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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: 2018
Dec 16, 2018

That’s a wrap, folks! 2018 had a lot to teach us and none of it pleasant. In this episode Simon and I talk about some of the assumptions we have to challenge after this year. Mine borders on cynical: doing things by the book doesn’t always get you ahead. Nothing like buying a house to bring that idea home (if you’ll pardon the pun).

At least we had an excellent time putting together The Fat Wallet Show. We can’t thank you enough for your support.

Happy holidays!

Here’s a link to Herman’s algorithm findings.


Pierre also made a spreadsheet.

I listen to the Fat Wallet Show every week and noted that some people ask the question to go direct investment or retirement annuity.  (I know TFSA account is always first to max out)

Earlier this year I did a quick calc as I was wondering this also.  You can play around with the assumptions in the yellow cells as the answer will be different for everyone, but it should usually come to that direct investments are more favourable at the start and then later on you would want to switch to RA. Download the spreadsheet here.


First Adam has a private banker.

I'm with Absa and have had a private banker for a few years now.

With the private banker comes the private facility which is now R515 per month (2019 fees). I have a Private One facility - so my all-in-one account.

This credit facility - which is only available to legacy holders - has done me well, since I bought my previous house with it, and now have bought into a second one too (after paying off the first one).

The private banker has been useful for the "odds and ends" and has indulged many basic requests (which I could do myself, but hey - she's there).

Is it worth it - no, however the credit facility IS. The interest rate is very favourable so it's worth the R515 for the time being.

Also, there's Absa Rewards.

I still maintain it’s one of the best loyalty programs. You get cash back on all credit card purchases. The higher tiers have cash back on groceries from all major retailers where you can get back 6% - 20% on the upper Tiers. You need to jump through some hoops, but they are pretty reasonable (pay your salary into an Absa account, debit orders here, odd saving account there).


Siphathisile is investing for her retired mom.

I have about R300K that I want to invest short-term for my mother who is over 60.

Do you think putting it in Capitec at about 7.5% interest in a fixed deposit account is decent? I could keep getting the interest then fix it for another year etc.

I also came across FedBond, which is a participation bond offered by FedGroup at about 12% interest over 5 years with no fees. And what are participation bonds? I was drawn to this because I can get my interest monthly(I think) as i wait.


Conrad has many irons in the fire. He wants to know how to proceed.

After many years of listening to various people I did various things and I'm more frustrated than ever before.

He has a budget, investments in three good ETFs (RAFI 40, MSCI Emerging Markets, Ashburton Investment Global 1200), Steinhoff and Sacoil (respectively down 84% and 78% since he bought) and dread and disability insurance.

He doesn’t have an emergency fund or a TFSA.

Listen to the podcasts on structuring your pay cheque about these.

Do I sell all shares and investments clear debt and have an emergency fund?

Do I stop with all investments and use my contributions towards debt and Emergency.

I think Emergency must be top priority and the Tax Free.

Actually I would go the other way around. My emergency fund is in a constant state of flux. You don’t need to have it fully funded and sitting there.


Pat

In the spirit of the fat wallet show, what does it mean when you say "the conditions of sale"? All the things you agreed he would fix if anything went wrong with the property in a certain period?

Find the Inspect-a-Home article I mentioned here.


Dec 9, 2018

In finance, more options are always better. The more competition there is, the lower prices tend to go. With three new banks entering the market, we are sure to see banking costs come down. Is that reason enough to change banks?

In this episode of The Fat Wallet Show, we consider when it’s a good idea to change banks and when it’s best to just stay put. We also spend some time talking about reward-driven costing.


Rakhee

I'm in the process of optimising costs.

What bank do you suggest for daily transaction accounts i.e. savings/current account and credit card? Of course reliability, security and convenience are important factors here too.

For my emergency fund I have a Money Market Fund that yields 7.8% currently. Can I do any better?


Hugo

  • What's your take on all the new banks in South Africa (Tyme, Discovery, Bank Zero)
  • How do we trust them compared to the "Big 4"?
  • How do we know they not another VBS?
  • How safe would our money be?

Win of the week is Julien. He had the following to say about tax and RAs.

I believe the idea that "you don't pay tax now but you pay later" is misleading.

Yes you will pay some tax, but in all likelihood you will pay much much less tax during retirement:

1) R500,000 of your retirement lump sum is tax free.

2) If you are 65 or older, the tax threshold increases from R75,750 to R117,300.

3) If you keep your standards of living the same, you will never need to draw your full gross income, because you won't be contributing to your RA anymore. You don't need to contribute to any other forms of investment/savings either.

If you can save 35% of your net income now, in retirement your taxable income will be reduced by at least 35%.

4) The taxes you save before retirement come from your top tax brackets but the taxes that you pay after retirement are calculated from your bottom tax brackets.

For example, if you earn R700,000 per year, your marginal rate is 39%. If you contribute R100,000 to your RA, you will save 39% of this amount: R39,000.

If you retire at 55 and take R100,000 out of your living annuity, you will pay 0 tax on the first R75,750 and 18% tax on the last R24,250. This adds up to R4,365  - far less than the R39,000 you saved.

5) Not all of your post-retirement income needs to come from your RA. You can take advantage of your TFSA and the R40,000 exemption on capital gain to further reduce how much you need to take out of your living annuity.

6) As mentioned during the podcast, your cost of living can be lower during retirement if you have paid off your house, car, etc.

7) Let's not forget than money now is better than money tomorrow. You can invest your tax rebate and even if you need to pay some of it back, you get to keep the growth :)

With a bit of planning you can pay way less tax after retirement compared to how much you get to save before. But most importantly, even without planning, using an RA is already very tax efficient.


Leigh got divorced recently and wants to figure out how to move forward financially.

With my divorce settlement I bought a one bedroom apartment in Paarl. I also have an apartment in a resort that we used in the summer holidays when we lived abroad. It is rented out by the resort. I own half my home. All these properties are paid for, the one in Paarl will be completed in June.

The Paarl property was R610,000 and the predicted rental is R6,400.00 per month.

I don’t work at the moment and I figured that at least I will have an income which I could put into my money market account as savings.

Is there a better way to use my money? I need to get myself financially sorted very quickly.


Tee has two RAs. She went to an advisor who put her in an Investec RA. She didn’t like that advisor and got another advisor through a family member who put her into an Echo Bonus RA with Sanlam.

I would like to only have one RA and after listening to you guys on the show, I would like to remove the financial advisor from the equation if at all possible.

Would you recommend moving the one to the other or move both to a 10x account or something like? I am still in the process of doing some research regarding the fees and benefits of the RAs, but just wanted to ask your opinions and expertise on the matter.

I am still paying off a student loan and a car loan. And I am in the process of looking at my finances and budget so that I can start with an Emergency fund and then later on start investing. I am already 28 years old so any help at this point will be much appreciated.


Frikkie has a question about blueberry tax.

I didn’t follow your advice and invested in Blueberries, Honey & Solar Farming. How does the taxes work on these Investments?  Will it be taxed like Farming or Investing?

Investing in farming usually allow upfront deductions.


The market is getting Warren down.

In October 2015 I resigned after a decade at the same organisation and transferred my sizeable provident fund into a preservation fund. The fund turned out to be far too conservative, so earlier this year I transferred it to 10X High Equity provident fund.

It's now over three years later and not taking currency or inflation into account I am down R2,000 from where I started. I know this is long term view but if it can do so shit in three years, it could do even worse in 30 years. It would've actually been better under my mattress and far better in a bank account... I'd rather make around 8% then a loss. Anyone else feel like they've been royally f*cked?



 

Dec 2, 2018

 

Save Squack's life!

While the term “tax-free savings account” makes it seem like it’s a savings product, you shouldn’t think of them as savings accounts at all. There’s nothing to be done about the confusing name, but this week we explain why we shouldn’t use them to save cash.

If you are under 65, the first R23,800 you earn in interest every year is exempt from tax. This is one of those little SARS gifts we really love. If your bank or savings vehicle offers you 6.75% in interest every year, you need R352,592 in cash before you start paying tax on your interest.

Since you’re limited to a R33,000 tax-free contribution every year, it will take 10 years’ worth of contributions before you become liable for tax on the interest.

In the case of share investments, you are liable for tax from the very first day. If you buy an ETF today and sell it tomorrow, you’ll have to pay tax on any profit you make right away - either in the form of income tax or capital gains. You also pay dividend withholding tax of 20% right from the first dividend.

In your lifetime your share investments will cost a lot more in tax than cash savings.



Richard

I’m 24 and maxing out my tax free savings account with FNB for the past two years.

I’m earning 6.75% interest

After listening to the podcast it seems like you guys favour tax free investment into an ETF where dividends are reinvested tax free.

What are the main advantages of tax free investing vs saving and would you recommend moving my current account into an investing platform?

I currently have an EasyEquities account, where I have my taxable investments.


Win of the week is Adam the actuary.

I've been listening since the start of the Fat Wallet Show when I was just a second year at university and now I am graduating from my actuarial sciences honours degree. This is in part to you guys.

  1. Thank you for helping me get my degree. Your simple explanations of financial concepts have helped me in a couple of courses and tests (why can’t you guys write textbooks??)
  2. Thank you for educating me. With your help, I have managed to support myself through university while building an emergency fund that has saved my ass in a couple of occasions!  
  3. Thank you for giving me confidence to stand up to my family to tell them that I am not going to be buying an apartment and that I am not getting myself into debt right out of university to buy a new car (I'm going to be driving my current one until I have to push it).
  4. Thank you for giving me a conscience. Your weekly chats about financial literacy and companies scamming their clients with unnecessary jargon and excessive fees have made me want to change the way insurance products are structured and made (Down with fees and nonsense).

You have provided me the knowledge to wrestle control over my finances; knowledge that I never got from my parents. You have created a money conscious 22 year old that is ready to go into the working world and use your teachings.

P.S. not all actuaries are boring


Stefan

I have a TFSA, a till death do us part ETF account, Till death do us part Share account, a share trading account and a derivative trading account.

The company I work for does not offer any company benefits with regards to retirement investing.

I was always under the impression that the only way you got a tax benefit for these is if it was part of your employment package and deducted from your income.

From recent shows it sounds like If I got a retirement annuity on my own I would still get a tax break.

Should I get something like this or just keep adding to the DIY account mentioned at the start of this mail?

How do I get the tax break if there is one and which products do you recommend?

Tax is the one area in my life that I am failing miserably in  and am pretty sure I am giving away a lot of free money due to my lack of knowledge.

Herman wrote an algorithm to work out the tipping point where the tax you pay in retirement would be more than the tax you save contributing towards your retirement. He will write an article on his findings for justonelap.com in the next few months.


Jan-Johan

I'm considering making some of my monthly contributions into global property.

I already have exposure in the local property market through the Proptrax 10 and Stanlib SA Property ETFs. My main reason for investing into property ETFs is the attractive yields.

If Bloomberg is to be believed each global ETFs offer the following gross yields: Coreshares - 4.02%; Sygnia - 1.19%; Stanlib - 6.09%. Based on this, and after reviewing the costs of each ETF, I'm more inclined toward the Stanlib ETF.

If I recall correctly you are invested in the Coreshares S&P Global property, is there anything specific than influenced your decision? I would really appreciate your input on my considerations.


Gert made Kay a tax calculator.

I was listening to your FWS #124 – Should we care about the bear?

Kay asked the question about what percentage should be put aside for personal income tax. I’m hoping she will find the graph below useful:

There seems to be a misconception that SARS’ income tax brackets are like treads on a stair and that R1.00 above a certain threshold would put you in a different tax “bracket” altogether to be taxed at a much higher rate. I’m no tax expert (yes, I’m a civil engineer), but if we use these tax tables published by SARS:

… and calculate the tax liability as a percentage, the graph would look like this:

The two lines are for persons under and over 65 years of age.

It’s not 100% accurate, I know, but it’s good enough for Kay to estimate her tax.

  1. The idea is to find your yearly taxable income (gross income, less allowable expenses) on the vertical (Y) axis. Assume you earn a taxable income of R 25,000.00 per month x 12 = R 300,000.00 per year, like you said in the show
  2. Find R 300,000.00 on the vertical axis and follow the line horizontally until you meet the curve for persons under 65 (black line)
  3. From that intersect, follow the vertical line down to find your effective tax rate. You might need a ruler for this.
  4. Your effective tax rate would be 16%.

Using the formula would give you an answer of R 62,332.00, or 16,09%. Close enough for a solution not requiring a calculator.

  1. You can see the difference in tax between those in retirement (over 65) and those still to retire. Now you can put a value to the phrase “lower tax bracket in retirement”. From the example above, a person over 65 would be taxed at a marginal rate of 13.52% as opposed to 16.09%. For the same income, a person over 65 would be paying ± R 7,700.00 (or ±16%) per year less than a person under 65.
  2. There is a third category, those over 75, but the graph becomes too complicated, so I left it out.
  3. There is not really a different tax “bracket” or table for the each of the age groups. SARS allows you a “primary”, “secondary” and “tertiary” rebate, depending on your age (<65, 65-75 and 75+), which is deducted from the tax liability after applying the formula
  4. I was surprised to learn that a person earning R 100,000.00 per year would pay R 3,933.00 in tax, or 3.93%, even though the tax table reads 18% of income up to ±R 200,000.00. This is because the primary rebate allowed by SARS is R 14,067.00. The calc would be R 100,000.00 x 18% = R 18,000.00. Less the primary rebate of R 14,067.00 = R 3,933.00.
  5. This is why people earning less than R 78,150.00 (the Tax Threshold) pay no tax. R 78,150.00 x 18% = R 14,067.00. Less the primary rebate of R 14,067.00 = no tax. Of course, if the formula results in a negative answer, SARS does not give you anything back.
  6. The secondary rebate for those 65-75 is R 21,780.00. The tertiary rebate (>75) is R 24,354.00
  7. It’s evident from the graph that our personal income tax is not really divided into “brackets” like “steps”, but a smooth curve with a gradually increasing slope. There is a “kink” in the graph at the R 195,850.00 mark where the 26% tier kicks in, but it is not nearly as pronounced as I thought it would be.
  8. It’s also a misconception that those earning over R 1,500,000.00 pays tax at a rate of 45%. True, the formula reads 45%, BUT the 45% only applies to the income EXCEEDING R 1,500,000.00. Do the calc and you’ll see a person earning R 1,800,00.00 after deductions, pays an effective rate of 36% or so.

Or you could just write a “black box” Excel formula or use an online calculator to spit out an answer: SA income tax calculator


Brian

What should one do when newer and better ETF products become available, particularly within the TFSA space? This is assuming that one's investing methodology hasn't changed.

Surely one would have to keep up to date with new products as they become available? Even a 0.1% reduction can make a difference over time.  

For example, when I started listening to your podcast, I started splitting my monthly allowance between Satrix40, Satrix World, and Satrix Emerging Markets. Now that the Ashburton 1200 ETF has arrived which seems to bundle the World and EM into one, what do you suggest?

Do I:

  • Stop contributing to the others and start to the Ashburton?
  • Sell the Satrix EM and World and put into Ashburton?
  • Continue my allocations as before?

Quinton

When you get closer to retirement I presume one moves the funds out of the investments and into something less aggressive.

Even if my Ahsburton 1200 had an annualised return of 15%, but the day before retirement the ZAR strengthens from R14 to the USD to say R7 to the USD, my portfolio takes a 50% knock.

My investment portfolio could be worth less than the investments I have been making.

I’ve done everything right, the portfolio has done excellent, its diversified, but the conversion rate has screwed me on 99 or am I missing something here?

How long before you retire do you evaluate the market and decide to move it to a safer investment?


Ryan

I have group death and disability insurance with my employer.

The disability benefit pays out 75% of your pensionable salary.

The only debt I have is my bond.

I worked hard in the last year to pay everything else off and I’m currently paying 80% more than the required amount into the bond.

I have no kids or other dependents, and no plans to have any.  

My wife brings in 22% of the household income and works from home, so she should be fine in the event of my death if she uses the life insurance payout of my employer to settle the bond and invests the rest in her TFSA account or RA.

Seeing that I am not going to leave my employer in the foreseeable future, am I wasting money by paying for Life, disability, income continuation (almost a quarter of what I currently earn) and severe illness cover from Discovery.

I hate how complicated they make their policies, and I am looking to cancel or move to a simpler product.  Any savings resulting from this change going into the bond.


Ian

I have a TFSA with Old Mutual & I want to move it now of course, obvious reasons.

I registered with EasyEquities and now I have to choose an ETF. I am a very passive investor. I want to choose an ETF & never change from option again. I just want to make my contributions & 15 years later want to see my millions……lol.

Can you please assist me in choosing a TFSA ETF that gives me good exposure to all markets & maximum returns in the long run, also paying dividends (will re-invest) & no surprise headaches. My wife also wants to open an account & wants to invest in same ETF that I choose.

Here are the things you should consider:

  • Asset class - equity vs property vs bonds/cash
  • Regional exposure
  • Sectors
  • Companies
  • Methodology - smart beta vs market cap weighted

Carl

I am considering moving my "young" portfolio from Old Mutual to EasyEquities due to cost.

I am looking through the cost profile of EasyEquities and saw that they charge a 1% additional transaction fee for recurring investments through debit orders.

If this is the case, is it not better to manually buy the share or ETF manually each month?

I had a look at the cost structure on the EE platform and the only debit order fee I could find was R0. http://resources.easyequities.co.za/EasyEquities_CostProfile.pdf


Dario

The idea is to have 50% weighting in property ETFs and 50% in "growth" ETF's.

I’ll sell the growth ETFs when i'm close to retirement and have 100% in property ETFs for the dividend payouts.

I have a pension so I see my TFSA as an investing side hustle.

