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The Fat Wallet Show from Just One Lap

The Fat Wallet Show is a show about questions. It’s about admitting that we don’t know everything, but that we’re willing to learn. Most of all, it’s about understanding as much as we can to make us all better investors. Phrases like, “I’m not sure” or, “Let me look that up and get back to you” or, “I don’t know” don’t exist in the financial services industry. If you ever had a financial question you were too embarrassed to ask, you know what we’re talking about. In this business, appearances matter, and nobody wants to seem like they don’t know how things work or what the outlook is for the buchu industry. It’s easy to excuse that little vanity, except that people in the investment industry are meant to service investors - people like you and me who need to figure out what to do with our money. There’s no such thing as a stupid question in this show. If you have unanswered financial questions, this is your opportunity to have them answered in a way that even I can understand. Pop them to us at ask@justonelap.com. Hosted by Kristia van Heerden and Simon Brown
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Now displaying: February, 2017
Feb 26, 2017

I recently attended an Investec event where they introduced a structured product that piqued my interest. Simon and I have discussed structured products before, so I was expecting a hugely complicated bullshit product with massive fees. I was wrong (again).

I realised in that briefing that I have a great advantage. I know what questions to ask when someone tries to sell me a financial product. I don’t get intimidated by the concept of gearing and I have a somewhat tenuous grip on the idea of hedging. I know what high fees are, because I have low fees to compare it to. I understand what the S&P 500 means in the context of a financial product.

I know all of these things because of my job. My obsessive question asking is what led to this podcast in the first place. It’s a great position to be in, but I’m fairly sure I’m one of very few people who get to be in this position.

This week is a great example of how Simon helps me understand these products. I ask the same questions until I’m satisfied that I understand the answer. You’ll note that we are talking derivatives again. Although we’ve discussed it before, I always come back to it. Even though I understand the basic premise, I struggle to wrap my head around these products. I get the feeling I’ll only ever truly understand them if I start trading them myself.

This week we do an on-the-fly checklist of things you need to ask when someone tries to sell you a financial product. We start, as always with fees. The underlying product, counter party risk, whether the product is listed and how the provider makes money are all on the list.

Kris

Feb 19, 2017

In general, people don’t know how to talk about money. Add feelings and relationships to the mix and you have a lot of room for awkwardness. Your future financial security will be heavily influenced by the financial behaviour of your partner. You owe it to yourself to ensure that you know exactly what you’re in for.

When I was younger I got heavily indebted. This was bad. I did, however, learn a number of important life lessons from that experience. One unexpected upside is that debt forced me to talk about money to my partner. Our openness about money is something we’ve come to take for granted.

As I’ve become more open about my own finances, my friends have been talking to me about theirs. I’m often surprised that couples who are so comfortable sharing every other aspect of their lives struggle to have basic financial conversations.

In this episode, Simon and I try to figure out the best way to start talking about money with your partner. It doesn’t take us very long to become tangled up in the complexities of love and money. It’s hard, you guys.

If you have any tips, please send them to ask@justonelap.com.

Kris

Feb 12, 2017

Whenever I think I have a handle on tax and investments, some fresh hell reveals itself. Our friend Ros Brodie had a fascinating question about share events and capital gains tax (CGT) this week. I was hugely impressed that she managed to sell a share she never bought. It’s exactly the kind of voodoo I can get behind. Ros had two CGT questions. Firstly, how does tax work if you take shares in lieu of dividends? Secondly, what about shares she got as a result of the unbundling of a different share?

Carel Nel wrinkled my brain in this episode. It turns out residual payments on home loans are a thing. I did not know this. What Carel found out, to his dismay and mine, is that you still pay interest on the residual amount. His email is below. Once again I’ve shortened it somewhat, but the good bits are there.

I've been trying to figure out how residual payments on a loan work, but it doesn’t make sense to me.

The way I understand that it is if you take a residual of whatever amount, this amount is payable at the end of the term, whether you pay it in a lump sum or refinance it. What makes sense to me is then that this residual should not be part of the loan calculation at all.

Let's say you take a loan of R100 000, you pay a deposit of 10% and you elect to take a residual of 25%. This means that effectively you need a loan of R65 000. So, the monthly installments should be calculated with R65 000 as the total, the term and interest rate indicated. Right?*

The interest paid each month is calculated on the total amount outstanding which includes the balloon amount. After every month's payment, the total outstanding goes down less due to the lower installment meaning you pay more interest.

What I would have hoped for was if the interest is not calculated to included this balloon amount.

*Turns out this is not right. As Simon points out in the episode, when you take the loan amount, the bank gives you the full amount, even though you are paying back a smaller principal amount.

If you listened last week you would have heard us mention the new US Treasury Bond ETF by RMB. I was piqued, so I found out more. If you are equally piqued, read it here.

Lastly, Simon did his super cool tax-free investment talk for 2017 last Thursday. It's always chockers full of information. View it here. In addition to the great presentation, I met someone who has started an investment education club, which excites me more than anything investment-related should ever excite anyone. If you don't ordinarily come to the JSE Power Hours, you're missing out.

