Like many of you, I have listened to every episode of The Fat Wallet Show. I’ve learned so much over the years, but I find it interesting that some lessons keep repeating. This week, Simon and I spend our last episode together reflecting on lessons we keep on learning. Think of this as the TL;DR version of 245 episodes of this incredible show. 

Here’s what we know for sure:

• Many people who listen to the show think their biggest financial decision is ahead of them when actually they’ve already made it: being an active participant in your own financial life is the best financial decision you’ve ever made.
• Emergency funds are more important than any other product we ever discuss, but you can’t tell because it’s boring.
• A bad plan is better than no plan.
• Time matters more than money. Lesegisha pointed this out using a kota as an example, so I also learned what a kota was.
• Fees matter at least as much as returns, if not more. Grant Locke explained why this is when OUTvest introduced its Onefee product. 100 years worth of market data support this.
• Because there are so many variables in the market, it’s worth being suspicious of people who sell certainty. Cash offers certainty. Fixed interest bonds offer certainty. Aside from that, forget it.
• “The best investment” doesn’t exist (but bad investments do). Taking positive action, keeping a close eye on things and learning as you go is the only way to do this. Start with what makes you comfortable and build from there. If that means a GIANT emergency fund and one fixed-interest bond in addition to your work RA, that’s as good a place to start as any.
• The habit of setting money aside matters more than where the money goes.
• There is no single right answer. In fact, there are as many ways to get to financial independence as there are people in the world. 
• ETFs are the market. When ETFs try to beat the market, they are no longer the market.
• The harder they shout, the farther I run. Wealth building is either silent and slow, or extremely hard and slow. 
• Just because someone says they’re doing something in the media doesn’t mean that’s what they’re doing. 

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Win of the week: Tim

I feel like you are both good friends due to the millions of hours of the Fat Wallet Show I have listened to. I have been there from the beginning when I discovered your show in 2016 during the start of my financial obsession ( don't judge me for not writing, I'm an expert procrastinator).

Although living in Germany since 2018, I have been listening to your show religiously and a lot of what I have learnt is the bedrock of my financial strategies. In October last year, my world changed forever, when in the week of the birth of our first child, my partner and I both got Corona which was a complete nightmare. Now 5 months later, a healthy beautiful boy, 2-3 hours of sleep a night, I am emerging from the haze of these challenging last few months to get back to old habits. I turned on the Fat Wallet Show and was shocked and saddened to hear that you are leaving Kristia.

I just wanted to thank both of you for the amazing job you have done over the last 240 something episodes. You have taught me so much and done it in such a fun and enjoyable way. As a teacher myself, I hope that some of my students could have such an enjoyable learning experience as I have had with the two of you over the last few years.

Ros

It's worth looking into the bottom-of-the-range Discovery card. 

The Gold credit card, on its own, is R60pm. If you want, you can add R15pm for Vitality Money. I would recommend adding the Vitality Money for the extra discounts and rewards it gives you. I'm attaching the Discovery brochure that explains the "dynamic discounts" (it's almost impossible to find this on their website, and almost impossible to understand the product without it, which is why I'm attaching it) as well as my spreadsheet showing how much I "make" out of Discovery Health and Card each month.

Some things to note about the spreadsheet (there are two tabs):

All my calculations are based on Diamond Vitality money status. (Also Diamond Vitality Health status, but I'm not sure that has any effect on the cashback calculations). A lower Vitality Money status means lower Vitality Money cashback percentages. I got to Diamond Vitality Money status without really trying - you should be able to as well.

I'm a single person and generally a low spender. About 90% of my food spend is on "Healthy" food at Pick n Pay. I don't spend much on HealthyCare or HealthyGear, so the extra monthly cost of the Platinum credit card, or taking out a Gold transactional account, isn't worth it for the extra percentage discount on HealthyCare or HealthyGear. 

I battle to hit the R12500 monthly credit card spend in order to hit the maximum Vitality Money extra cashback percentage on HealthyFood, fuel, and exercise points to miles. And I put *everything* on my card - even a chocolate for R15! Of course I pay it off in full every month.

 Even at my low spend levels, I'm netting R450 to R650 per month (and that excludes my gym savings). 

Download Ros' Discovery cashback spreadsheet.

Discovery dynamic discounts

If you’re new to this money business, access bonds will confuse you. Not only do we use the word “bond” to mean “lending money to the government” and “borrowing money from the bank to buy a house”. The access we’re talking about has changed over the years. As Simon Brown explains in this week’s episode, in the bad old days before the 2008 crash, banks used to give you a little additional spending money when you took out a home loan. Those days are long gone, but the idea prevails. 

These days you can’t access the interest or principal repayments you’ve already made. You can only access additional repayments you’ve made to reduce your interest payments over time. For this reason, many people store their emergency fund in their access bond. It simultaneously reduces the interest you pay by reducing your principal amount outstanding and protects your cash from tax on interest. 

In this episode we discuss the possibility of using your access bond to become your own credit provider.

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Gwen 

I am in the process of searching for a house and I often hear people saying that they use an "access bond" as an emergency fund. A friend of mine once told me in the past that I should never take up an access Bond because you never finish paying it. 

Listening to a lot of podcasts I often hear people saying they use it to put their emergency fund and then they get the benefits to reduce interest. Am finding it difficult to understand how this works, can you kindly explain this to me and how it works practically. 

I need to understand how I put money in the access facility, do I deposit it and will the interest reduce automatically? 

Win of the week: Katrien

Just a short note to say thank you for the work you’ve done at Just One Lap. I’m one of the many thousands of people who drive to work on a Monday morning with a big smile to start our week. In addition to learning about personal finances, you guys lift our spirits and give us hope.

Greg

Moving towards pulling the trigger on the investment side so getting there... 

TFSA for kids... (trustworthiness aside) 

If I want to play catch up with their contributions (or mine) as we are all starting late (12 & 14 for them and 49 for me) I am aware of the 40% tax on over contributions, but surely in the long term their returns will work this off and they will be ahead of the slower sticking to the limit curve? 

No.. I have not tried to spreadsheet this yet... My assumption is that the tax is on the input only? 

It has always been the philosophy of this show that a good question is more valuable than a good answer. It’s incredible what you can learn from a really good question, both about the topic and about the person asking the question.

This week, Frank had an excellent question about moving retirement funds. This question reveals, first and foremost, just how much Frank already knows about the market. It also reveals a thoughtful person who has found a balance between taking calculated risks and doing whatever he can to protect his assets.

In this episode, we address issues around the ethics of retirement product providers, loss aversion and rand cost averaging. All of that, from a single question!

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Frank

I have been contemplating transferring my retirement funds to OUTvest. I have some money with Allan Gray, some with Sygnia and most recently with EasyEquities. Combining all with Outvest will qualify me for the R4,500 fixed fee.

My concern is switching providers too frequently and whether the risk associated with the potential savings is too high. The time out of the market between the exit and the re-entry may result in losses. Is it worth considering? What happens if someone cheaper comes along next year and I'm tempted to switch again? My other concern is the potential manipulation by the provider that I'm transferring away from, the amount that went to Allan Gray from Old Mutual was significantly lower than the balance showing on the investment platform around the time of the transfer.

I had no control over what day the selling of the units happened and had no way of verifying whether the sale actually happened on the day they said. A number of weeks pass from the day you notify a provider of your intention to move away to when the move actually happens.

What prevents them from selling on day two after I notify them, but selecting the lowest unit price in the following days and reporting that to me as the day on which they sold my units? They could sell on 1st of the month for R50, but the transaction is only finalised at the end of the month (31st) - they could then see that the unit price on the 12th was R46 and report to me that my units were sold for R46 - giving them the profit (is this a kind of arbitrage?).

I'm conflicted about whether I should move to Outvest now and whether the benefit would be substantial or whether I should just leave the money where it is to grow and perhaps consider Outvest the next time I change jobs. With the bulk being in a Preservation Fund, what are the considerations I should take into account when combining it into my RA?

Sygnia had allowed me, at the time, to change the allocation of my provident fund to 75% SYGWD (MSCI World ETF) and 25% SYGP (Global Property ETF). My concern is that with the uncertainty around the changes, the online platform is now reporting that my investment is not reg 28 compliant. What are the risks? Whose responsibility is it to ensure that the provident fund is compliant (me or Sygnia). What happens in reg 28 compliant providence where there is "drift" in allocation (ie I may have had the correct percentage in equities during January, but price changes in asset classes may have resulted in "drift" where the asset value in that class is now outside the allowed percentage?)

In a previous episode Simon briefly mentioned that there may be scope to use available funds from a bond to invest in the market for returns that neat the interest. My current bond interest rate is 6.55% and I have a substantial amount available in the access bond portion. Could you discuss whether I should use those funds to buy ASHEQF? Am I correct in stating that 6.55% per annum is 0.55% per month? My logic says that as long as ASHEQF returns more than 6.55% per annum I should get out ahead. Thoughts?

Win of the week: Shumi

I am 33 years old, single, female with no dependents. I am not a cat, engineer or doctor. I studied Philosophy, Politics and Economics and ended up in finance but not the math side. I found the Fat Wallet in late 2018 after a financial awakening when I found FIRE and Stealthy’s blog. Since then my net worth has grown from -R660 000 in June 2018 (I bought a house before I found FIRE 😓) to over half a million in March 2021 (technically over a million if you include the house but I know that although it is an asset it is not an investment). This is attributable to two main factors, my standard of living remained the same as my income increased allowing me to save and invest the difference.

