I can’t think of anything better than learning about something that piques my curiosity. It’s an incredibly powerful antidote to boredom.
Learning is easiest in environments where beginner’s mind is encouraged, which is why I’ve always been a fan of learning in secret. When you start expecting answers instead of questions, you create an expectation of mastery. With that, humility and curiosity are lost. An expectation of mastery leads to fear and inevitable failure. Perfect, complete knowledge is a myth. Learning is a life’s work.
True understanding isn’t always a by-product of learning. When learning doesn’t stem from genuine curiosity, when asking questions isn’t encouraged, when the teacher is impatient, understanding gets lost, curiosity wanes, passion for the subject matter gets snuffed out.
More than sharing information, it’s my hope that this one-year-old show will provide a framework for asking questions. I hope, by listening to this show, you will be less afraid to speak up next time something isn’t completely clear. I hope you will never be afraid to ask the same question twice. I hope we are creating a hunger for true understanding, whatever the field.
For the last year, this show and its listeners have been a source of great pride and joy for the Just One Lap team. Thank you for listening to The Fat Wallet Show.
Kris
Back in the bad old cabinet reshuffle days, I made some money trading my tax-free savings account. In that account, I was invested in the DBXWD and CSP500. The cabinet reshuffle led to a nauseating drop in the rand. The currency drop, in turn, resulted in an elating increase in the value of my dollar-denominated investments. It was an emotionally confusing but financially lucrative time.
I’d been down this road before. Considering how little my investments have done for me, seeing some life in my offshore investments is basically the only thing giving me hope. This time, instead of just being a spectator, I cashed in on the currency move. While nothing of great significance happened in any of the markets I was invested in, I could take profit because of the currency move. How does this work?
In this episode of The Fat Wallet Show, Simon and I discuss the impact of currency moves on offshore ETFs. There are two elements to keep in mind - the market you’re tracking and the currency in which your ETF is denominated.
Our feedback this week is all about tax. There must be something in the water. We clear up some confusion around capital gains tax from the previous episode. The penny finally drops for me. I’m going to write it down here just to be 100% sure I have it.
Each person gets a R40 000 tax-free capital gains allocation per year. 40% of any profit over R40 000 gets taxed at your marginal rate. In that way, capital gains is affected and does affect your income tax.
I had this all wrong. I thought you paid 40% on any profit over R40 000. Nope, nope, nope.
We are on an unusual recording schedule, but we will get to your questions and feedback eventually. Get in touch with Team Just One Lap at ask@justonelap.com.
P.S. The Fat Wallet turns one in the next episode!
Aside from low cost and simplicity, ETFs are appealing because diversification is built in. When you invest in the 40 biggest South African companies, you invest in different sectors and different regions. You even get a degree of asset diversification in the form of property stocks.
Last week, Stealthy Wealth asked me about my diversification strategy in this interview. Because I’m an ETF investor with a very long investment horizon, diversification is not high on my list of priorities. The question did make me wonder how I will diversify once I approach retirement.
When I think about diversification, I always consider three things: asset class, region and sector. My knee-jerk reaction to Stealthy’s question was that I want no more than 25% exposure in my portfolio to any of these things. By that logic, if the stock market crashes, I’ll have 75% of my portfolio comfortably sitting in property, bonds and cash. Hopefully those assets will see me through the crash and sustain me until my equity portfolio recovers.
There are, of course, mathematical formulas to determine the optimal degree of diversification, but because I’m nowhere near a mathematician, I couldn’t use them. I couldn’t even read them. In this episode I speak to Simon about the right degree of diversification. I look at 10X’s approach to the issue within my retirement annuity (RA). I question Simon’s 100 minus your age rule of thumb.
This week we cover the topic before we get to the feedback. Let us know how you like it.
In the podcast I mention a calculator that Stealthy Wealth developed to determine whether interest or dividends would be more tax efficient. Access that here.
Please continue to submit your money questions to ask@justonelap.com. We’ll do our best to help you find the answers.
About a year ago, Simon and I had lunch. I was about to go on holiday and there may have been some wine. During the course of the conversation Simon mentioned something about Sygnia and the price-earnings ratio. I didn’t really have any idea what he was talking about, so I made a note to turn it into a Fat Wallet episode. Since that lovely encounter, we’ve had so many Fat Wallet questions that just always seemed more pressing.
I regret not getting to this sooner, because it turned out to be super interesting. The price-earnings ratio is a way to work out how many years it will take to make your money back when you buy a share. That, along with a company’s net asset value (NAV) and cash flow can help you work out whether a share is cheap or expensive.
This is one of those episodes where you can practically hear the gears grinding. Hopefully you got the “A-ha!” moment too.