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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: May, 2018
May 27, 2018

One of the highlights of the 100th Fat Wallet celebration was the opportunity to interview Patrick McKay about financial independence. Patrick, who runs The Investor Challenge Blog, achieved financial independence two years ago. At 39, he boasts the title of Regional Drone Coordinator and works because he enjoys it.

In this interview, Patrick tells us how he did it. He talks about his investments, how he managed to afford having a child and what he plans to do now that he can do whatever he wants.

Hopefully this is the first of many conversations with Patrick. Listen, and be inspired.

May 20, 2018

Author Sam Beckbessinger’s excellent book Manage Your Money Like a F*cking Grownup is the unofficial written summary of The Fat Wallet Show. While we didn’t know about Sam nor she about us until after the book was published, we are thrilled at the synchronicity.

She explains every principle you’ll ever need to understand to make excellent financial choices simply and understandably, sometimes even with pictures. In fact, if you never read another thing about your money, you’ll be set for life.

We couldn’t imagine a better co-host for our 100th celebration. We spoke about the one concept in her book that we’ve never dealt with on this podcast (because I didn’t know about it) - the spending ratio. As Sam explains in this episode, it’s an excellent way to measure the health of your finances, because it’s not dependent on external circumstances like the market or even your salary. You are in complete control.


To work out your spending ratio, divide how much money you put towards paying off debt or savings of any kind (including retirement and emergency fund) by your after-tax income for the month. Times that by 100 and you have the percentage of your income that you spend. Your challenge, should you choose to accept it, is to reduce that number as much as you can. The lower your spending ratio, the higher percentage of your income actually serves you.

Sam’s book also deals with the most common behavioural traps we fall into when it comes to our money. I caught myself making the most obvious one as I was reading Sam’s book - mental accounting. I caught myself before I made the mistake and saved R600! Not bad! In our conversation, she explains what mental accounting is, why we do it and how we can try to get around it.

Lastly, we talk about the final frontier in my budgeting quest. I’ve become very mindful about my money and deliberate in my savings over the past five years, but I’ve always struggled with discretionary spending. I allocate funds to certain spending categories, like groceries and petrol, but never seem to stick to that. Sam’s book finally solved that irritating problem. She explains why it can hurt being too granular in your budget.

May 13, 2018

We’re 100 episodes old*, so we might as well talk about death. Edwin is turning out to be our most philosophical user - you’ll remember him from before. This week, we help him figure out what will happen to his investments when he dies.

We know for sure every investor, trader, RA holder and homeowner will die. Why has it taken us 100 episodes to talk about the impact of death on wealth? Mostly because it’s scary and we don’t like to think about it. Estate planning is a huge part of financial management, especially for those who have already managed to accumulate some assets. It’s moving up our list of priorities in a big way. Thanks, Edwin.

*We did also smash an entire bottle of champagne while recording this episode to celebrate 100 weeks of The Fat Wallet Show. This podcast has been a transformative experience - personally, professionally and for our business. You guys surprise us with your frankness, insights and thoughtful feedback every week. You’re a constant reminder that world is full of intelligent, sincere people who care about those around them, despite what we might think after 30 minutes on Twitter. Thank you 100 times over.

You should come party with us on Wednesday to celebrate!


Win of the week: Leonora thinks we could do better in the swearing department.

Coming from the Cape, I find your swearing vocabulary very limited.  A four year old down here might know more choice words than the two of you combined. 😄


Edwin has three kids and has to think about grown-up things like death.

As a 37 year old adult with 3 kids. What actually happens, step by step, to my money when I die?

I have several investments in fixed property, ETFs, unit trusts, overseas shares and a company pension fund.

I have debt in a primary home and investment home. All in all on the day of my death if I include my life policies my net worth with be positive.

I also have a will that leaves everything to my wife and kids. My wife will be richer than she was when I was alive. Don’t tell her :)

Will the bank freeze all my money until my estate is finalised? Will they take cash out of my life policies and pension to pay estate taxes?

Since my emergency fund is in my bank savings account does this mean it will be frozen too and my family can not access it?

How long does it take for an estate to be finalised? Will the proceeds from my life policies be taxed too?

Is there a clever way to plan for this so that my family can still live during the process of finalising an estate?

Is a life hack or best model for planning for this. Seems a waste to spend all of my life trying to maximize my wealth only for it to cause problems for my family when I am gone.