Kristia once posted a hand written note of the Fat Wallet manifesto on twitter and I followed it to the letter. I live on less than 40% of my income, no debt except for my bond, have a 12 month emergency fund, max out my RA and TFSA and also have ETFs in a local and offshore discretionary accounts. I also save and invest any increases and bonuses (Simon’s rule of thirds really helped me). So far I’ve stayed away from bitcoin, bees, gold and Tesla. Precovid travel was my money dial and I happily spent on frugal and extravagant local and international trips. Most of that has been diverted to chuckles & diy during the pandemic. This simple plan has worked well for me.

My income is relatively high (2 promotions in 3 years) so a lot of this success is because I earn enough to have a gap between what I make and what I spend. But without the Fat Wallet, lifestyle inflation would have creeped in and I wouldn't have known how to grow my money. From the outside nothing much has changed, I live in the same house and drive the same car (pushing 8 years now) as when I was in debt but I sleep much better knowing I have a solid financial base.

Thank you for all you do. Good luck on your new journey Kristia. Simon I listen to you 8 times a week so I will still be learning.

Feedback from Kris about contributing to a bond vs investing in the market

A good approach could be to use asset allocation.

E. G. If you already have a lot (or some) home equity but now want to start investing then why not aim for a certain ratio e. G. 50% each. So over time contribute to each such that you reach equal amounts in home loan equity as in stock market investments. Once you reach this equilibrium just maintain it going forward. It's diversification.

Itshekeng

I was swamped with debts and could not repay them all at the same time. I sold my house and have a lump sum which I would like to invest. On the other hand, I wish I could use some of it to reduce my debt repayment period. I am still working and would really like to get out of debt and be able to save up for a house and a car and retirement, and take out policies for my child.
What is most important and where to invest with good returns over 5 years?

A conversation on our excellent community group had me wondering why we’ve never dedicated a whole Fat Wallet to finding passive income streams outside of investments. It took about ten minutes for the realisation to dawn on me: true passive income is a myth. 

We often talk about side-hustles. “Hustle” is the operative word there, because we’re describing a second job. The appeal of working in your free time is the diversification of income streams and the potential to eventually earn your monthly income doing something you enjoy instead of your day job.

True passive income means you work at nothing but capital for the initial investment. It’s important to remember capital can be physical or it can refer to your time. We discuss the potential of online businesses and the enormous amount of time required to get any sort of momentum. We talk about rental income, having an Uber fleet and selling products online and in each case talk about the work required to truly make it work.

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Win of the week: Kay

I stumbled across your podcast Sep 2019, via Sam Beckbessinger's book. I binged listened to all the episodes in a rather short space of time.

I got a much clearer understanding of TFSA, and opened one immediately. My fear of stocks (which was more a lack of understanding) disappeared.

Took my ostrich head out of the ground, and looked at my liberty RA. Ouch.  That got shifted out, can't say immediately, but Liberty did eventually let me go.  

I started pumping money into an emergency fund. Life had taken an interesting turn in early 2019, and my income was more than halved. Come 2020 I had an emergency fund, which has saved my ass (or more like my animal’s asses....pet insurance is definitely a future consideration with younger animals ) more times than I thought I could possibly ever need to use an emergency fund.

If I had not discovered your podcast before 2020, I shudder to think what may have been in 2020.

Once again, thank you for all that the two of you have done. It really has been life changing.

I have a feeling once I finally retire, and I am able to still drink a fairly decent whiskey, I will think back to the early days of The Fat Wallet Show, and think thank goodness I discovered the podcast.

On a side note, does Simon get to keep all the future donations that will be sent once we all have it made?

Inge 

I currently hold Ashburton 1200 and Satrix top 40. Now, with SATRIX I am guessing I am not taxed on dividends as these are SA stocks and fall under SARS, so they can't shaft me here.

But do I pay tax on dividends and gains in the Ashburton 1200? Is there any benefit to holding it in my TFSA or should it just be a discretionary investment?

Should do a 50% , 50% split between these two? OR because I have a local RA, do I max my offshore in the TFSA and do a 70 ash / 30 satrix split?

I am torn between putting extra into my bond to reduce the term (and amount of compound interest paid) vs putting money into my RA/TFSA for the future. Currently my bond is also my emergency and travel savings fund.

My current strategy is- 

RA: maintain and only do standard annual increase. 

Bond: pay in an extra 50%, 

I take about the same amount I put into my bond and put 2/3 into a TFSA and 1/3 into an FNB share account.

Do I pump up that bond and get it done, or maintain the current strategy?

Do you have any suggestions of what calculator to use to show someone the value of time in the market?

Una 

I began a new job in early December and had my daughter in early February. While I understand the value of getting medical when you have a child, I signed up for health insurance instead of medical aid because I was in a hurry. I'm not sure if I should cancel and get medical aid; could you please advise which of the two choices is the best? 

Tim

She owns her home and should downsize. She likes having 2.5 vacant bedrooms for myself and my brothers.. despite 2 of us being married. 

In 2014, we started buying apartments in Joburg, she owns a 1/3 of the company that owns 4 units (1.5 still bonded).

She is a member of the GEPF 

She has minimal discretionary investments (Satrix etc.) and I started her on a TFSA last year.

My stepdad lost all his pension funding assets in his divorce. He’s a (retired) teacher with a (small) preservation fund (and a TFSA from this year). 

My mom currently has R15k per month cash to invest. My thinking is smash R6k into their two TFSAs and convert the balance to USD through EE/Shyft and buy VT through EE or TD Ameritrade. 

She will need to leave that money for at least 5 years. She has a large amount of property and Reg28 exposure relative to offshore/ETFs. 

Is there anything else you would suggest looking into?

I’ve heard you say a few times that dividends within an RA/preservation and a TFSA are tax free whilst in the vehicle. Apart from the total return ETF complication, how does the company paying the dividend know that it is going into one of these vehicles and, therefore, doesn’t deduct the tax?

Christiaan

It might seem that we have some tax relief, but when electricity prices are going up 15% and the fuel levy is increasing by 27c/l, does it just not mean indirect taxes are just diminishing any perceived gains? 

Are we being tricked into feeling good, but when you look at your personal cash-flow you realise there is not more left? When electricity and fuel go up, would it not mean we have increased food prices, inflation in the general economy and will pay more for goods and services in general? When that happens, are we also likely to see interest rates going up?

Mo

My goal over the last year was to get an apartment and pay it off quickly to avoid big interest payments. I have already set aside an emergency fund and I am now paying extra into the bond to get it paid off hopefully under seven years. 

Having discovered the wonders of TFSAs, ETFs, etc. I am now torn as to how to go about spreading my money. I am struggling to find a good ratio between the additional bond payments and an investment account (ETF invested account, not TFSA).

I like the idea of having the apartment paid off but I am worried that I am putting too much emphasis on reducing the time period of the bond and at the same time losing out of potential growth of ETFs. I was previously putting all extra cash into the bond account, but am now looking at putting 2/3rds into the bond and 1/3rd into investments.

I am still young and doing what I can to live frugally and not stuff up being in a good position.

Many people take their first wobbly steps into the financial world because they understand money is meant to do something. What exactly that “something” is, is often left to someone else to figure out. However, once they start learning about the financial environment for themselves they realise there might be products better suited to their needs.

Moving a lump sum away from a provider you’ve trusted for a few years is a daunting process. Even if your reasons are sound, it’s not an easy decision to make. 

In honour of the brand new tax year, we spend this week’s episode helping Carmen decide what she should do with her existing high-cost retirement product. We hope the discussion will help you decide what to do with an investment product that no longer suits you.

We apologise for the ear worm. 

This week’s show is also the last of our shows sponsored by OUTvest. We are deeply grateful to them for their support.

Also remember tomorrow at 11:00, Bobby from AJM Tax will talk about how the tax changes announced last week will affect your pocket. Join the Facebook community group to watch it live and ask your questions.

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Carmen 

Do I keep pumping money into my high cost actively managed RA at Old Mutual (I like the idea of money going somewhere that I do not think about)?

Do I transfer the current balance to my low cost EE and let it sit there and grow (along with the increased monthly premium plan)...but then continue the R3500 contribution to OM (which will likely have even higher fees because now my base amount is R0).

Do I reduce my RA contribution to Old Mutual to the minimum R500 per month (so that I don’t incur an “admin fee”) and increase the RA amount to my EE RA immediately by R3000 per month?

Do I get outta dodge re: Old Mutual RA and move alles completely?

Ancillary reasons for sticking with an actively managed fund at a big investment house are: not to have all my eggs in the EasyEquities basket; my personal risk insurance side is sitting with Old Mutual (disability, illness etc) and my OM is invested in other items than my EE portfolio (bit of diversification); keep contributing to one RA up to age 60 and only pull from it from 65...and other RA only pull from later.

Win of the week: Nalisa

I started this email about four months ago, and listening to this week's podcast made me decide to get it done. Especially when pet expenses came up! 

To clarify, I'm a vet and best you believe my creatures are on insurance! Yes, I'm a vet and proper medical care is still expensive for me! Akina, my eldest, decided to go ahead and twist her spleen (after hours, fucking typical) and the resulting bill came to about R20 000, and the medical aid paid me back in under a week.

