Financial planning in the time of coronavirus

By Janice Roberts

By Tim Mertens, Chairman of Sovereign Trust (SA) Limited

We’re living in unprecedented times. The coronavirus pandemic has wrought havoc on countless lives and economies. It has taken away our freedom and limited our ability to engage in normal activities. We don’t know what the ‘new normal’ will look like post-pandemic, but we know one thing for sure: things will be different.

This pandemic has revealed major weaknesses in economies around the world, highlighting the key skills needed in a crisis. We have seen how quickly companies of all sizes have been paralysed with no warning, and no real plan. Many will have to rely on the trillions of dollars that governments will shell out to keep going.

This time in lockdown will be temporary, but it’s a golden opportunity to focus on the things that are important to us, to take stock, and to plan. While we have the time, we should be taking a good, hard look at our personal planning. 

Your first point of business should be to check you have a valid, up-to-date last will and testament in place, which reflects the way in which you want your estate to be handled. We often spend so much time focusing on building our wealth that we ignore this critical aspect of planning: how to protect it when we pass on.

The next step, which is linked to planning around the last will and testament, should be a liquidity analysis to determine debt to equity ratios in the estate. If an estate has a liquidity problem, a risk product like a life policy is often the quickest and cheapest way to plug that gap. This allows estate duty and other debts to be settled, and assets preserved. It’s also a good idea to look at a compliant and effective tax plan to take advantage of the many concessions the taxman provides. If used correctly, these could boost the value of an estate considerably.

Thirdly, this is an excellent opportunity to have meaningful conversations with your financial adviser about future risk mitigation, the make-up of current asset allocation and strategies for the future. The coronavirus pandemic has wiped billions off stock markets, and has decimated profits that looked promising a couple of months ago. Many investors are paralysed, and have probably been told to hold fast for the moment. This is a good time to look at alternative investments, like art and property, that may be more resilient as part of a portfolio.

Point four should be to ensure you have a proper retirement plan in place, that is shielded as far as possible from unplanned volatility. For those near or in retirement, these are testing times. We’re in a low interest rate environment, coupled with extreme market volatility. Moody’s downgrade of South Africa’s sovereign debt rating to junk status has seen the Rand drop to record levels against many foreign currencies.

Any future planning should include the use of the Foreign Discretionary Allowance, of up to R10 million per taxpayer per year, to diversify into overseas investments where the base currency is Pound Sterling, US Dollar, Euro or others. The use of International Personal Pension Plans is also beneficial, as there is a well-regulated and experienced trustee overseeing investments along with the Financial Adviser and investor. This combination of experts makes all the difference in achieving the protection and oversight of a good investment plan.

Finally, we should take hope from our parents and grandparents, who have overcome wars and past pandemics. Like them, we must start anticipating the unlikely to ensure our survival, both personally and in business. To do this, we must focus on future success – and the only way to do that is to properly plan for it. In that regard, the current lockdown could be the opportunity we’ve all been waiting for.

Visit the official COVID-19 government website to stay informed: