Diversification is an important part of risk management in a portfolio. Unfortunately, as with all things finance, there’s no simple diversification solution. This week, we address two diversification concerns: being too diversified and not being diversified enough.

In my own portfolio, I pay attention to three diversification criteria, namely assets, regions and sectors. Since I want my portfolio to grow as much as possible, I prefer equities as an asset class. I don’t diversify this much, since I understand the risks involved and I have enough time to recover from market events.

To diversify across regions, I choose equity-only investment products that invest in multiple regions. ETFs with world-wide exposure are excellent vehicles for regional diversification.

In terms of sectoral diversification, I prefer investment products that invest in sectors relative to their importance in the overall market at the moment. I do this by avoiding sector-specific investments.

My single ETF strategy also takes care of my diversification needs. When I can no longer afford single asset class exposure, I’ll have to start including assets that are less risky. For now, one ETF rules them all.

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Bhiri

Can it be wrong to be too diversified?

My portfolio is probably made up of 75/25 between ETFs and pure direct shares. The 25% shares I am not worried about as, as I get older this percentage will only get smaller and most of my investments will be in ETFs. I'm 37 now. I have the ASHT40, GIVRES, STXIND, S&P500, STXNDQ, SYGWD ETFs and also the STXPRO and SYGLB in my TFSA.

Stefan

I was doing some housekeeping on my two ETF portfolios. I ran a report on all dividends received in the 2018 calendar year.

Even though my PTXTEN from a capital appreciation perspective is deep in the red, I was really happy with the total div received compared to all the other ETFs in my portfolio.

My other property ETFs are not performing as well. For example CoreShares S&P Global Prop did about 50% of what my ptx 10 did.

Which other ETFs have a similar yield? I would like to diversify and buy more etfs but with yield in mind for this particular portfolio. I’d also prefer etfs that are more geared towards global exposure.  It doesn’t have to be property.

Matthew

I have taken a more active approach to my TFSA and am now sorting out my TFSA with EasyEquites.

Now that I have gained the confidence to self manage my TFSA, I am wondering if I should do the same with my RAs?

Between a Retirement Annuity (RA) and a Tax Free Savings Account (TFSA), which should be prioritised?

Is managing your own Retirement Annuity through a site like EasyEquities a viable option?

I noticed the RAs have fact sheets and it feels similar to TFSA. The fees are also under one percent which is way cheaper than with my current provider.

Do I have to take into account Reg 28 when I am investing on the platform? I currently assume all available options are all Reg 28 compliant and I can just invest where I desire.

Are there any investment strategies with regards to a RA? I am only away of appropriate risk e.g. high risk early and move to low risk near retirement.

Could a RA be seen as an alternative to life insurance (assuming living annuity)?

E.g. Take life insurance for the first 5 years of your working life and after that, cancel the life insurance as the RA will pay out to beneficiaries to an equivalent life insurance?

RAs will pay out on serious ill-health / Disability. Is this not an income protector or are there scenarios where an income protector would still be needed as the RA will not cover? Also, would you even recommend an income protector?

Jonathan

My mother, who moved overseas, sold her primary residence.

She has around R1.4m sitting in cash. She is 55 years old, has just enough money to live off from alternative income. Listening to your show, buying another property to rent out seems like a bad idea.

She has a place to stay and enough money to live off. She would like to know what is the best thing to do with the money as she grew up thinking buying property is the only good thing to do with large sums of cash.

Karabo

10x is relatively new and my friend asked what would happen to the monies invested with the fund manager should they go bust.

Is there a way we can "insure" our investments against funds managers going down.

Cliff

I have a few debit orders with EE and I want to be sure that when buying on those predetermined monthly dates I am not penalised by buying at inflated prices (when market maker is offline). How would you suggest I go about this?

Nerina pointed out the cost of debit orders.

Steve

‪If we ask our financial adviser to drop his fees - and rather pay for his/her time - what rate is reasonable? And how much time per year ?

I have only a basic RA and basic cover (disability / income protection) - under the financial advisor’s care. I doubt it’s more than 2-3 hours per year? ‬

For my actual meetings with my adviser I am paying close to 20k per year - last five years are hardly beating cash - with a pricey platform (AG).   

Don’t want to be insulting but short of cancelling and moving to 10x I thought I would offer to pay per  hour and see if anything changes?

Doug

My wife and I max out our TFSAs and have been for the last two years.

I have a pension fund through my work which is relatively fixed. My wife works for herself so, based on advice at the time, opened up an Allan Gray (bleh, fees) Unit Trust. We have ceased contributing to the fund but are unsure of what to do with the amount sitting there (approximately R120k). We have a home loan and are well ahead of curve there - likely to be paid off in about 10 years or so.

What do we do with the R120K?

One option was plowing it all into the home loan to reduce our debt. That would sure feel great but then our only retirement savings would be our TFSAs and my pension fund from work. This feels a bit light and the R120k was initially set aside as part of a retirement investment plan.

The second option we considered was putting this amount into some low cost ETFs on easy equities as a discretionary investment.

The third option was some sort of a split (80/20) between ETFs and the home loan.

Is there something else I am missing?

With the potential of kids in the future we are unsure of our ability to push as aggressively into investing or the loan.

I’ve only ever known debt as the wrathful destroyer of wealth and happiness. Lately, however, I’ve come to realise debt can be a powerful tool in your financial arsenal - if you treat it with respect. Someone recently explained the logic behind maxing out his child’s tax-free account instead of saving for her education.

If a single year’s tax-free contribution can cover much of your child’s living expenses in retirement, imagine what 15 years’ worth can do. Giving a tax-free account time to grow will have greater benefits in the long run than if she started contributing when she started working. Instead, she can use her starter salary to pay back low-interest study debt with her retirement taken care of. It’s genius.

This conversation got me wondering whether I’m making the most of the debt I have available. My home loan is currently the dumping ground for all my savings. This brings down my repayment period and guarantees a higher interest rate on cash savings than any bank can offer me. In this episode we discuss how low interest debt instruments like student loans and home loans can be used to inch us forward financially. We discuss why cars and clothing accounts won’t form part of this strategy and try to figure out when a credit card can help.

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Alexander

My studies are financed by my parents’ home loan that has an interest rate of 9%. This interest rate is still currently better than student loan interest rates I could obtain (10%+). The idea is that I’ll start to repay my parents as soon as I start working. I calculated that I’d most likely graduate with R350,000 to R400,000 student debt owed to my parents.

Should I use the very little free cash I have from my monthly allowance, vacation work and mentoring remuneration to:

1. Contribute to my all-ETF TFSA at EasyEquities?

or

1. Contribute to my savings account with TymeBank (at a 10% interest rate) to pay off my student debts sooner when I graduate?

I know the amounts I’m investing/saving now might be insignificant relative to the massive amount of student debt. But I’d still like to know what is better: investing in your TFSA or attacking student loan debt as soon as possible?

Clarke

My wife and I are in the process of finalising plans to build our dream home. We’ve saved up about 50% of the funds required, which is sitting in a money market account.

We hope to get close to 90% building loan from the bank which would enable us to use very little of our own cash in the initial stages of the build. Hopefully we can pour that money into the loan as required in order to keep interest payments to a minimum while having access to the bond if required.

I’m currently working on an exact schedule of cash flows, but I would require to draw down our investment periodically over the next 7-9 months in order to keep the loan amount to a minimum.

Which investment would you advise I could look into apart from money market accounts or fixed deposits that might yield greater returns without substantial additional risk?

Siphathisile

When I did my articles 2017-2019, I went to the SARS website and answered questions to see if I need to file a tax return. The website said I didn't need to, I'm guessing because I earned too little. Now that I am a qualified professional I know I will have to and I have no clue where to begin...stories about long queues at the SARS offices make me keep procrastinating on going there.

My company offered to pay half my medical aid. Should this affect my PAYE tax amount? Am I paying tax on my gross amount or on my (Gross plus medical benefits) ? I asking because the difference in the amount is nearly R500 and that hurts.

Am I liable to pay UIF since I am not a permanent resident and I am not a citizen of south africa? Will I be able to claim if I was ever unemployed in South Africa?

Shaunton

Do you think it would be more beneficial to add more contributions to my RA or do you think I must open an easy equities ETF account if I want to save more over and above my TFSA and RA?

Steve shared an excellent article.

• Reduce your tax bill in the current tax year
• Reduce your tax bill in the next tax year or in future tax years (any unused portion carries over indefinitely)
• Reduce your tax bill when you withdraw or retire from a retirement fund
• Help you to get tax back from SARS on your living annuity income when you file your tax return
• Reduce the tax bill on cash your beneficiaries may choose to take from your retirement fund or living annuity on your death

Francois has an idea for a calculator to work out how much money you have left until you die.

It should show you how your savings grow on a daily basis!

So what must it do?

1. You tell it how old you are and when is your birthday.
2. You tell it to what age more or less you intend living. 8, 90,100
3. You tell it what your balance is of all your money and assets.

It then works out how many days are left from your current day to that age and it calculates how much money you can spend per day up to that age. If you don't spend any money today, tomorrow your daily spend automatically increases since you did not spend anything today or you received interest overnight or whatever.

You see your balance grow NOT monthly, but daily! Later you add on expenditures and it automatically calculates your new daily balance and so on.

MacGyver

I have a TFSA through FNB. I max it out every year, it's the first money I put away.

However, it sits in cash in this FNB TSFA. How do I go about transferring this to Easy Equities Tax Free account so that I may invest in ETFs instead of it simply sitting in cash in my FNB account?

Register here to attend Stealthy Wealth’s meet-ups.

I learned a lot of important financial concepts from the FIRE (financially independent, retire early) movement. The most useful is the difference between retirement and financial independence.

The days of companies supporting retired employees in retirement are a distant memory. If you are plugged in to your finances, this is great news. It means there’s no correlation between your age and how long you have to work. We focus instead on financial independence.

All of us have a magic money number. The great news is that our number is entirely in our control, because it’s based on our spending. Simply put, your monthly spending times 300 gets you in the ballpark of your FIRE number.

That formula works because of the 4% rule, which our friend Stealthy Wealth lays out in this post. Basically, 4% is how much of your portfolio you should be able to cash in every year to allow your capital to grow by inflation. That means your portfolio never shrinks, so you never run out of money.

If you accept the 4% rule, you have to reject some age-old ideas about asset allocation as you approach retirement. In retirement planning, we are often advised to deduct our current age from 100 or 120, depending on what you suspect about your longevity. The number remaining is the percentage of your portfolio that should be in equity. Unfortunately that means a person who is 50 years old will have half their portfolio in low risk, low growth assets.

The 4% rule is unlikely to apply to such a conservative portfolio, since it’s unlikely to yield high enough above-inflation returns. Remember, you can only use whatever you earn above inflation to keep your capital in tact. If inflation is 6% and your portfolio only grows at 7%, you can only use 1% of your capital. Unless you have a huge amount of money, that won’t be enough to sustain you for a year.

In this podcast, we brainstorm new ways to think about how to set up a portfolio as you approach financial independence. We work on the premise that you need between five and 10 years’ worth of living expenses in low-risk assets on day one, so you have the option of not drawing down your portfolio during a market crash.

We offer more questions than solutions in this one. We are excited to hear what you have contribute.

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Colin

I signed up for a Just One Lap's ETF portfolio subscription account over two years ago and have been using the recommendation for my TFSA. There are supposed to be subscription fees payable after the first free year, but I have never been approached to pay any fees to keep my subscription account active and my login still works!

I am concerned however that the portfolios I see when logged in are perhaps not the most current, because I have not paid subscription fees! This concern is brought about by comments I have heard on the Fat Wallet podcasts, that make me wonder whether the current  > 10 year portfolio (that has holdings: CSEW40 40%, SYGWD 40%, PTXTEN 20%) is the current recommended portfolio. For example Simon often mentions on the podcast that the Signia MCSI World ETF have much higher costs that the Satrix equivalent, and given Just One Lap's emphasis on watching and reducing costs where possible, that makes me wonder why the SYGWD is still in the >10 year portfolio and whether I am seeing updated portfolios.

Margaret

The recent discussions about CoreShares changing their index made me want understand more of the underlying methodology of the underlying index.

Indices for one country seem relatively simple (e.g. S&P 500, our Top 40 index), but if you want to go for the one ETF to rule them all strategy you have to have more complexity. I see there's the Ashburton 1200 and the MSCI world that track the global markets. Could you explain how these indices are created?

Are there any indexes that track emerging markets over the world? BRICS? Latin America and Africa?

Kristia’s ETF analysis checklist:

• Asset classes: are you buying shares, bonds, property or a combination?

• Regional exposure: where the companies in the index operate

• The investment universe: is it the whole market or only a sub-sector of the market, like technology

• Methodology: how the index is weighted.

• Sector exposure: what types of companies are in the idex

• Cost: at the moment TER is the most universal indicator

Philip

A financial adviser suggested we take out life insurance on our parents as a future investment. My parents agreed and I have a little under R5m cover for about R2750 p/m.

The policy is now eight years old and the payment amount only adjusts for inflation. So does the payout.

1. a) It's my understanding that I will not pay tax on this payout.
2. b) I hope I don't lose my dear mother for the next 30 years! And even if she lives until 90, my calculation is that the contribution will never exceed the payout.

To me this seems like a good investment as part of a bigger portfolio (RA in addition to my Work pension, Standard Securities -started trading on the lazy system {yay me! I'm a trader!} etc).

Are there any pitfalls I am missing, or can I tell my sister to consider the same type of policy?

I guess I just want a sanity check here.

NC van Heerden

Over the past year I’ve listened to all of your podcasts since inception-sometimes obsessively. Luckily I started listening only a year after I started working before I had the time to make poor financial decisions. Following the great advice you have been giving, I have:

-          Started a maxing my TFSA which I spilt 70/30 between STXWDM and STXEMG

-          I have created a sizeable emergency fund, which already saved me on one occasion

-          Started some discretionary investments in the ETF space

-          Moved my RA from a advisor-fee stacked unit trust to 10X. I’ve stopped contributing to this fund to keep the opportunity to move overseas without Mr SARS having his cut – these funds are currently going into my discretionary investment (thank you to everyone who did all those calculations about if the RA vs discretionary)

I currently have a contract until the end of 2019. Thereafter there is a high possibility of hopefully only a few months of (f)unemployment. At that time I am hoping to cover my expenses by working as a locum while waiting for a post to open up. Luckily I have no debts – thank you just one lap.

In preparation I want to try saving a bit more money into my emergency fund this year. I’m currently using FNB’s money maximizer account (decent-ish) interest rates but 100k minimum and monthly fees, but it has easy access via the FNB app (which I use anyway) and I can move money immediately).

Since I will be adding some more money into my emergency fund I was looking at  at saving it somewhere with a better interest rate. According to tigersonagoldenleash.co.za at the moment the best interest rate seems to come from Tyme Bank (10% after invested for more than three months and taking a 10 day notice on withdrawal – downside is a maximum investment of 100K).

Does that seem sustainable on business grounds? I always have the uncomfortable feeling that something seems too good to be true (looking at you Absa with 13.5 percent interest and then fine printing it as simple interest). I’m also considering African bank as it seems a bit more established.

Please also advise if you think there would be a better place to park some extra emergency fund money for the next few months.

Rudolph

Do dividend yields rise or fall in a boom or a recession?

Hannes

You’ve mentioned a few times already that buying your house was a mistake and you'd never do it again. I would love for you to elaborate exactly the reasons why you believe it was a mistake, in as much detail as you can.

I find it difficult to believe its a financial mistake when you are planning on paying it off in five-ish years, paying very little interest because of that, and having the benefit of not having a rent / bond payment after said five years. To me the pros of this far outweigh the cons.

I apologise to Four Cousins for saying they probably add bubbles using a SodaStream machine. I've learned my lesson and vow to buy a bottle should I see one in store.

Investing in listed companies is a great way to learn about investment risk. It teaches us that sometimes the market isn’t rewarding at all and that individual shares can do better or worse than the average. We also accept that bad market periods are generally followed by periods of growth. We develop respect for the fact that no company operates in a vacuum. The economy is a complex system that can impact the performance of individual companies in surprising ways. We learn all of this while also thinking about the companies or products we invest in. We have to keep it in mind, because we are stock market participants from the moment we buy a single share.

When it comes to unlisted investments, the risks change. The biggest risk is not being able to find a buyer for the investment. In addition to providing a secondary market to buy and sell shares, the stock exchange requires a degree of due diligence from companies, adding a further layer of security. While unlisted companies can be good investments, it can be hard to keep track of the market in which they operate, to be sure that they comply with the law and to get truthful information at regular intervals.

The case of the Highveld Syndication Scheme that Liezl invested in is a great example of the types of risks we take in an unlisted environment. While the company initially operated legitimately and offered great returns, a management change resulted in great losses for investors. Was there any way for an individual to predict this change? Unlikely.

In this episode we discuss some options when you’ve made a bad investment. We talk about some of the risks of unlisted investments and how to know when to get out.

Read more about the Highveld Syndication Scheme here.

Liezl

I invested in the Highveld Syndication Scheme (HS22) when I was still young and dumb.

We opted for a settlement arrangement a couple of years back to get at least 55% of our initial capital back over a 3-year period. That did not materialise.

In the beginning of March we received a letter offering us APF (Accelerated Property Fund) shares to the value of 25% of our initial capital amount as a final settlement by Nic Georgiou.

The catch (of course there is one) is the shares are offered at NAV price (R7.50) and not market value which is around R3.40. The highest ever price recorded in 2016 was just under R7.00

A second catch is the CEO of APF being Michael Georgiou.

I also believe the share price will even drop further once these shares are allocated and everyone hits the sell button on day 1.

One tiny silver lining is the anticipated opening of the Fourways Mall this year which forms part of the property portfolio.

I'm thinking of just taking the settlement, get it over with and play a bit of monopoly?

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Win of the week: Jonathan

Thank you for such an incredible podcast. I feel on top of my financial life, and it is truly because of the idea of "don't get financial advice, get financial education". I'm happy to say that your podcast has been the cornerstone of my financial education and continues to reinforce the principles that I need to focus on.

This question is something I've wanted to ask you for a long time. You always say we don't talk about Japan, and it truly is the single area which I feel you and Simon fail your listeners in. One of the most important financial principles is to confront the truth and then deal with it. Basically, I think you owe it to your listeners to TALK ABOUT JAPAN.

This video sent by Dhiraj explains a bit of the economics of Japan. 

Mike

We bought a townhouse and were lucky enough to afford to keep it when we bought a house when we had our kids.

While it has appreciated 40% in value in the six years we've owned it, beating SA equity markets over the time, it's been pretty flat the last two years.

I am wondering whether we should sell it, settle the bond (we don't pay any tax on net rental income yet), and invest the R1m or so we'll have left after fees into low-cost ETFs.

The property is located in a great suburb, but it's only 1km from our current house, so I worry about concentration risk.