Even if it wasn't for that incident the peace of mind we get from it is worth every cent. But do your research and (I can't stress this enough) read the fine print! Know what they cover and what they exclude, and especially look at their limits (per claim and annual limits). They're still insurers, they're still trying to screw you. 

My fiancé and I were discussing how one could become completely self insured.

 We only insure our cars, our home and our pets. We both have life insurance ( to cover the bond), medical aid and I have income protection.

We've always agreed that our home contents (aside from his laptop) are considered self-insured because our quote for insurance was exorbitant.

In an ideal scenario, we'd need to have enough saved to be able to replace everything with cash, and have about R50k for the animals. The figure gets big really quickly.

The main concern would be that you'd have such a huge pile that needs to be fairly liquid and would earn very little (but still more than handing it over to someone else every month). Are there any strategies for self insurance? Or is it actually a silly goal and we should resign ourselves to gamble on bad luck against insurance companies, while trying to save whatever else is left? 

Solly

I really like how you break down things for us that are so complex and make it consumable. I started listening to Just one lap last year around February and I have gained life changing insight. I just thought my first email to Just one lap is to say thank you so much!...for all the effort, the laughter and swearing😂, but most importantly for sharing the financial concepts in the simplest way that we all can understand.  I always had an interest in finance, but you guys made me love it.

Petrus

It feels like I am losing a long time friend even though we have never met. I still remember some of our exchanges very well and also how ridiculously simple some of the things was that I deemed necessary to send you an email for (buy a cellphone or take it on contract 🤦🏼). I will admit, I might have had a finance nerd crush on you at some point.

A lot has changed since the first email I sent you from a train somewhere between Regensburg and Munich while still working and living in South Africa. Since then I,

- cleared all my debt

- started investing 

- got married

- moved to Germany

- figured out investing in Germany

- learnt German

- close to hitting €150k net worth in 3 years (after starting with 0€). 

- just bought a house in Munich. Funny how all us finance or FI nerds say buying is not a good investment, yet we all do it. My transfer fees is more than the cost of my house in South Africa. 😭

I say these things not to be windgat, but to document the influence you had on my life. I never really knew how to manage and grow my net worth until I started to listen to The Fat Wallet Show. It gave me confidence to take charge and I am blown away by what was possible. You have probably made and influenced many future multi-millionaires. 

Ryan

I had twin boys in July last year. I opened them TFSA days after they were born and put R36k into each account. I remember Simon saying if you max your child’s TFSA at birth and leave it, by the time they turn 65 they will have enough to retire. This is the time horizon I am looking at for them. 

I bought SYG500 for one and SYGWD for the other. They have both done very nicely. 

With 1 March approaching, I have been thinking of buying SYGEU for both of them. What are your thoughts? My other option would be the Ashburton1200? I know Simon will probably say I need to add some local exposure but with the current rand strength I think it’s a good idea to get as much offshore exposure as possible?

I have been contributing to my own TFSA into an RMB fixed deposit for the past 6 years. I know I need to move it into an ETF based account which I have applied to do (EasyEquities). I am 34 years old with no plans on using these funds for at least the next 30 years. What would your and Simon’s suggestion be in terms of the ETF’s to split this into?

Keith 

I enjoy listening to your podcast. Even though I’m in the USA I get very good investment advice from you guys. I am an amateur at best and a lot of the things you discuss are unknown to me. Do you have anything that starts with the basics on up?

Jennifer

Most of my closest family and friends live in other parts of the world. I love South Africa and don't want to leave but it makes me sad that I won't be involved in my family and friends lives like I would like to be and I'm not sure whether I'm in SA to stay. 

Unfortunately I'm not sure where I will end up - either the uk (I have a british passport) or Australia. What do you advise I do with my investments? I don't want to contribute more to a retirement annuity (other than what I contribute through work) because I don't know whether I will be here for retirement... but who knows - there is also a good chance I might be. Because I'm so uncertain I don't know what the best thing to do with my money is. 

I'm struggling to understand market makers. I've heard people say ETFs can turn out more expensive than unit trusts due to the spread between the bid and ask price. I understand what the spread is and I understand that the market maker can redeem and create units in order to create liquidity for the ETF... but who is the market maker and why can the spread be massive at some parts of the day? How do they determine the ask and buy prices?

I recently watched one of the JSE power hours where Nerina Visser went through all the costs associated with investments. It was so informative but made me think a bit about my EasyEquities investments. The webinar seemed to say that for every investment I make I am paying JSE fees and levies and these appear to have a minimum fee. I can't seem to find these on EasyEquities though. Essentially my question is -  Does it cost me more if I invested R10,000 split into four R2,500 transactions vs a lump sum? The only fee that I can find that could potentially be fixed is the STRATE fee but EasyEquities appears to not charge a minimum fee here either. 

My second question is to do with total returns funds in a TFSA account. I know this has been spoken about a lot but I'm still a bit confused. I like the Satrix MSCI World more than the Ashburton 1200 for some reason but the tax issue surrounding the total returns worries me. I understood that you couldn't avoid dividends tax charged by the foreign entities anyway... So why does it matter if an offshore eft is a total returns within a TFSA? 

Louise

I love ETFs (easy to understand and invest in myself), but I also like me some Unit Trusts (UTs). What I however find daunting, is the long alphabet list of UT classes. Thus far this has forced me to go via a financial adviser, when buying UTs. Did I mention that I am allergic to financial advisers and their high fees? And then sometimes the adviser afterwards willy-nilly moves me into a different class of the same UT, and I wonder when this is in my favour from a fee perspective or not.

The classes include A, A1, A2, A3, B, B1, B2, B3, B4, B6, 3B1, C, C1, D, E, F, G, H, O, P, R, etc., etc. 

(Let's first just stick to local UTs - offshore UTs is a kettle of fish for another day.)

I've figured some of them out, e.g. the regulated class R, those that are available only for Institutional Investors and those that are for Retail Investors. Those that come with a with/without adviser fee, the clean classes etc. ASISA publishes quarterly spreadsheets that help a bit, but not much.

I've also learnt the following:

1. There is no standardisation in terms of the naming of the different fee classes between the different management companies, with the only exception being the “R class” (deregulated in June 1998).
2. Some "clean classes" are cleaner than others.
3. FSB Board Notice 92 of 2014 specifies that UT management companies are required to publish the most expensive class that is available to a retail investor. Well, that's good in that the available MDDs tell me how bad the fees can get. But it is bad in that I want the cheapest class that I can get into, which is not as well published on the internet.

I also read a Moneyweb article (by a PSG Adviser, nogal), where the guy shows how much better performance you get by just switching all your UTs to the cheapest classes, which makes me green with envy and hot under the collar.

Where is the FSCA in all of this? They are responsible for consumer education in this regard (non-existing) and also responsible for regulating the industry in a manner that creates standardisation, consistency and transparency, to allay the frustration and confusion experienced by poor little retail investors like me.

"Power to the people", I say! 

Until such time as the FSCA steps up, can you, Kristia and Simon, please help me find my way through this maze that is UT fund classes? I understand MDDs, TER & TIC, but per Board Notice 92 not all MDDs are published.

After five rewarding years as host of The Fat Wallet Show, my time with the show is coming to an end. This episode is a short retrospective of our time together, followed, as usual, by your questions. 

On 30 May 2016 we published the first episode of The Fat Wallet Show. We knew from our personal experience and from our work at Just One Lap that money was such an emotional topic. All so-called financial education came with an assumption that you would already know the jargon and have some basic understanding of how the system worked. Based on the questions we got at Just One Lap, we knew that wasn’t true. 

I had started at Just One Lap a year before that and I was like a toddler, asking a hundred questions a day. These questions weren’t orderly. I’d latch on to one topic, ask every question I could think of, mull it over and come back a few days or weeks later with either the same questions or more questions. I was learning a lot, but I wasn’t learning it all in a straight line, because learning isn’t linear. 

Luckily for me I had a mentor with superhuman patience, who would keep explaining it to me until I got it. I figured if this is how I’m learning about money, this could probably help other people learn too. 

The Fat Wallet Show was an experiment. It was just going to be questions and answers. It was always just going to be two people on the show. We decided to swear in the show, because we swear when we talk to each other normally. We didn’t want any barriers to making the show sound just like our ordinary conversations. We didn’t want experts, we didn’t want to interview CEOs. We just wanted to get together once a week and talk about money.

Since our first episode, the show has been downloaded 717,000 times. We’ve received 2,600 emails. Our Facebook community is 9,000 members strong. We’ve been supported by companies we truly believe in, companies where we have our own money. OUTvest especially has been a true friend to this show. We’ve made friends that I hope we’ll have for life. I’ve been so inspired by the members of this community.

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Ernst, in response to Louise’s question:

Louise is referring to her provisional tax estimates. So there is a timing difference as she will only get her certificate around June but she needs to estimate it now. She needs to run her own calculation and try to get as close as possible taking into account rate adjustments etc. Again tax works on accrual or paid, whichever comes first.

It would seem that she has a considerable amount of interest as she probably uses up her annual exclusion amount. So if she ‘underestimates’ her taxable income she may be liable for penalties if it's too far off. 

She needs to do an excel calc to try calculate her interest so she can estimate accurately before 28 Feb 2021. She cannot wait until she gets paid or gets the certificate.

Suzanne

I did a little happy dance this week, on reviewing my OUTVEST RA statement. My transferred RA landed @ OUTVEST in May 2020 and the growth YTD has been SUPER! My set R4 500 fee, which is about 0,75% of my investment, has really made a huge difference. I will be saving my butt off over the next 10 years, to reach that minimum 0,2% fee balance.