I want my property ETFs to be local because paying tax on foreign dividends seems to be counter intuitive for a tax free account. I want my growth ETFs to be well-diversified and to not pay dividends…

my thinking is that if the payout is dripped backed into the ETF then we save on some tax?

My "growth" stocks are:

- CoreShares Global DivTrax ETF

- SYGNIA ITRIX MSCI US (because 'MERICA!)

I believe in my strategy...but not quite sold on the ETFs I've selected.

I don't want to reshuffle my TFSA but luckily I'm still in the infancy of my investing career so if there were a time...it would be now.


Colin

I am looking at an S&P 500 fund to my TFSA, however, I am unsure which manager I should go with.

I know he deciding factor should be based on costs, however, I just need clarity if the TER is what your decision should be based on

If they quote a management fee under the TER, must this cost also be factored in?

Also, should factors like distribution frequency be considered (Satrix does not distribute, Coreshare & Sygnia distribute semi-annually),  different weightings in the various sectors and ETF size be taken into account when selecting the fund?

Nov 18, 2018

Kristia is on holiday, so we're rebroadcasting this very important show from May 2017 - the five concepts to make you rich.

No show next week.

======

My biggest frustration in learning about the financial world is the expectation that I should understand concepts that nobody ever explained to me. A part of the reason why I got into so much debt is because I didn’t fully understand how interest applied to my financial situation. The other part of the reason is stupidity.



The Fat Wallet Show is my attempt to level the playing field. Not only am I declaring, out and proud, that I don’t know everything. I’m also taking back the most important weapon against ignorance – the humble question.

Because this show started out as my personal attempt to find answers, we started with concepts that I didn’t understand. In the process, we never covered things that I did understand. A lot of the questions I have about the financial world these days don’t have much to do with my personal finances. The interbank lending rate, for example, is not something that has an impact on my ability to make choices about my finances. Interest, on the other hand, is a core concept that informs almost all of my financial choices.

There are, in my opinion, only five concepts you need to fully understand to take control of your money. In this podcast, Simon and I discuss those concepts and how they affect your finances.

If we didn’t explain some of the concepts in a way that is easy for you to understand, find someone who can. These concepts might be the catalyst that launches a journey of financial curiosity. If not, they are enough to get you to retirement in one piece.

Kris

Nov 11, 2018

Sorting out money between partners can be fraught, but it's a walk in the park compared to parents and siblings. We spend our formative years trying to secure the love and acceptance of the very people who we now have to say "no" to, which is why we are Money Enemy Number One.

Your best chance at success is substituting emotions for numbers. If you are the person your family looks to for financial support (and you have no moral objections to helping out), the first number you should care about is what you can afford. This doesn't mean how much you have left over, but how much you are willing to give. You also have the option of paying directly for fixed expenses and letting them figure out the rest. Alternatively you can offer a cash amount, walk away and fight every urge in your body to give more if they run out.

You don't have to say no to your family if you don't want to, but you are allowed to have boundaries. If all else fails, ask yourself what you would do if your kid made the same request.

Devon’s mom told him he’ll have to take care of her his whole life. After paying off her debts, renovating her home and countless budget discussions, he's losing hope.

I have had endless budget sit downs and fiscal meetings with my mother to try reign in her expenses, but after a few months the old habits come back.

She’s very good at convincing herself whatever she buys is absolutely necessary.

I listened to your podcast about talking to your partner, but I find having a talk with my mother far more difficult and emotional.

Her house is paid off (just levy, water, electricity, medical aid and living expenses are needed) but she spends over R10,000 on groceries on just her and my sister at home plus clothes and other non-essentials, plus having a domestic worker twice a week and a gardener for a small garden and a pack of 5 dogs which obviously need to be fed (I tried everything to stop her at just having 3 max).

How would you suggest approaching this firmly enough that it actually does stick with her and leads her to actually taking action to cut expenses?

In essence how do you get this message across to someone doing their utmost to stay dependent on others to avoid the responsibility of their own financial position.

I feel like I have tried absolutely everything and have spent so much energy and effort that I am at my breaking point.

Emile

Market commentators will say they would only buy a stock at a particular price level. For example, stock A is expensive at R100 but fair value at R80. Is this merely a reflection of the rand value of the P/E at different levels i.e. R100=P/E of 20 and R80=P/E of 16?


 


Wim

Taxpayers get a R23k interest deduction. Wouldn't it be better to first max out this benefit, before going to TFSAs, because it’s already tax free!

What is TFSAs offer the best returns? Can I expect more than e.g. a 32 day notice deposit or a 24 month fixed deposit somewhere? As far as I remember, the TFSAs have a lot of red-tape w.r.t. what to invest in and how much risk these funds may take on. Will this not mean lower returns?


 


Marina’s twin sister introduced her to the show. She has a question about ETFs.

Stealthy mentioned that the smart beta indices try to outperform the market and rarely do so, and that is why he sticks with vanilla indices.

She also read a Moneyweb article about the SPIVA report.

Some are of the opinion that active funds rarely outperform the market but passive trackers can? What is your opinion on the matter? If active funds with competitive fees were to become available in the future, would you buy them?

Lars Kroijer Investing Demystified series: https://www.youtube.com/playlist?list=PLXy71rkGuCjXLg9N8zowwUpXCYfBcMJFK


Frank sent a link to a podcast called How It Began, where they discuss the stock market after episode 123. https://itunes.apple.com/za/podcast/how-it-began-a-history-of-the-modern-world/id1221558103?mt=2&i=1000389611474


Mpilo wants to know what listed property is. They also want to know what a mutual property fund is.


Psychedelic Nerd wants to double-check that they understand CGT:

If I invested R5,000,000 into the market, and now it is worth R10,000,000 . I decide to withdraw R400,000 (i.e. a 4% drawdown rate) to live on for the year. Half of this (R200,000) is capital gains. So, after the R40,000 CGT allowance, I am due to pay CGT on 40% of R160,000, which is R64,000. I have the 2018 income tax free allowance of R75,750, which leaves me with no taxable income! So I keep the full R400,000.

In this scenario, the CGT mentioned here is the only income for the year.

Does this scenario sound right to you or am I getting some steps wrong?

(If this is correct, over time I guess it will change as the percentage of the annual drawdown that is capital gains will probably become higher.)

They also want to know what I mean by “cash” savings and if it’s a good idea to have an emergency fund in a money market account.


Ivan made Kay a spreadsheet to calculate her tax liability in a year.

Download the tax calculator here


Kiril has a hella fancy car. He wants to know if he should speed up his repayments.

I currently have an emergency fund, maxed out my TFSA for the year, contribute to a provident fund through work, and have zero debt except my fancy car.

Whether owning a fancy car is a good idea is not part of this question. My designated installment is R7600, which I've upped to R8000. Should I increase this to R8600, and put in some sizeable lumps sums, eg. My tax refund?

My interest rate is 10.5%, but Tito's jitters indicate this might rise in the coming year. Please, I'd really appreciate your advice.


Promise wants to know who we prefer for TFSAs.


Pierre

If I sell out of a fund and incur a 360k capital gain which I will be taxed on, can I invest 360k straight into an RA and thus pay no CGT?

No - but you can contribute 27.5% of your profit to your RA for the tax break.

First point RISK = REWARD, pretty basic if you take more risk your return can be higher (or lower), take a small risk and you make a small return.

Bonds have a very little risk so you get a small return BUT you are very sure you don't lose your investment. This is called the investment risk pyramid.

Cash (no risk)

Money on deposit in a bank which as a guarantee if a bank goes bust

Bonds (low risk)

1)US treasury bonds

2)Developed markets

3)Emerging Markets

Within each of these 3 sectors you get municipal and corporate debt too

ETFs / Unit trust (medium risk)

The more diversified the ETF/fund lower your risk should be, ie if you buy an ETF with only 30 shares and they are all banks it is less risky than buying one bank share but riskier than buying an ETF with 1200 shares in it across many sectors.

Shares

Within the share universe you get more and less "volatile" shares. Volatility means how a share price moves day to day around its average price over time in laymen terms. So a stock that is speculative like saying your Blue Label group moves in massive swings, something like a property stock which is run by a well managed reputable outfit which owns shopping centres and hard assets and receives their rental income from these properties every month will have a stable income and below volatility. Worst comes to worst the assets (buildings) are sold on their own and the shareholders in the stock can get their cash back. The assets are easy to value.

Stocks are theoretically priced by their earnings, how much we are willing to pay for those earnings is called the price-earnings ratio, higher PE the more willing people are to pay for its earnings. Sometimes stock prices make very little sense. Example - Tesla, we all love Elon Musk, he is trying to change the world, he has very big ideas, he has shown potential BUT his company is not making that much money yet. People believe his dream and keep buying Tesla shares thus it has a very high PE. Very low earnings and high PE. Every sector has its own go to PE. Banks in SA generally below 12.

Leverage / Speculative Funds/Small business/Bitcoin

Risky stuff, could lose everything or double your money, need a lot of research and gut feel to know what's what. Not for the amateurs, no matter how good the tip was your buddy gave you or you ever heard at the gym.

Ok so that how risk is priced in instruments next layer of risk is the country risk, it is generally expected that:

  • US least risky (now)
  • Developed markets (UK, Japan, Germany etc)
  • Emerging markets (South Africa, Turkey, Russia etc)
  • Junk Markets (Zim, Venezuela etc)

Each of these countries has their own risk profile and within each you can buy a bond (least risky for that country) or you can buy a share (risky for that country) .

If you buy a bond in say South Africa you might expect the same return as a medium risky share in a big developed market. Theoretically speaking, my idea to get the concept across. The risk is everything, the risk is priced in return, for a stock that return is measured in its earnings for a bond/cash in its return.

So back to your story, why did my ETFs in SA do nothing but when the market fell I still fell along with it, should I have been hedged through my diversification?

There are 2 parts to the answer.

1) Naspers makes up roughly a quarter of our Top40, Naspers is basically a company holding a share called Tencent, Tencent is basically the google plus facebook of China. It's gone up in a straight line for last 5 years. Dragging our TOP40 with it. If you take out Naspers/Tencent our markets has done sub9% maybe less... Why is that you might ask, unemployment, bad ANC policies, international investment firms selling South Africa as a brand, the land appropriation bill is a massive massive issue, firstly our banks are being sold off more intensely than I have ever seen in my 15 year career, you can get a big 4 bank stock now at a PE of 8 (side note at this rate it will be more tax efficient to buy a bank stock and get a better dividend yield on your money than the bank can offer you on the interest rate and the div yield is tax free!!). Banks own the bonds on the properties the ANC want to appropriate thus banks go to zero, the market has decided to rerate the risk on banks and the price went down, more risk bigger move in this case down.  

Tech stocks have rerated after an incredible run the last few years, Tencent halved and with that the price of Naspers and thus the TOP40 or JSE and your ETFs. Buying the Top40 or DTOP is not a good diversification. I'll say that again, buying the TOP40 is not a good diversification.

2) The second part to the answer is more interesting, think of all the capital in the world flowing around like water freely. When there is a lot of capital it sloshes around the world, builds up at the riskiest places and even forms bubbles, think bitcoin.

When is capital cheap? When interest rates are low, because anyone can borrow a lot and do with all that money what they want to. When was capital cheap, since the 08 crash, the Fed and other central banks took interest rates to ZERO percent, all that cash has been sloshing around the world and found new homes in the riskier assets and countries like you know who SOUTH AFRICA. For the last year or so the Fed has been slowly increasing its lending rate to try and normalize markets (or their market among things). The effect is like a giant sponge in America sucking up all the excess money they were out there in riskier assets. Starting at the riskiest and going down the pyramid to the least risky. So in our case, we are an emerging market check, we have are buyers of an ETF that's listed over equity check, we have bad economic policies check, there is talk of taking away peoples assets which banks have bonds overcheck. And there you are, your ETFs have rerated in risk to the new reality.

I don't want to make you feel worse but that return you lose you have is in Rands, as we discussed above, a South African Rand bank account is riskier than a USA bank account, thus the rand is also being sold and more people are buying dollars. (if you can earn 3% risk-free in the US why buy an SA bank account and only make say 6% with all our inherent risk too).

I have been a holder of 4 "hedge" funds over around 10 years. Over a decade plus they have been the standouts and I managed to get in quite early and trusted each of those outfits as I work in the industry and am well aware of what they do. That being said, you pay through your ears for this good return these guys get, there are also down times.

I decided at the beginning of the year to start liquidating investments in these funds down to 25% and buying ETFs listed on the JSE but in foreign exchange and international markets. I like and have moved into Ashburton world bond index in USD, NASDAQ listed by Satrx, GLODIV dividend aristocrats international, SYG500 SP 500. All of these ETFs hedge me against any South African and Rand risk.

My thinking is, I live in South Africa, I own my house in South Africa, I earn Rands in South Africa. South Africa is a tiny country on the tip of Africa, do you think if you approached someone in Japan or America and tell them you think it is a good diversification to buy TOP40 index ETF in a tiny country on the South tip of Africa. No ways! Buying SA listed ETFs like TOP40 ect is not being diversified, you are actually taking on a lot of risks, we now have the freedom and products to buy cheap, international ETFs on the JSE which gets you out of local currency, buy them and buy as many as you can.


I wrote about how I plan to approach the maintenance to my new house in last week’s newsletter. I said I’ll probably under-budget. Dave had a great point about that.

Your new project/s made me think of one of my favourite Project Management lecture points - don't stress the accuracy, stress the completeness.  If you budget R100 and it runs to R110 you are 10% out, but if you don't even put the item in the budget then you are in trouble.


Quinton wants to run his ETF strategy past us. These are ETFs he’s buying in addition to his RA and TFSA.

I don’t want to be to active as an investor, I’d like to select shares, then contribute monthly from now until retirement.

He’s looking at Satrix Top 40, Satrix S&P500 and the Ashburton Global 1200

My idea is to buy each monthly.

I am a minimalist and like keeping things simple, but also don't want to invest in the wrong portfolios, or be too diversified.

If you think this is a good strategy, would you invest equal amounts into each or spread it more offshore (E.g. Satrix S&P500 and Ashburton 1200 = say 80%) and Satrix top 40 = 20%?

I have received dividends in my TFSA account now, and was thinking on using those dividends to apply the same logic.

What are your thoughts on the Satrix Emerging Markets, Nasdaq 100, or MSCI World index. Should one be considering any of these?

Nov 4, 2018

I had barely landed my first job when I bought a car. I had no deposit, no idea how interest worked and did whatever it took to get wheels. Thankfully my mother had recently bought a car exactly like mine. I assumed that I couldn’t afford anything bigger. In retrospect I probably could have gotten away with a much fancier car. Thank goodness for my own stupidity.

I agreed to pay a fixed interest rate of 16.01%, paid the bare minimum instalment the entire time and ended up paying R138,527.46 for a car with a sticker price of R66,578.95. I also realised early on that I couldn’t really afford services and tyres.

Thankfully I’ve learned a thing or two about money in the eleven years since I bought the car, which is why I still drive it.

Terence almost fell into a car trap, but then came to his senses.

Last year my double cab bakkie was stolen and after a few months, I replaced with a shiny new Ford Ranger.

The insurance payout was only ¼ of the price of a new car. I got caught up in the hype, bells and whistles of a new car and proceeded to buy one of the high-end models.

After a year, the first license renewal came and I went off to the Post Office to renew it. When they gave me the amount, I had to leave and draw more money, because the license was R1200.

I was mortified and went home a different person.

I calculated how much EXTRA this car is costing per month than if I bought a small second-hand car for R120,000

Interest Lost: R1,700 (R300k in a 32 notice account at 6.7% interest)

Extra on Insurance R800

Extra on Fuel R400

Extra on Licensing R 40

That’s R 2940 p/m or R 35 280 p/a.

95% of the time I was in the car alone, so it made no sense at all to drive a car with 4-5 seats.

I must’ve used the bells, whistles and ‘Voice commands’ 3 or 4 times, after that it was just a car.

That was when I made the decision to sell the car. I’ve taken a hell of a financial knock.

I’m now looking for a second hand two-seater bakkie to do my DIY projects. It would do the job just fine at a fraction of the cost.

Having this BIG expensive bakkie wasn’t practical anymore because of the pressure experienced from three directions :

  1. Maintaining an expensive car. I think parts are priced at the “balancing point” where it’s extremely expensive but not enough to justify replacing the car.
  2. The government will charge more for fees, tax and fuels costs get you too.
  3. Thieves are out there to steal the expensive cars (mostly), because of the high resale value of the parts.

A friend also decided to trade his car for a double cab because they went on a road trip and the car was a bit small for all the holiday goodies. That only makes sense if you go on holiday for 6 weeks or more a year.

If I hired a car for 10 days with Thrifty car hire it would cost between R4,900 and R7,700 depending on the car I got.

The most expensive option is about 22% of the savings per annum and the R27 580 saved for the year could then be Invested.

I think hiring would be more fun, because I can choose a different car every time. This is only for self-drive holidays, because when you’re flying somewhere, you have to hire a car anyway.

What would be the approximate financial gain in 10 years compared to the devaluation of the a car?

I've made the mistake and taken a knock for it, so if anyone could benefit from this by thinking it through, running the numbers and making the right decision. Then my financial stupidity (loss) will not be in vain.



Matome is our winner. He took two years to sort out his finances, mailed an accountant for an answer (which he didn’t get), took two days to draft an email to us, found the answer and then sent us another email. Even though he found his answer and he’s now on the right track, I thought we could discuss his original question. He wanted to use his tax rebate to fund his TFSA, like I do.

Are there different benefits (tax refunds) for the different savings vehicles like a pension fund VS a retirement annuity.

He later discovered that his tax return doesn’t reflect his current pension contributions, because I enjoy the tax relief on a monthly basis. I’d recommend he finds out what that tax relief impact is and save that amount.


