments with foreign component. - Credit or Default Risk - This is a risk that a company, government institutions or individual will unable to pay the interest or principal on it's debt obligations. This type of risk should especially concern investors with bonds in their portfolios. page 5
  6. 6. M. . SACKS & ASSOCIATES C.C. N AV I G AT I N G YOUR FINANCIAL WEALTH APPROVED FINANCIAL SERVICES PROVIDER - Interest Rate Risk - This signifies the negative effect high interest rates have on equity and bond investments. High interest rates encourage investors to invest in money market funds or to keep their money in the bank, which in turn, lowers the demand for equities and bonds. - Inflation Risk - This is the risk of losing purchasing power. If prices rise by 5% from one year to the next and your investment only delivers 2%, your investment is losing purchasing power because you can now buy 3% less with the same amount of money. - Market risk - This is the most common type of risk and indicates the fluctuations in the prices of different asset. In other words it is the volatility of the investment. An investment with a high volatility (market risk) experiences a lot of variations in its prices and returns. investor m.j. sacks & ass. admin. function advice portfolio advisors financial Information obtained from institutions www.schwab.com and www.investopedia.com The information and opinions in this document have been recorded and arrived asset manager asset managers at by Mike Sacks in good faith and from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness or correctness.Mike Sacks YOUR accordingly accepts no liability whatsoever INVESTMENT for any direct, indirect or consequential loss arising from the use of this. page 6
  7. 7. M. . SACKS & ASSOCIATES C.C. N AV I G AT I N G YOUR FINANCIAL WEALTH APPROVED FINANCIAL SERVICES PROVIDER Mike Sacks CFP (University Orange Free State) ™ Mike Sacks joined the financial services industry in 1985 where he started out with Legal and General as a Broker Consultant. After three years he decided it was time to start his own Financial Planning Practice in 1988. Since inception this practice has supplied professional, comprehensive financial advice to high net worth clients. To insure a high level of competence Mike holds a Post-Graduate in Financial Planning from the University of Orange Free State and professional membership of the Financial Planning Institute of South Africa. The Certified Financial Planner designation that he has qualified to use indicates that he abides by the Code of Conduct of the Financial Planning Institute of South Africa and underwrites the Generally Accepted Planning Practice Guidelines, and uses a six step process. He specializes in retirement and investment planning as well as financial planning, and estate planning. He is married with three sons and his hobbies include golf, fishing and cycling. , CERTIFIED FINANCIAL PLANNER® 27.11 886-7273 27.11 787-5624 130 Mackay Ave Blairgowrie Randburg 1054 Cresta 2118 mjsmike@mweb.co.za
  8. 8. M. . SACKS & ASSOCIATES C.C. N AV I G AT I N G YOUR FINANCIAL WEALTH APPROVED FINANCIAL SERVICES PROVIDER The Financial Planning Process The six steps The financial planning process consists of the following six steps: • Establishing and defining a professional relationship The financial planner should clearly explain or document the services to be provided to you and define both his/her and your responsibilities. The planner should explain fully how he/she will be paid and by whom. You and the planner should agree on how long the professional relationship should last and on how decisions will be made. • Gathering data, including goals The financial planner should ask for information about your financial situation. You and the planner should mutually define your personal and financial goals, understand your time frame for results and discuss, if relevant, how you feel about risk. The financial planner should gather all the necessary documents before giving you the advice you need. • Analysing and evaluating your financial status The financial planner should analyse your information to assess your current situation and determine what you must do to meet your goals. Depending on what services you have asked for, this could include analysing your assets, liabilities and cash flow, current insurance coverage, investments or tax strategies. • Developing and presenting financial planning recommendations and/or alternatives The financial planner should offer financial planning recommendations that address your goals, based on the information you provide. The planners should go over the recommendations with you to help you understand them so that you can make informed decisions. The planner should also listen to your concerns and revise the recommendations as appropriate. • Implementing the financial planning recommendations You and the planners should agree on how the recommendations will be carried out. The planner may carry out the recommendations or serve as your “coach,” coordinating the whole process with you and other professionals such as attorneys or stockbrokers. • Monitoring the financial planning recommendations You and the planners should agree on who will monitor your progress towards your goals. If the planner is in charge of the process, he/she should report to you periodically to review your situation and adjust the recommendations, if needed, as your life changes.