 This led me down an investment spiral, and after listening to episode 183 again I ended up asking the following question….where are the OUTVEST fixed fee living annuity products?…….

If I am happy with the asset class breakdown, would there be any reason not to be able to continue with my pre-retirement investment strategy, after my retirement date, at the same 0,2% fee?

I have no idea what the general going EAC is for a living annuity, apart from what I have seen on my Dad’s statement – which stated a 1,5% fee.

Chris

I listened to your Money and Travel episode. Simon mentioned that the SYG4IR is bespoke and doesn’t have a US equivalent - that is partly true.

I fill up my TFSA with SA listed ETFs with risk that I like (STXCHN, STXEMG, SYG4IR, SYG500), build up some cash to make the EasyFX worthwhile and then buy similar exposure in the USD account.

Long story short, SYG4IR tracks the Kensho New Economies Composite Index (KNEX). There is a US-listed ETF, SPDR S&P Kensho New Economies Composite ETF (KOMP US), that tracks the same index. The current hurdle is that KOMP isn’t available on EasyEquities currently, but I have reached out to them to add it to the platform. Perhaps if enough of us chase them it will get listed sooner.

Doris

I've been a loyal listener since near-inception of the Fat Wallet show (via my spouse, though we tend to listen separately.) 

You kick-started my TFSA journey. Eventually I figured I need to get this RA business sorted (I've been lax due to GEPF; OutVest it was when I eventually got my 💩 together). Going from listening to action is a big step, and I still feel like I'm in process, but getting there. 

The year that was left me with little time to listen to your invaluable show, but #bingelistening ftw.

I've been wondering about marriage (or long term relationships) and investing/saving for a good long time now and cannot find a satisfactory South African-specific answer anywhere. 

As far as I can tell joint accounts aren't really a thing in SA. There's the main account holder and someone else who is granted access.

What are the options for joint savings/investing? If there are any! For instance, saving as a couple for a house: What's the best way to save or invest jointly, in a single place to benefit from two sources of funding, without the account being in one person's name?

As far as I can tell, the main tax implications when getting married is income outside of your salary and how SARS taxes those married/in a civil union. For those married in community of property - this is shared between spouses. For those married out of community of property (with/without accrual) it's only really divorce or death where things have to be figured out. 

R.C

I have a home that's paid off, a tax free plan with Old Mutual balanced fund (started in 2016). I also have an Old Mutual core balanced fund with a monthly debit order.

Gepf

R.A

Property unit trust

Old mutual equity

I have an investment that matures in May.

I owe 70k on a car (only debt.

How do I make sense of my financial goals going forward? My divorce really confused me and my goals. Should I continue with my discretionary investments and where should I invest the R650k maturing in May 2021.

Please help to put a plan in place as I was looking at retirement at age 56/57.

Mr P

Ok, your statement on episode 235 about the request for rate review just reminded me to do mine, I also want prime or less.

So, I sent them FNB Housing Finance an email requesting them to review the interest rate on my bond. Unlike last time where they changed the rate with no hassle, this time they sent me a form. I mean a whole Form that I must print and manually complete, scan it and email it back to them or fax it.

I think they are discouraging us from sending these requests with the paper work. I'm certain only people who listens to the show are the ones sending the requests. 

Is there any Fatty whom FNB responded with a form? Otherwise I'm not deterred, I will gather some strength and fill in the form.

PJ

I recently requested FNB to adjust my home loan interest rate, 6 years into the 20 year term. They immediately reduced the rate with the below information:

"The rate has been amended from 7.60% (P+0.60%) to 7.30% (P+0.30%). Prime currently is 7.00% and therefore your new rate is 7.30%."

My emergency fund of course comes from the Flexi portion from the bond so I requested that if I restructure R100 000 of this flexi amount if they could give me a further reduction. They then replied with: "Furthermore, should you agree to restructure the prepaid amount of R 100 000.00 the bank is willing to improve the rate to 7.20% (P+0.20%)."

Is it worth the 0.1% reduction and not having this money immediately available to me anymore? The money remaining in the flexi portion is still enough to cover my emergency fund needs.

I have a second Home Loan at Standard bank. The rate is somewhat confusing to me. These figures are from July 2020.

Weighted Average Interest Rate (non-VATable) :7.81

First amount :R 0,00 - R 846 000,00 @ 7.77% pa

Next :R 846 000,00 - R 1 128 000,00 @ 7.82% pa

Balance of the loan :R 1 128 000,00 - R 99 999 999,00 @ 7.92% pa

Registration amount :R 1 410 000,00

So I'm trying to figure out, are the brackets just generic or does it mean the more I pay into the bond the less my interest rate will be? i.e. if the outstanding amount goes below R1 128 000 I will pay less interest.

Stewart 

invested 250K in feb 2016.

value now jan 2021 184K

 only started taking an interest now.want to retire soon!!!

what can i do now??

still very busy with work,but want to stop now.

ANCHOR GROUP LIMITED -

ADH ADVTECH LTD 

APN ASPEN PHARMACARE HLD

ARA ASTORIA INVESTMENTS 

BAT BRAIT SE 

BTI BRITISH AMERICAN TOB

BVT BIDVEST LTD 

CFR COMPAGNIE FIN RICHEM 

COH CURRO HOLDINGS LIMIT 

EOH EOH HOLDINGS LTD 

FSR FIRSTRAND LTD 

MDC MEDICLINIC INTERNAT 

NPN NASPERS LTD -N-

OML OLD MUTUAL PLC 

REI REINET INVESTMENTS S

RFG RHODES FOOD GRP HLDG

SNH STEINHOFF INT HLDGS 

SRE SIRIUS REAL ESTATE L

STP STENPROP LIMITED 

WHL WOOLWORTHS HOLDINGS

Louise 

By now all Fatties are aware of the two ways to invest offshore:

1. a) use your foreign investment allowances, and
2. b) via an asset-swap, provided that the FSP has adequate asset swap facility available, as regulated by SARB.

My questions relate to the latter:

1) What determines an FSP's asset swap capacity?

2) How can a retail investor check this?

3) When / how can an FSP replenish this facility?

4) Is it better to stick with product providers with ample such facility?

E.g. Sygnia recently ran out of capacity, which meant that, temporarily, their living annuities could not allow for a large offshore investment component via asset-swap. This was temporarily limited to 30%. Theoretically one can invest 100% offshore in your living annuity, should you wish to do so.

Jen from Damn Good Looking

My parents have recently sold their house and will have money to invest in the coming weeks.

They are in their mid-70s and they have various bits of income aside from this amount like foreign pensions, my Mom's pension from her job and until covid my Dad ran a business and will hopefully do so again.

They also have a living annuity with Ninety-One that is invested in Nedgroup Investments Property Fund A1, this was comfortably covering their living expenses but they have drastically reduced their drawings because of how horrifically this has performed over the last few years. It is actually nauseating.

My Dad wants to put this money into an income-generating product and has hinted at possibly even just adding it to their existing annuity (if this is possible) - I want to ask what you and Simon would suggest? My feeling is that adding to the existing annuity is a rubbish idea because their timeline is not a long-term. Their living-annuity has really been atrocious and to me this seems like a good chance to find some better and that could add some diversity to their situation.

Christmas is the most wonderful time of the year, but tax month is a close second. For buy-and-hold investors like myself, this is the only time of year I get to do anything significant in my portfolio. That’s why I take a moment to reflect on my portfolio every February.

My tax-free strategy may seem static from the outside, but it has changed as new products have come into the market and as I’ve matured in my investment philosophy. The market is a highly dynamic environment and even a buy-and-hold strategy requires sharpening every so often.

In honour of tax-free savings month, we think through tax-free investment strategies in this week’s episode, with the help of a few listener questions.

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Rhona 

I am asking on behalf of my daughter (turning 30!) regarding her tax free investments.

Are there any recommended changes for 2021 to the high risk etf portfolio.

Sonya

I am 30 years old and have recently started worrying about my future financially. Until now, I have been using most of my savings to pay off as much as possible into my bond. I have also been contributing to my pension fund. 

I’ve gotten to the point where I can finish paying off my bond in about two years and I have that additional money to put towards my investments.

Should I continue to pay extra into my bond and pay it off in my two-year timeframe or rather put more into other investments?

Any advice on what to do with that extra money?

 I recently opened a TFSA started putting 60% in Ashburton 1200 and 40% into Satrix Top 40. I plan on putting the maximum monthly amount in there but not really sure of what ETFs to invest in. 

I then plan on putting the money left over into ETFs but am unsure of which ones - I have thought of adding MSCI Emerging markets or maybe Dividend Aristocrat. Also, is it worth adding bonds into the mix? 

Boitomelo

I like how Kristia pronounces her name as KRIS-tia while Simon pronounces it as Kris-TIA with emphasis on the last three characters. Have you guys noticed? Just love it 😊. 

Thank you for your contribution to my getting my act together as it relates to finances. Towards the end 2020 I became debt free and I am never going back to debt for anything. It has been a long 4.5 years’ journey, but very rewarding. Thank you for your service to the community. 

Anyway, my question is this. Why / How does it happen that the same ETF, Ashburton 1200 for example, can be green in my normal ZAR account, while it is red in my TFSA account or vice versa? Does the different amount in both ‘accounts’ matter?