Ben 

I wanted to know what you think about Easy Equities' EasyFX facility? Is it worth using based on fees and is it worth it to convert some of my hard-earned randelas into dollars?

Also, after the misleading campaign of ABSA's 13% interest product left a bad taste in my mouth I am considering government bonds even though I am fairly new to that. Is there a recommended platform where I can pick those up?


Get Down Adam figured out insurance premiums aren’t as objective as he thought.

In the spirit of decreasing my costs, I figured I would give OUTsurance a call. My car insurance was R900pm, which felt like too much. I got the insurance when I lived in the crime-infested city, so I figured now that I was being a rural doctor my costs should drop.

I called them up and spoke to a lovely lady who registered my change of address and ran the magic computer. As it turns out, I now had to pay more. Crime isn’t a problem in the sticks, but potholes are. Needless to say I was quite sad.

The agent transferred me to her supervisor. I explained to him I was a bit shook. I told him Momentum short term insurance had offered me a better deal. Suddenly the game changed.

I was thanked for my brand loyalty, for being claim free and for being a happy person on the phone. Suddenly, the computer system had also had a change of heart. The supervisor told me he wouldn’t increase my premium. So that was nice. But then... he reduced my premium to R550pm (from R900) and asked me to continue being the good Outsurance customer I was. On top of that, he backdated the new premium by three months.

Lesson is these companies make us pay made up amounts. There is money to be saved.


Petrus has two very expensive pugs.

I have two highly spoilt pugs, Oreo & Lili. We love them to bits and we don’t have kids so they are like our kids.

However, a couple of things to consider:

  • Pets are expensive (obvious one that I am sure you already considered)
  • If you ever move to another country be prepared to spend a fortune to move them (cost me around R40k) unless you are willing to give them up or even worse (and people do this) have them put down.
  • Having guests over is quite challenging as some people don’t like animals (makes me like them less).
  • Biggest thing for us is how limiting pets are, you can’t just pack up and go somewhere. You have to always think about your pets. Shall you take them along (AirBnB should be pet friendly then), you cannot travel by air, you have to leave your pet with someone else or pay a premium for a decent kennel (in SA I highly recommend: http://www.skyviewkennels.co.za/)

Don’t get me wrong, we absolutely love having Oreo & Lili in our lives, but the money is only a very small consideration for owning a pet. But if you get one, you’d better call him “ETF”… 😊


Wesley has a recommendation for independent financial advisors.

I had some success with Roxburgh Trust. They allowed me to hire them for a review plus looking at some tax consequences on an hourly basis.


Sabrina would like us to explain how timeshare works and whether it’s better than just going through an agent.


Special shout-out to Coenraad and Christiaan for answering Darryn’s question about tax-free investing in the UK. The answer was ISA, in case someone else wanted to know.


Also to Fried for sending some excellent advice to Wilhelm regarding medical insurance and pension funds for medical interns. Any other medical interns who are interested are welcome to hit me up for the mailer.

Fat Wallet Community Page

 

Oct 28, 2018

The world has gone mad with talk of a bear market. As someone whose experience of a bull market has to do with how much bullshit it is that the market makes money, facing a bear market seems especially unfair. In this episode we discuss what a bear market is, what it would look like in my portfolio and what I can possibly do about it.


Win of the week is Kay, for being a Fat Wallet Community superstar and for taking charge big time.

I'm stuck on tax. I don't understand it, I'm terrified of it. I'm a freelance artist in the film industry. I'm supposed to pay provisionally.

I've never managed to save for my tax contribution, but I am earning more each year and I'm trying to keep money aside for tax.

I'm mentally budgeting the amount to be about 25% of everything I earn (which seems an enormous amount to catch up to at this stage, but not impossible). 25% also might be too much or too little consideration depending on the earning category I fall into that year.

I heard Kris say that she puts 12% aside for provisional tax - how does that work? Why is there a tax category for 0-195 850 but I apparently don't pay anything if I earn under 350k? How the flip?

I don't mind saving too much since whatever I don't pay in tax will go to topping up other savings goals anyway, but I'd rather just know the workable percentage so it's not a big black hole of devil-math in my budget.

Can I actually reduce my tax liability by contributing to my TFSA? As in, does making that money tax-free potentially put me in a different income tax bracket, like contributing to an RA would?

Also Jonathan for sharing a great hack for emergency funds.

I've been a bit insecure with my investment strategy in my relatively short investment journey but the show has reassured me that I'm heading in the right direction. You can't imagine how encouraging that has been to me.  But I've also have much to learn, so I'm definitely gonna be listening on!

In episode 122 you discussed the balance between paying down debt and starting an emergency fund.  

A potential first step is to build up a mini emergency fund, perhaps R5,000 to R10,000 before contributing more than the minimum towards the debt

That gives you a buffer to cover small emergencies while you're paying down the debt. At some point you will have to grow the emergency fund to 3-6 months of living expenses as you rightly advocate, but it may be helpful to have a small emergency fund before you start to attack the debt. I'd like to hear your views on that.

Alec has saved up a nice nest egg and is getting ready to make a move from Durban to Jozi. He wants to know what he should be doing about his ETFs.

I’ve managed to accumulate just over R1m in investment savings through various actively-managed funds like Coronation and Sygnia in approximately 10 years.

I recently started investing in a passive strategy through ABSA stockbrokers, before they changed their platform fees.

  • NFENOM
  • PTXTEN
  • CSEW40
  • ASHGEQ
  • ASHT40

I also have a tax-free savings with Satrix, and an RA with Liberty (which I am in the process of moving to a more cost effective fund).

  1. Should I continue investing some of my money in my actively managed funds?
  2. Should I wait to see what the market returns are, or should I just continuously buy? For e.g. should I buy 100K of NFENOM ETFs and wait to see the returns before I continue investing in that fund, or should I trust the market value will be higher at a much later date?
  3. Are there any other investment strategies I should be spending my money on (rental property, gold coins, or starting a side business)?


Fried and his partner have R3m debt between them, including a buy-to-let property and some cars.

  1. How do I go about moving my Sanlam stuff away from them? I'm considering moving our RAs and my wife's TFSA to EasyEquities to manage it myself (only platform I care to know).
  1. Life insurance and income protector - I'm thinking of leaving it at Sanlam just because I don't know if I can move it? And if I do, are they going to take my blood again?
  1. I'm selling my "investment" house. Not sure if I should use the money to pay off my wife's car (interest rate of 11.15%) or use all to buy ETFs. The car's settlement amount is around 50% the pre-CGT money I'll get for the house.

Trishen’s family is growing too big for their home.

I have a two bed, two bath apartment in Sandton. As my family expands I’m looking to get something bigger. I am unsure whether to rent out my current place and potentially have an additional income in the future or sell it use the money as a deposit, lower my bond repayment then use the extra cash every month to invest in ETF REITS /shares.


Johannes is getting a gift.

I recently turned 21 and received R10,000 from my dad. I want to use this money to help cover my overseas trip (December 2019). I’ll be needing this money to buy a ticket/accommodation.

I’ll probably buy my ticket in the second half of 2019. Where is a good place to "save" this money? I don't want it hanging in my bank account as I know I’ll use some of it. I also don't really want to invest in shares, as the volatility might cause a surprisingly loss in my capital at the time the money is needed. (8 months from now).

I have seen some serious losses in my investment account this past year, including my South African ETFs. So I am a bit afraid of that.

I’m considering putting it in an fixed deposit account at African Bank, seeing that they have great rates OR the ABSA NewFunds TRACI three-month ETF.

What are your opinions and suggestions?


Marc is worried that the CoreShares Dividend Aristocrat ETF’s returns are very unpredictable.

  1. The goal of the ETF is to provide a relatively stable income that should rise with inflation as the underlying companies earnings grow.
  2. If you had to buy this in your TFSA, how would the dividends of the international companies be taxed?

Rui’s mom retired. Her adviser put her savings into unit trusts instead of a pension fund or RA. She has quite a bit of money due to the sale of her house, as well as a TFSA, which is only a small portion of her savings.

Moving any of the funds will incur capital gains, which is tricky - she may save on fees, but it will hurt in the short-term. How does one proceed from here? Leave it as is, and just liquidate the funds as one needs to in order to live? Sell, move them all to EasyEquities, do something intelligent with them there?

I'm beginning to think the only strategy that makes sense is to have a large cash buffer that you replenish via the income from the investments (whether it be dividend, selling some of the funds, or a combination of both.)


 

Oct 21, 2018

There’s nothing intuitive about the stock market. Most of what we discuss on this show relies on a basic grasp of the stock market, which is possibly asking too much. Every year I learn something new about the market. When I do, I get this horrible sense that everyone else already knew that and thinks me dumb for not knowing it. Sound familiar?

An email from Antoine made me realise we’ve never really devoted an episode to how the stock market works. This is one for your bookmarks folder. Here’s what we chat about:

  • What is the stock market?
  • What is it for?
  • How does it work?
  • Who are the players?
  • How do you make money?

Antoine is worried that the stock market is a Ponzi scheme. 

A bank can lend 10 time more money than is physically available. So out of ten dollars virtual value available, nine dollars are a bet on future growth, not on actual value. The same holds true for bonds and capital investments.

I'm really concerned that my children will become irrelevant, despite doing very well in maths and science. Investing in the almighty stock exchange might not save their souls. I'm hoping Simon might have something better than: "Because it worked for a hundred years." I heard that gospel before.



Win of the week is Sebushi for sending such a happy email.

I have been listening to Fat Wallet for more than a year and encouraged my wife to listen as well. Last week she received an email from her employer Vodacom about their YeboYethu share and given three options to choose from.

With the knowledge we received from Just One Lap, it was easy to make not only a choice, but an informed choice.

Thank you guys for the your education it means a lot to me and my family. And thanks to Stealthy Wealth as I found about Kristia from his blog.

From your Number One Fan whose Tax Free, RA and Investments are in order.


Christiaan’s friends are worried about what a crash would mean for those close to retirement.

My friends’ parents are in their 70s. They’ve managed their finances well, are still able to work and live off what they earn. They still save.

They’re worried what a next crash might mean for their savings.

What're your thoughts on the Warren Buffett approach in his will to his wife of 90% in the S&P 500 and 10% in bonds?


Rob is about to receive an inheritance.

I am married and on the verge of starting a family. We currently live in a townhouse which we are paying off. We both have RAs to to which we contribute monthly, and also invest the max each month into our TFSAs. We are about 3/4s of the way towards having a fully topped up emergency fund.

I have also received a nice bump in my monthly pay and plan to invest as much of this as possible into EFTs.

We do potentially want to look a buying a house as we will need the space with kids and it's nice to own somewhere with a garden.

So basically my question is, what would be the best way to use this lump sum to insure financial security for a growing family?

Would it be a good idea to try and pay off the bond on the townhouse and then rent it out and use the money to fund a bond on the house? Or buy a house cash and the rent out the townhouse as a passive income? If we go this route, would it better to keep it all under one bond?

Or should we just sell the townhouse and buy the house and not worry about having a rental property?

Or is the property idea just a bad one all around?

Is the best use of the money to clear all our debt before we start worrying about investments?

Should we just invest the money and use the interest to pay off debt? Where would be the best place to invest to avoid income tax?

I have only recently started listening to your podcast so if there are other episodes that answer my questions then could you point me in the right direction?


Jonathan sent such a great email. 

Hi legends

Give me a 3 minute for and a 3 minute against endowments, assuming fees aren't bad.

Hooray!


Tim wants to claim back a loss from SARS.

I invested into a scheme that now appears to be a fake scheme (money does not get paid out) am I able to claim the loss against my tax return? If I had made a profit SARS would have asked their share, so surely the inverse must work and if so what proof would i need to substantiate this?

I fortunately on put a bit of FU money in that I could lose (any loss sucks), unfortunately it seems others may have put a lot more in..., so once the dust has settled and I know the outcome ill send a mail as a lesson for all.


Alexander has questions about investing for minors. He wants to know what would happen if family members contributed to a TFSA for a minor and accidentally went above the R33,000 limit.

Would the platform block the transaction (I use EE) or would someone be liable to pay a fine (presumably the legal guardians of said child). It seems better to have a bank account people deposit into and distribute from there.

We want to open an investment account for our godchild, not a TFSA. How would tax around this work? If anything is withdrawn before the child can be a registered tax payer (medical emergency or something), would the parents be responsible for the tax liability, or us?


Shaunton wants to know how the 27.5% tax rebate works for people who work for themselves.

Does this limit also apply if you have your own business, independent contractor? Or how does it work?


Bongani is concerned about capital appreciation due to rand depreciation.

Rand depreciation means capital gain for me as a south African investor on dollar-based ETFs.

If I were to invest in a JSE-listed ETF, the rand depreciation would be considered capital gain and I would be liable for tax. If I buy the MSCI World etf from Vanguard as an offshore investment, would the rand depreciation also be considered capital gain and I be liable for capital gain tax?


Kobus wants to know if higher tiers are worth the rewards.

I’m trying to compare rewards programs of different credit cards. Is it worthwhile to go for a higher tier status so that you can get a bigger rebate on petrol? It seems that there is not one reward program that is the best. Is it best to ignore these reward programmes altogether?

 
Oct 14, 2018

I blame the advertising industry for the idea that living a good life is somehow related to money. Much as I make my living thinking and talking about money, money for its own sake is pretty useless. Back in the bad old debt days, I tried to use money to make me happy. That not only landed me in trouble, it also didn’t work.

When a friend sent me the Guardian article I talk about in this week’s episode, I had bad money days flashbacks. As Kay pointed out in the community group, the woman's language usage is very telling. I remember saying things like, “I think it costs”, “I guess it sets me back”.

What bothers me most about this article is how this woman hasn’t made any choices about what she wants her money to do. She’s living someone else’s idea of a great life. I know it’s not an easy balance to strike, but a little thought can go a long way.

Fried recently had a health scare which got him thinking about this balance too.

I had a terminal illness scare recently. During that time, I really thought a lot about finances, about leaving money for loved ones and my daughter's future.

If I died today, I know that my wife and daughter will be financially safe because of my life insurance policy (thank you SANLAM broker-man), the same thing if I don't die but can't work and earn an income anymore.

What stuck in my mind is that if I died today, I haven't yet lived. No one plans to die, yet everyone does, and most, sooner than expected. Like you, I'd also like to live to 130, but we probably won't. It's very important to live during your breathing-time. And to do this while building a small fortune to carry you through retirement? How do you balance this?!



Win of the week: Darryn, who wants to be a good uncle.

My sister lives in the uk. They have three little boys. I don’t want to spend money on toys and amazon gifts and wanted to do a TFSA for them. They are unlikely to move back to SA. Are there any companies or banks that do this overseas (uk specific) and what methods would one go through? Any other advice on these type of matters?


Chris is 24 and needs to choose between an RA and a TFSA.

If I have R2500 to invest should I be maxing out a TFSA or putting money into an RA? And is only contributing to an RA when I'm 30 crazy? Generally more conservative over a 30 year period and generally more expensive than an Ashburton 1200. Iit seems like money in an ETF is the answer.  Is this a dangerous thought to only start putting money into an RA once I’m 30 – if I’m still contributing to a discretionary investment?

Do the tax implications of share incentive schemes leave you in a dangerous cash flow position?

If you earn R600 000 and your employer offers you R500 000 worth of share incentives vesting in 3 years’ time.

You have a long term view on the company and wouldn’t want to cash in for at least a couple years after the vesting period.

Effectively in 3 years’ time you are going to have to cough up extra (roughly) R150 000 in cash to SARS, but you are going not going to have any extra cash to show for your bonus?

That would probably force the majority of people to sell their shares as soon as they vest just to cover this?


Sheila shared an anecdote about bonuses gone wrong on The Fat Wallet Community on Facebook.

In UK in early 1960s, Dad expected his discretionary birthday annual bonus .. the Company had a financial bad year and they cancelled. Guess who cancelled Summer Holidays that year. Still a bitter memory as I had bragged at school that we were going to Spain. I've never banked on a bonus or commission in my life though .. lesson learned.


Frank considers himself reasonably financially literate, but he needs help.

I have been managing my money from a young age using what I have read and learned to guide me.

I got RAs, Preservation funds, Provident funds, share portfolios, tax free savings, paid off house, an emergency fund etc

I have done all the spreadsheets, calculated future value on the growth of my portfolio and what I believe to need to live when I retire.

I'm worried that I will be blindsided later in life, because of a knowledge gap, or not truly understanding tax treatments, error in my calculation which will result in a gap at retirement. I have 25 years to retirement and now seems to be a good time to do a proper evaluation of my position.

When looking for a truly independent advisor that aren't aligned to product providers and will have my best interests at heart, I am battling to find one and don't know where to look, as the internet is failing me.

I am clear what I need from them.

Review my plan and calculations and tell me if I'm on the right track. Need Reassurance

Not sell me a product, if I'm short something tell me and source it.

What is the real tax implication of what I'm doing, so that I'm not surprised at retirement

And start a conversation about options of how would I structure my investments at retirement

Any advice you can give me to find an advisor would be great, better if you could give a set of names of people in Johannesburg that I could approach. Or if there is an alternative that I haven't considered that may help me answer my questions.


Matthew has an excellent question about buy-it-for-life shares.

In the last minute of episode 117 you say that you should hold and never sell.

How do you actually realize or extract the money from the portfolio?

If you never sell, your money is just a figure on paper?

So when do you actually make the money from your investments?


We haven’t heard from Sabatha in a while, and now he’s back with an excellent answer to a question we received a long time ago. We spoke about Greg moving his RA in episode 118.

The explanation for Sanlam's waiting period doesn't make sense.  However, the waiting period may be valid if the investment was by debit order. With most banks, an investor can unilaterally reverse a debit order within 30 days.  Thereafter, you need the cooperation of the receiving entity.