The net yield after all costs is also not great at around 6% based on current market value (9% on original purchase price), but what's nagging me is that at some point the property market must bottom out and Newlands would be one of the first areas to start growing well above inflation again.

Brecht

I’ve had a Momentum RA policy since 2002. The fees are 2%. The penalties on a R160,000 policy are R30,000 if I want to move to another provider. Do I move this fund or just stick it out because of the high penalty? My thinking is I will make that loss back and some more if I can move this fund to a better growth product and less fees?

I’ve had a Discovery RA for the last 10 years. It has only brought me growth of 1.89% pa and the fees are in the range of 2.5% - 3%. I am expecting a fee payback in April which will at least boost it a little, but the returns will still be shocking. On top of this I have 2 other preservation funds with Discovery that have done around 6.5% pa respectively over the last 10 years. What shocked me even more is that 60% of my combined Discovery portfolio is in cash. I haven't found out the penalty cost of moving the RA as yet but definitely need to move them and especially into a more Equity driven fund.

Is it possible to combine the two RAs into one fund?

Is it possible to move different preservation funds into one and is it wise to that?

Brandon

Are there rigorous studies (literature) available that address your premise that advisors add approximately zero value. I'm asking because it seems logical to me that your conclusion rests on that premise being true.

My concern is that if there were say, a number of comprehensive global studies that arrived at the opposite conclusion, would that not have a significant impact on the financial advice that you deliver on your platform? Are there global studies that examine the question, do advisors add so called alpha -- put simply, would an average individual working alongside a professional competent advisor, outperform that same individual, operating on their own in a parallel universe.

If it were true that the net effect (after fees) of working with an advisor were positive, the compounding arguments you make in your podcasts would work in precisely the opposite direction.

We mention the SPIVA reports, the Morningstar research, as well as the Berkshire Hathaway newsletter: Berkshire Hathaway letter on fees

Theo doesn’t agree that a home is just a lifestyle asset.

When staying in a paid up home you are not paying rent, so your paid up property is saving you the equivalent rental. It is indeed an asset, although you are not earning a yield you are saving opportunity cost of paying rent. The rent also increases every year which makes the benefit of owning your own asset even more beneficial.

Sandile

Heading into 2019 I've set serious objectives around how manage my money, which has been a lovely journey so far. I've become the biggest cheapskate, focusing all my efforts on saving as much as possible.

My next step is building a long-term investment strategy, I've received pricing from my advisor. I am beginning to question every piece of his advice due to the insurance matter. He is suggesting I invest in Allan Gray Balanced fund and Coronation Balanced Fund. Last year he recommended Allan Gray and the Investec opportunity fund.

I have looked at each fund in detail and the confusing element is 1) fees and structure. For someone who is new to the game it definitely is overwhelming. 2) Most of these fund invest in the same companies?

I'd also like to invest in ETF funds but I see there a plenty options to choose from.

Bruno

Would it make sense to duplicate the same investment strategy for both of us in a TFSA? In other words, purchase the same ETFs for both of us.

Money is inextricably linked to every aspect of our lives. Every milestone and setback is either helped or hindered by our financial situation. When we plan for life events like weddings, babies, retirement or death, we also think about their financial impact.

Most of us fall short in planning for things we don’t like thinking about. When our nightmares become a reality, the last thing we want to worry about is money. This is normally what insurance is for. Sadly the insurance industry is a flakey ally.

In this week’s show, we discuss the financial impact of debilitating sickness. We talk about the preparations you should think about when you’re healthy, as well as some options for people who are already dealing with this difficult reality.

Louis

Over the last couple of years I went from buying a new, heavily financed car every one or two years, to (almost) owning one car for four years and the other for 10+ years.

I scaled down after parting ways with a major client. I decided to pay off all debt except my house. I saved the R8,000 I would have paid on my car each month and in 2.5 years had the money earning interest in my bond. I started investing in the stock market and also have a number of ETFs, including a CoreShares tax free account that actually gave me a good return over the last three years.

We adopted at the ripe young age of 45, which changed my outlook on money. My wife was diagnosed with MS last year. Suddenly all the insurance policies and annuities became important as we had to become a single income family.  

We took out a combined policy with life cover and LIVING LIFESTYLE COVER (with all the PLUSES, which Liberty say they gave us for free). According to what my current broker and I could deduct - upon diagnosis we should receive 25% of our insured value.

This is not the case, though. Liberty has their own definition of MS and you should tick a number of boxes. Even though my wife had several problems relating to MS, we were not entitled to any payment. Not once did Liberty make contact with my wife’s neurologist, doctor or anyone else.

My wife had a relapse during the year. At first Liberty again refused any claim without making contact with anyone. Eventually they paid 25% according to their sliding scale. Now that my wife stopped working, I’ve had to employ a neurologist to advise me in order to decide on further action.

In our situation we will survive on my income, taking into account retirement provision might be a problem. What do other people do when the sole breadwinner is in the same situation?

Secondly I checked the annuity we have been paying for the last 15+ years and realised that the return was just over 6% for the period after cost.

The obvious thing to do was to cancel, for which the charge is 5%. They say that after 15 years they have not recovered all their cost. There is a contribution charge of 4.5% and then they charge a management fee of almost 2% on top of that.

I wrote to the pension fund adjudicator and after waiting almost seven months and requesting feedback a number of times, I received feedback basically saying they can charge up to 20%. I am moving the money in any case as I am sure we will be able to do better somewhere else. R14,000 on a R280,000 value. If you deduct the R14,000 my real growth over the period is probably very close to 0%.

What is the best fund with a moderate to high risk to try and make up for lost years? We already have investments in Allan Gray Balanced and similar funds.

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Gareth

The problem with dread disease cover is the companies’ definitions of their sicknesses. I unfortunately had the same claim disappointment when my wife was diagnosed with Crohn’s disease, I then only found out that they pay out 25% of the dread disease assured amount. The same goes for MS and most autoimmune diseases.

We pay discovery R12,000 pm on the top Medical aid so they can pay R30,000pm for her medicine.

Liberty should’ve asked for medical reports etc from the doctor as part of the claim process.

I always say that dread disease is a nice to have, same as capital disability, but the most important benefit to have is income protection. The income protection doesn’t look at your illness but more at your ability to do your specified occupation. It is more expensive but will pay out in a lot more cases.

Win of the week: Riani, who is 13, and her sister Juané, who is 7. Their mom tells me they already know what the ALSI is.

Brendon

I’m able to invest R15,000 a month. Should I go down the ETF or individual share route? Do I incorporate property ETFs too? Should I open an EasyEquities account or with another company?

Steve

I’m still left wondering what to buy, especially for my TFSA. There just doesn’t seem to be any right or wrong answer?

All things considered, what would be your preferences if you wanted exposure to the following:

US Markets?

World Market - Developed?

World Market - Developed & Emerging?

South Africa?

My understanding is that the US leads the world economy so what are the chances of their markets slowing down while the rest of the world starts ticking? If that’s unlikely, surely one could just as well stick with the US?

Donal

I did a spreadsheet to work out the tax for the two scenarios and I then backtracked and worked out the present value. There's not a huge difference. The tax man would get almost the same amount of tax from me eventually even if I leave the pension alone!

I've listened to you guys saying many times we should clear our debt as fast as possible.

I currently have a large car loan at prime + 0.9%. I change my car approx every 2.5 years. In that time I'll generally only have paid off half the loan. My trade-in value usually just covers the outstanding amount and then I need to get a new loan for the full value of the next car and the cycle starts all over again.

I commute to work and drive approx 1,000km per week. So after 2.5 years I've clocked up around 120,000km. That's around the time that things start to go pear-shaped with a car.

I could pay extra into the loan and reduce the capital quicker. Let's say, for example, instead of paying into my TFSA I put R2750 per month into my car loan. So, like I do, I've run a spreadsheet and I've found that after 18 months (which is when I will change again) my capital balance will be R60k less than if I didn't pay in the extra. So the loan on my next car will be R60k better off. This sounds great, but the problem then is that my TFSA capital doesn't grow! And if I continue to do this every time I buy a car I'll then my TFSA will always suffer.

Eventually I'll be in the situation where my initial loan amount will be small enough that I'll be able to pay off my car loan before I have to change my car again. In that period I can catch up on savings for a few months. But I reckon it's going to take about five more car changes to get to that stage! By then I would almost have my TFSA maxed to R500k and I should be sitting back with my feet up watching it grow and grow!

The thought of not investing in my TFSA for the next 10 years is extremely painful and seems to be counter-intuitive. But should I just suck it up and rather focus on clearing my car loan every month?

Sabata

You guys were slagging retirement annuities as if they are lepers!  Any unused contributions to an RA can be carried forward, which you mentioned somewhat unconvincingly.  

This is not a 'small benefit', as you stated.  These unclaimed contributions can be carried forward all the way to retirement.  By then you probably won't be investing for retirement. You can use these to increase your tax-free lump sum you're allowed to withdraw, or to reduce the tax payable during retirement.

Say you retire with R 50,000 per month. Tax payable would be R 12,582.25 per month.  Let's say you have enough unclaimed contributions banked. You could then claim your 27.5% of taxable income as an RA contribution. This would reduce your taxable income to R 36,250 even though you will no longer be making these contributions.  Your tax would be R 7,521.25, a saving of R 5,061 per month! That's worth a lot of bubbles, especially if you drink Four Cousins!

About your diplomat who is based in Botswana, is she exempt from RSA tax because she is out of the country for more than 183 days, or is it because of her occupation?  I think it's the former.