Edwin

Like many Fatties I am a pet lover. Many decisions I have made about my dogs are purely irrational, but hit the budget really hard. I want to share a summary of my recent pet experience just to alert people about what they can prepare for in terms of how hard a pet can hit your budget. 

I have an 11 year old basset hound named Rossie. He is low cost and low admin. Loving, gentle, healthy and clever. A perfect dog. We realised that Rossie doesn’t have many years to go and decided to phase a younger pet in so that when Rossie kicks the bucket we have pet continuity. 

[caption id="attachment_24694" align="aligncenter" width="225"] Rossie: the perfect dog[/caption]

Wanting to be a good person, I opted to get a rescue from the SPCA and chose a lovely mixed breed something named Lucy. The entire adoption process cost me about R800  as the SPCA sterilise and vaccinate the pet too.  Lucy arrived home on a Thursday  and by Saturday there was a dog fight. Rossie ended up at the Vet. With after hours rates his treatments for his bites including meds were R2.5k. He is not on pet medical aid because he has had a very good track record and in most cases my emergency fund could cover his expenses easily. 

A day later we found out that our rescue Lucy could easily scale the wall and visit our neighbours. 3 quotes later this was another R8k in expenses to raise our wall on one side. With the 2 dogs not getting along we decided to get a pet trainer in to assist us in managing the transition. The total bill for pet trainer was R2k for 2 sessions. 

[caption id="attachment_24693" align="aligncenter" width="225"] Lucy: a menace[/caption]

Yes, in 7 days our new pet had cost us upwards of R13k. Deep down I know more drama is coming.  The rational option is to get rid of her and return her to the SPCA, but the emotional option is to try everything we can to integrate her and give her a home. The latter option costs money. Fatties, when the day comes...be prepared. Pets can be very expensive. Second, get pet cover. Even if it’s just the cheap accident version. Lastly, don’t expect to think rationally once you have the pet.

Jacques

I am 38 and receive a non-taxable disability income through group insurance. 21% of the total non-taxable amount goes into my provident fund directly from the Insurer and the balance I receive as a non-taxable salary.

I have no other retirement products, but have opened a RA for my wife over and above her pension fund to maximise tax returns.

A few years ago, I withdrew money from my first preservation fund to buy our house cash and save on the interest over 20 years.

I am working towards a balanced portfolio (TFSA, unit trusts, shares) across all asset classes. I am wondering if I should open an RA to manage tax post retirement with contributions that carry over. 

Scenario 1:

I create taxable income with our Airbnb flat rental and keep rental income very low, i.e. R1000 for each year for the next 20 years.

I open a low cost RA and contribute as much as possible each year.

The contribution builds up at SARS for the next 20 years.

At age 60 I convert my provident fund into a living annuity and then draw income which is taxable.

I can reduce my taxable income by 27.5% which is taken from the contributions that didn’t previously qualify until that’s depleted. The time frame can extend depending on whether I continue to contribute to the RA post retirement.

This RA also provides options where I then have two retirement products to be converted to different annuities if needed.

Scenario 2:

Instead of trying to manage future tax liability, I don’t open an RA and invest into high equity products.

I am thus not bound by Reg28 and may have a significantly return higher. This higher return could far outweigh the over contribution in the RA I would have built up as an example. However, there is no tax benefit post-retirement as I would be in a position to live from an annuity anyway which is taxable.

This scenario seems from a returns perspective better, but from a tax management perspective not so.

Louise

I am a provisional taxpayer and must submit a second period estimate by February 2021.

- I have"received" my first interest payment in September 2020, so I know what to report to SARS.

- But I don't have clarity on how Treasury will reflect the interest from October 2020 to February 2021. Remember, it only gets paid in March 2021 (in the next tax year).

- Will they apportion 5 months worth of interest in my 2020/2021 IT3b, or nothing at all, as it is not "in my hands" as yet? 

- Remember that there is also an option to exit early (with a good excuse), so Treasury does not know in advance what I might do.

I remind you that there was, a couple of years ago, a change in tax rules, which forced FSPs to report not only just the interest capitalised, but also interest accrued (but not yet capitalised).

So, for a normal deposit with a bank, it is easy: Your IT3b shows both interest capitalised and interest accrued thus far, even if the capitalisation of the accrued portion only happens in the next tax year.

But this wonderful product from Treasury is a special child that might get special treatment, especially given all the wonderful optionalities that come with it (such as early exit and resets).

My tax practitioner does not know the answer. (Apologies to the Fat Wallet community for admitting that I actually have and pay one, that can't even answer this question. I cut costs where I can, but tax is difficult.)

I've also approached the RSA RSB helpdesk for an answer, only to get the following nonsensical response: "Please note that you will only receive a Tax certificate in 2021 [duh, sic], the certificate covers for both reinvested interest and paid out interest."

Ash

I hold a bit of the CloudAtlas Africa Big50 ETF (AMIB50) in my discretionary portfolio & I came across a disturbing titbit hidden away at the bottom of their fund fact sheet (attached). 

While the TER in the summary is 0.85% (already quite high but understandable given the illiquidity of other African markets), another TER of 7.32% 🤯 is provided right at the end, incorporating a bunch of different fees & ‘dividends not distributed’. I had to do a double take because this is more than triple the fee of an average actively-managed unit trust. l

Is this really what I am paying as a retail investor to hold this security or am I missing something? If the latter TER is the real one, it would likely wipe out any long-term gains from the investment, even with its supposed growth potential. The fact sheet also gives a bizarre asset allocation of 70.8% Cash & only 29.2% Equity, which I am struggling to comprehend. 

I understand CloudAtlas is a smaller boutique company but surely this needs some clarification for investors. I would appreciate if you and Simon could unpack this as it is a real head-scratcher for a novice investor like myself!

Cloud Atlas’ Maurice Madiba says,

“We are required to disclose all the fees going off the fund which includes Audit, Administration, Custody fees, Index fees etc expressed as a percentage of fund size. Some of these fees are variable like our management fee at 50bps and custody fee at 35bps but the others are fixed.

Last year the fund size reduced dramatically because of two factors: market movements and redemptions which significantly increased the fixed costs expressed as a percentage of fund size. We are exploring the options to curtail the costs and will provide more details.”

Theresa

Where does Simon invest for his niece and nephew? Are the accounts in their own names or in his name?

I opened an ETFSA account about 6 years ago for my special needs grandchild who will be 9 this year.  It’s not a tax free account.  It’s in his name, with his mother’s details and bank account listed and the R500 monthly debit orders are paid from my bank account.   It’s still administered by AOS and I find them extremely painful to deal with.  Simple things like changing his mother’s physical address and bank account is taking a ridiculously long time to process even with the correct FICA documents.

I have various accounts with Easy Equities, I enjoy the simplicity of the app and wonder if I should open a TFSA account for my grandchild with Easy Equities and invest into that in future. I’m 67 but hope to keep this up as long as possible.  I can’t decide if I should just cancel the debit order on the old account and leave the existing ETFs on the AOS platform or should we redeem them over two tax years (R75000 total value) to fund the TFSA and avoid any CGT.  Hopefully his mother won’t spend the money in between!!

If I’m going to start closing the EFTSA AOS account I need to take action fairly quickly to redeem the first lot before the end of this tax year.

We are still running our survey. Please take two minutes to help us here.

Around the beginning of every year we notice a strange phenomenon. Energised by the holidays and inspired to turn life into an everlasting vacation, investors start searching for the investment Holy Grail. “What is the one, hot thing that will finally liberate me from the shackles of employment?” 

The opportunity that generates the most excitement changes every year, but the pattern is the same. Newbies and impatient veterans alike flock to alternative assets, penny stocks or underdog listed companies believed to be the next hot thing.  This is an especially alarming tendency in first-time investors who have no other savings or investments to fall back on.

Some of the questions we’ve seen this year are:

• Is it wise to buy Aveng shares now?
• Has anyone invested in the alternative stock exchange on the JSE? If you have, how does it work ?
• I'm looking to invest in penny shares through my bank FNB, how do I go about that?
• How do you buy "Doge Coin"? I don't know a lot about it but I just wanna try it out.

What makes this question complicated is that there are sometimes hot things that run forever. By the time the rest of us wake up to the opportunity, it’s over. How can we tell what has the potential to be the next hot thing and what is sure to wipe out our investment?

Here are a few tips we identified throughout the course of our conversation:

• Do you have an investment strategy unrelated to this opportunity?
• If you have an existing investment strategy, have you confirmed that this purchase fits into your long-term investment plans?
• Why are you considering this? If it’s only because someone else said so, do more research.
• Can you afford to take this risk? Only consider it if you can afford to lose 100% of your money.
• Are you considering this because a company called you about it? If it were really that great, would it need a marketing strategy?
• Is it listed?
• If it’s a penny stock (a stock whose share price is only a few cents), has the price been steadily increasing over a period? Remember, for something to be a ten-bagger, it first needs to be a one-bagger. 
• What are the fees on this investment? Your fees have to be deducted from your returns before you get your real return. 
• What is your investment horizon? If this is part of your long-term investment strategy, will this product be around for long enough?
• How do you get out of this investment? Some over the counter (OTC) products can only be sold under certain conditions. A 100% profit is worth 0 if you can’t cash in your investment.

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Win of the week: Wesley W 

Hey Buckles (better combined name than Chubbles...) 