When you decide to move your RA, don't forget to cancel the debit order instruction.  You might think it's a given, but it's not. Sanlam will transfer your RA AND continue with the debit order investment as if nothing has changed!  Buggers.


Anonymous has been appointed the executor of their grandparents’ estate, which is in a trust. They really want to do a good job of it.

After episode 118 on inheritance I was reminded that my uncle and I are the executors of my grandparents’ estate, which is in a trust.

It's not a lot of money and there's a good few people between aunts and uncles and cousins, so no unexpected R3mil coming our way. That said, I'd still like to do it right and I don't know where to begin?


Shane

This Ashburton Global 1200 ETF is the bomb. In my days of TFSA investing, I've never picked a selection of ETFs very successfully, but since your 'One ETF to Rule them all'... show 85 I sold all the 'fluff' ETFs that I knew nothing about, and swapped it for the Global. Since then, it's up almost 20%... INSANE!

I finally see a profit margin on my EasyEquities account, and have a portfolio that's beating inflation.

I’m busy reading Sam's book Manage your Money like a Fucking Grownup - and it's amazing, but I wanted to run something by you to find out what would happen...

If South Africa's economy DID tank (think, Venezuela)... and I had a large portion of my savings in my TFSA... and it was in the Global 1200... because it's a local index, would that be affected by an economic collapse? Or because its invested in global stocks, would it be protected... and what would it do if it was protected (like... would it go up by a bunch)?


José wants to know if there are marijuana shares or ETFs we can invest in from South Africa. He mailed after the concourt ruling that it’s legal to smoke and grow pot at home. But remember it was possible to invest in these shares before it was legal here.


Robyn is in a tight spot with her family.

I listened to your 108th episode and when the supporting family topic came up, I had tears streaming down my face. I come from a single parent family, and I am 31. My 2 siblings are 12 and 14 years older than I am. My mom recently had strokes and can no longer work and my brother has simply turned his back on any responsibility.

My sister earns a pittance and lives with my mom and relied heavily on my mom to feed, clothe and house her. My mom also made the fatal mistake of cashing in her entire provident fund over a decade ago and spent it on clothes, gifts, furniture, etc, so she survives now on her tiny SASSA pension.

All the responsibility falls into my lap. I don't have that many dreams, but because of my poverty-stricken childhood, my main focuses are to have children and raise them in a financially sound household, and to build security and comfort for myself and family (ie: not to feed the cycle of poverty).

Now I am paying for a hospital plan for my mom each month of R1607 and I need to keep cash on hand because they're in a position where disaster is a regular thing. I agreed to put away R1000 per month into a Capitec savings account and if they need it, they have to justify why, etc before I simply hand over the cash (they have always been poor, and are the opposite of me - I tend to never spend anything on myself, whereas they go crazy on luxuries and then can't pay rent).

My husband and I already pay R600 into our access bond each month (which is also serving as our emergency fund, which is still FAR from our goal). I plan to downgrade my medical aid to a hospital plan and pocket the savings of R500 and add that to the access bond (thanks Stealthy Wealth!), and now I am wondering if my family's R1000 pm should also go in there? I figure that if I'm going to be sacrificing this cash in future, I may as well make it work in my favour while I can. Is there such a thing as over-saving in an access bond? Are there real risks to this? Also, can I include saving for my family as part of my spending/saving ratio, or am I fooling myself by doing this?


Liefie has reached retirement age and now wants to take some money offshore.

I am over 55 and I receive capital and interest monthly from the sale of my business and should receive it for the next 3.5 years.  So paying tax on the interest.

I am still saving in case I live to 90 plus.  

I want to do a lump sum payment into an RA for tax efficiency. I want it to be invested 100% offshore so it will have to be a living annuity and I will draw down 2%. (I have transferred my life savings in RAs to S&P 500 through Momentum).

I can’t contribute directly into a living annuity, it has to go to a "normal" RA and then transferred(!). During the previous tax year I almost had my head explode in frustration to get this done.  It was easy to make an RA contribution to 10X, but 10X doesn’t cater for ancients like me to do what I have described above. So I then had to transfer from 10X to Momentum to get into a living annuity invested offshore.  

So far this year I have postponed doing anything about it.  Do you know about a streamlined route to do this? Is it a bad idea?

Oct 7, 2018

It took just over two years to pay back my debt. Debt servicing became such a part of my lifestyle that I was completely unprepared for the last payment. I knew, on some theoretical level, what I wanted to do with my money once the debt was gone. However, a part of me thought it would never happen. I was worried about debt for so many years that I wasn’t prepared for the day I didn’t have any. It was disorienting.

In this episode, we try to prepare you for the next phase of your money that is currently crawling towards you. Keep this episode saved somewhere. It’s a roadmap that will get you to the next step. We do a “what next” for each of the below phases of your money life:

 

  • Debt
  • Recently settled debt
  • Starting out at 0
  • Emergency fund in tact
  • RA in tact
  • ETFs bought


Win of the week: Matome discovered us through Stealthy Wealth.

I’ve only recently discovered your podcasts (well actually a few months back but I have been listening to many of the oldies of both the Fat Wallet & JSE Direct) & just want to give you guys a BIG shout out for all the great stuff you are doing.  I have learnt SO MUCH!!! & now I am taking my finances into my control.

I was actually introduced to Stealthy Wealth from a friend, a real miser, but great guy and through his blog I learnt about you guys. So here I am!

I suppose one of my greatest learnings from you guys is that your retirement planning has nothing to do with your income, but everything to do with your expenses. That’s better than real gold!  It doesn’t take millions make it, but you can make millions by knowing that one little sentence! AWESOME STUFF RIGHT THERE.

This is the first of my many mails I will be sending you guys & I am seriously looking forward to learning more, making bigger & better decisions.

Also Phasane for taking charge of his RA situation.

After listening to a number of your podcasts, I finally gathered enough strength to look at what I signed up for on 13 November 2013. These suckers would be charging me an ongoing commission of 5.7% from year 5.

How did I sign up for this? I'm glad I learned about your fat wallet podcast when I did.


Chris submitted an awesome spreadsheet. He’s wondering about his investment strategy, specifically a growth strategy vs a dividend strategy. What makes this hard is the dividend withholding tax, which he bypassed by focussing on a tax-free environment.

Dividend vs Growth


Justine Burnelli is selling a house and downscaling big time.

We've decided to move to sunny Durban and are selling our house. We bought six years ago in a good area so we've had strong growth.

Any tips on selling a home? We're going with one of those online fixed-fee estate agents.

We're planning on renting a much smaller place in Durbs since we came to the realization that there were rooms in our current house that were basically unused.

That leaves us in a bit of a conundrum: how does one get rid of all this stuff? Have a garage sale? But who wants a slightly used toaster?

movingon.co.za

What does one do with this massive pile of cash once the house gets sold?

I'd just like to park the money someplace until we can figure out where to find a more permanent home for it. Feeling really uncomfortable dealing with 7-digit numbers. I'd like to think I'm financially savvy enough to know what to do, but am still feeling out of my depth.

Small mistakes could result in big sums of money going to fees and taxes. Was thinking along the lines of the TRACI or gov retail bonds. What other short term 3-year cash-like instruments are there, besides these two and fixed term deposits at the bank?

If I do invest the house sale proceeds into the MAPPS Protect ETF, will the market allow such a large transaction? Would the market maker simply, automatically create new shares, or would the price just shoot through the roof until all the shares available have been bought up.

What then happens when i want to sell one day? Is an ETF liquid enough to allow transactions of say 5-10% of its market cap to take place?


Wim is making the most of rewards programmes. 

My wife and I are at Investec and we have decided to use our rewards to re-invest in Financial products on rewards program. We have invested almost R30 000 rand over last 5 years in a global Investec equity feeder.

We get R500 voucher for every 10 000 points. Only snag is you have to buy Investec product and have at least R10 000 rand in product. (Lump sum) Initially used money from extra money in home bond. Our cards are credit card but use it as debit card. All reward point goes directly into investing not spending.


Nicole recently scrutinised her retirement fees. She is 52 and she can move her RA without penalty at 55.

I have learnt a lot from your show. Like everyone else I just wish I had had these insights 10, 20 or 30 years ago. For this reason, I am opening TFSA for my children and for every R100 they deposit, I will deposit R150 and then help them to invest it in an index tracker fund.

I contacted my provider (PPS) for a breakdown of fees and found out that I am paying 2% effective annual cost.

I told my advisor I’ve been sensitized to the importance of fees and I want to stop contributing to it and just let it sit there (I am 52 - I could move it with no penalties I presume at 55 years old).

Despite this being an old generation RA, it has done surprisingly well by my calculations. But still - the 2% fees is concerning for me long term.

Anyway, my financial advisor returned with a counter suggestion to decrease my EAC by moving from PPS to AIMS.

I am feeling frustrated, as this suggestion comes only after I say that I am going to stop contributing to my PPS RA due to high fees.

I received the below comment of my financial advisor:

"Going direct to an asset manager is not necessarily cheaper. By going direct, the asset manager will always place you in a more expensive Class. Class A is more expensive than Class B,C and D for example"


We also got an RA question from Robyn, who is in the unfortunate position of having to take care of grown-up family members.

I’d like to open an RA or TFSA for my sister, as I do not think she will have nearly enough to retire on. She is 45. I also cannot trust her with money, so I would like to make investments in her name, but preferably that I control, since it is my money in there anyway.

Would you suggest an RA or a TFSA?


Nduh is from Durban. He is 30 and started investing three years ago. He’s considering a few moves.

I've been investing R2000/month in TFSA since the first month it was introduced with etfSA. 

They are charging me 1% and I want to run away because its means it’s going to cost R1000 per year once I have R100,000. My TFSA with etfSA is an all equity account d other R750 monthly is in property (local & offshore) with our DARLING EASYEQUITIES.

I want to move this R100K to easyequities. Etfsa invested in a number of ETFs. Should I sell all the ETFs after moving to EasyEquities and create something simply that I will understand or keep them?

I recently bought a brand new second hand car on finance and this thing of paying interest stressed me as a result I cancelled a monthly debit order(R1000) to my RA (sygnia) and diverted it to pay extra on my car. I have provident fund with my employer where i contribute 18.5% since the age of 24. What your take on this move?


Clara wrote us about a year ago about a rental flat in Cape Town. 

We sold our home near Cape Town and have moved to the EU with our kids and cats and dog.

I was very interested to listen to your episode with Patrick McKay because he discussed investing overseas, which is something I need to learn about, having sold our house in SA and not yet being ready to buy in Europe (if we ever do).

  1. How do we go about applying for a tax clearance certificate, and do you think I can do it myself or should I hire a tax elf in SA to do it for me? (I have been filing SA taxes myself, but I don't feel very good at it!)
  2. As far as I can tell, I still have to pay SARS tax on any income earned in SA (interest) even though I'm not a resident. Does that sound right?

Ros noticed a new fee. This can’t be good.

On a recent statement of mine from Absa Stockbrokers, I noticed a line item "ETF Fee" for each of the 4 Sygnia Itrix ETFs that I hold. It was the first time I'd seen such an item. I emailed Absa about it, and they pointed me to Sygnia. Sygnia replied:

"The ETF fee item refers to fund fees accumulated between the last two distributions. This period would have been 6 months for most funds, if not all. The fee accumulates monthly and only gets deducted off the distribution. The ETF fee has always been applied but may be been deducted in the background by your service provider."

Can you shed any light on this?


Farhan is 30 and really wants his money offshore.

I save between 10% and 25% of my salary monthly, which is split between:

  • House: R1.1M with 600k debt (10.25 rate)
  • Allan Gray RA
  • EE account
  • EE TFSA
  • Investec 3 year investment: 100 in, 159 out in 2021
  • 280k debt on a car (cough cough) 10.5 rate - should pay it off in a couple years.

Should I pause all investment and just pay off my car? Or do I make good headway but accept 10.5% cost of debt in exchange for portfolio growth?

I don't have a lot of faith in the rand, so have been moving my liquid investments into ETFs with global exposure. That said, I’m very aware that the vast majority of my investment is tied up in my house. Do you think pushing every bit of my portfolio into foreign exposure ETFs is a bad idea? Or a great one? Why?


Wicus made such a good call to save money. 

I’m doing my articles and decided to move in with my parents next year until I finish it.

I’m going to save R5 000.00 per month because I no longer going to pay any rent. I’m very privileged that I don’t have any debt and all the money I save I can use it to benefit for my future.

I already opened a tax free and balanced fund at Allan Gray but only recently discovered that the transaction fees are going to hurt me in the future.

Do I need to move my tax free because I’m planning to use that money when I am 70 years old so still have 46 years left to build that investment.

How do I save the money I’m going to save staying with my parents. I want to save the money for between 8-10 years and want to use that money for a deposit to buy a house in the future.

 

Sep 30, 2018

Expecting a large amount of money for months on end can only make you crazy. I’ve never been paid a bonus, so I’ve never had to endure months of spending and re-spending the same amount of money. Just thinking about it makes me antsy. Nothing sane can come of it.

This week, we talk about the dangers of spending money before you receive it. If you’re trapped in a debt-to-bonus loop, you want to listen to this episode.



Win of the week: Denzil, who went to work on his financial situation.

Since we last chatted, my RA has been moved. I've opened TFSAs for both my kids and opened a TFSA for the wife. Can I contribute the full R33k per year into my wife’s TFSA on her behalf with no tax Implications? I assume I can as spousal contributions are exempt from tax implications, right?

My wife is a housewife and has no RA. She is 32 and I’d like to get this going for her.

However, I’d like to know if we can use this as a tax benefit on my side, or on her side even though she doesn’t earn an income?

She might start working part-time next year, so she will have some income. If she doesn’t have an income, how can we structure this to get the best tax benefit possible?


Sabrina

I am 32 with no pension fund, so where can I invest?

How much should I invest to retire comfortably?

What fund can give great returns?


WC wants us to discuss bonds.

Can you discuss bonds and bond ETFs? Although I have relatively ok knowledge on shares I am a total novice on bonds.

With the inverse correlation between price and yields, when is a good time to buy an ETF like BND? This is purely for diversifying my investments.


Bosman isn’t sure where his interest goes in the time it takes for transactions to clear.

I have an account with Standard Bank OST and transfer a chunk of my salary from my Capitec account every month.

From the time I make the payment from the Capitec account to the time the money appears in OST, who earns interest on that cash?

Also, if I do an instant payment with Capitec at say 13h00, do I earn interest for a part of the day from Capitec and then the rest of the day from OST?


Jan recently sold a rental property that earned him a nice chunk of rental income every month. He’d like the profits he made to cover his monthly expenses.

I used the money to pay for some monthly expenses. What is the best way to invest the capital to give me an income to pay for the ongoing expenses? And perhaps some growth? I sold the property for R1,5m and I can invest R1.4m. I have monthly expenses of R10,000 to cover.


Douglas wants to know where to grow money for other people.

We’ve been putting aside money for our house managers each month for a few years. We had intended putting the money into Satrix each month, but because of FICA and administrative issues we put the money in a savings account.

We have lump sums of about R7500 and R12500. I want to put these into investments that will pay out on their 60th birthdays - between 6 and 12 years from now. Where could I invest this money that will provide a secure return that won’t eliminate half the capital in commissions?

I’m sure there are parents saving for their kids, or other folk like us, who have the same problem.


Pat wants to know how to invest tax-free.

I hear you guys talking about ETFs, EasyEquities and tax free savings accounts.

I know I need to put R33,000 every year into a tax-free savings account, but I'm stuck on the next step. So I open a TFSA and then what's the next step?

I must open an EasyEquities account? I'm confused on how all that works. Mainly just the next step after opening a TFSA.


Garth wants to know if Simon is financially free.

Simon knows a lot of random things about finance and has been in the game almost as long as I have been alive. I keep on hearing him talk about buying shares when they were tiny, now have grown 300 and more %.


Join the Fat Wallet community group on Facebook.

Sep 23, 2018

Since my first investment in Mach 2014, the market has done nothing. Inflation, on the other hand, has done enough. My time in the market is making me progressively poorer. I don’t care for it.

In this episode, Simon and I discuss what we can do while the market does nothing. It’s awful, but it does provide a bit of breathing room to pad that emergency fund, figure out how different asset classes behave in different market conditions and really delve into sector exposure in a portfolio.

It’s also a great time to accumulate units in the eternal hope that the market will one day find its will to live.

PS. There's a Fat Wallet community page now. You can join here.


Win of the week is Laurentius Wyngaard. He wins, because his name is epic. He also wins because he asked a very important question.

How do I go about investing in the TFSA EFTs? I have a Satrix 40 ETF and had to invest through Satrix, but where do I access the ones you've listed?

I also want to send a shout-out to Gideon, who is 26 and has all his ducks in a row. In his email he said something that struck me:

"Being a CA I am familiar with most of the concepts, your podcasts and Sam's book has just given me a new perspective on how to implement the theory!"


Vincent has great retirement questions.

With life expectancy increasing, could you out-live the 2/3 annuity?

This is where drawdown rates come in. In a living annuity you have control over how much you can draw down.

What happens to that money when you pass away two years after retiring with regard to estate, beneficiaries and tax?

Could you ever invest too much in an RA, should the focus be to first max out tax friendly investments [RA & TFSA] then trade?

Our friend Herman from Pyfin is working on an algorithm that will help us eventually answer this question. There is a tipping point and once he knows the answer I hope it makes him very rich.

He also wants to know our opinion on the rand in 40 years. 

The drawback of the compulsory annuity after retirement is that you will never see the entire 2/3 value being utilized or have full access to it.

Someone is keeping the money you worked very hard/smart for and there could be massive tax deductions with payout to beneficiaries or issues with access in the event of emergencies.

Retirement annuities are there to help people who struggle to save. The tax incentives are there to encourage us. It this is the only saving you do, keep doing it. If you are a more sophisticated investor, you might want to look at a combination of options.