Njabulo is starting to see his investments work for him.

I logged into my ETFSA account for the first time since moving my contributions to Easy Equities only to find out the cash account grew by just over 66% from free money (dividends and interest). The "profit" from dividends and interest in enough to buy me another Satrix40 ETF. Small as it is, it reminded me of Lesegesha's email. Size matters very little in the world of compounding interest.


Cobus is leaving the country and not sure how to save for retirement in the meantime.

I’m 25 and have the opportunity to go work overseas. I don’t currently have plans to come back to SA. But I would like to start saving for my olden days and make compound interest works for me.

How does one go about this?

Because if one plans to emigrate, does one need to save in the destination currency?

Or buy ETF's that carries global risk instead of just SA denominated risk? Such as an SNP500 etf?


Conrad wants to contribute his full R500,000 tax-free allocation at once. Sadly, he can’t.


Karel has taken charge of his finances in a big way and was hoping we could help him with a share-picking checklist.

Since I started listening to you I’ve changed my RA from Investec to 10X.

I have opened an EasyEquities account for money left over at the end of the month that I save after cutting back on my spending.

I also managed to get rid of my bad debt and I should be able to finish paying of my house by the end of this year (done and dusted in 4 years).

I maxed out my TFSA yearly as well.

So far it’s been going great, I have bought majority ETFs and I had some shares that I transferred into my EE account.

NOW I am venturing into uncharted waters on picking my next share.

What I love about this is the order of operations. First things first - you take care of your future by taking care of your debt and sorting out how you’ll survive when you’re old. THEN you venture into the more fun stuff.

I am a sucker for a checklist.

Would it be possible for you to set up a checklist of the top 10 things to compare between companies to help me decide between say Metrofile and PSG?

All the monies I put into this account and every single share I buy, I plan to keep for the long run so good old coffee can investing.

Check out Porter’s Five Forces.


Wilhelm has questions about RA rebates.

Is the rebate to be based on your gross income?

What is the best way to calculate your tax rebate?

How does the primary rebate work?


@synapseza has such a cool money hack this week.

I have an Income Protection / Disability Protection / Life Cover/Let's-add-some-more-fucking-complicated-benefit-enhancements-and-accelerators-to-charge-even-higher-premiums product with Discovery.

The Income Protection is by far the most expensive benefit of the product. Looking through the policy document I noticed that there is a choice between waiting periods (not that it was mentioned by my broker when I signed up). I was on the shortest waiting period (7 days). But I have an emergency fund, so I really have no need to be covered for such short periods. Extending the waiting period to 30 days resulted in a 30% premium reduction (and they didn't quote for 90 days although this is an option in their product). Definitely something to check out and align with your emergency fund.


Dean wrote us about body corporate bridging solutions. We discussed this in this episode when Bronwyn’s financial advisor told her of a product with a 17% guaranteed return. Dean explains the product below:

BCBSs provide access to what would normally considered an institutional-only asset class – lending. Lending as an asset class is meant to co-exist and complement a range of other asset classes that exist in a client portfolio. It’s also important to qualify that these funds are a loan to a Body Corporate, not an investment. Our clients may view their funds as invested, but technically it’s loan. BCBSs products have the following characteristics:

Risk

  • The Sectional Titles Act has protected every creditor (our clients), to the extent that there has never been loss to any creditor since the legislation was first tested in 2001, where legal precedent was set in the Amine Case.
  • Legal opinions confirming creditor security include: EY Stuart, Knowles Hussain, Webber Wenztel. Contracts are drafted by Edward Nathan Sonnenberg and Werksmans, amongst others.
  • We have a parking facility with Stanlib.
  • Aside from the Sectional Title Security, BCBS will soon be introducing a Hollard capital guarantee on the Capital Growth Plan.
  • Our cash custodian is Sanne, a FTSE 250 company.
  • BCBS never touches client capital, but merely facilitates the lending process, due diligences Body Corporates and report on the capital.
  • BCBS is also just the funding arm of the larger Sectional Titles Solutions (STS): (12J VCC / Solar / Outdoor Advertising / Legal / Administrative).
  • Security afforded our clients, makes the product very low risk.
  • A further discussion should include the lending demand of Body Corporates.

Costs

  • There absolutely are costs, but none are borne by our clients.
  • The borrower covers all the costs, not the lender.
  • These include a lending rate, admin fees and a raising fee. (Similar to a bond application with a bank.)
  • We put our clients in the position of a bank, thus there is a 0% cost implication, and a 100% capital allocation to BCBS clients.