If one assumes a dividend yield of +- 2% and you pay foreign DWT of 30%, then the effect would be a DWT of 0.6% (30% of 2%) of your total investment. If you were to have this in your TFSA you could almost treat this as an additional cost to your TER for comparison sake. If the index did poorly and no dividends were paid the extra cost of DWT wouldn't apply, but based on a long-term investment that yields the 2% dividend average, you could factor in what you're losing out in tax as per the below.

E.g if you were choosing between MSCI World vs Ashburton 1200 you could compare the costs as follows:

Ashburton = TER = 0.55% p.a 

MSCI World = 0.6% DWT + 0.35% TER = 0.95% p.a

I initially went for the MSCI world in my tax free account based on TER difference and assuming the DWT might be minimal but now that I look at the numbers it seems I might have been mistaken.

Vincent 

Will the government increase the 1/3 of the lump sum value withdrawal on maturity of an RA?

What is 500k going to be worth in 40 years? It seems pointless to take out an RA when the withdrawal amount is not adapting with inflation each year or at least increasing to cater for the cost of living? 

I'm doing the RA thing, but only until my TFSA lifetime limit is reached via all my rebates from SARS [13 years to go]. Thereafter I'll stop contributing to the RA. RAs aren't podium investments, but should I set the quality of growth in an RA aside and see the tax break as the big win? 

Would you say that having an enormous amount of money well distributed in ETFs is the way to go when debts, TFSA, RA and emergency funds are sorted? 

You'll have this major asset base ready to sell when the tekkie hits the tar. You'll pay CGT and Dividend tax at most, and both will be lower than your marginal tax rate.

Dividend payouts or general interest/capital gain can be used as your monthly income, versus monthly annuity payouts as you'll probably outlive your RA and never use/see the full value.

Stephen 

I see Long for Life have an aggressive share buyback strategy. Berkshire Hathaway and others also utilise this mechanism to boost their share price - I assume.

From my observation it normally illustrates that the company believes their share is undervalued. However, can this not also be seen as insider trading? What's to stop a company initiating a share buyback when they know there is something big in the pipeline? Are there corporate governance processes in place to stop this happening?

I just don't know if we as investors should see a share buyback as a buying opportunity.

Hendrik

I am trying to understand the NFGovi ETF. I am looking for a high as possible risk-free income yielding investment for my in-laws, whose capitec 49-month deposit at 10.25% is about to lapse.

The renew options look very poor under current circumstances and I am struggling to find anything north of 8% that defends capital. I am aware that nfgovi etf does not guarantee capital and there is price movement risk. I would just like to wrap my head around that option and understand all factors. 

Wesley

Instead of two RA accounts which was my plan, rather a much larger single account. At 55, immediately convert this large RA to a living annuity. Growth in the account is still tax free, as is income and Dividends.

Adjust asset allocation of this big LA to get more international diversification. (I expect a significant amount of my spending to be in other currencies so global is a basket of currencies, which is ideal.)

If I don't want additional income and tax burden, set the distribution to the minimum percentage allowable eg 1.5%.

Contribute to a new RA account to offset the tax burden of this excess income.

My LA + RA asset allocation in aggregate can have geographic diversification, can be better matched to my spending and I have control of my income / tax.

 If the tax free lump amount is adjusted upwards, check if I need to contribute extra so that 1/3 takes advantage of the adjusted tax table, then retire from this RA the following month.

Repeat as necessary.

This will get the significant tax free lump sum(s) out as soon as possible, which seems ideal to me. I can spend this lump sum cash initially while deferring higher withdrawals and therefore higher tax from the LA(s) to squeeze out a bit more tax free compounding.

Craig

Despite my attempts at getting them to increase it sufficiently enough so I don’t need to go through it every month, I fail.

It seems it might all be automated with fixed rules, as the “agents” never really seem to read or acknowledge my pleas / questions. They just ask for payslips and bank statements then I get an email saying it's all sorted. Rinse & repeat the following month. 

Have you guys heard anything about this process? How would you suggest I explain to them why the percentage they have chosen should not apply to me, as previous attempts of mine have all failed?

I’m wondering if once your portfolio hits a certain size or if your monthly contributions are over a certain size, if it might be better to go with another provider? Do you know if other providers also make you jump through these hoops to spend your money on ETFs?

Brett

I have just been sent an email from the money transfer company I use. I am not sure if this is new regulation that has been put in place. I am a SA tax payer, but am starting to rethink this decision. Can you confirm that this new tax has in fact been put in place? 

There’s nothing like lockdown to induce a bad case of wanderlust. 11 months into the biggest bummer of many of our lifetimes, it’s wonderful to hear some ordinary good news. Remember weddings? Lady Kablo certainly does. She got married in December. Lockdown is giving her a little time to think about what she’d like for her perfect honeymoon. 

Many of us striving for financial independence hope to travel once we no longer have to work. Every time I take a trip, be it abroad or local, I’m reminded travel money works differently from ordinary money. While I’m extremely frugal in my day-to-day life, when I travel I don’t think about money. I also don’t worry about how much I eat or drink, I never check my phone and in general I’m just a much cooler person.

In this week’s episode we help Lady Kabelo think about her honeymoon. In the process, we reminisce over some of our own adventures and dream about a time when we can do exciting things like visit friends and go to the shops. Hopefully this episode delivers a spot of whimsy to your lockdown. 

Please take our survey here.

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Lady Kabelo

I got married in December. Having spent the last 3 or 4 years following your savvy advice to tackle debt, emergency fund, insurance, retirement and medical aid, the time may have arrived for an international honeymoon trip

(Yes, Covid is also a factor. I'm hoping when it's over some hard-hit places will be a little cheaper in an effort to attract visitors.)

Every overseas vacation I've taken has been with my parents, so I've never considered the planning and budgeting that goes into an international vacation.

My biggest nightmare is running out of money in a foreign country. As a result, I am leaning towards all-inclusive packages - even if we overspend, we'll at least have food. The downside is you're in a resort removed from the "real" place and people but then you can get cabs into the nearby towns for daily excursions. 

But I'm not sure if this is the most cost-effective way to travel. So, my questions:

1. Are the all-inclusive packages a good way to travel?
2. What are the hidden costs people commonly forget to plan for?
3. What are the biggest financial mistakes people make with regards to travelling?
4. Any additional tips for cost-effective travel?

Win of the week: Charlene

Thank you from the bottom of my heart for the financial education. I’ve been reading and listening to all your advice since lockdown in March and it has really made a HUGE impact on my financial decisions. I cannot thank you enough. I live in Mossel Bay. Should you ever be in the area I would love to offer lunch/dinner to thank you both for everything.

I’ve been getting my financial house in order ever since. I have identified ETFs that I have invested in and I am very happy with the performance. I have invested in Satrix Emerging Markets(20%), Ashburton Global 1200 (60%) , Sygnia 4th industrial revolution (10%) and Satrix Nasdaq 100(10%).

I have now sold a property and have money I want to invest. I want to invest it in the overseas markets directly. I’m currently using EasyEquities and I see I can use their platform for international investments as well. I had a look at their fees and I see they charge a brokerage fee of 0.25%. This whole world story is a bit intimidating and scary... so I am thinking to approach it using EasyEquities even though I know it's a bit more expensive. What are your views on this?

My next hurdle is choosing what to buy. I want to buy similar ETFs to those I currently have, but don't know where to start. I saw Vanguard has a Total World stock ETF etc etc. Could you please kindly point me in the right direction?

Dylan

I was wondering whether a RA can be paid out to more than one person?

In a family where the wife was a stay at home mom for most of their life and they only really have the husband's retirement fund to live off when he retires, would it be possible to pay the fund out to both people in order to split the retirement income between two incomes to save on income tax?

I read the blog on Tax on lump sums in retirement. It states that if you have discretionary investment funds available at retirement, it's a good idea to hold on to your retirement savings and rather use your discretionary savings to cover expenses. It explains that by doing this, you allow your retirement savings to grow some more.

Now this got me wondering, why would you want to cash out discretionary investments to have your retirement savings grow more? It seems the wrong way around to me. If your retirement savings grow larger, sure you save on the CGT and DWT inside the retirement product for the time your discretionary savings last you, but now you will probably pay more income tax on the extra retirement income than you ever would pay on CGT if you did it the other way around.

My gut tells me it would be more efficient to take your retirement income when you start needing it and supplement that with your discretionary savings where required while trying to minimize the CGT of the investments you cash out.

Jean

We have been saving for our son's tertiary education and now have a sum in our bank account earning pathetic returns. We will need to start drawing from this in about 9 months time. We have been thinking of Satrix world as we really need better returns. Are ETFs/ international ETFs, too risky for this application? 

Chad

I am a great fan of 1 share to rule them all. (Vanguard total world in my case). However, your recent podcast wrt the dangers of too much exposure offshore got me thinking about Rand-hedging. What would you say is the best ratio of Offshore vs Local equities in a total equity portfolio (apart from 20% which is Reg28 compliant)? 

Then there is the question of which is the most diversified local ETF? I have been investing in the Satrix 40 when the Rand is really weak but realise now that this might not exactly be a Rand-hedge ETF. Is the Sygnia itrix SWIX 40 ETF a good rand hedge option? Please help?

Martin

My brother sent me a link to one of your shows when I took an interest in my finances and I’ve been hooked ever since.

Thanks for all the education, even if the majority goes over my head at the moment. But I can confidently say there is a huge difference now in comparison to when I started a few months back.