Aiden has a suggestion for the rebalancing of the Listener Love index.

How about on its anniversary we rebalance it by removing only one company and replacing it with another “loved” share. The reason for removal could be based on a hierarchy of what all the companies did over this last year. Something like :

  1. Committed a crime/ fraud and have been caught out
  2. There is a lot of smoke but no fire, yet.
  3. Impending merger / acquisition / delisting
  4. Poor performance / management over the past year
  5. Lost a LOT of money
  6. We’ve fallen out of love

In most cases a company that commits number one will also have committed number 2, 4, 5 and 6 by the time we rebalance.

I vote for Steinhoff to come out, and a vote for Tawana (lithium producers - i mean come on - Batteries hellloooo) to come in.


Tim also has some suggestions. For one, he wants us to change the name to the JOLLI index, which stands for The index of love that is not jolly.

He wants to include Foschini, Aspen and Bidvest and votes to remove Blue Label, Brait, Gemfields, Lewis and Steinhoff.


Petrus in Germany is thinking about breaking into the German property market. 

If it makes you feel any better, a small starter flat in Munich will set you back around 600k Euro!  Oh, and the banks want a 20% deposit!

What vehicle are you using to save up for your deposit and why?

I know you are a government retail bond fan, but what about ETFs?

Apart from the risk of low, no or negative returns, is there any other reason why you would not invest in ETF for something more short term like a deposit for your first property?

 

 


Darryn is a vet who is starting to take a closer look at some of the products he got sold when he was a student.

I’ve been sold a few products such as an endowment, RA (Liberty) and an income protection (by FMI) but I am still in the process of researching all these products. Any advice on these products from liberty and FMI? For now I'm just paying off my debt and plan to have this done but mid next year. Then look forward to investing after that.

I’ve heard PPS have a profit share account and that Discovery has paybacks if you got medical aid with them (Which I do, and happy there). Does it really matter which one I'm on? Do you think it would be better to be on either PPS or Discovery because of those perks, taking into consideration if their monthly premiums all all the same?

When your emergency fund is hefty enough, you can get rid of income protection.


Our friend Charmaine alerted me to something horrifying. When you pay fees on a sliding scale (when they say you pay less for investments over a certain amount) you actually still pay the higher amount on the investments before you reach the threshold. 

It’s also worth noting that the fees you see on your table EXCLUDES the TER and VAT.

On the first R500 000 0.65%

On the amount from R500 001 — R1 000 000 0.50%

On the amount over R1 000 000 0.35%


We got feedback from Dr. Woof on the marriage thing. His situation inspired a series of articles I wrote for our OUTstanding Money feature.

After the podcast, we had a straight talk about the whole wedding thing. We are already living together and are effectively married in terms of financial obligations, cooking and cleaning. We’ve decided to hold off on the wedding for now and save until we can both afford the wedding we want i.e. "Platinum wedding".

I have finished reading Sam Beckbessinger’s book and encouraged her to read it also. So we are starting our #couplegoal wedding.

I am so grateful for your advice that one should be open and honest about money matters with your partner. We are much happier after the serious chat and it is all about managing one another's expectations.

I have also downloaded the OUTvest app because you can request contributions on the app. Instead of Birthday and Christmas gifts, I am going to request contributions for the wedding fund. Instead of wedding gifts, people can contribute to the fund.  We already have most household items, so effectively we just require a wedding.


Anonymous is worried about EasyEquities as part of Purple Group.

Purple Group isn't doing so well because of GT247 and Emperor Asset Management. Emperor has had assets under management halved.

How will the continued losses of GT247 and Emperor be contained so that the losses don't 'spill over' to EasyEquities, which was 'saved' by the investment from Sanlam.

Sep 16, 2018

I liked the idea of doing a podcast on inheriting a large sum of money. I’ve dreamed about that kind of good fortune many times, as I’m sure you have. I hope this episode allows you to daydream about the kind of life you would lead if someone left you a small fortune. (Hopefully someone you’ll miss fondly, but not deeply. It’s hard to be happy about anything with a broken heart.)

I’ve said this before, but the most important question you ever have to answer about your money is, “What do I want my money to do?” If you can’t answer that question, your financial life will always feel somewhat unsatisfying. I’ve written about it here.

It’s especially important to be armed with the answer to that question when you inherit a small fortune. To be safe, perhaps think of the the answer now. You never know what might happen tomorrow. If you’re not sure what you want money for, you’ll likely watch it disappear before you can work out your strategy.

Ken inherited R3m. Here’s his story.

Upon hearing you get an unexpected inheritance you really don't know what to do. Googling to look for podcasts really didn't bring up too many good ideas. Most articles very generically state that you need to pay off any debt, pay of your house, have an emergency fund etc etc etc.

I'm in my early 30s. I'm self-employed. At this stage I'm single, no children so I don't have to take anyone else into consideration. I earn a decent salary, I have no debt. I despise debt and was raised in a house where debt was the sworn enemy. Even buying my house a few years ago I felt sick that I had to borrow money.

My house is paid off.  Obviously there are maintenance costs and levies, but I'd rather do this than pay off a bond.

I have money invested in Satrix. I only started contributing to ETFs and not just my RA about two years ago. Before that I made some lump sum deposits when I could. Due to trying to diversify I now own way too many different ETFs, but I'm now more focused on why I buy certain ETFs.

I have an RA with a life insurer (not 10x at this stage). I have an emergency fund in an interest-bearing 24hr notice account. I'm currently saving for a new car in a multi-deposit fixed term savings account at Capitec with 7.6% interest. I don't intend buying a new car with the inheritance. I drive what you'll call a “sensible car”.

I lead a pretty simple life. Fat Wallet has definitely reminded me that keeping your costs down is the best investment you will ever make. I do have a few vices that money gets spent on but I've been fortunate to do so over the last few years.

I intend for the inheritance to provide me with lasting security. Most of it will be invested and I will continue to rely on my own financial strategy (which is basically ETFs) to build my wealth. I will probably spend about R200,000 of it on a trip of a lifetime - this is ridiculous, but given my circumstances I feel it can be justified.

I'm thinking a lot about offshore investments due to the current conditions and political uncertainty in our country.



Win of the week: Jenny Pigeon, who wrote back in episode 92. She got in touch with her friend and advisor after that episode and managed to renegotiate her fees.

“My advisor subsequently dropped her initial fee and halved her annual fee. So this was a good outcome for me.”

But she wrote us a great email that made my day:

I’ve started a happiness journal and there is a 21 day instruction to send out letters to friends and people that have had a positive effect on your life. It struck me that my happiness levels have really moved up since I have become a regular listener. I think the reason is the sense of empowerment, enthusiasm and curiosity  that this kind of information imparts.

You and Simon turn dry subject matter into something very digestible.

Thank you for making a positive contribution to my happiness.


Gerhard’s wife is about to become an entrepreneur. They are trying to figure out what to do about her pension.

My wife is leaving the comfort of a steady income and starting her own thing.

She has a pension with her current employer. When she leaves her job that pension will be paid out to her; what in your opinion will be the best option?

Here is the list of what we have made while lying in bed awake at three in the morning:

  1.       Pay of our debt and start the new adventure with a clean slate
  2.       Use that money it to fund the start-up
  3.       Open an Easy Equities account for her and save it in RA

Carel wants to know where his fees go when he buys a share.

What are the transaction fees when doing a trade on the JSE? Does all of it go to JSE?

Is JSE Ltd a private company, i.e. would they charge as much as the market would allow, or are there other factors involved?

I personally think that transaction fees are the biggest barrier to entry to the JSE. How much of this is physical labour (infrastructure maintenance) and how much of it is just settlement trust?


Francois wants to know if it’s worth moving an RA for a few percentage point saving.

I am wondering if it’s worth changing my RA provider again?

I’m currently with etfsaRA, paying 1% fees.

Easy Equities RA charge 0.6% exl. Vat. Will it be worth changing to save 0.3% on fees?

Will I pay a penalty if transferred?

A few years ago I section 14 transferred from Sanlam RA to etfsaRA (after listening to Simon). They penalised me, but well worth the saving in fees.

Here's the spreadsheet Hendrik made for us to help you figure it out.


Miles is upset about fee sliding scales.

Why do the likes of Allan Gray, PPS, 10x and most other fund managers charge lower platform fees the more the client invests?

Surely the admin will be the same for a R100,000 client and a R3,000,000 client? So prejudiced IMHO. They have us by the proverbial genitals  and it really makes me the moer in.


Greg has been paying over 4% for his Sanlam RA, so he decided to move it. When he requested the move, they refused to move the last contribution he made.

This week I broke the news to my Sanlam RA "financial advisor" that I want to transfer to 10x. I was given a quote. Surprisingly it said there's only a 0.13% about transfer charge, but my previous monthly contribution of R5000 was also outstanding.

I queried why this R5000 was deducted and they said it had been received, but did not yet reflect on the system due to the general standard 25 days clearance period and that it would not be deducted from my transferable amount.

I could be wrong, but 25 days clearance period just sounds like taking the piss, to me.

So I asked them to then amend the quote to therefore say that this R5000 will not be deducted from my transferable amount. They said they can't do that since the system does not give them that option and "let’s see mid next with a new quotation."


Jaco is earning dollars abroad. He’s got some offshore accounts and local accounts.

I have Isle of Man account and transfer most of money into this account.

I still have monthly obligations in SA and have to transfer some money to SA.

My financial situation is as follows:

I have two paid-off properties from which I earn a monthly income.

I have a TFSA for both me and my wife.

I have dollars invested in the Prescient Global Funds (Integrity) in an offshore account in Ireland through SA Integrity Asset management

I have money invested with Allan Gray in various unit trusts.

I have dollars in Sasfin offshore funds

I have two RAs - OM and Sanlam.

I also have some rands in shares, but feel that I need to get out of it.

The money in Isle of Man account will be invested into the First world hybrid real estate fund through Marriott

The other money I want to invest offshore, but not through a broker in SA. I am interested in investing with Vanguard World - It appears to be a great fund and everyone invests in it.

How do I invest in this fund from Saudi Arabia?

I want to buy Apple shares but don’t know a broker overseas - any advice?

I am not paying income tax at the moment apart from the tax on the rental income. Other income is not taxable at the moment due to me being out of the country.

How do I invest the rest of the income I have in the Isle of man account?

Any other advice on how and where to invest would be appreciated.

This is the Moneyweb article I was referring to in the podcast. 

Ian has made some great changes to his personal portfolio since listening to the show. He’s considering a few more and wants to know if he should have a pension fund and a provident fund or just one or the other.

  • The funds are both administered by the same company, and our group requires us to be on them so I can't move.

Nipun has some ETFs in the US and has questions about the impact on his estate.

I have a Webtrader account with Standard Bank and have purchased USD denominated ETFs listed in the US in this account.

Would estate taxes be paid for this investment in SA or US & the rate of tax? I understand that assets over $60000 are taxed in the US.

Do I require a Will in the US or is my SA Will applicable?

What’s the most tax efficient way to invest offshore, can I continue with Webtrader of find another vehicle for investments?

Sep 9, 2018

It is the job of a salesperson to convince you you can't live without the thing they're selling. This is as much true in personal finance as in consumer products. If engaging with your money scares you too much, your only hope is finding someone whose approach to your money happens to be legitimate, effective and affordable.

If you hope to manage your own money, collecting information on the best thing to do with your money is also tricky. If you ask someone with a vested interest in a product, they are going to try to convince you it's the best product. If you ask someone who recently over-committed to a certain type of investment, they are going to try to convince themselves it's the best decision by trying to convince you it's the best decision.

This week's episode of The Fat Wallet Show is very special for two reasons. First, we recorded it live at the JSE as part of our JSE Power Hour series. Secondly, One Lappers Njabulo Nsibande and De Wet de Villiers joined us as guests. Our hope for this episode is to illustrate that there are many ways to construct an investment portfolio and all of them can be right. De Wet doesn't manage his own investment portfolio and he's happy with that. Njabulo manages three investment portfolios and he's happy with each one. What matters most is that you understand your portfolio, that you have a strategy and that you remember what it is. We're all making it up as we go.



Win of the week: Roxanne.

A year ago I was retrenched, sitting on my couch, wondering how I was going to get through the next month as I was living pay check to pay check.

My husband was earning a gross income of R18,000 a month and things were looking grim. We had medical bills, store accounts and a student loan. A truck had also hit the side of my car - we had reached rock bottom.

I started listening to your podcast all day, every day. My family started to think I had joined a cult!

I started putting a plan in place and started working on my FINANCIAL INDEPENDENCE to not be at the mercy of any employer, bank or creditor again!

Since then I have done the following:

  • Found a new job and career path
  • Started an emergency fund
  • Drew up a budget and started budgeting every single rand!
  • I discovered EasyEquities thanks to your show and started investing
  • I have paid off R40,000 in debt. I still have a student loan of R33,000 left which I am attacking - Balls to the wall on this one!
  • I cut up my credit card and lived without it. I cut up all my store cards and have lived without those. I never thought the day would come for this.
  • I have eaten a lot of peanut butter and 2 min noodles - thanks Shoprite!
  • Used every student discount I can find. Shoprite is good with this

But where to from here!?

I would like to invest in a tax free account but don't know where to start - if I choose the coreshares S&P 500 - how do I work out the fees I would be paying?

The naspers weighting in the Top 40 index makes me weary.

How much insurance is enough insurance?

Life cover, dread disease cover, home contents insurance, retrenchment cover, car insurance, gap cover, cellphone insurance, pet insurance - why are there so many products!!

Sep 2, 2018

A friend recently discovered a financially dependent parent had a huge amount of credit card debt. This revelation turned the dinner table conversation to the financial health of our parents. Of the seven of us, only two weren’t worried about their parents’ financial future. Naturally we proceeded to drink heavily. 

I find it much harder to speak to family members about money than to anyone else. Our parents managed to raise functional, financially secure members of society. After that significant achievement it can’t be easy to admit that you need help from the sprouts you raised.

I hope this week’s episode will provide a glimmer of hope if you happen to find yourself in a similar situation with your parents. Nothing can be done about the late hour, we admit, but if you can find a way to speak to your parent about their situation (I haven’t yet worked this out), you might just be able to find a creative solution.

Ruben asked:

My father is turning 60 next year with no pension/investments or even a house. I estimate he could work for another 5-10 years at his own business. How can I invest to help him with income for retirement?

Twitter Daniele asked:

I pay my mom rent. Should I put it in a TFSA for her instead? She has a company pension fund so this would supplement it. I am having a hard time convincing her that it is still a good idea to invest in a TFSA even though she is nearing retirement. 

She works for a bank’s investment arm. Would they allow her to open up an account with another provider like EasyEquitites? The TFSA and UT fund options (no ETFs) for her bank are pathetic (fees).


Get Down Adam 

I am 32, I graduated as a doctor two years ago. Financial people with various levels of qualification and pizazz came to sell us their products. The bottom line was that you had to have started investing at 24 (which was the age of my peers). I was already 6 years behind so I went into panic mode. 

Two years into the real working world again, I’ve paid off my student loan of R110,000. I only have about R60,000 left on my car loan. I have sadly given up on buying coffees, and I’m back to that instant coffee shit. I limit my spending as far as possible. 22seven is my most used app. 

Because I didn’t understand what was happening when I started my investment journey, I signed up for a Liberty RA investing in Liberty Medium Equity (C) as well as a Stanlib Tax Free Global Equities Feeder (A).

I recently bought the Coronation Market Plus Fund simply because they had a promotional sign up bonus of 10% which I thought couldn’t hurt. 

I own a flat with my sister (which our parents bought for us). We rent it out and receive about R6,000 income a month from that. Recently we have been putting R500 a month into Easy Equities and playing around with ETFs.

I have tiny amounts in:

I also have fuck you money shares/FSR in:

  • Netcare (what a disaster)
  • Montauk Energy
  • Capitec

We also have some cash stashed in an ABSA fixed deposit to cover maintenance etc. 

My own emergency funds are modest for now, but I’m building in a 32 day fixed deposit in FNB. 

Am I playing with too many variables? Are there too many ETFs? 

How do I know if I have saved enough

What’s the difference between building a portfolio and just sommer buying shit and hoping you’re right?

Please fix me, or at the very least tell me I can drink decent coffee again.


Frank shared a great graph he found of a married couple’s shared finances. I’ll include a link in the show notes. There’s a line item in the graph called “blackmagicfuckery” which is how they account for money that fell through the cracks. 


Jorge wants to know if he can withdraw profits from his tax-free account without affecting his lifetime limit.


Jon-Luke is a freelancer in his 40s. He has no debt except for a house he’d like to renovate. He works in TV when there is work, but the industry has been going through a dry spell. He had money saved for renovations on his house, but he’s had to use all of that last year when work dried up. He aims for an emergency fund of 8% of his portfolio, but he’s currently sitting at just over 2.5%. 

In the next few years I can envision a bumpy ride in my chosen profession. 

The probability is high that I may need to draw my emergency fund down again it won’t last as long as I need it to. 

Should I do what I would have done in the past and go into my overdraft and credit cards or should I draw out of my Share Portfolio?

Keep in mind that this would be for short term periods of 3 to 9 months. My instinct would be to leave my shares alone and give them the chance to grow.

I am also on a strict plan to downscale my spending and to save more…

My goal is to be saving 25% of my earnings by the end of next year, but getting there is a bit of a delicate process especially considering the current conditions in the Film Industry. 

Also I am loathe to sell my current house until I’ve had a chance to do the renovations I planned. There’s some money to be made here for sure!


G-Boi has taken his expensive RA by the horns.

I’ve moved my RA from Sanlam to EE and opened a TFSA with EE.