Rieneke

I have a slightly different take on the issue. Use life cover as life cover when you need it, but change the purpose to inheritance when you no longer need it.

You often take out life cover with a young family as you have to provide for them should something happen to you. As the kids then leave home or you no longer have dependants, the life cover is cancelled. Especially older folks who might no longer be able to afford the cover. In that case, offer it to your children as an investment. You have low premiums, having started young.

Taking it out with the purpose of inheritance when you're older is too expensive and taking it out with this purpose when you're young is also expensive due to time and as your fortunes change, might also not be able to sustain it, in which case it was wasted.

Ros

I'm keen to move my emergency fund from a Money Market account to TymeBank. This seems like a no-brainer - If I understand their Ts & Cs correctly, once your money had been in a GoalSave account for 90 days, you get 10% interest for a 10-day notice period, up to a maximum of R100 000.

I mentioned this to my Mom and she was very concerned that the bank could go under, a-la African Bank or VBS. What are your thoughts on this?

Stealthy Wealth’s FIRE-people are organising get-togethers in Durban, Cape Town and Port Elizabeth. Find out more here.

When you’re just starting out on your investment journey, dividends seem like much ado about nothing. That’s because dividends get paid per share. If you don’t have many of those, dividend amounts can be laughably small. It’s hard to get excited about R25.

However, long-time rich-ass shareholders will tell you dividends become way more fun the longer you invest. It’s a good idea to have your dividend strategy in place while you’re only getting a R25 twice a year. In this episode, we share some options for your dividends.

Sheldon from Twitter

When looking to invest in equity with the aim of receiving dividends. How much should the price action influence your decision? I.e. if price action is bearish/flat but the equity pays decent dividends, how does one ensure they don't lose money.

Morore from The Fat Wallet Community

What is the best strategy for reinvesting dividends within a TFSA? Do you reinvest in the ETF that paid out? Do you use the dividends to buy the cheapest ETF at the time within your portfolio? To keep the "right" balance, do you reinvest them in terms of your predetermined allocation strategy?

Caroline

I was using the strategies above, but then I decided to reinvest the dividends back into the ETFs that earned them to get a better idea of the ETFs overall performance.

Win of the week: Gerard has a tip on avoiding the huge spreads on EasyEquities.

On the Buy screen where you fill in the amount you want to buy, click on "What's been happening to STX40 in the market".

This will show you a graph, and three prices - Last Price, Selling At, Buying At. You want to make sure your Last Price and Buying At price are close together. If Buying At is much more expensive than Last Price, then odds are the Market Maker is offline, and you should rather come back later and try again.

EasyEquities is not a perfect system, but it is cheaper than most... just don't get burnt with this annoying thing.

Tash

I had an opportunity to work in Germany and have been here since 2012 on a temporary residence permit.

I'm on the compulsory pension system and have an RA to squeeze the tax man back. I plan to be here for the long run, but home is where the heart is and I would want to spend lots of time in South Africa when I retire.

I’ve opened a TFSA with EasyEquities in 2018, because we don't have such a wow savings initiative in Germany. Here the tax man does his best to grab deep into your wallet at every opportunity.

That said I want to have a long-term savings plan in South Africa. German interest rates are laughable and the savings plans are even worse. I listened to Simon's recent lecture at the JSE and one of the first things he explained about the TFSA is that you have to be a South African resident. The term “South African resident” is coming under scrutiny with the new emigration laws.

Will my TFSA be valid and inviolable if I remain a South African citizen, with a residential address ?

I maxed out my 2018 contribution and plan to do the same till I hit the R500,000 limit.

What implications are there for a TFSA if you spend most of your time outside South Africa and your main income is earned in Germany?

The Bank’s Cash Cow

I’ve gotten myself into a debt hole, and it’s completely my own fault.

I'm trying to figure out which one I should pay off first, and if i should consider debt rescue.

I thought I should pay off credit card, then motorcycle, then college, then car.

Gerard

I watched a lot of Simon's trading videos in 2016. I wasn't planning on trading, just thought I might learn some stuff. Using Simon's Lazy System, I back-tested some of the things I hold, and the signals there are pretty clear for when to sell. It probably would've have meant that 2018 would've been a positive year for my TFSA.

In one or two of the videos Simon states that when he hits 100K in his TFSA, he will start trading in the Tax free account.

I'm now interested in starting to trade my TFSA, but there is an alarm bell going off in my head:

Why does Simon, who is an experienced trader, not trading his TFSA and recommending that it's probably better not to ?

Sarah

If you want to sell some of your shares, to the precise degree that you can get R40,000 of capital gains in a year, and no more: How do you know how many shares to sell?

The online platforms will give you a form AFTER 28 Feb telling you how much capital gains you had on that year’s sales, but that is too late to inform your selling decision.

In Cape Town, rental prices on average increase by 10% per year. House prices (excluding the Atlantic seaboard) increase at more like 6%. What does this mean for rental prices 10 or 20 years from now? Does it mean that renting will become inhibitive at some point? Do you think the market will balance itself?

You mention that moving in a bit early and paying occupational rent before the transfer goes through. Can you explain a bit more why that would be a beneficial thing to do? My guess is that if you move in a month or so before the transfer goes through and you discover things like leaks, cockroaches, etc. it will be too late to change the terms of sale at that point anyway, due to the ‘voetstoots’ understanding.

The tax-free investment case is so appealing, it’s almost always a good idea to do your tax-free investing before anything else. Even fancy algorithms like this one finds that. Sadly, life happens to our money and a full tax-free allocation isn’t always possible.

This week, we help a father of four figure out how to balance his educational priorities with his tax-free allocations. The good news is there’s no one right answer. You have many options, including pausing your tax-free contributions and taking it up again later, as Njabulo pointed out in this podcast. The bad news is sometimes two options have more or less the same benefits and shortcomings. In that case, it’s time for the soft sciences.

I always talk about the importance of knowing what you want your money to do. Since Tinus chose to have four children, we can assume his family and children are his top priority. His finances should reflect that. Secondly, a great education will empower his children and offer them a greater likelihood of being financially secure themselves. Tax-free is important, but it’s not the be all and end all.

Tinus

I try to max the contributions for myself, my wife and my four kids every year, even if it means I need to sell from my existing portfolio to get the required cash.

I hope that I’ll be able to teach my children enough about finances that they’ll handle their TFSAs with care once they turn 18.

My initial idea was that they would pay for their own studies from the TFSA, but it would probably not be very smart to start withdrawing from the TFSA as the real opportunity of compound growth is just massive if they can keep the investment going.

Projecting the value of a maximum annual contribution up to the R500,000 level and 8% annual return, the account at age of 18 would sit at around R1.2m. This R1.2m becomes R31m by the age of 60, which should allow them a comfortable retirement from the TFSA alone.

Surely this “asset” in the child’s balance sheet would make getting a study loan much easier if required, especially if the TFSA is then moved to a provider that also give study loans (type of a soft security).

How do you balance the contributions made to your child’s TFSA and provide for their studies? I’m leaning towards maxing out the TFSA and face the music to pay for studies when the time comes.

I have always believed in choosing stocks with good momentum. For this reason, I initially chose the Satrix Momentum Unit Trust for two of my children’s TFSAs and I’ve been contributing to them all along with TFSAs at Satrix directly.

I noticed that there is now a Satrix Momentum ETF, that seems to be exactly the same as the unit trust, just lower cost. ABSA NewFunds also have a momentum-based ETF. I am considering moving these two kids TFSAs over to EasyEquities for easier admin and future flexibility, but would like to stick to a momentum type fund for now. How do these options compare (the methodologies are not the same as is evident from the current holdings in each fund).

For my two youngest children I chose the Sygnia 4th industrial fund (mainly because it sounded cool and I thought choosing technology for my 0 and two-year-old can’t be a bad idea).

Their investments have done very well (just lucky timing to be honest). From your recent podcast I could pick up that you are not a massive fan of this fund (it invests in guns etc) and I know that there are performance fees as well. What would be other options in the technology space, just a simple Nasdaq ETF?

Find our house view on tech ETFs here.

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Win of the week is Hannes for sharing a great car financing tip.

For anyone interested in calculating car affordability (because some of us love cars and it’s also our hobby, not just a means of transport), Dave Ramsey has a cool rule stating that you can afford the car ONLY if you can tick off all three of the following:

- You are able to pay a minimum of 20% deposit on the car.

- You are able to finance it for a maximum of four years (48 months).

- The monthly repayment (after 20% deposit and a max four-year term) is less than or equal to 10% of your gross monthly salary.

I've done the math like this and it removes a lot of the thinking involved in buying a car, especially if you're a petrolhead. Use it / don't use it. :)

Alistair

I received my very first dividend from my Ashburton 1200 in my TFSA today (yay), but I was quite shocked to see I paid 26.76% tax.

That seems like an extremely high price to pay for a tax free account - I was under the impression it would be much lower. I do know we are subject to foreign dividend tax, but considering this is how much tax one is paying... is it even efficient to put ETFs like the Ashburton 1200 in a TFSA? Surely (if your finances allowed it) it would be significantly better to fill your tax free with local ETFs and all foreign ones outside of it? Or is the advantage of not having to pay capital gains tax so great that it completely out-shadows the tax on dividends (and the growth that taxed amount would have had)?

I'm curious what difference this tax would make over a period of 40 years, conservatively assuming the growth of the Ashburton 1200 was the same as that of the Satrix 40 (and assuming dividends are reinvested).

Anne

I have an offshore investment with Allan Gray. The money split between Orbis Sicav global balanced fund and Nedgroup Investments Core Global fund.