Kris

Feb 5, 2017

Good news! This episode is a respectable just-over-30-minutes long. We recorded earlier than usual, which means there’s quite a bit of feedback we didn’t get to. We will get to all of that next week.

Two weeks ago I featured the NewFunds TRACI ETF and came across this sentence, “The TRACI index measures the mark to market value of the income earned from rolling a 3-month money market deposit on a monthly basis.” I don’t know about you, but there’s very little of that makes sense to me. This week I try to get to grips with the whole money market concept. Turns out I had some serious misconceptions.

The NewFunds TRACI is one of the ETFs in our portfolios. Go check them out here.

Finally, I got this email from Jo Thies. It’s too long to feature in an episode, but I really enjoyed it and thought I’d share. I’ve shortened it, but you’ll get the gist.

“I’m pretty sure saving for retirement is really bad. First let me qualify this unpopular notion with a paragraph. Possibly more than one depending on how worked up I get.

First off having cash, investments etc when you choose to retire is really nice. But so is a cup of tea. And having more cash when you retire is obviously better than having less cash. But if you really want to retire and sit around… and…  while away your time before your foamy, gurgling death in hospice… you need a metric fuck tonne of cash when you die. Like literally.

Actually, wait… you want to retire? Basically this means you’ve fucked up your whole life. For realzies. They sold you the kool-aid. And you drank deep. You’re on step eight of your ten step life. Next stop… smelling like an old person and death. Some people like to imagine step nine is travel and boat cruises… but it’s not. It’s a weird musty smell and having suspicious-looking growths zapped off your wrinkly, sun damaged skin and pencilling funerals into your diary every weekend as your friends and family kick off.

Fuck me I can’t wait.

So, I have to save and invest FOR MY WHOLE ENTIRE LIFE in anticipation of this. So some motherfucker (and I don’t use this term lightly) who sold me an RA (when I was a total financial noob) gets commission for their rest of their lives. Whereafter they will hopefully burn for eternity. Let’s be honest, if somebody is going to burn I’d rather it be them….

Anyways. I don’t like to name names. I like to be Stealthy that way. But imagine someone who wants to retire when he’s 45. We have to start somewhere. So let’s start with science. Because science is awesome. And finance is just okay. We’re using out-dated models and concepts that were struck in the fifties. Expected life span. You see we all have just one lap. Let’s say it’s 400m, only halfway through the race someone has changed it to 800m.

My expected death is age 78, statistically speaking. I’ve just turned 38. It feels ancient. Some days I wonder how people who are 48 get out of bed in the morning without painkillers? Simon? Any tips?

Only, my life expectancy is probably not 78. It’s probably closer to 100. Mind you for the proletariat its still 78. But being a 1%’er I’ll probably be in a position to afford the miracles of science that are coming. The nano-machines. The new organs (with modifications). The rejuvenation clinics. The implants that tell me three days in advance that I’m going to have a heart attack (just enough time to pop down to Sandton clinic and have flawless robotic surgery and a flat white). My 10 month old daughter will likely live to be 120… maybe longer. And for her children death maybe something that only happens to the poor or unlucky people.

Imagine at 45 you’re gonna have live like… 60 years off your retirement funds. I’m making an assumption that you’re healthy. And don’t get shot in the face, which is an annoying possibility living in South Africa. Or get annihilated driving your scooter - if ever there was a life reducing way to spend your time.

That’s a long time. And investments are super fickle. I’m not even contemplating a post Trumpian dystopian future where we trade cigarettes and blowjobs for potatoes and spam.

My issue is about how we look at our lives. We get this corporate bullshit pumped down our throats as soon as we’re born. This is your life. Go to school. Get a degree. Get a job. Work 9 to 5. Buy a house you can’t afford. Buy a car you don’t need. Breed. Retire. Die. The more we educate ourselves, the more we learn, the more we realise there are other ways. (Which is why I love your show) Markets may crash. You may lose everything. But no-one can take away what's it your mind.)

Instead of retirement shouldn’t we be punting a concept of designing our lives better? At the moment the way we use our money doesn’t make sense. We kill ourself to hoard our money away for a period in our lives where we can’t really make full use of it anymore. It’s a terrible sliding scale. We can work harder, skimp more, save more, retire earlier. Or draw it out. Work longer into our lives… but then decreasing the time we have available to enjoy life.

Money (and by association our investments) should be the scaffolding we use to build our lives, not some weird fucked up end game.

To complain without offering a solution is to whine. I don’t want to whine. I’m not saying mine is the only solution. Or even a solution. But I’d love to have the conversation.

I don’t want to retire. Neither do I want work a 9 to 5 job for the rest of my life. But why are those our only two options? Fuck you social norms. Fuck owning a house. Fuck owning an expensive car (Sorry, Kristia… An Alpha? When you break it down, that’s just vanity. An Atos is totally functional.)*

Anyways. I’m trying to practice what I preach. I want income streams that can potentially last forever, and since I’ve procreated, potentially create legacy. Ideally I’d like a dividend income, a rental income and being an entrepreneur some sort of company income that doesn’t require my permanent presence, so I can do other stuff. Carpe diem. Or any other carp, really.

*Yes, Jo, but aren’t I entitled to my little pleasures?

Kris

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