Should I max out my TFSA, then contribute to my RA? Or equally contribute to both my RA and TFSA. You and Simon made me feel so shit about the RA trap, at least I made the move to EE so that I can control it and don’t have to pay 4% Ter every year.


Luvuyo wants to know if we think rewards programmes are worthwhile. 

Do you think certain rewards points is to your benefit financially?

I have an Investec Account which gives decent rewards points (obviously not as great as ebucks that everyone tells me about), a Dischem, Clicks, Woolies & a The Entertainer account and I only buy clothing through a family member that works at a clothing store at a massive discount. 

Do you think that using discount and reward offerings can materially affect keeping lifestyle costs low so that you free up funds to invest or am I just a cheapskate that gets slightly marginal benefits from the above?


Johannes wants to know if I’ll do a spreadsheet on all the costs involved in purchasing a home. I’d be happy to do this if the purchase goes through. So far I’ve spent R453 on sectional title and title deed reports. If the home loan gets approved, I’ll spend a further  R2,875 on an inspection. That brings me to R3,300 before anything has actually happened.

Aug 26, 2018

It’s finally done. I’ve submitted the offer, the owner accepted it. Pending the approval of my home loan, I’ve bought a house. The process has been dreadful and not one I’d like to repeat. I’m very sensitive to where my money goes and what I’d like it to do in the future. Making a decision involving hundreds of thousands of rands was never going to be easy. 

The worst part was not knowing whether I could trust the information I was getting. It’s a negotiation between a buyer and a seller, mediated by a third party who has a vested interest. I only have a superficial idea of what I actually signed on for. 

If you are about to embark on this journey, I recommend visiting the Estate Agency Affairs Board website and downloading the Code of Conduct. This document inadvertently tells you all the fast ones agents like to pull. It also gives you a sense of what you are entitled to as a buyer (and seller). I wish I read this before I started.

I made liberal use of the South African Property Transfer Guide reports. I bought four, in total. I knew exactly who the seller was, how much he paid for the unit, what the other units in the complex were going for and how much churn the complex had seen recently. It also helped me figure out the agent showing me a different unit was being duplicitous; think Photoshopped pictures and unregistered agents.

Lastly, I want to point you to the tool I found an hour too late, submitted by Adam. This company does a comprehensive inspection of the home you’re about to sink your fortune into. If you are seriously considering buying a place, pay a company like this before you commit. 

My house hunting stirred some ideas and questions for you too. In this podcast we share some tips and tricks and help a few listeners figure out how best to buy or sell.


Sally has a question about a second property. She didn’t buy it as an investment property initially, but then her circumstances changed. At first she wasn’t sure if she should keep it or sell it, but in the time it took us to get to her question, she’s had some closure.

I’ve always been of the mind that an investment in property is a good thing and never really looked into it any deeper (in terms of returns etc). 

I was mostly covering costs currently and figured I’ll have extra income once the property has been paid off. 

First, I did the Stealthy spreadsheet, with all the actual money that went in and out of this property over the years. 

The returns are sitting around 8-10%, which is not great. 

I’ve actually been extremely lucky with tenants, and had no vacancies with this place, but who knows how long that luck will last! 

Then I looked at retirement numbers. 

My cost of living with the income is lower, thus the number I need to reach is lower,  and could potentially reach it in 15 years. 

Without the income,  my retirement number is a bit higher, but without the property I would have more disposable income. If I’m disciplined, I could actually reach the higher number in just under 14 years. 

Due to the amount of money in and out of the bond, the amount of cash from the sale will not be huge, but on the plus side, I won’t have a bond to pay off.

I am thinking I may now put it on the market and buy some nice passive property etfs. I’m in no rush to sell, so that’s in my favour. I understand it may take time to sell, which isn’t an issue either. 

What do you think? Have I missed anything critical,  or do you have further arguments for keeping versus selling?


Christiaan shared a bond calculator. It shows:

  • How your monthly contribution would change if the interest rate changes.
  • How many times you’ll be paying the property if you just paid the bond amount.
    • 2.36 times in my case, which means if I paid cash I could buy two of those places for the price of a bond
  • How additional payments would affect your payment term. For example, my planned additional payment would shave 14 years off my bond repayment.

Antoine says:

The emotional temptation of owning your own property is that it gives you control to fix broken things. However it’s not easy to deal with contractors. Although I can do a lot of these things myself, I don’t have time and it doesn’t make financial sense to spend time on these things. So in a sense I have to rely and deal with the quality of someone else’s work.

Before you buy, reframe the problem and think about all the choices you have if you want to move to a different location or province at the drop of a hat. This might help elevate the emotional anxiety. Then decide to buy a house because it makes rational financial sense or decide to just rent a different apartment. If you have a lot of time on your hands to fix things at the house yourself (and you actually enjoy doing stuff like this.) Buying and renovating might be reframed as a “second” job.


@chi_gunda and I had a conversation about what a bond does to our overall net worth. Both of us will have more liabilities than assets due to our home loans.

I listened to the Fat wallet podcast this week, couldn’t believe you were even considering liquidating your tax free account,  I kept screaming ‘nooooooooo, Kristia, don’t do it’ to myself.


Rudabager Lassie von Tigerbalm figured out a great way to consider the financial impact of buying.

I’m on a bit of a present-value mission right now. One calculation you owe yourself is to consider what the extra monthly costs of a house are worth by retirement, when adding in compound growth. That’s the real cost. At least if you buy it you know beforehand, rather than screaming into the night later.


Cliff has his financial situation completely under control and wants to know what percentage of his portfolio should go towards buying a home.

I am invested in and contribute monthly to ETFs, equities both domestic and abroad, tax free savings, an RA.

I’ve even dabbled in some cryptos. I also have about 25% in cash which I have in a money market acc that I can draw from if I see a good buying opportunity that I like.

When the day comes where I want to buy an apartment/house, what % of my portfolio should I contribute towards buying a house? 

I wouldn’t want to sell any of my equity holdings and I would prefer to buy in full with cash. 

But that would also not be a wise decision because I would be putting all my eggs in one basket. 

When it comes to buying would you recommend contributing 50% of my portfolio towards the purchase of the house and mortgaging the other 50% or putting down the minimum 10%, pay a larger monthly mortgage and have less disposable income to invest in the market every month? 

I live in cape town where the price of a two-bedroom apartment is around ~R2m. I’m also considering what Simon said last week where cash is king when buying property.

Stealthy Wealth once wrote an article about the cost of living in Cape Town. http://www.stealthywealth.co.za/2017/06/living-in-cape-town-definition-of.html


Get Down Adam, who is a doctor and apparently a late bloomer, wants to know about buy-to-let. I just want to remind Adam that people live much longer, so finding your career later in life is probably a good thing.

I come from a family where money wasn’t discussed and property is king. 

From what you say on the podcast, property is a less smart investment these days and I get that but I also HATE paying rent, even if the maths makes sense. I’m having trouble shaking the emotional connection to property. 

I have my eye on a piece of land that could potentially fit three small townhouses. 

No one else has built there because there is an issue with access, but the land borders my parents’ property and they would sell me access. The issue is the land is over-valued for something you can’t use. The seller doesn’t know that I could potentially use it so I could get a deal. I could theoretically build three, let two and live in one. 

Is this a dangerous game? I know property itself is a nightmare, but there’s a big part of me telling me this is a sneaky opportunity. 


The not-get-down Adam also wrote us about inspecting a home before you buy it. Unfortunately I got it an hour after signing an offer to purchase. 

You mention checking cracks, mould, damp etc. before buying a place. My personal experience has been to enlist the professionals here such as Inspect-a-home.

I’ve used these guys twice for both my places and I actually had their investigation as part of the “subject to” criteria before purchasing.

They do a full inspection and will identify faulty wiring, mold, cracks etc. with a neat little report that really helps.

Aug 19, 2018

Lesegisha once again showed us the error of our ways. In a last-minute attempt, he managed to save the Listener Love Index from pure obliteration. Here’s his argument:

It may seem like a trivial point but here’s the magic in it.

The law of probability and averages says that the method we used will underperform over half the time and then overperform the other half, giving us an average return over the market cycle.
I concede there’s no telling where in the cycle we entered, so it could get worse before it gets better or it really could just go bad. Equally so it can shoot the lights out.


The most important variable then becomes time. The Love Index shows that by our nature we are impatient with our stock investments if we can ditch them after a year (arguably most of us had given up months ago lol), while we can put up with a bad pension fund or retirement annuity to retirement.

"I think we measured a long-distance run using a 100m stopwatch. I would’ve loved to see how the index performs over a longer period (minimum 5-7 years) and I probably will be tracking it on the side. I’m almost certain the dogs in the portfolio won’t recover but a lot of the good-ish companies will outperform the market, especially if dividends are factored."

Shortly after recording, Rudabager also made a plea in favour of our unloved index, “I think the love index was perfect. It was made up of votes from motivated investors who might imagine they have some insights. It was still a mess. That's a much more valuable lesson than it crushing the STX40 and a bunch of people deciding to put all their money on it.”

As a result we now have two competing indices. It’s been a year since we made the Love Index, so it’s due a rebalance. If we get 17 votes to remove a company, it goes. 17 votes for a new company gets it in.

The Zack One Lap Index

In this episode, Zack Bezuidenhoudt compiles an index of beauty. I use the opportunity to ask almost every index question I've had for a year. It's a wonderful time.

Aug 12, 2018

 


The question that inspired this week’s show is one of my favourites: what exactly happens to the money when you buy a share? Who gets it? How do companies deal with shares in their books?

We talk about the mechanics of buying a share. We discuss the differences between the primary and secondary markets for shares, where the concept of share buying came from and how shares get from person to person. It’s fascinating!

Thanks very much for all the great iTunes reviews and messages of support we get every week. It’s wonderful to be reminded that our work has a real impact.


Cindy van Heerden wins for being a Van Heerden and for writing us a lovely upbeat email.

Flip, you guys. Jissie. So much love!

I have been binge listening to the Fat Wallet Show the past two weeks! Some episodes I listen to twice because they are just soooo good.

Firstly, I am so impressed with the quality of your podcast. I listen to a lot of podcasts, which are mostly American. The quality of sound, content and lekker hosts are important and boy oh boy does your show deliver. I feel happy and a little bit proud that such a top notch show is South African.

I am still so clueless about a lot financial topics, but I am slowly learning. So I don't have any questions yet (you are a show about questions after all). I just wanted to say thank you for encouraging us to do the smart thing. I am paying off my crap-credit-card debt and am putting away a R100 each month for my emergency fund until I pay off my debt and can put away more. Also, I just got an increase and instead of buying more shit - I am using it to pay off my debt faster! Yay for finances. It is all I think about since I started listening.

I think every and all South Africans should listen to your podcast. I think this is just what South Africa needs - proper education that will help our youth become money-smart.

Thank you. Thank you. Thank you!

PS - Kristia, I love your surname ;) Yours too Simon! Brown like chuckles.

PPS - I am a Graphic Designer. Don't know if you've had any of those yet.


Wim wins for taking charge of his finances in a very serious way. He already started the process of moving his RA to a cheaper provider, but he’s still struggling with that process.

Your advice on finding more places to save money has led me to stop my AA contribution of R1,300 for me and my wife. I have adequate cover on my short term insurance. My wife also has car under warranty which includes roadside assistance. That money is going into EE EFT.

Thanks Simon, upon checking my car insurance, I realized my premium of R550 on my Toyota bakkie could only pay out R75,000 if stolen - it’s an old 2006 model. Even increasing my co-payment to R10,000 only reduced my premium by R100. I decided to take only fire, theft and third-party insurance, saving R250 per month.

He made an investment in a cow through Livestock Wealth.

I always wanted to be farmer, but wasn’t born into farming, so took a fat chance. The CEO was explaining their model at Allan Gray’s investment summit. Your explanation is correct, but it also seems there is a monthly maintenance fee of R315. Times 24 (18-24 months to mature to 500kg) adds another R7,560, totalling around R16,000. IF you get selling price of  R18,500 you get around R2500 over 2 years gives you 15%.

You can actually visit your cow and get picture- im opting out on that one, keeping it strictly business. I will send you a picture of my cow, not naming it though.


Dale inspired our topic this week.

Could The Fat Wallet explain what happens, exactly, when you buy a share or a portion thereof? Where does that money actually go?

If I buy R1,000 of STX40 through EasyEquities, after fees and costs, what happens to that R1,000?

Do all 40 companies physically get paid a portion relative to their weighting?

Would EasyEquities literally transfer R240 to Naspers, for example?

If they do – how and where does Naspers account for that “income”?

Is there an item “income from sale of shares” on a financial statement somewhere? I don’t actually read financial statements (which is why I buy ETFs in the 1st place, because I don’t care to), so maybe it is there, and this is a really obvious question?

And what happens the opposite way around, i.e. if I sell R1,000 of STX40?


Home buying feedback

Deen says I should ask for a drone shot of the unit I’d like to buy to get an idea of freeway access and the surrounding areas.


Debt Lady is in a financial pickle and wonders if she should sell her house.

I owe in total of R134,000 credit cards, overdraft and loans.

I take home R26,700 per month and I am drowning.

I'm thinking of starting afresh by selling my house and take the profits and clear my debts. Would you ever advise a person to do that? After I paid everything I am left with R1,200 which should carry me through the month. It doesn’t and I still have to pay rates and buy food.

It dawns on me when you talk about property that I didn’t properly plan buying this house. It’s inside an estate where I’m paying R2,600 for two levies. I was excited about the increase I got in a new company. I bought a new car and got a new house and now it’s taking its toll on me. I keep on applying for loans to pay my debt.

Where do I start as I know I need freedom from this debt?


Hamster says buying a home can be a good financial decision, not just a lifestyle decision. He re-shared the Rolling Alpha buy vs rent calculator.  

It can be a great financial decision to buy rather than rent, as long as you apply (and stick to) a few rules, like staying in it for at least 8 years to counter the negative financial effect of having to have paid all the transfer-, financing- and lawyer fees, pay it off ahead of schedule.

Some time in the future, you'll have paid off your bond and will be living very cheaply. By that time rent will have increased (at least with inflation) to enormous amounts. Having a long-term view on property-ownership is a lot like having a long-term view on your investments.

Lastly, the freedom one has when owning a property is amazing. The day before we moved into our house, I had the garage doors automated, installed an automated sprinkler system in the garden and had a plumber come out to install a "retrofit" solar panel on our roof to assist the geyser with heating the water (our electricity bill for a family of 3 is only R500 per month).

I also installed thermal insulation in the ceiling myself and we're next going to convert the stove hob from electricity to gas. You can't do these alterations (most of them we did to bring down our long-term cost of living and energy-footprint) when you're renting. The same goes for painting the rooms the colours you like, putting up (or taking down) shelving where you want, etc.

I love the point about doing alterations to reduce costs in the future, as opposed to cosmetic alterations.

He explains the eight-year breakeven point as follows:

When you purchase a house, the general rule is that you want to be sure you’ll be in the same home for at least eight years.  Otherwise, you’re going to take a hit financially.  Why?

The first hit is your closing costs. Every time you go through closing — buying and selling — money hits the table. This can easily add up to thousands. Limiting how often you have to pay that kind of money is always a good idea.

So extrapolating the cost of closing’s impact on your return on investment, you’ll need around eight years to make up for the money you had to spend now, so that you break even with someone who rented instead. As rent goes up over time, a tenant will eventually pay more than a home owner, the break-even point typically lies about eight years into the future (assuming buying and renting the exact same property).

You take a second hit when you look at your bond statement to see exactly where your monthly payments are going. The way bonds are structured, you pay much more interest in the first few years you own a house. Usually, it isn’t until you’re about seven or so years into paying down your bond that you’ve made enough progress on the principal to make it a better deal than paying rent each month.

Note: When you take out a bond, you are paying an interest rate on what you owe. So, in the first year, when the principal is highest, the interest you need to pay is also the highest.  However, since the monthly payment is the same throughout the term of the loan (at least with a fixed rate bond), more of the payment will be used to cover the interest payments, meaning less is going towards the principal. As your principal goes down, your interest payments will go down, leaving more of your money to go towards the principal, so it snowballs nicely.  This is one way of getting ahead of the eight-year R.O.T.

If you can wait at least eight years before selling again, you’re in a better position to be ahead of the game, especially if you bought less house than you can afford and making extra payments into the bond.

To explain it a little differently, if you keep buying a house, live in it and sell it again every eight years, you’re no better off than if you just rented. Any equity you would’ve built up in the property plus money saved in the long run on not paying for rent escalations, is cancelled out by the costs incurred when buying and selling.  Even worse, if you buy and sell in fewer than eight-year intervals, you would definitely have been better off renting!

Aug 5, 2018

It seems having enough money to retire is only half the battle. There are so many decisions to be made post-retirement. This is true for old school retirement and financial independence, as Alistair Hennessey’s question illustrates this week.

He and his wife have sold everything to live their somewhat odd dream of following winter around. (We strongly discourage this abnormal behaviour.) They’re both in their 30s and lucky enough to have jobs they can do anywhere in the world. Having accumulated enough assets over the years to make this possible and still earning enough money to continue investing, how would one even begin to untangle all the possibilities?

Luckily we have access to our financially independent friend Patrick Mckay, who has been thinking about his options for a while. In this episode he helps think through the Hennesseys’ options and talks about the wonders of tax-free investments.

My wife and I have sold our apartment and all our shit and are moving to Lisbon.

We’ll be living in AirBNB across Portugal, Europe and back in Cape Town, probably following the winter around.

After selling everything, they have:

Cash: R2,9m

RAs: R700,000

I think we’ll still contribute the minimum monthly amount to keep them active (about R400 each).

TFSAs: R66 000 between NFEMOM, PTXTEN, CSEW40, STX40

Currently with ABSA but soon to be moved to Easy Equities.

Going forward we will just buy STX40 and/or possibly the Satrix MSCI Emerging Markets ETF STXEMG.