I wanted to make an additional contribution, and had a relook at the fees. TER 1.08 and admin fee of 0.5%.

It the investment worth the fees? Should I rather stick to ETF in EasyEquities?

Ned inherited R2m.

With such a large amount of money, the fear of investing is damn real. My biggest fear is that I find myself fiddling around with my money until I find myself in a “ah fuck” situation. As a result, I have over R1.9m just sitting in cash. I realise this is a bad thing and I plan to move it all to EasyEquities, minus the emergency fund.

The real fear comes in with my discretionary investments.

I’m 29 and a major career improvement is imminent if all goes well. This will bring with it a MASSIVE change in salary. The plan is to continue dumping all my excess salary into tax free and thereafter discretionary investments. I’m not too sure about an RA at this stage as this is something else I’ve been putting off.

The only real investments I have outside of the tax free are about R18k in Ashburton 1200, top 40 and mid cap ETFs through FNB which I’ve been contributing to since about 2014/15.

Investment fear is a very real, very scary thing. It just gets worse when there’s more money. I realise now how important it is to start early and when you don’t have so much money to stress over. I wish more people would realise that investing isn’t only for rich people. It’s the best thing you can do for yourself.

John

In SA we have the Top 40, so an equal weight equates to 2.5% per share. Our biggest share is Naspers which is about 22.5% of the index, so Naspers is 9 times bigger than the equal weight. (22.5 divided by 2.5)

In the USA they have the S&P500 so an equal weight is 0.2% per share. The biggest share is Apple which is about 3.6% of the index, so Apple is 18 times bigger than the equal weight. On a relative basis Apple is twice as concentrated as compared to Naspers in our market.

Now I am guessing but I believe most of the data to validate the equal weight model has come from the USA and not from SA. This could mean the the equal weight model is not effective in SA.

When the expects say "over the long term shares have outperformed the other asset classes" I guess that they use the the overall index to validate their statement. I guess they are not referring to some bespoke index with smart beta components. To me any "smart or not so smart beta" is moving away from passive investing towards active investing even if the costs are lower. Passive investing should be no more complicated than reproducing the index.

Is it cheaper for CoreShares to change the methodology of an ETF compared to launching a brand new ETF with a different methodology? My guess is that it is.

I believe that CoreShares must stick with their model or front up and tell the market their model is broken.

Martin

I am a 26-year-old Mountain Guide living in Somerset West. I have a wife and a one 1.5 year old little girl dinosaur. My wife doesn’t work.

I am busy studying and I hate traffic so I leave home at 04:30 most mornings to avoid traffic to Cape Town where I then have 1.5 hours to listen to your shows and do other studies while I wait for my clients to arrive. I finish work at 11:00 and can spend most of the rest of the day with my wife and daughter.

Recently I started my own business and make a reasonable income during the summer months and then eat only putu in winter.

I save a fair amount of my income, mostly because we live very basic with no debt.

Anyway my questions are the following:

I don’t plan on living in South Africa for very long, another four years, at most. What impact will this have on my TFSA? Will I be able to keep it growing and fill it while we travel? I don’t plan on emigrating anywhere, so my bank accounts should stay in SA for the moment.

Would it be smart to start investing in a RA if I’m not going to be in SA. Can I transfer my RA across borders later in life?  

I know you did that blog post on the global property ETF, but I was wondering if that is a good investment into my TFSA?  I thought I will only get tax exemption on local property like the satrix property ETF. Will I get dividends on those two global ETFs? What Property ETFs should I be looking at?

This is not the first time I’ve heard people buying insurance products to leave money to loved ones who aren’t financially dependent. In cases of premature death, it’s genius (aside from the dying). However, insurance companies are money printing machines because they understand how to harness probability.

When you take out a life insurance policy, the insurance company works out how many years of contributions they’re likely to get from you before you hop off your mortal coil. They do with your money what you should be doing with it - they invest it. They understand money today is worth more than money tomorrow. If this didn’t work, the insurance industry would not exist.

Lady Kabelo is thinking about life insurance.

It would only be to give my folks, my sister and my partner a nice lump sum when I die, not because they depend on me financially.

I just feel tired of black people dying poor, leaving relatives to scrounge to bury us. I want to leave them with money to bury me and then mourn with bubbles or, if they listen to me, put the lump sum in a retirement fund for future comfort.

You could argue that I should invest that money and they will inherit that. But if I die next year, it wouldn't have grown to a considerable amount. Life insurance would pay out a nice amount between the four of them.

Is my thought process as crazy as I think it sounds, or would this fall into the category of making your money align to your values? I love my people and if I can put some money aside now so they get some money when I die, why not?

Win of the week: Cheryl from The Fat Wallet Community.

Nedbank offers a Greenbacks shop card which allows you to draw your Greenback value in cash from any Nedbank ATM. You could then use this cash to buy your bubbles. I draw mine once a year in December and use this money towards Christmas. I try to get Christmas for free - using Dischem, PnPay points and greenbacks to pay for gifts and christmas lunch shopping. Not 100% achieved but getting closer every year.

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Jacob

I have a debt problem that I need to address, but my wife is not helping. She is also in debt and her business is not making enough money. How do I convince her to start a financial plan so that we can address our debt problem in order to be able to buy a house?

Gerhard

Just listened to Simon’s JSE direct around the changes in CSEW40.

The question I was waiting for but that never came, is what will the impact be on the TER of the ETF if they make the change.

It doesn’t help they smooth the ride, but in the end you lose because of fees.

Bella

I had been investing R500 per month with Discovery Retirement Optimiser Endowment policy for the past 10 years. It grew by 13% in that time.

To say disappointed is an understatement, seeing that I’m just 10 years away from retirement age.

I’ve decided to take the plunge and invest in ETFs with the proceeds from my unit trusts and endowment policy.

I’ve recently transferred my RA to etfSA and also opened a tax-free account. I’m contributing  R1500 p.m towards Coreshares Global Dividend Aristocrat, Coreshares S&P 500, Satrix Emerging Market, Ashburton Global 1200.

Should I open up a discretionary account (with EasyEquities perhaps)? I’m looking at offshore ETFs but unsure on what that spread of the funds should look like. 

I also have an investment property but my tenant has lost his job and is paying a lot less than the amount I’m asking for, and I’m not sure for how long he will even be able to keep this up for.

Should I just consider selling and investing these proceeds as well?

Martinus

My 14-year old car said its final goodbye and had to get a new car sooner than I expected. I only had 50% of the cash on hand to purchase the new car, then I had to to either take out a loan for the reminder, or take money out of my TFSA or a paid up RA. I figured the wiser choice was the loan since drawing from the capital of a TFSA so early hamstrings your future growth.

Considering a high interest car loan, would it be wiser over the long term (20+ years) to put that R2750 pm that would go to a TFSA to paying down the loan and then miss out on the TFSA allotment for a year?

My math shows that if I pay an additional R2500 a month on my car loan I'd pay it off 21 months early, saving me R24150 in interest and R1449 in fees.

I'm leaning towards paying off the loan, because it’s the first time in my life I have debt and I really don't like it.

Boitomelo the Diplomat

I am looking at increasing my RA contribution. I started with a low amount 2 years ago. I’ve read that 27.5% is the maximum tax benefit I can get towards my annual RA contribution. Is this 27.5% of my contributions to the RA, or of my taxable income? If it’s based on my taxable income, how does a person in my position determine what my maximum RA contribution would be since I do not pay income tax?

Secondly, given that my contracts will expire in 6.5 years and that I’ll be without formal employment, is increasing an RA a good idea given that I’ll only access it at 55? It leaves me with an 11-year access gap. I will be looking for a job and other alternative sources of creating income, one of which will be to provide editing and French translation services which I can’t currently do.

I know that freelancing is not easy and that one should be sufficiently financially prepared for it. Should I rather keep the RA contribution as is with a 5% annual escalation, and look into alternative investments options for purposes of creating an income for that 11-year gap at the end of my official ‘formal’ working life? If so, what investment vehicles would you recommend?

Tristan

I think you said you use your tax refund for tax-free deposit. What about adding it back to your RA each year? Wouldn't that have a cumulative refund benefit? Going into the tax free account means no more instant rewards, you have to wait a decade.

My half-thought out idea is to try hit 27.5% each year, e.g. dump in and top-up any bonuses. My thinking is that it'll be easier in future years because of maxing out my refunds.

The end result should be the same as if my bonus was deposited directly into my RA rather then losing much to tax.

Survivors of a battle with the Debt Monster already got a nasty introduction to the world of fees. A combination of account fees and interest on debt will leave you poorer every time. This baptism of fire may have been unpleasant, but it’s not a lesson you’re soon to forget.

Those most vulnerable to the wealth-destroying effect of fees are those new to the financial world. When you don’t have much money and a brush with debt hasn’t yet alerted you to the grimy side of the financial system, a 1% fee on a small transaction is unlikely to set off alarm bells. On a R300 investment, a 1% is only R3. What could you possibly buy with that? Beware, dear lambs, this is how they get you.

In this week’s episode of The Fat Wallet Show, we try to show you why you should care about fees very much. We run the gamut - from expensive, ego-stroking bank accounts to total investment costs in ETF products.

You might be disappointed to find that we can’t offer cut and dry solutions to fees. A lack of consistency in reporting among financial institutions makes it almost impossible to do a side-by-side comparison of fees. Instead, we try to steer you in the general direction of clarity.

We reference this document.