I follow the Dave Ramsey baby steps: I am currently saving my emergency fund and up to two months-worth of expenses.

It is a decent amount but I feel it is being wasted in a savings account. 

I keep hearing everyone say put the money in a money market account.

I have been looking around with no luck. I bank with FNB and for example the one they propose I open is one with an opening amount of 100k.

I also came across one from Old Mutual which seems reasonable and you get a card as you would want to have easy access to the funds when needed. 

What are the options out there and which do you guys use?

Time is such an odd ingredient in the realm of wealth creation. When treated with respect, a good amount of time can be your greatest ally. When ignored, however, time can be your biggest risk.

In a country with so much historical inequality, the idea of intergenerational wealth seems entirely mythical. However, a small amount of money sprinkled with a great deal of time makes building a nest egg for the next generation seem downright simple. By the same token, sleeping at the wheel creates an opportunity for inflation to eat away at real returns. 

In this week’s episode, we explore intergenerational wealth building strategies using two real world examples. Is this our cutest episode yet? You tell us.

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Mark 

I have twin girls who just turned five.

I have contributed to their own respective RAs since they were eight months old. I started at R1k a month each and this contribution has increased by 10% a year. I will keep up with the annual increases for as long as possible, but I realise the contributions will become pretty large over time. 

My girls have Capitec bank accounts and are registered with SARS and file tax returns. They are building up tax credits from the RA contributions in their name with SARS given they have little or no taxable income. 

I realise this might not be the most tax-efficient or tax-effective option for saving for your kids and DeWet and others might disagree with it. I have outlined below why I went with this strategy over TFSA or unit trusts in their name or the plethora of additional options and combinations. 

1. RA is with Sygnia, so it is a low-cost product, and their capital can compound tax-free over a long period 50+ years. 
2. They can't touch it when they turn 18. I acknowledge this lack of access can be a double-edged sword given they might like it for a car, a deposit for a property, starting a business, etc.
3. The tax credits they are building up with SARS should see them receive some decent tax refunds when they first start working which they can use for the uses as mentioned earlier or to plough into their own TFSA or back into the RA for even more tax credits. I acknowledge I am giving SARS an interest-free loan and the effect of inflation on the tax credits is a downside here. I also recognise I am losing out on the tax credit myself. 
4. They can keep contributing to the RA's when they start working as it is already set up for them. 
5. Having the RA, Bank A/C, EasyEquities account, and a SARS efiling profile provides an excellent financial education base when they are older. 
6. TFSA and/or unit trust they can access when they are eighteen, and they could withdraw everything and blow it all so this strategy guards against this. Some may see this as excessive control or control from beyond the grave, and I take their point. 
7. This RA is their inheritance which should be substantial even in today's rands by the time they can draw down on it. Some of their inheritance they get when they are younger once the tax refunds kick in from the contributions and the balance when they are older. 

There are pros and cons to the above approach compared to other kids saving options but after I weighed several different approaches and strategies, I decided to go with this one for now for better or worse. 

Wesley

• The lifetime limit is inflated periodically
• The scheme is abandoned to inflation
• The allowable limits are significantly increased (as has happened in many other countries)

If the lifetime limit is not increased periodically, the TFSA scheme is abandoned to inflation and will become worthless, much like the interest income exemption has been abandoned.

At a 4.5% midrange inflation target, assuming the original 30k annual contributions took 16.7 years to max out the 500k, the value of the 500k limit at that date will be around 240k in today's money for someone starting out on that future date. Those future starters will be proportionally disenfranchised from the TFSA scheme. 

The time horizon from birth to earning enough to contribute to a tax-free account is 20 or 25 years. The optimal time horizon for a TFSA is much longer than that. 

A child born now, six years into the TFSA scheme, starting their contributions at 25 years old would have lost 75% of the value of the original 500k limit. It's not a very valuable loss at that point.

I’m assuming the lifetime limit will always increase to allow an annual contribution. If not, the best possible course of action is to get in on the ground floor on this once off opportunity before it becomes worthless.

Win of the week is: Henno

Feedback for Lizl, whose company wants to force her to move her brokerage accounts in-house. 

“It’s always important to take a closer look at the conditions of employment in your contract on the day you started. Anything that changes after that requires a process of consultation. The employer can’t make changes unilaterally. The consultation process is more than an email from HR. What typically happens is HR sends an addendum to your employment contract, none of the employees query it before signing and then it’s as if the consultation happened and you accepted it. I’d argue if my original employment contract didn’t include anything about this, if there was no consultation process and if I didn’t sign anything, they can’t enforce that rule. If they want to fire me after that, I’d go to the CCMA on the grounds of an unfair dismissal.”

Gerrie

My employer is massively exposed if I were to abuse any potential privileged information to do some insider trading, either on my own accounts or within family accounts. The regulatory world has changed massively in recent years and fines from the FSCA can run into 100s of millions in addition to imprisoning my employer’s directors. Banks and other institutions take this very seriously and would rather have too harsh restrictions on their employees than to allow anyone to abuse the system.

Financial institutions force all their employees to trade under a watchful eye.  It’s not fun, but I understand why. 

 I informed my employer’s compliance team of all my and my family’s accounts at EasyEquities and I told them I have no desire to move it.  Turns out the process was slick and simple.  I only buy ETFs at EasyEquities and never individual shares.  My purpose is to invest and not to trade and ETFs fall outside of the trading restrictions.  I made a declaration to that extent and the compliance team told me to happily continue doing so.  They may ask me for a statement from time to time and I’ll gladly supply it, but there is no need for any ongoing burdensome process. 

The entire process took me half an hour to resolve.  I made full disclosure.  They are aware of my accounts and my or may not check up later.  I have undertaken to inform them the moment I intend doing anything other than investing in ETFs.  I prepared myself for much pain that never happened.  So Lizl– my experience was that there was no need to move accounts and trigger capital gains events.  What a relief.

Koketso

 I started looking into my investments and was horrified that:

- My EAC was sitting around 2.45%; 1.15% of which was advice fees

- The general performance of my investments in the last 3 years was not great and with the 2.4% in fees I practically kept money under my mattress and all that prudence was for nothing!

What I have done so far is:

- Got rid of my financial advisor dropping 1.15% of fees from my EAC

- stopped contributing to my RA as I have intentions to move abroad in the next 2-5 years

- Moved funds from the more expensive products to a global feeder while I figure out what to do

I recognise that this is not ideal, but this was a first step and one step at a time!

And the questions:

1. For my global money, I would like to invest most of my USD abroad (not using any local platforms) and in ETFs. Do you have any recommendations? 

• I understand that from an estate planning perspective, Switzerland recognises SA wills should anything happen
• Before I fired him, my financial advisor recommended two products, the first with the above in mind:

1. the Galileo balanced fund which has fees of 2%+. I must mention here that the advisor works for Galileo so I was not 100% sold on this idea. 
2. the nedgroup investments core global fund, details also attached
3. For my local money, again I am all in for ETFs and would also want to look at moving away from my expensive platform.

- If I wanted to say move to a cheaper provider, how do I actually do that? Would there be CGT on my unit trust and TFSA?

- I am thinking the following for my ETFs

1. TFSA: 50% ashburton 1200 ; 50% MSCI world
2. Unit trusts:  50% - ashburton 1200, 30% satrix 40 and 20% MSCI world
3. Retirement annuity: I won't add to this for the moment. I know there is a requirement to have a max 30% offshore holding so I'm thinking to change the makeup of my RA to: 15% ashburton 1200; 15% MSCI world and not too sure what else  

Brendt 

My mother is 62 years old, and will be retiring from work in Apr 2022. My parents plan to save R20k a month from now on until they retire. My mother has no retirement products apart from one RA that has a current balance of R80k. My parents want to have as much of their savings available in discretionary savings as possible.

My idea was for them to pay the R20k monthly saving into my mother’s RA until it reaches a balance of about R220k. Then open up another RA with a different service provider and save the remaining monthly amount to this RA. 

That way my mother would have two RAs on retirement, both of which will have a balance of less than R247k, which is the lowest amount for which it is mandatory to buy a living/guaranteed annuity with. Meaning that she would be able to withdraw 100% of both RAs as a lump sum, tax free (She has yet to make use of the R500k tax free withdrawal concession), to invest in ETFs for retirement.

She will be able to reduce her taxable income in the year or so that she invests the money in the RAs, without being bound to a guaranteed/living annuity and the personal income tax implications on retirement (CGT is sooo much cheaper). In effect SARS will be paying them. :)Chris

Many young South Africans are drawn to the idea of working on the yachts in the Mediterannean as a way to explore the world and earn some hard currency. I spent five months as a steward, sailing from Monaco to Barcelona with plenty of glamorous stops along the way! 

I managed to save some of the Euros that I earned overseas and those are in a Standard Bank Isle of Man account (earning next to no interest). I am keen to make that cash work a bit harder, so I would like to exchange it into Rands and invest it in some ETFs (a question for a later date). I have been hesitant to “just transfer” the Euros to my South African bank account until I fully understand the tax implications. 

What is the most tax efficient way to get the funds from my Isle of Man account to my South African account?

What is the best way to actually transfer the funds from one account to the other?

Brett 

My emergency fund will cover about 6-9 months of living costs. That is more than I’ve got invested in equities. I’d like to have much more exposure to equities to get maximum growth over the next 20 years. 

How would you recommend investing such a lump sum to gain relatively high growth for cash (5-10%), while keeping it relatively low risk, and liquid?