ETFs: $22 000 between Vanguard FTSE Developed Markets (VEA), Vanguard S&P 500 (VOO) and Vanguard Total Market Index (VTI).

I only found out after buying these ETFs that they are domiciled in the US, which means the US tries to steal quite a bit if I die. Although this might only be when it’s worth more the $60 000.

I’ll be getting new wills done as soon as we get to Portugal.

Debt: 0

The plan

We’ll put aside cash for six months' expenses in EUR. Since selling the house we have dropped our monthly expenses by about 50%.

I still want to transfer R66 000 into our TFSA each year. If we have a ton of extra cash we might top up our RAs, but there is no tax saving with us being in Portugal, so I’m not sure it makes much sense.

He has between EUR 1,000 and 2,000 to contribute to ETFs every month.

For the ETFs, the plan would be to take the bulk offshore and buy the Vanguard FTSE All-World ETF. 

To be honest, I don’t actually know where we will be living in 10 or 20 years so I was thinking of investing mainly in EUR.

The Vanguard FTSE All-World ETFs is domiciled in Ireland, which means that everything can happily pass to my wife without too much fuss when I die. Portugal also has some great tax savings around offshore dividends.  

But this ETF has an expense ratio of 0.25% (The Vanguard ones have 0.04% and 0.07%)

Assuming my maths is right, on a 200 000 EUR portfolio the annual costs would be:

0.25% TER is 500 EUR

0.04% TER is 80 EUR

So over 10 years, Vanguard all-world needs to do 12.5% annual return to keep track with the S&P 500 ETF just doing a 10% return.

Over 20 years the all-world (VWRL) needs to do 14.5% annual return and the S&P 500 (VOO) just 10% to get to the same place.

In summary:

6 months worth of expenses in EUR for an emergency fund

Rest of the cash into either:

VWRL (EUR) and VWRD (USD), Leaving what’s currently in VEA, VOO & VTI

Keep adding to VOO and VEA (and not die before my wife)

Every year add 33k ZAR each to our TSFAs STX40 & maybe STXEMG leaving what’s currently in NFEMOM, PTXTEN, CSEW40, STX40

Leaving RAs intact (sigh)


Our friend Jo wrote in for the first time in a long time!

My TFSA is in cash. And has been since it started. Let me lay out my logic for you.

When TFSA came out, I decided markets 'felt' expensive. I know, super subjective, but TFSA has quite a long horizon. At R30,000 a year it just didn't feel amazing me to me. I think you'll do okay with a TFSA, but it won't make you insanely wealthy.

As it turns out I've made about the same return in cash as I would have buying DBXWD or a some local top 40. Which wasn't guaranteed. Markets could have done amazingly and I would have had to eat my words. Theoretically it could have also gone the other way.

I'm keeping my TFSA in cash for the time being. I'll add  my emergency fund to that and wait for the next big sale/market correction. That might not happen for a while, or it could happen next week, but at some point it will happen.

For example, the PTXTEN 25% down? I took my daughters TFSA and I bought a great big chunk of that particular fire sale. Thank you.

You could argue I'm trying to time the market, but this is all still ancillary to my other normal investing - you know, dutifully plugging away into my ETFs every month. I see my TFSA as a kinda hedge bet and am happy to play a little loose with it.

Not for everyone. But you know, just thought I'd posit an alternative.


Paul has a question for Patrick.

Would you please ask Patrick what he buys in his TFSA account?

I know he's a one etf guy, but I believe he buys a local equity only etf in his TFSA to avoid foreign tax.

Jul 29, 2018

I’m finally doing it. I’m buying a house. I’ve had a cold winter and I’m finally accepting I didn’t turn out to be a jetsetter who lives in luxury hotels around the world. Clearly, this isn’t a financial decision, but it doesn’t mean I can’t be smart about what I’m doing.

Here’s what I have so far:

  • I’m looking in the price range of what I’m currently paying in rent in an (almost certainly futile) attempt to contain my cost of living. This is yet another reminder of the benefits of renting. In buying, I’m banishing myself to the outskirts of the areas I love. Everything in my range is tiny, most of it very old. I knew it all along, but it’s good to be reminded.
  • It’s very hard to compare units. Even in the same price range, they differ by age, by size, by area. I’ve decided to use cost per square metre to help me figure out if something is cheap or expensive. This makes it much easier to determine value.
  • I’m only using half the bond amount I actually qualify for so I don’t find myself strapped for cash when there’s a special levy or interest rate hike.
  • I’m terrified. While I’m perfectly capable of multi-year commitments, I don’t like to be reminded of it upfront. I guess I’ll just have to get over it.

This is the Mister Money Moustache article I mentioned.


Win of the week: Sean, for editing our swearing and for making us a spreadsheet. He, like many other people, disagrees with Simon’s view on tax-free investments for kids.

TFSA numbers_Spreadsheet

I understand kids might use the money to buy a car or holiday and can never get that allocation back.

The other side of that coin is that a TFSA started at birth creates generational wealth. You can set up your kids to never have to worry about retirement regardless of their job. Or ideally pay it forward to their kids (ie only save R500k per kid) for them to retire young (best case 38!!).

Isn’t it better to try your absolute best to educate them on the value of TFSAs and retirement? You have a whole 18 years to get it done before they can take control of their TFSA (dead means longer than 65).

I know TFSAs are not and should not be viewed as vehicles for things like education etc. But as a “pay it forward” vehicle its pretty magic (assuming you can educate your kids).


Francois is wondering about the impact of dividends on tax in offshore total return ETFs.

I've been comparing the two MSCI feeder ETFs from Satrix and Sygnia. The Satrix one reinvests the dividends, and the Sygnia one pays them out. They are both about a year old.

Instead of paying out the dividends, the Satrix ETF will simply raise the ETF price by the dividend amount.

I can only see this if I overlay the STXWDM and SYGWD charts, squint, and use plenty of imagination. A year is a very short timeframe to see a difference, so I've searched for SENS announcements for details on if and when this has happened. Will there be any info on this?

The Sygnia one has paid out dividends twice since inception. According to the June SENS, you were exempt from local dividend tax both inside and outside a TFSA. This is because the foreign tax amount, which you always pay even in a TFSA, was larger than the local amount.

It seems unlikely that Satrix will have a different price inside a TFSA, even if they had to account for local tax after raising the price a hundred times. Can the situation change if our dividend tax went up to say 25% and start exceeding the foreign amount? Ignoring the difference in TER, it would then be better to hold the Sygnia ETF in a TFSA, wouldn't it?


Gerhard has a great tax tip.

Many people don't submit their monthly RA contribution amount to their HR / finance department at their place of work. When I ask why, they say that they enjoy the bonus they get from SARS when they submit their tax return.

The benefits I see for supplying this info to your employer:

 - You get the tax break upfront

 - You don't save your money at SARS over an average period of 8.5 months not earning any interest.

 - You can increase your monthly RA contribution without affecting your pocket, for example:

You can only afford R1000 pm for an RA, if you submit this amount to your employer and you are taxed at 25% then you would get an increase in your net pay of R250. Now you can actually pay R1250 instead of R1000 into your RA or R250 into an ETF.

 - If you have a dispute with SARS or they delay the refund, as sometimes happens, you already received your tax rebate throughout the year.

I see no reason why an employer can refuse this if you have the proof of your contribution.


Robert found a sustainable farming investment website, which is kind of like the cows website we discussed last week.

They sort out the insurance and the administration on your behalf and claim to offer an internal rate of return 12% and 16%, depending on the investment you choose.

They also mention on their website that there is a tax benefit and that you can write off a portion of your asset in the first tax year. Sounds a bit like you need to be a tax guru if you ask me.

It will be great to get your thought on this. It feels like a new hipster and responsible way to invest, but is it wise? It might be a unique way to diversify?

The one option is berries, the other is solar energy, the other is beehives.


Vincent is curious about counterparty risk at African Bank.

I compared Capitec, RSA retail bonds and African Bank. I am fully aware of what African Bank went through, but having a look at their investment options I think it's viable given that the SARB has a grip on them.

They have no management or administration costs and no fees on withdrawal. Everything can be done online or via phone.

Their tax-free interest is quite high and they have two other attractive products: [Access Accumulator - 12 months [8.2%] & Fixed deposits - 12 months [8.45%].

I seek to keep the Access Accumulator and Fixed deposits short term; but I'm not sure of investing a third of my maximum Tax-free contribution to African Bank, because where will they be in 20 years time when I want to withdraw my TFSA portion?

I don’t recommend that you use your tax-free savings account for cash investments.


Edwin has a great question about the last big purchase we can make before we retire.

At some point before retirement we probably have to buy our last big-ticket items e.g retirement home, retirement car.

If I want to spend my retirement exploring the bush in a 4x4, I must purchase my last 4x4 with my savings before I retire.

If it’s a good car it will be affordable to maintain and reliable so I would be looking for that car to stay on the road for the next 10 to 15 years as a minimum. Hopefully it lasts forever.

The problem is that if I buy a cheapie it may not last all that long and break down...or I could discover that I really don’t like it and would have preferred to buy a more expensive car when I had the money. By then it is too late to change my mind. I would already be a pensioner.

Are we better off stretching ourselves when younger to buy something slightly better, but that will serve us better in the long run?

I want to drive a Range Rover in retirement, should I sacrifice the savings while still earning an income? Should we be making provision for our last “big ticket items” before retirement. Or is this a trap?


Mbasa wants to know why we’re limited to R33,000 tax-free contributions per year. Why can’t we max out the full R500,000 allowance at the outset.

Jul 22, 2018

 


Marriage is a long-term commitment to build a life with someone else (among other things). A wedding is an expensive party. This week Dr. Woofington Von Barkshire wants to know if we think it’s a good idea to spend money on an expensive wedding when you have debt and not very much money. We don’t.


  1. I have to buy a ring of the engagement type due to the expectations of my 6yr girlfriend (the time we have been together, not her age). I don't think it’s the right time to get engaged. But she is a year older than me and feels that is a life imperative to get engaged. I estimated the cost of a ring to be like R25,000.
  2. I need an emergency fund.
  3. I need to start saving for retirement. (RA and tax-free savings)
  4. I need to save for a wedding which I need to finance myself. Her parents are poor and my mother needs to save for retirement. She also has study debt (R110 000) and car debt (R120000).

My options are:

1. Defer the engagement until I am in a financial position to afford a wedding. Save on the engagement ring insurance and earn interest on the cash (savings of R30 000). And endure the fights about not being married/engaged.
2. Sell all my shares and try to do a budget wedding. He has R45k in shares.
3. Get debt to finance the wedding. I hate this option. But it is an option.

If I chose to defer engagement, should I sell all my shares and rather invest them in ETFs? Should I, instead of saving for wedding etc, assist my girlfriend in paying off her debt? Which will then quicker enable her to help me save for the wedding? Should one still get married, even though it is a bad financial decision?


Win of the week: Roland made a commitment to paying off his debt.

I am starting to pay off my debt and aim to make use of 2% of my increase to pay off more debt. I am planning to pay off one account and roll over that amount into the next account and so on. This is what I did. It’s a great strategy because of the immediate feedback.

Based on my calculations I should have all my debt excluding a car loan paid off by Jan 2019. Would it be best to pay off the car loan and close off all debt or should I keep some accounts to keep my credit score up?

https://justonelap.com/podcast-should-i-save-or-pay-my-debt/

https://justonelap.com/podcast-upping-credit-score/


Justin sent a message about cutting his losses. At the end of the message he says, “It was great being able to type swear words. Sorry to Sean for the extra work!”

A couple of years ago I started investing in shares. I was in my late twenties and having accumulated some money to invest I thought I would be brilliant at choosing my own stocks.

I got input from the team at the trading desk, but mostly my own decisions. Two years later I’m not even dreaming about growth in the investment, and rather sitting at around 25% down.

A large portion of this is due to Steinhoff (thanks Markus, you doos), but most of my shares are firmly placed on shit street. I have a knack of buying when shares are at their peak.

I have done waaaaay more research and know that ETFs are best for me. If fancy private bank traders can’t beat the market, it’s a lag that I thought I could.

But now I’m stuck with the predicament of actually realizing the loss. Does it make sense to take it on the chin, sell it all up and buy ETFs now, or should I ride the storm a bit? I would of course not like to sell at the bottom either!

Some of the shares include: Mediclinic, aspen, Steinhoff PSG and Steinhoff African retail (GREAT combo!), reinet and Ascendis.

I’ll probably hold on to the Steinhoff just to keep me humble. But also - who are the madmen who would buy this share from me?

Any advice would be greatly appreciated. I know I am young and can at this stage afford the knock. But holy fuck id like to minimize it.


Chris has a question about dividends tax on offshore investments within his TFSA.

I managed to pay off my debts recently and now have an investment portfolio which still small but starting to grow. My current strategy centres on maxing out all saving incentives which SARS gives and thereby minimising the tax payable on my salary and investment returns.

I'm currently able to put 27.5% of my salary into my company pension scheme and max out my tax free savings allowance every year. Any further savings is put into a global equity etf investment.

I would like to increase the portion of my portfolio in global equity, however from a tax perspective, I believe it's most efficient to buy a top40 or local property tracker in your TFSA since you get the double bonus of no capital gain, and no dividends tax, whereas a global etf will still incur dividends tax abroad (I.e. in whatever country the underlying companies are registered in).

Is this thinking correct, or shouldn't I be worried about foreign dividends tax in a tax free account?

Note: my underlying assumption is that the top40 will return roughly the same as a global equity tracker in the very long term (20+ years).


Jaco wants to know what we think about cows as an investment strategy.

You can invest into a pregnant cow, a calf or a portion of a cow (I think this is called steak). You earn income from the sale of the calf and help cover its feeding, medical and insurance costs. You can pick on which farm do you want to raise your cow and it looks like you can even go and visit!

I'm curious if anyone who listens to the podcasts is dabbling in this? It certainly makes much more sense than "investing" in bitcoin…

This is from the Take Charge of Your Money blog:

Invest in a calf (or in a portion of a calf if you cannot afford the full cost)
Help it grow by paying an all inclusive fee for feed, insurance & veterinary expenses
Share in the rewards. On maturity Livestock Wealth buys back the grown cow and you will receive an annual payout based on the collective sales on the farm.
The current projected ROI (return on investment) is 12.4% and is fully explained in the FAQ page.

You need to pay fees twice a year and receive a payout once a year.

https://takechargeofyourmoney.blog/2018/05/14/holy-cow-what-an-investment/


Christoff made an excellent point about Margaret’s question last week. She was worried about counterparty risk and the potential pitfalls and benefits of diversifying by supplier.

As you and Simon stated, the probability of a big, well-known RA company to go bust is very small, plus your holdings there will just be moved to someone else to continue administering your investments.

The one thing not mentioned was the sliding scale for fees by a lot of these RA providers. If you have all your investments at one specific company, you can end up with much lower fees (for example first million is at 1% annual cost, the next million is at 0.85%, etc)


Rakgomo wants to know how to invest in ETFs.

I want to invest in ETFs but I don't know where to get them, or even trade them. may I get some guidance in getting access to ETFs and where I can trade them?

Jul 15, 2018

The phrase “all their money” gives me the creeps. Throughout my life I’ve heard that line followed by something completely ridiculous. Some examples:

  • “He made all his money from property.”
  • “They made all their money from GNLD.”
  • “He made all his money from farming.”

The phrase also goes the other way, except this time it’s true.

  • “They lost all their money when their business failed.”
  • “He lost all his money in property.”
  • “They lost everything in an investment.”

The key message I got from Simon’s recent conversation with Charles Savage is that users remain uninvested because they are afraid of losing all their money. The bigger problem is that people misunderstand what the stock market is and how you make money from it.

In this episode, we attempt to explain how you make and lose money in the stock market. We follow that with why it’s very unlikely that you’ll make, or lose, ALL your money by investing.


Win of the week is Shane, for sending my favourite email of the week.

Just wanted to say - this morning's podcast was terrific! Busy researching into a shared Credit Card for myself and the missus.

Whilst we have been VERY good at mindful spending and savings, we just found out we're (unexpectedly) expecting an addition to the family 😊

Time to step it up a notch... BIG TIME.

Thanks for all you do!


Margaret wants to diversify for counter-party risk. She has investments with Sygnia and Allan Gray.

Is it better to have more money in fewer funds (to increase the power of compound interest) or have the money split over more funds/management companies to decrease the risk? Sally had a similar question this week.

Is there a rule of thumb for how many funds you should be invested in to manage this risk reward? How do you resist trying out several funds given the abundance of options?

In America they talk about investing all their money with Vanguard or in a S&P 500 fund. Here in South Africa with scandals like KPMG and Africa Bank I'm not sure I'm comfortable with having all my money managed by one company and/or one service provider.

How big is the risk of fraud/mismanagement given the regulation of the industry? I.e is it fine if I stop the debit orders to the managed funds and put them back with Sygnia?  Or should I go with another index tracking company such as Satrix?


Derek is about to retire and unsure how to choose a living annuity. He says he won’t take what we say as financial advice because he doesn’t trust people who don’t like to braai.

I need to decide in which Living Annuity product to invest.  

I naturally would favour an index-based LA for low fees and comparative net returns.   

I have convinced myself that a Medium Equity Living Annuity (CPI+5%) would best suit my personal risk profile; and allow a sustainable 3% draw-down while keeping pace with inflation and costs.

I notice that there are substantial differences in the net returns of the Living Annuity portfolios that are currently on offer.  

Direct comparison is complicated by the fact that the performance numbers are sometimes based on theoretical (back-tested) data as opposed to actual results.


Mbasa wants to know if it’s cheaper to buy ETFs at your ETF provider like CoreShares or Satrix.