Kelly

I’ve just received my first salary and am extremely eager to make my first investments into TFSA ETFs, however the more I started thinking about life expenses the more I realised that there are a couple of other financial planning decisions that I still need to make. I would like your advice relating to the following matters:

Which bank account for day to day activities? Investec approached us first year trainees with the young professionals’ private banking account. It has a monthly fee of R295 with no additional charges. It gives you reward points and access to airport lounges and all sorts of shiny bells and whistles.

In what ratio would you advise me to invest my savings into an emergency fund and TSFA ETFs? Also, in which bank account would you advise me to keep this emergency fund?

I am aware of the extreme importance of saving for retirement, and am unsure of whether I should be contributing to a pension fund as well as TFSA ETFs or if focusing only on TFSA ETFs for now will be sufficient.  What is your opinion on this?

As I am young, I would like to focus on high risk, high return (hopefully), equity ETFS. I have considered the Satrix Top 40, as it is a known favourite and I can “catch up” on the time I have lost due to the sideways market with the hope of a more favourable market in the near future. I have also considered the Ashburton Global 1200 and Satrix MSCI World ETFs. The new ABSA low volatility ETFs also caught my attention but I am concerned that the risk on these ETFs are too low? Will you please advise?

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Flipi

Any change in your opinions about 10x as a good RA choice?

Would Stanlib's new TFSA be as good as any other? I have some investments with them and it would be convenient to simply move the money across in the next few days.

Other Gerhard

I opened a TFSA account for each of my daughters and did my first transfer.

I did the instruction on their website and the trade was done 09:15 in the morning.

I bought the Satrix MSCI World ETF and the trade price was R39.16 per share.

From another trading system I use on a personal level I couldn't see this price trade anytime during the day. The highest price traded was R38.65 for the day, which means that over and above the normal small trading fee I paid to EasyEquities I also paid R0.51 or 1.32% of the share price.

I invested R10,000 and the total transaction cost according to their break down was R37.40.

But I got charged R39.16 per share instead of R38.65 (assuming the highest price for the day) and therefore I paid another R130.24 in "transaction charges". The total transaction charges therefore R167.64.

If I did the same size transaction on Investec's trading platform I would have paid R151.72 in charges.

Did I do something wrong here?

Always Abundant

In 2002 we bought into an Executive Redemption bond offered by a UK-based Life Assurance Co via the International arm of a large South African financial institution. This was sold to us by our financial advisor (at the time) as a way to maintain our offshore diversification.

In 2012 we applied for a full withdrawal in order to close the policy. We were able to redeem everything other than 1 of the funds (a UK-based Property fund) which had gone bust. We accepted our losses, which were considerable, and forgot all about it. Recently we received a letter from the International Arm of the local company informing us that the annual fees on the policy had gone up.

I obtained online access to the account and noticed that the Property fund in question had eventually liquidated in 2018. The small amount that was generated from the liquidation had gone towards paying these fixed annual fees. But since the fees were charged continually, there is now in a significant amount owing (1.5K USD).

The policy is worth nothing but the fees continue to accumulate even though we had submitted the withdrawal form years ago. No one has informed us about the fees owing.

What are our rights in this case? Surely there must be some kind of Consumer Protection laws to protect us from being liable for these fees? What should be our course of action, if any?

Win of the week: Phasane

2018/2019 Tax Year has been, surprisingly, a good year for me.

• I finished paying off my car, not planning to buy any car until 2023. The only debt remaining is the bond.

• I discovered the Fat Wallet Podcast and the Just One Lap community in general.
• I listened to all Fat Wallet episodes (the weekly wait is now killing me).
• I moved my RA from Liberty to 10X, a process that started late in October 2018 and about to be wrapped up as I write this mail (waiting for some Trustees what what signature but 10X have kept me informed every step of the way). By the way, I started with my RA contributions to 10X in November and contributed to both Liberty and 10X that month.
• Although I wanted to do more, I contributed 16 600 ZAR to my TFSA (up from the R4 620 that I contributed the previous Tax Year). I am comforted by the fact that I have built my emergency fund to levels I am comfortable, from 0 - 4 months worth of living expenses (in Simon's own words, "that makes me sleep well at night").

2019/2020 goals

• Contribute the max amount to the TFSA, this is important considering TIME in the market.
• Add one more month of living expenses to the emergency fund.
• My normal RA contributions will continue, this is a top up to the work pension fund.
• Everything else remaining, including change from the F##k it monthly budget, goes to the Bond. I am planning to settle the Bond in 2022 (9 years from the registration date)

Tax rebates, bonuses and inheritances really throw us for a loop. Most of us have every cent of our salary allocated to some higher purpose, but the moment we find ourselves with a big hunk of cash, we get in our own heads. We all know what we should do with the money, except because this is magical unicorn money we don’t.

We get questions about lump sum investments so often that we decided it’s time to devote an entire episode to it. In short: the math says invest it all at once as soon as possible. If your emotions tell you to do otherwise, however, you should probably pay attention to them first.

We talk about our friend Hendrik’s blog tigersonagoldenleash.co.za in this episode.

Andrew

I just received 10 months worth of salary as a bonus. I currently have money invested in my portfolio. I’m trying to decide how to go about investing my bonus. Should I chuck the entire amount in now? (Keep in mind my TFSA is maxed out for 2018, and I plan on investing R33 000 on 1 March) or should I average it out over a few months? Also keep in mind that I have no debt.

Win of the week: Nadia

I listened to the show about my question and I just want to say thanks a million! You guys helped a lot with my decision and I have decided not to get involved with Forex trading. I first need to focus on my TFSA and make sure I understand all the ETFs I have chosen to invest in.

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David

Love the show. I have a question for you relating to picking a Global ETF. I have an Easy Equities Account and have access to investing in ETFs listed on the NYSE.

I was looking at the Vanguard Total World Stock ETF on the USD account and comparing it to the Ashburton 1200 on the ZAR account. The TER is significantly cheaper for the Vanguard ETF – 0.1% vs. 0.45%.

The weighting of the constituents of each ETF are quite similar although the Vanguard has over 8,000 stocks where the Ashburton has over 1,200 stocks which makes it attractive to have more exposure globally.

My feeling is that in the long run, it’s probably worth moving all my investment offshore (into USD) into the Vanguard ETF if I follow the concept of one ETF to rule them all because of the low cost of running the ETF.

What risks other than a strengthen Rand or having a Will in place in the USA to transfer the funds in the event of death would you foresee? How would the tax on dividends / Capital Gains be affected?

Hannes

I recently received a severance package. This money is considered "tax free income" because of a SARS tax directive, which seems to be common with severance packages. It’s been lying in a savings account, and I'd like to know what you think is the most tax-efficient way to put that money to work.

I don't have any investments and no emergency fund. The savings referred to above is currently my emergency fund. The only debt I have is car debt, a monthly expense of R2400. No bond either.

The amount is just enough to max out my TFSA for the 2018 tax year ending in February as well as settle my car debt completely, but then I have no more savings / emergency fund left at all. However I can quickly build up an emergency fund, or to rather contribute aggressively to my car debt with a monthly contribution if I decide to not settle.

It seems crazy dropping a huge amount on my car debt to settle it considering the small monthly repayment, but it's also something I want to get rid of ASAP as it allows for more savings, less essential expenses and more cashflow when I'm rid of the repayment. The risk of course is that I will be stuck without savings / emergency fund for a few months until I can build it up again. I do have a credit card.

Not quite sure what the best course of action is. Should I rather leave the debt as is and invest with this "tax free income"?

Minnaar

I would like to understand how a property-based ETF actually distributes the income that it gets from rentals? How does the ETF distribute this to holders of the product? Is it in the form of a dividend?

Can you explain like I am 5 why some people think investing in REIT properties are a good idea in a TFSA?

Dave

I discovered that you can buy REITSs via unit trusts, exchange traded funds or standalones directly from your stockbroker or financial advisor or a site like EasyEquities.  I can see a sort of hierarchy here but just don’t get it. Are earnings from REITs rental income or dividends? I can appreciate that if held in a property owning company the earnings would be in divs.  But if held by a unit trust how would rental earnings be paid?

Phil

I love this podcast and this a wonderful public service you're offering to all South Africa.

Even though I'm in the UK and a lot of the advice can't be directly applied the thinking still applies and continues to push my thinking.

I want to share stuff that changed my financial life which was given a wake-up call after I took a massive hit on RA when I financially emigrated and was confronted with just how far behind I was. Painful stuff, and wish I had a podcast like yours to point me in the right direction at the time.

I wanted to share some references I use in the UK that I think would be very useful for reference in your offering to the public as well:

- The go-to reddit (I know, don't take advice from unknown muppets, but it's good) for me is  /r/ukpersonalfinance/. In particular I love the UK Personal Finance Flowchart and it's interactive version (which is opensource on github btw...). This flowchart is awesome for visualising where you are on the maturity scale. Super helped my wife with her "O, fok!" moment.

- The second source I love is  moneysavingexpert.com. It's a bit of a marketing-hidden-like-advice site, but it's got some gold-level guides on finance basics for people who were never shown how the basics work.

- The more extreme sites are FIRE the based, but drastically shifted my thinking on what retirement means, in particular @firevlondon on twitter is an interesting feed I follow with monevator.com to frame my thinking on passive investment.

Melissa

I already have some investments with Easy Equities, so just decided to move some funds around so that I can put the full R33 000 in for the 2018 tax year.

I am a bit confused about the limit of R33 000 and the fees involved. When I bought my TFSA ETFs the admin/brokerage fees were deducted and my investment amount only shows as R32 877 (R123 admin fee). I know it is a small difference, but I would like to utilise the full R33 000 that I am allowed for the year. Easy equities however does not allow me to invest any more funds into this account.