Returns

  • The very nature of a lending asset class suggests that returns are linked to the Prime lending rate.
  • This is indeed the case. All BCBS’s products are linked to Prime.
  • The products range between Prime + 3%, 5% & 7.5%. (Contractually specified.)
  • These returns are truly meaningful, taking into account the capital security, no cost implication and the fact that Prime very rarely changes.
  • Clients do not have a TER, capital is protected, there is almost no market volatility experienced.

So far, all I’ve shown are positives. As an ex-financial planner, that would make me sceptical, but BCBS clients do have negatives to contend with as well:

  • The pairing of capital with a borrower does take time as there is relatively long strict due diligence process.
  • As this is a loan, a client can be repaid all or part of their funds before they want the funds back. Thus they would then need to re-join the deployment queue.
  • The client may also be repaid amounts that are too small to redeploy.
  • Should life happen and the client needs to exit prior to the completion of a loan contract (on average three to five years), the client would experience an exit fee.

All of these items are covered in our Memorandum of Understanding and ultimately the Sale of Claims Agreement (client contract). We also encourage all clients to do their own due diligence on the products and we always gladly share any information they may require to gain a better understanding. BCBS has always been highly transparent in all areas of their products.

May 6, 2018

Factor-based investing is nothing new. The idea that certain shares will give higher returns over time is the premise behind the entire asset management industry. Absa’s newish range of factor-based ETFs are as interesting for their weighting as their methodology. In this episode, we talk about whether factor-based investing has a place is passive investing.


I hate to do this to Sean, but the ABSA TFSA account has a minimum brokerage of R15, so this spreadsheet is in error, and you are still better off going with EE either way (lump sum or monthly) by a whole R34.50 per annum. That’s a free glass of wine right there!

Free wine gets you a win of the week. 


Antoine discovered something in his dad’s RA that I didn’t know about. Anyone else notice this?

He wanted to know the reason for multiple endowments and investments, taking interest free loans from one and investing it in another.  I confirmed with the product manager again that there are no benefits doing things this way. I believe these guys keep on lending and reinvesting the same money, because for every new investment, they generate a commission.

I explained to my dad that a R50 000 commission might sound like small change if you compare it to the final outcome of each of these investments. But consider this :

R50 000 upfront commission

Momentum borrows this against your investment at 10% interest per year for 10 years = -R79 290.00

Plus you lose a potential growth of 10% per year = R85 352,08

So the difference is R164 644,08, which means every time they generated a R50 000 commission  for a new 10 year investment, with the same money, my dad is R164 644,08 poorer. There was no real value added, they probably just get their secretary to send my dad some forms to sign. It would have been better for my dad if they just took the same cash out of his pocket every time.


Thinus

If you had R10 000 per month to invest, what would be the ideal split between putting money away for retirement vs. implementing/maintaining an aggressive investment strategy?

For example, let's say this person is in their early thirties and has a healthy appetite for risk. They want to invest in the following:

Buying an RA has obvious tax benefits, but might be limited if one is seeking more risk.

Buying ETFs via a TFSA, which is obviously tax free and less risky.

And, buying single stocks (equities) either locally and/or internationally.

The responsible adult would lean more towards the RA and TFSA, but the risk-reward-seeking side of them wants to put everything in single stocks (equities).

How do you balance the risk in this scenario?


Phemelo (who was a book winner) made a difficult choice about a car.

I’ve been battling to make a decision.

We bought an SUV 2 years ago. Because service plan expires, we needed to make decision.

1.Trade in it and get smaller car

2.Surrender it to the bank

3.Extend service plan for an extra R500

4.KEEP THE CAR, SERVICE IT YOURSELF AND DRIVE IT until the WHEELS COME OFF.

We decided to go with friends’ advice to keep the car and drive it till the wheels come off. I feel I need to celebrate making this decision.  Hopefully it will pay dividends in years to come.


Tshepo has a question about over-the-counter shares.

I was introduced to the word but not the research. Do you need lots of money or can an average Joe also get into it? I am looking at a company called Equity Express.


Jonathan said women with kids are excluded from the podcast because of the swearing. We asked you what you thought.

Madelyne, Ronel and Chris said they don’t like the swearing.

Tim says he doesn’t like it, but if we must he doesn’t want bleeps.

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