When you buy shares directly via Computershare you only pay broker fees when you buy or sell, unlike having an account with a broker where you pay monthly fees e.g. Standard Bank online share trading.

I think my question is, is it better to own ETFs directly from the provider such as Satrix or Coreshares instead of buying via platforms such as Easy Equities?

TER

https://justonelap.com/etf-understanding-ter/


Danie has some feedback on Capital Legacy that Sephatisile wrote about.

Just a correction on the Capital Legacy information.

We use them a lot, but, they do NOT pay your Estate Duty upfront.

They offer an Indemnity Plan that "effectively indemnifies the costs of the Executor & Trustee services as well as Conveyancing Attorney fees that are necessary to wind up the deceased Estate."

This is a very unique and cost effective solution to estate planning, especially when kids are involved, or complex wills need to be drafted.


Patrick is earning dollars. He wants to know if he should keep them or bring them home.

I am earning US Dollars. I’ve already invested some of the dollars into an Allan Gray unit trust account and was wondering if I should keep in dollars or send money back to South Africa and invest in a unit trust there.


Anthony almost dethroned Shane for the win of the week

While listening to the radio one morning I came across an advert about a company called VeriFi. It's an online tool that provides you with an immediate and up-to-date overview of all your life insurance and investment policies. It does this by sourcing information from all the major life insurance companies – including Old Mutual, Sanlam, Liberty and others. The information is presented in a comprehensive report.

https://www.verifi.co.za

I did all the formalities and wanted to see if there was a better RA with low fees that they could offer.

They offered me a Liberty Retirement Annuity Builder for R1000 p.m

Thanks to you guys I SCRUTINISED this policy to see if I was getting ripped beyond repair.

They even threw in a compound interest table (with an assumed growth rate p.a of 10%) to see where I would end up in 35 years’ time. How fucking kind of them.

This compound table didn’t take into account admin fees and performance fees and advice fees and service fees and ongoing guarantee fucking fees and management fees and ongoing commission recovery fees.

ALL I SAW WAS FEES FEES AND MORE FEES

So, the quote from a fellow listener came to mind:

“It blew my mind that if I get 10% growth and inflation is 6%, there is only 4% left for growth (compounding) and if I pay 3% of 4% in fees, I will only get back what I put in (adjusted for inflation).”

The fees totalled close to 6%

Not to mention the ongoing fees, performance fees AND the service fees which are excluded.

I had to read this policy with a  bottle of whisky to numb the pain.

I’ll stick to my current RA with Discovery, for the time being as my life policy is linked and all – not happy about all the boosters and links etc…

But it made me feel happy that I’m not going to get ripped by these ridiculous fees presented to me.

Jul 8, 2018

 


Crushed under the weight of debt and desperate to get out, a younger, dumber version of me would often resolutely put money away - either toward debt repayments or honest-to-goodness cash. As often, I would have to cover some unexpected financial event (some more legitimate than others) and my resolution would dissolve. Eventually I’d accept I’m bad at saving and give up. It was easier than living with failure month after month.

For most people, repaying debt and saving at the same time is impossible. Just like we want to be rich right away, we want to sort out our money right away. Resolution is the work of a single insight, so a systematic solution is frustrating. Sadly, implementation happens payday by payday.

Sean asked, “My wife and I are going into our 30s and have no savings other than our provident funds and RAs.  We earn a net income of R28,000 and have R10,000 debt in total. We can’t afford to save more than R1,000 a month.

Whenever we save, something seems to go wrong and we use that savings to bail us out. We never go out or get take aways. The last time we bought new clothes was three years ago so we look like hobos. Our cars are fucked and we can’t replace them because there is no extra money in the budget. My wife and I don’t drink, so there is no wastage there.

I’m not sure what we are doing wrong.”

In this episode, we discuss what Sean might do differently.


We have two winners this week. Both win because of the homework they did.

Sally did a lot of legwork to understand an interest payment amount. She deserves a win for that.

I changed my debit order date (on my home loan) recently. I wasn't aware of this, but apparently if you do that they charge you interest twice.

She did a lot of investigation, calculations, eventually got in touch with her home loan provider and discovered the following

Because you change the debit order date,  they work out the interest you owe from the original date until the date you change it.

Then they calculate the interest again on the day after your new debit order date.  

Together they’ll make a month’s interest.  So they do charge you twice, but not double.

She deserves to win, because:

 

  • She knew immediately that two interest deductions went off her account.
  • She did her own calculations.
  • She wasn’t afraid to ask for clarification from her financial institution.
  • She really loves horses.

Nadia wrote us in the financial crisis episode to ask if she has the right exposure in her ETF portfolio. I sent her a link to the article on the six questions to answer before you buy an ETF. She did that, sent me her answers and in the process read up a lot more about the ETFs she holds. I’m very proud.


In the episode on preparing for a financial crisis, we spoke about Sanlam dangling a carrot for Wim to keep his RA with them. Brett wrote to explain how the echo bonus works.

I started an RA with Sanlam at the age of 22 which was based on their Echo bonus feature.

This means that all contributions that I made to the RA during its life would be tallied up and given to me at retirement on top of all my investment returns and original contributions. This bonus sounded great, but of course the fund had fees of 3.5% per year, and I am sure you know how the rest would go.

I did some calculations on this and wrote about it in the following article (although I did not name the fund):

http://www.etfenthusiast.co.za/2016/08/fees-matter.html

Sally also has experience with the Echo bonus. She currently has that RA, as well as a 10X one because she didn’t have enough invested in the Sanlam RA to qualify for a transfer.

If I assumed the same rate of growth and contribution from my side, to just compare fees between the two, you pay less fees at 10x (as expected) and the fees at Sanlam are more over the entire term.

However,  because of that Echo bonus,  the end amount I got from the Sanlam RA was similar to the 10x one with the reduced fee.  

That was my situation specifically because the Echo bonus works on how long you are invested with them and all that (the longer you are with them, the higher your percentage).

You miss out on the compounding over time, but at the end of the day, it was much of a muchness for me.  In the end I decided to just leave the two as they were, so I have two RAs now.


Sephathsile found a company that lets you pay estate duty upfront.

Last week I came across Capital Legacy. They offer free wills and promise to finalise your estate matters in 6-8 months with the option to pay your fees in advance as monthly contributions so that your family won't worry about it. They do a pay out to the family within 48 hours so that life can carry on whilst they sort out your estate matters.

https://www.capitallegacy.co.za/

https://www.zaqfin.com/


Gerhard is not loving property right now

I’ve managed to make some bad property investment decisions in my life – of the buy to let variety.

Then I thought let me try this listed property thing, as it supposedly beats buy to let over the long term, and I know you had some Magnus guy doing an insightful comparison on it.

So I am uncertain if his calculations still hold.

My challenge is simply to run this comparison again and see if it still holds.

As you can see below is the graph of the PropTrax TEN and I am no technical analyst but it is not looking pretty.

I would love if you could comment on what in the world is going on with it.

Is it okay to still hold it, I really do not want to climb out of it now… as I am far under water.


Phemelo is about to become a property owner. They want to know:

  1.       I am in the process of getting a bond, I was wondering which is the best option, obtain a 30 year bond and pay it off as quick as possible or get a 20 year bond and pay just the required instalment (something has got to give)
  2.       I am about to become a homeowner and I do not have a life cover, I would like to find out how does one go about getting a life cover for the bond. Do I need to go through the hustle of meeting 5 different brokers and comparing which one is better?
  3.       I would like to get an ETF that pays dividends, however I would like on whereby the dividend payout is invested in a tax free savings account, is this possible and with which financial provider?

Cyrus had to help a family member deal with debt. The process is frustrating, to say the least.

This is the second time you mentioned it (if I recall), in terms of supporting family. Today's mention was about paying off their debt with a low interest arrangement. Previous it was about supporting them if they are in the dwang.

So personal experience - we tried that. The supportive role. My sibling was at rock bottom - maxed out credit card, clothing account, less than R500 in cheque. So I went to town on his budget and came out with a STOP, START, CONTINUE plan.

Part of it was to financially support their essentials. I did not want to pay off their debt since I wanted them (sibling and spouse) to learn how to handle cash.

Things went south pretty quickly as I continually pushed frugality and it was not being met with my expectations. They were not keen on only eating peanut butter. I had a 10-point plan, and they were already challenging point 1.

The short of it is that another family member has bailed them out (with a low interest agreement), however I've stopped my involvement due to the anxiety and friction it created.

Family. Ugh


Stefan has some insights into the EasyEquities offshore accounts and the TFSA for kids thing.

My son is 2.5 years old. Shortly after he was born I opened his own EasyEquities accounts.  As you already know doing so gives you access to three accounts, TFSA, regular EasyEquities and also the USD account.

Every month I add to his savings, but I split it between TFSA and regular EasyEquities, so either half-half or one month I do TFSA and the other Regular.  

If need be, funds from the regular account can be drawn for things like an education, car, etc in about 18 years. We won’t have to tap into his TFSA and we can let that run until he retires rich one day.

I know there will be a tax hit on the regular account so perhaps I have not chosen the best way, but so far this has been easily managed and efficient.

* Then re the USD account with EasyEquities.

A few weeks ago I logged a ticket with EasyEquities and managed to get some clarity.  The EasyEquities USD account is real money sitting in a bank account in New York so it i’s proper offshore  cash.

EasyEquities does have an easy way to get the cash offshore. You put cash in your regular account and then you can send the desired amount to your US account. |The spreads are wide, though.


Hendrik's awesome spreadsheet is at the bottom of this post.

What is the best way to manage payments and investments between spouses?

Me and my wife each have our own accounts where our monthly debit orders go off.

We also have a joint credit card which we both pay into and use for our day to day expenses (and greenbacks of course, which covers our monthly electricity).

Because we pay a set amount into this card each month it serves as a budgeting tool for our day to day expenses as well.  

We use 22seven to track all our expenses and determine our monthly surplus, which we then split between her TFSA (mine is maxed out for the year), a retirement annuity and paying extra off on our home loan.

I figure that I am guaranteed a saving of 10% interest on the home loan and it serves as a good emergency fund as well. When it is paid off I will save that portion in ETFs/shares as well.


Fred wants to know if there’s a scenario where hyperinflation and exchange controls could lead to South African-based funds that invest offshore could be prevented from trading or shut down.

Free financial calculators

Jul 1, 2018

Dhiraj asks us to defend our index-tracking strategy in this episode. It’s hard to do when the theory works but the practice hasn’t delivered the goods in four years. At this point I can only cling to the success others have had with this strategy and hope.

Even index-tracking product providers are increasingly offering products that will give investors an opportunity to outperform the market. The index weighted by market capitalisation has turned into the ugly stepchild that nobody wants to talk about anymore.

Nobody ever knows WTF is going on in the stock market. Lots of people pretend they do, but since they all keep showing up for work instead of retiring in the Bahamas, we can assume they don’t. Maybe the market will do what it’s always done. Maybe we’ll look back at this period in our investment history, discover the yodelling goat formation and know this is when it all ended.

The index-tracking strategy makes sense to me for all the reasons Simon and I discuss in this podcast. However, when that stops being true, I will jump ship. I am not a salesperson for the ETF industry. I’m an investor, and I want to see my money grow above inflation after fees by any means at my disposal.

That said, I also know pivoting an investment strategy every time I don’t feel I’m making money is a surefire way to incur costs. When I got into investments, I knew anything less than five years is not an investment time horizon. Since I’m only at four years (and, to be fair, I’ve pivoted my strategy a few times already), I’ll hold out and see what shakes out.

Dhiraj shared a video.

You make a case for investing in a broad market index fund over the long term for cost effective wealth creation?

This Youtube video makes a case that one must study the intricate details of the share markets and invest in selected shares for best long-term risk/reward trade-offs.

It provides evidence that there have previously been extended periods where the S&P500 produced zero returns.

How would you counter his views on index fund investing?

Christiaan wants to know if it’s a good idea to have his entire portfolio, including his pension fund, in index-tracking funds.

I am a teacher. Through work we are forced to have a pension fund with the ‘Green Monster’. They have recently brought out a Balanced Index Fund with fees of just 0.30% p.a. It’s invested in the FTSE/JSE Capped SWIX Index Fund, which I have never heard of, as well as the expected bonds, cash and property.

Is it a good idea to have all my retirement assets in these, including my company pension fund?

Lady Kabelo isn’t sure what is passive and what is active in unit trusts.

I have an Allan Gray unit trust, and I'm looking to shift towards ETFs. When we talk about actively v passively managed funds, I think of ETFs as passive and unit trusts as active.

In episode 75 Simon talked about being invested in passively-managed unit trusts. I'm no longer certain that my understanding of the distinction is correct. Could you explain the difference between an ETF and a unit trust, and how a unit trust can be passively managed?

Lloyd has a three-month old daughter and would like to know where to save for her education.

TFSAs don’t seem a clever instrument for education investment because it erodes the potential before the real savings kick-in from long term holdings.

What is a better vehicle for me to save for my 3 month old daughter’s education. I am more worried about high school and tertiary so perhaps the investment time could be 10 years or more.

I am thinking the right ETF portfolio. How should I set this up to be best positioned from a tax perspective?


Wins of the week: Dan Gobble wrote a word of encouragement for Mpho and Rinaldo.

We turned the corner at just about three-quarters of R1m in useless debt - not car or home loans. I am talking revolving loans, credit card debt and overdrafts from living expenses and starting a business, which promptly failed. Rinaldo is only dipping into it with his 140k :) We swallowed our pride and went to family for help, now all the debt is consolidated with my in-laws at a ridiculously low interest rate. And we are on track to have it sorted in two years.

Also Mbasa, who is FINALLY starting their TFSA journey in July!

What ETFs would you recommend?

I have a provident fund (unit trust) and an RA (10x) at the moment.

I’d like to invest in aggressive ones. Was considering the Satrix Nasdaq 100, Satrix MSCI emerging markets and the ABSA New funds Momentum – a combo of the 3.

What are your thoughts?

I recommend reading Six Questions to Answer Before Buying an ETF: https://justonelap.com/etf-six-questions-to-answer-before-buying-an-etf/


Christoff Gouws has a book recommendation.

There’s one book that I’m busy going through a second time, because it’s one of the best books I’ve read on the topic of wealth building:

The Simple Path to Wealth - J. L. Collins 

Like you (Kris), I’m not one for active investing and trying to beat the market.

I like my Index Tracking ETFs and the amount of effort it takes to invest this way - nearly zero!

Jim Collins makes a great case for keeping your investment strategy very simple.

He proposes a one-index-fund strategy during your wealth accumulation phase of your life and a two-index-fund strategy during your wealth preservation phase.  I like that – as simple as you possibly can make it.

The book also shares a lot of fundamentals about how wealth gets built and destroyed (compounding working for or against you, opportunity cost, etc), explained in very easy to follow layman’s terms.

Edwin is able to answer Ross’ question about what would happen if we turned into Zimbabwe from personal experience.

My Dad worked over 30 years in Zimbabwe and did very well in his career. Company and personal retirement contributions were paid directly into Old Mutual in those days. With his retirement savings and various assets he was able to retire at age 45 with 3 children still to complete University...and he did! My parents had succeeded in giving us a wonderful upbringing, while planning frugally for the future.

Then hyperinflation arrived...

His life savings which, in a normal economy, would have been sufficient to sustain him forever diminished in value as the Zimbabwe dollar devalued.

When the economy moved to adopt the US dollar as legal tender in 2009, my Dad was paid the princely sum of USD250 by Old Mutual. Equivalent today to R3400. Still 3 kids to put through University and still needing to sustain oneself till death. This was a crisis and he had to come out of retirement and rebuild his financial well-being at age 50. It was heartbreaking.

My advice to Fat Wallet Show listeners with regards to financial apocalypse is as follows:

  1. Make sure you diversify some of your liquid assets outside of South Africa. When a loaf of bread costs 1 quadrillion Rand, it is handy to be able to bring USD$10/month back into the country so you know you can eat
  2. If the economy starts to deteriorate very rapidly e.g. Rand goes from R13/$ to R130/$ in 12 months, get into cash very quickly
  3. Convert that cash into hard currency very quickly
  4. Find ways to limit your liquid cash outlay e.g. consider growing your own vegetables, reading news for free rather than buying a paper, using cards to transact etc
  5. Get out of paper "products" as soon as you can and get into save haven currencies as soon as you can

The Zimbo's experienced the apocalypse first hand. When it comes along it doesn’t matter how good you look on paper. All that matters is how much of a stable currency you have access to on a day to day basis. 

Jun 24, 2018

When we get into debt, we think it’s a temporary state of affairs. We’ll get rid of it once we earn more money. However, nothing is more delicious to a financial institution than an indebted individual getting a raise. As our income increases, so increases our access to credit.

Think of someone you know who appears to be very wealthy. Now think about the debt required to maintain that appearance. An expensive home loan, car debt, credit cards and store cards all work together to make it seem like money is no object. As we discuss this week, the price we pay to appear wealthy is often the very thing that destroys true wealth.

This week Rinaldo inspired us to tackle debt in high-income households.

I am a high income earner with money problems…

I contribute 18% of my salary to my employer provident fund and R500 a month to an education endowment plan for my boy who is five years old. That is the sum total of my investments. Oh, and I bought a buy-to-let apartment two years ago and what a disaster. Battling to sell the money-chowing, headache-causing thing now.

I need to invest more but I’ve got the following bad debt:

  •        Credit card of R40,000 at 14.5% interest
  •        Revolving credit of R40,000 at 17% interest
  •        Overdraft of R60,000 at 15% interest

I’ve got a deficit in my budget due to the credit repayments and I'm considering a debt consolidation loan, but don’t want to stuff up my credit record which is rather good because up until now I've serviced my debt well. Should I consider a consolidation loan and where and what will be the impact on my credit score?

No emergency fund, which caused the debt.

How did you do it?

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