Do you have any clarity whether this R33k limit includes the administration fees?

André

I heard you say you had to re-open your FNB account because you have and FNB flexi bond.

Not sure what the exact reason is but thought I will share this. You do not need an FNB account to withdraw from your FNB bond. I also have an FNB flexi bond and I nominated an account at a different institution and I have withdrawn from the bond directly into that account.

Fanie

I’m nearly 70 and earn the biggest part of my income from the following ETFs: PREFTX, PTXTEN and STPROP.

You mentioned that because PREFTX consist of many banking pref shares there is a risk should we get downgraded to junk status by all the  rating agencies. I understand that a junk grading will affect our total banking system negatively in that interest rates will go up. What do you think will be the effect of a downgrade on my income from PREFTX.

Chris

What stops me from opening a tax free savings account with a overseas fund managers like JP Morgan, Investco, Black Rock etc?

What are the tax implications for me as a non-resident in an international based etf tfsa?

What are the risks and is it something worth investigating?

Conette

I am 55 and work for a big bank group, with lots of good benefits.

My emergency funds sorted out and bond debt almost covered.

I want to open a Tax Free Savings (ETFs) account with Easy Equities .

I please need your assistance in my ETF selection? I intend not to 'touch' the investment in the next 15 to 20 years.

Jo

I am in the process of shifting my RA around and moving away from unit trusts and into ETFs.

I started investing in an RA as soon as I started working, but unfortunately I thought they were very one size fits all and so it's all sitting in unit trusts with fees of around 3.8%.

While digging more into finance I came across a TED talk by a doctor in Australia who pointed out that most people's retirement funds are invested in British American Tobacco (BAT). So I looked up the current funds I am invested in and my current unit trust, my work provident fund and the new ETF I was looking into for my RA all invest more than 1% into BAT.

This is pretty disappointing to me. I can guarantee that a large percentage of the general populace wouldn't invest in tobacco if they had the option. And yet they are unwittingly helping fund the industry.

I have tried to do some googling for green funds in SA but haven't really come across anything. I realize that I could just build my own RA by picking shares but would much rather choose an ETF. I would also not like to pay exorbitant fees just to avoid investing in unethical companies. Maybe I will have to suck it up and offset my investment in BAT with charitable donations to cancer research. ;)

Jon-Luke

Is it possible to transfer ETFs that you already own into your Tax Free Savings without having to sell them first?

Rudolph wants to know if yield rise or fall with quantitative easing.

The longer we do this, the more evidence we find in favour of doing tax-free investments before any other kind of investing. To do that, you need to understand why paying no tax makes a huge difference to how much money you end up with. You also need to understand that there’s a difference between tax-free accounts and ordinary investment accounts. Lastly, you need to know why it’s important to buy an investment product within a tax-free investment account.

This week’s episode of The Fat Wallet Show is audio from our annual tax-free investment presentation. In it, Simon Brown explains everything you need to know about tax-free investments and shares some ideas on choosing the right type of product.

Find our conversation on tax-free investing here.

This community is all about not leaving money on the table. Buying and selling shares at the right time can have a long-term impact on the performance of your portfolio. This week we discuss two questions relating to timing buying and selling shares and ETFs.

Win of the week: Mukhtaar, for solving the tax on REIT issue.

In the latest podcast there was a question whether listed property distributions are treated as interest income or taxed as normal income.

I can confirm that it is taxed as normal income and the interest exemption does not apply.

You can see that an exemption only applied to interest income. The REIT income was just added to my other income without exemption. There is no deduction for this.

For this reason, I try to keep all my listed property exposure in a TFIA!

Clean swearing bleeped out show is below.

https://justonelap.com/wp-content/uploads/2019/02/TheFatWalletShow_135_20190218_bleeped.mp3

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Warren responded to Nadia’s question about learning how to trade Forex from last week:

There’s a great site called Babypips where she can learn everything. Also there’s a company called Oanda based in the UK which I’ve been trading on for 6 years and all is legit. No minimums or admin fees.

Paul also had some feedback.

Best thing I heard this week, "if you want to know if forex trading is for you, withdraw R2000 from an ATM, and burn it. If you can't, then you can't do forex trading either" - courtesy of Simon Pateman Brown.

I wish I heard this phrase a few years ago, when I was also sold the yacht and bubbles lie and 'burned' a couple of thousands trying my hand at forex trading.

Stephen

I'm toying with the idea of moving all of my ETFs across both my normal and tax-free portfolios into a Bond ETF (Newfunds Govi ETF).

The idea would be to leave my investment in a more stable environment and then move them back into my original portfolio when the market is low.

My current portfolio across both my normal and tax-free accounts holds:

• Ashburton Global 1200 (20% of normal)
• Coreshares Global Divtrax (20% of normal)
• Satrix Nasdaq 100 (in both - 20% of normal and 33% of tax-free)
• Satrix MSCI Emerging Markets (33% of tax-free)
• Satrix S&P 500 (33% of tax-free)

On my normal accounts, I haven't made enough to warrant Capital Gains - I moved from single shares to ETFs in my normal account after Steinhoff and also not realising I should have sold Dis-Chem in the high 30's!

It was then that I realised that I was like a gambler - talking about the gains but not about the losses! At the moment the only single shares I have are Naspers and Steinhoff (only because I can't bare to accept defeat along with my own single concentration stupidity).

Is this an advisable approach? I want to be fluid for when the recession opportunities arise. Or, should I be looking elsewhere for a stable return during market downturns?

Morné

I decided to convert my portfolio from single company shares to ETFs, mostly to avoid risks and not to have to follow shares religiously for opportunities.

My approach is to slowly sell my single company shares as they move into the green or break even and then use the money to buy ETFs. This is only for my SA account since I already decided to focus on ETFs before I opened my US EE account.

I was delighted to see that the ETFs I thus far chose are also rated highly in your podcasts. As I am selling my single stocks, the cash I have available for ETFs is growing. However, the cash in both my SA and US accounts are earning basically zero interest. This irritates me greatly.

My dilemma now is when to buy an ETF? Do I wait for a price drop or do I buy at any price when I find an ETF that I like, since I am investing for the long term? The same goes for the ETFs that I already own. Should I wait for price drops or keep on adding to them from month to month regardless of the price?

Gerard is also taking control of his finances in a big way.

Four years ago we had a lot of credit card debt, month to month living, always "broke". I discovered MMM and FIRE, took control of my expenses and now have multiple savings and investment accounts and no more debt. It took about tw years to get rid of the most debt (house almost done) - and since then just building investment accounts.

Last year I decided to start adding extra monies to the EasyEquities taxable account, and bought about 40 shares to simulate my own index, based on Coreshares TOP50.

One morning I logged into EE and decided this is just too much admin, for such little long term reward - just pay the TER, buy ETFs and stop stressing about this (Re-balancing and buying 40 shares every month gets annoying quickly) . I then sold everything not really understanding the tax consequences.

Now I'm sitting with my first ever TAX event - +-R300 in realised gains, not big money. Would I be able to put this through as a CGT, as my intent is for this account it to be long term holdings - or is it just better to declare the small profit I made as income?  

I can't yet prove it as long term, other than showing SARS my retirement planning spreadsheet  - so on such a small amount of profit, I just think I'll do it as income declaration.

My one major worry is, is that if I declare this as income this year will SARS always see this account as a trading account, or is it a per tax event thing ?

Our Tax Elf De Wet has decided to give up a cushy corporate to take his Tax Elving more seriously. He’s also significantly downscaling his life. He has some big questions about what to do with his money now that he’s in the wild. He sent a monster email so we’ll be dealing with each topic separately over the next few weeks.

I’m looking to save a percentage of all income per month (both me and my wife) for tax purposes. Anywhere between 25% and 31%. What is the best use of this money during the period I have access to it? This normally sat in my bond / home loan.

André, our new minimalist contributor, had a great insight.

1. The lower your savings rate is, the higher rate of return you'll need to get.
2. The lower your savings rate is, the more important time horizon becomes.

Wayne has some legacy active funds and wants to know what to do.

I am invested in The Allan Gray Orbis Global Equity Feeder A with a TER of 2.16% ( I just threw up in my mouth).

I have a large amount going to this monthly.

It was a great idea before ETFs came along that could give me access to world stocks.

I am also now invested in Sygnia MSCI world in my TFSA with a TER of .68%.

Should I be looking to disinvest or stop the monthly payments in Orbis ( they had a shocking year 2018) and put the funds into my EE account and invest in the Satrix or Sygnia world ETFs?

I am struggling to see the difference in investment strategy between the two options, The etf option definitely has a lower TER, and I do not know who to call for advice.

Mary is 42 and discovered the FIRE idea last year.

I started saving for my emergency fund. I was a bit uncertain whether that expense amount should cover the medical aid as well. If so, I should rethink mine because as of now I have about four months of expenses saved up.

She holds:

1. Satrix 40
2. The All bond index
3. The S&P 500 and
4. The property ETF

My tax-free is in a bank account in cash up to now.

I also have the Allan Gray equity unit trust.

I was thinking of starting a tax free portfolio in ETFs and did not want a lot of extra individual ETFs. Is it better to put 100 % of the tax free allowance in the high equity balanced index fund from Satrix or to spread it around in different ones?

We got a mail for Jorge!

Can you please advise what is the best bond ETF (to reduce risk) to buy in a TFIA which will give the best return. What % of the TFIA should it be as I mainly have equity ETFs in the account at the moment?