I’ve considered the following:

FNB Money Maximiser - 3.75% interest, completely liquid. The interest rate I believe is fixed to the lending rate as it was closer to 7% a year back. It’s still higher than typical liquid saving accounts. Fixed deposit or 32 day notice was not considered liquid enough.

Money Market products offered the highest growth out of the products i looked at, i.e. a few percent above inflation. But the costs and fees were also the highest, and based on recent performance and inflation, the high fees largely eroded any gains. 

High dividend or REITs ETFs, which seems to have a yield of about 2-5%, so very much in line with inflation. (And then some growth)

Bond ETFs, like New Funds GOVI, which was about 6-7% growth based on 3-5 years. 

And last is to keep it in my mortgage to reduce the interest I pay each month, at prime.

So many options right? Would you recon it is best to keep the cash?

Candice

De Wet mentioned asking your HR department to adjust the RA contribution figure on their payslip to include the personal contributions.

My payslip has been showing an R2906.75 shortfall in contributions as I have been doing my own thang.  I asked the HR department to adjust this and the difference is just over R1000 extra on my net. This will be going straight to my TFSA monthly.

Lebo

I currently have a tax free account with EasyEquities. I've maxed out the R36000 limit for the year and I know the lifetime limit is R500000.

I was wondering once the lifetime limit is reached, can I open another tax free account and receive the R36000 tax free benefit on the new account? Basically can I start the process over with another account and effectively have a R1m lifetime limit?

There’s more than one way to raise taxes. You can subject yourself to the ire of the masses by being up-front about it, or you can eke out little tax wins on the sly. Our government likes to do a bit of both.

This week, with the help of Wesley, we explain how tax creep works and what you can do about it. We also talk about lump-sum withdrawals. You are taxed on previous withdrawals taken after the following dates:

• Withdrawals: 1 March 2009
• Retirement benefits: 1 October 2007
• Severance benefits: 1 March 2011

If you took lump sum withdrawals before these dates, consider that an entry for your gratitude journal.

Wesley 

It’s been 6 years since the lump sum benefit was last adjusted and we have lost 26.5% of the value of the incentive during this time. Where is my inflation adjustment? Obviously someone is desperate for cash right now, and SARS doesn't think it is pensioners.

When the lump sum is adjusted from 300k to 500k, but you already took 300k in the past, what happens when you take a 200k lump sum from your other RA account?

More complicated. Was 300k, take 400k, pay 18% tax on 100k = 18k tax. Now the limit is 500k. take another 300k lump sum from your other RA account.

What on earth happens?

Do you not get any benefit from the increase?

Does 100k at 18% wipe out half of your new 200k tax free lump sum?

Or do you treat it as a 700k lump sum on the new provisions less 18k tax previously paid on lump sums.

It seems like a good idea to have at least 2 RA accounts.

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Win of the week: Candice

Just thought I'd say a HUGE thank you.  After being introduced to the show just 3 years ago, I feel like we are in a committed relationship. It's the only podcast I listen to and look forward to my Monday morning drive to work with you guys. 

I finally budgeted.  I’m horrified to see where our money goes monthly.  I can't complain though, because without knowing I wouldn't be able to change spending habits.

Martinus

I've always championed Total Return ETFs. Outside a TFSA you’d have to pay Capital Gains Tax. TRTs also save on brokerage costs and admin. However, the feedback from De Wet has me reconsidering that approach.

If the fund is a feeder fund like the Satrix MSCI World, is there any local tax event? To me, it makes sense that if they just reinvest the distributions they receive outside SA the only tax event would be in the foreign country. Your only local tax concern then is CGT.

It is possible to switch from Satrix to 1invest MSCI world at an increase in fees of 0.05% and then have dividends paid out. This leaves an increase in brokerage costs and personal admin. 

Martin 

I’ve been putting money into the Satrix World. As I understand it, I lose the benefit of the saving on dividend tax in a Global ETF, but I’m at least hedged in a way with the rand weakening over time, and it should show better growth over time than local (who knows though). 

So I just listened to your podcast (Asset Allocation Problem – 14/12/20) regarding total return funds (like MSCI World). Am I correct in my understanding that the dividend tax is in the region of 28%, not 15%? Furthermore, are we saying that tax free investments should pay out the dividend, and not reinvest? That feels wrong though, that money then can’t keep growing?

Then, to make matters worse, when you Google “tax on tax free global etf”, you get many links proclaiming that you do not pay ANY tax on either local or foreign tax free investments, e.g. https://www.sygnia.co.za/press/how-to-invest-offshore-and-pay-zero-tax

Please put me out of my misery on this one!

Lizl

I have the *honour and privilege* of working for a financial institution that recently decided all employees must close all accounts with other brokers and open a stockbroking account with them. Exceptions may be approved, but I don't want to open that can of worms just yet.

I have EasyEquities accounts - both an Easy Equities ZAR account with individual shares and a TFSA account with a few ETFs.

Does Easy Equitites count as a stockbroker in this case? Should I just sell the individual stocks and hope they'll let me keep the TFSA? Does the TFSA fall under this prohibition as well? And why is it that they can legally do this?

I have zero energy for the admin of moving and the inevitably higher fees, preferential staff rate or not.

Greg 

Normally I put my TFSA allocation of R3000 per month into my bond. At the end of the financial year I draw R36000 and buy the Ashburton Global 1200 ETF in my TFSA.

Should I still be doing so for the coming year? Is this still the one ETF to rule them all?

For all the flack they’ve been getting, there’s no easier way to reduce your tax liability than pension fund contributions. In this week’s episode of The Fat Wallet Show, we help Megan correct an assumption about her tax savings on retirement annuity contributions. We use the opportunity to talk about offshore allocation and prescribed assets.

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Win of the week: Megan

I listened to your "To RA or Not" episode today, and one of the questions (about RA contributions vs paying off a bond) reminded me of a dilemma I've been wondering about for a while.

I'm 25 and working as a junior engineer. My marginal tax rate is at 26%. I'm currently putting R3000/month into my TFSA (Satrix MSCI World ETF with Easy Equities) and R2000/month into a Sygnia RA with decent fees. I save R1000/month in a TymeBank goalsaver for holidays. After that I can't really afford more savings at the moment, which means I'm not adding anything to my long-term discretionary investments. (I have an emergency fund and enough short-term investments for my needs and goals.)

My question is this:

Considering 

1) The Regulation 28 requirement on the RA which limits global diversification, 

2) My low tax bracket, and

3) The fact that Rand devalues around 4% per year to the dollar, 

is the RA really worth it? 

Putting money into an RA saves me 26% now. But what if I were, instead, to put that R2000 into a discretionary investment (e.g. MSCI World ETF)? If the MSCI World outperforms the local 70% of my RA by 4% a year (which seems likely imo), then surely the discretionary fund would be "outperforming" the RA in the long term? 

For arguments' sake, with the assumption that global returns outperform Rand returns by 4%, then after 10 years, R2000 in the RA + 26% (assuming I could magically reinvest the tax return instantly) would be worth

(2520 x 0.3 x 1.04^10) + (2520 x 0.7) = R2883. 

While R2000 in the discretionary global ETF would be worth:

(2000 x 1.04^10) = R2960. 

(I mean this in relative terms, I don't really expect 0%). 

This difference would only get greater over time due to compounding. 

The other thing is that the RA money will all get taxed in future. And that the RA fees, although low, are higher than the discretionary fees. 

So while I fully understand the tax benefits of an RA for people earning at 45%, I'm not as convinced for those of us in some of the lower brackets. What do you think? Is my assumption wrong about global markets showing better returns? Is it normal to feel this uncertain about putting so many eggs in the SA basket, or am I being silly? Is an RA worth it for me now, and if not, when does it become worth it? 

2020 gave us all a new appreciation for the humble emergency fund. In this episode of The Fat Wallet Show we think about some steps you can take to prepare your money for the year ahead.

Win of the week: Celma

I turned 55 and had to visit my bank (Nedbank) a few months later.

I asked them if there is any reduction in bank fees when you turn 55 and to my surprise my bank fees got waived provided I make a R10 000 deposit. I only get 2.5% on the deposit, but save about R300 in monthly bank fees. The facility is probably available to everybody but seems like you must ask about it - it is not as though they tell you or advertise it.

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Zee

I've been listening to you guys like a fiend for the past 3 months and I have managed to follow your instructions of having insurance, reducing living expenses etc. Now I'm at that stage of forming my retirement strategy. Annnnnddd I'm pretty much having a bit of a breakdown as to whether I'm going in the right direction.

So I'm 28 and working in South Korea. I've never had any debt, I don't pay rent, car, I have no kids or financial dependents. This allows me to save about 54% of my pay, which is split between my RA 16% and about 4% Unit trust (which I top up with my annual bonus) both with 10X . 

Then 30% in a ZAR Easy Equities monthly (I just opened my TFSA which I will max out on the 1st of March as I have already saved the R36K). Ohhh I have saved 3 months salary as an emergency fund.

Should I keep the UT as a means of saving a year's worth of salary for when I am old and wrinkled and the medical costs are eye wateringly high or to supplement my income when the market falls apart. Orrrrr should I just leave that and go beast mode into EasyEquities and the RA.

I also wanted to know if I should push to save up to a 6 months salary even if it takes me more than a year? And put it into a money market or savings account cause the prospect of going back to being unemployed for a long period of time scares me to death!