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The Hunt for Income
Retirement: The Hunt for Income
THE FOUNDATION OF EVERY HOUSEHOLD
Capital Sum for
Investment
Asset Purchase
Asset produces
Income
Income pays
household
expenses
Surplus income
transferred to
capital a/c
Salary (In the
event of prior to
retirement)
Retirement: The Hunt for Income
INFLATION CONSEQUENCES
Year Inflation 1 yr Fixed Deposit Purchasing Power (R100 Start)
1988 12.8% 11% R 100.00
1989 14.9% 15% R 112.80
1990 14.2% 17% R 129.61
… … … …
1995 8.6% 13% R 233.06
… … … …
2000 5.4% 10% R 331.05
… … … …
2004 1.4% 6% R 426.12
2005 3.4% 6% R 432.09
2006 4.6% 8% R 446.78
2007 7.2% 9% R467.33
2008 11.5% 10% R 500.98
Retirement: The Hunt for Income
YIELD VERSUS RISK
Income
Return
Capital
Return
2 separate and distinct returns to every investment
Retirement: The Hunt for Income
YIELD VERSUS RISK
Income Return
Capital
Return
Income
Return
Capital Return
Income Risk Spectrum
Example: Money Market Example: Vacant Land
High Income Return
/Low Capital Return
High Capital Return
/Low Income Return
Retirement: The Hunt for Income
YIELD VERSUS RISK
6
There are only 4 broad asset classes
Retirement: The Hunt for Income
YIELD VERSUS RISK
7
While we can invest in these for income they all have a
different capital risk and inflation risk. You cannot run to
one but avoid the other!
CASH BONDS PROPERTY EQUITY
Low Capital Risk/
High Inflation Risk
High Capital Risk/
Low Inflation Risk
Retirement: The Hunt for Income
YIELD VERSUS RISK
8
The capital return ultimately comes from the ability of an
investment to increase it’s income capability.
CASH BONDS EQUITY
Low Capital Risk/
High Inflation Risk
High Capital Risk/
Low Inflation Risk
12 Month Fixed
Deposit
RSA 157 Flat -
Pietermaritzburg
Standard Bank
1994 – Invest R 10,000 in each
PROPERTY
Retirement: The Hunt for Income
YIELD VERSUS RISK
9
CASH BONDS EQUITY
Low Capital Risk/
High Inflation Risk
High Capital Risk/
Low Inflation Risk
12 Month Fixed
Deposit
RSA 157 Flat -
Pietermaritzburg
Standard Bank
1994 – The starting point
PROPERTY
Capital : R 10,000
Income : R 1,100
Capital : R 10,000
Income : R 998
Capital : R 10,000
Income : R 529
Capital : R 10,000
Income : R 213
Retirement: The Hunt for Income
YIELD VERSUS RISK
10
CASH BONDS EQUITY
Low Capital Risk/
High Inflation Risk
High Capital Risk/
Low Inflation Risk
12 Month Fixed
Deposit
RSA 157 Flat -
Pietermaritzburg
Standard Bank
2009 – How we have fared (assume income consumed)
PROPERTY
Capital : R 10,000
Income : R 600
Capital : R 9,023
Income : R 998
Capital : R 39,000
Income : R 2’222
Capital : R 100,000
Income : R 3,570
Retirement: The Hunt for Income
1983 2010
Dividends on 313 SBK
shares to buy a meal
Or sell 13 shares
Dividends on 42 SBK
shares to buy a meal
Or sell 1.45 shares
Price of Wimpy meal increase 9.98%
Price of SBK share increased by 19.36%
Dividend from R0.04 to R3.86 (18.45% pa)
Retirement: The Hunt for Income
Retirement: The Hunt for Income
49.3c - 53c = 7.5%
53c - 68c = 28.3%
68c - 85c = 25%
85c - 102c = 20%

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The hunt for income

  • 1. The Hunt for Income
  • 2. Retirement: The Hunt for Income THE FOUNDATION OF EVERY HOUSEHOLD Capital Sum for Investment Asset Purchase Asset produces Income Income pays household expenses Surplus income transferred to capital a/c Salary (In the event of prior to retirement)
  • 3. Retirement: The Hunt for Income INFLATION CONSEQUENCES Year Inflation 1 yr Fixed Deposit Purchasing Power (R100 Start) 1988 12.8% 11% R 100.00 1989 14.9% 15% R 112.80 1990 14.2% 17% R 129.61 … … … … 1995 8.6% 13% R 233.06 … … … … 2000 5.4% 10% R 331.05 … … … … 2004 1.4% 6% R 426.12 2005 3.4% 6% R 432.09 2006 4.6% 8% R 446.78 2007 7.2% 9% R467.33 2008 11.5% 10% R 500.98
  • 4. Retirement: The Hunt for Income YIELD VERSUS RISK Income Return Capital Return 2 separate and distinct returns to every investment
  • 5. Retirement: The Hunt for Income YIELD VERSUS RISK Income Return Capital Return Income Return Capital Return Income Risk Spectrum Example: Money Market Example: Vacant Land High Income Return /Low Capital Return High Capital Return /Low Income Return
  • 6. Retirement: The Hunt for Income YIELD VERSUS RISK 6 There are only 4 broad asset classes
  • 7. Retirement: The Hunt for Income YIELD VERSUS RISK 7 While we can invest in these for income they all have a different capital risk and inflation risk. You cannot run to one but avoid the other! CASH BONDS PROPERTY EQUITY Low Capital Risk/ High Inflation Risk High Capital Risk/ Low Inflation Risk
  • 8. Retirement: The Hunt for Income YIELD VERSUS RISK 8 The capital return ultimately comes from the ability of an investment to increase it’s income capability. CASH BONDS EQUITY Low Capital Risk/ High Inflation Risk High Capital Risk/ Low Inflation Risk 12 Month Fixed Deposit RSA 157 Flat - Pietermaritzburg Standard Bank 1994 – Invest R 10,000 in each PROPERTY
  • 9. Retirement: The Hunt for Income YIELD VERSUS RISK 9 CASH BONDS EQUITY Low Capital Risk/ High Inflation Risk High Capital Risk/ Low Inflation Risk 12 Month Fixed Deposit RSA 157 Flat - Pietermaritzburg Standard Bank 1994 – The starting point PROPERTY Capital : R 10,000 Income : R 1,100 Capital : R 10,000 Income : R 998 Capital : R 10,000 Income : R 529 Capital : R 10,000 Income : R 213
  • 10. Retirement: The Hunt for Income YIELD VERSUS RISK 10 CASH BONDS EQUITY Low Capital Risk/ High Inflation Risk High Capital Risk/ Low Inflation Risk 12 Month Fixed Deposit RSA 157 Flat - Pietermaritzburg Standard Bank 2009 – How we have fared (assume income consumed) PROPERTY Capital : R 10,000 Income : R 600 Capital : R 9,023 Income : R 998 Capital : R 39,000 Income : R 2’222 Capital : R 100,000 Income : R 3,570
  • 11. Retirement: The Hunt for Income 1983 2010 Dividends on 313 SBK shares to buy a meal Or sell 13 shares Dividends on 42 SBK shares to buy a meal Or sell 1.45 shares Price of Wimpy meal increase 9.98% Price of SBK share increased by 19.36% Dividend from R0.04 to R3.86 (18.45% pa)
  • 12. Retirement: The Hunt for Income
  • 13. Retirement: The Hunt for Income 49.3c - 53c = 7.5% 53c - 68c = 28.3% 68c - 85c = 25% 85c - 102c = 20%