Karabo has investment properties for her kids.

I have three properties that I bought in my early 20s as investments for my yet to be born children (I am 30yrs old this year). I bought the properties in my name but would like to move them to a trust. Is it possible to do so? Would it be wise to do so or should I rather register a company that will own the properties on behalf of my children?

I still owe the bank on the properties.

Always Abundant is starting to understand the impact of the exchange rate on their investments.

50% of my portfolio is invested in the Vanguard World ETF (VT) in USD.

The other 50% is Local: Top 40 ETF (Satrix and Sygnia), Satrix indi, Sygnia local property index fund, some local unit trust funds (may include max 25% offshore from time to time), some individual SA shares.

Recently, I realised that the exchange rate plays a bigger role than performance when it comes to the profitability of my offshore investments when converted back to ZAR. This is a scary thought as I have no plans to emigrate and have always needed to sell at an inopportune time (wrt the forex rate)

So, I thought to find a suitable local ETF to counteract that risk. Unfortunately, it seems to me that, apart from mid-caps and local property perhaps, everything is impacted by the ZAR-USD exchange rate.

Is this a logical concern or am I overlooking something at a time when everyone around me is investing offshore? If my concern is logical, what is a good investment for South Africans who do not wish to be exposed to currency risk? I would still like an equity-related return and low cost.

I’m often curious about the finances of people who want to take on some alternative way of making money in financial markets - be it trading or Bitcoin. More often than not, people who are convinced that a single asset or event will solve all their problems don’t yet have solid a financial foundation. Similarly, people who do have a strong handle on their finances tend to favour simplicity, as this interview with Patrick McKay illustrates.

Just One Lap had its origins as a trading education platform. Even so, trading is not something we encourage most people to do. For one, the amount of money required to start a robust trading account can easily fund a real world small business. Secondly, all the psychological factors that make investing hard are present in trading, but on a daily basis under huge time constraints. Unless you have the time and money to devote your life to it, trading is probably not for you.

A question about a Forex training platform from Nadia inspired a discussion about the realities of trading that most people don’t think about. We mention our Trading Boot Camp series, as well as this series of CFD Conversations.

Clean swearing bleeped out show is below.

https://justonelap.com/wp-content/uploads/2019/02/TheFatWalletShow_134_20190211_bleeped.mp3

Win of the week is Christiaan

I am 17 years old and in Matric now. After listening to so many of your podcasts I have this vision of being financially independent before I am 35.

I am in the process of opening a Tax free saving account at EasyEquities and the plan is to invest my money from the get go.

I will have a good head start when I get to varsity next year as I will receive free tuition at UP and my parents own a house close to the Uni where I will be able to stay. I do odd jobs here and there and save all my money and receive a small amount of money from my parents as pocket money that I have to sustain myself, buy my own food at school and pay for extra murals. This amount is just under the amount I need to pay tax so I am good there.

I worked out that it will take me just a little bit more than 15 years to max out my tax-free savings account if I pay the full R33,000 a year (will be maxed out when I am 33). My problem is, if I do this there will by no more money left for a RA. Is it necessary to open a RA now as I am not even 20 yet and don’t earn a huge amount of money? Or wait until I maxed out my TFSA and then move the budgeted money I used to put there to my RA?

Nadia

I want to please get your opinion on a company called XXX. I've been trying to get proper feedback on them for weeks now but I can't seem to get an answer.

It's a company that trains people to trade Forex. You pay to access a number of training videos, live sessions, tools they use to trade etc. So it really sounds awesome and apparently the education side of it is really great. But then I find the google reviews that say that it is all a scam and that they just take your money... which is why I am confused. There are some people who say that it is a great product because they really go in depth to show you how trading is done etc.

As far as I know, you pay a monthly subscription fee to be able to use the education platform and then also the tools and programs they use to trade. You can cancel at any time and they money you make from your trades belongs to you. The only way this company makes money is from the monthly subscription you pay. It's pretty expensive so i'm not sure if I should just go for it and see what happens or if I should forget about it. So yes... i'm pretty confused.

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Our Tax Elf De Wet has decided to give up a cushy corporate to take his Tax Elving more seriously.

I need a strong emergency fund (something which was not as important with my current job).

I’m looking at having 6 to 12 months expenses saved up over time.

Where do I invest this money?

I’m looking to save half myself and keep half in my wife’s, as this makes issues on death easier (joint accounts get frozen and the like). This also potentially spreads the interest exemption.

The plan is to save a percentage of all income on a monthly basis till I reach the threshold / top up as extra income comes in.

Emergency Fund is the main goal in the first year working for myself. I will use some of Sam’s knowledge and save for various items in this fund – car related expenses, emergencies, and other non-fun stuff. We will have a separate fun fund (this will be managed by my wife as she is in charge of fun and I look after life).

Like me, Seilatsatsi is trying to find the perfect balance between RA and bond contributions. They say:

Finding your podcast has so far been the best find of 2019 following the best find of 2018 which was Stealthy's site when I started my FIRE movement.

I don't have a company pension fund.

I currently manage my own with an RA, a TFSA and an EE account.

I pay more than double on my bond.

One of your listeners noted that one can submit their RA contribution to HR and have the rebate on a monthly basis compared to once annually. With this option, I am wondering if I should work it out as below:

Stop the extra bond contribution and redirect that to the RA.

If the monthly rebate works through my employer, I can put the extra monthly tax break back into the bond. I am very disciplined and this would actually be done.

Another Engineer has some questions regarding tax on property and RA emigration.

You mentioned that one can transfer an RA offshore, to another type of pension, and I understood that you meant that you wouldn't have to pay the tax. I've looked it up, and one cannot 'transfer' an RA offshore before retirement; you can have it paid out in cash, take the tax knock, and then take it offshore, IF you have financially emigrated. However, if you have a work pension fund, it seems you can take the cash (minus tax) when you resign, without having to have financially emigrated.

I assume after 55, if you wanted to cash it out, you also have to turn it to cash, take the tax knock (which will be less than before 55), and then take it out.

You mentioned that listed property distributions are taxed as interest. I think it's actually taxed straight as income, not interest? Unless I'm not understanding what you meant. The property distributions are not part of your interest exemption etc, I think it gets added straight to your "gross income", with your salary etc.

Tax Emigration - Part One

Edward is currently living in Australia but planning to move back home soon.

I currently live in Australia but will likely have to return to South Africa a few years from now to look after my parents.

I want to start contributing to a tax free savings account but I don't have a South African address which is required for FICA.

Is there any way to open a tax free savings account while living in another country? Could I maybe use my parents' address? Would EasyEquities be an option for my TFSA?

Phemelo could relate to last week’s episode on starting over.

The podcast "starting over" summarises what I have been trying to do from end of July to now.

I thought I had a formula, the grand idea that was going to save me, namely to Increase my income by a huge margin.

A prospective employer entertained my suggested offer of a huge increase in my annually CTC.

In Dec 2018 I was flown to Cape Town for final interview. The interview went well, but then the phone call came on 18:38 Friday evening, telling me they “will not be advancing the offer". I was distraught and shattered. All my plans went out the window. This one job was supposed to take me to the promised land and now "I am starting over", but I remain positive.

Darryn wants to know what account he should use to save for fun stuff.

I struggle reading financial products at the best of times due to time and also pure laziness, my questions are:

1. Is there a specific a account or company you use yourself for this? Can I just use a savings account on the 22/7 app? Are they good?
2. Is there a specific type of account to use?
3. If saving for a new car and a holiday to Cuba would you put those in separate accounts?

Steve is planning to do some tax harvesting.

I heard about the EasyEquities inter-account transfers function between normal accounts and TFSA, so I sold enough ETFs from my other account to transfer to TFSA. I know ETFs are not sold and converted instantly -  I figured T+2 or T+3. When the money didn’t appear, I logged a ticket. I got a reply that the money would only be cleared on 13 Feb, which would be 8 business days later. Is this normal and if so, why so long?

I am building my kids’ education funds in ETFs,  but am mindful of the CGT I will need to pay when cashing in.  

Considering there is a 40k per year allowance, I was planning on selling and rebasing the funds at times when the CGT liability would be close to the 40k. I am buying 6 ETFs per month for next 15 to 20 years.

How would you suggest managing the CGT liability?

I could keep a spreadsheet of each account and each ETF purchase ( x 3 per child per month etc – for 15 years ) -  or is there an easier way? For instance are the providers required to keep the CGT calculation updated for me?

Always Abundant isn’t so sure about the investment potential of property.

I've compared the listed property index (J253  - since STXPRO does not go as far back) against the Satrix 40 over a 10 year period and found that property has performed half as well as equities. If this is generally the case in the long term, are there any merits to investing in a listed property ETF other than for diversification? The reason i am considering this is the added tax advantage for listed property in a TFSA.

Hannes wants to know why your friend who sold everything in 2008 missed out.

In episode 124 Simon talks about an acquaintance who sold everything in 2008, and asked to re-buy a few months ago. In that episode he states that "she missed everything", but I'm confused about this.

I understand there was a massive market swing over the past 11 years, but long term investing dictates that you should hold, so why would she have missed everything if she would have just held through the swing to end up where the market was X years ago due to recent poor performance? Am I missing something here?

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For us money nerds, February is not the month of love, but the Hallowed Month of Tax. What’s the best kind of tax, you wonder? The kind you don’t ever have to pay! In this bonus podcast, Wild and Tax-Free, we get some friends together to chat all things tax-free savings. Joining us in is Njabulo Nsibande, FIRE-man Patrick McKay, aspiring FIRE-man Stealthy Wealth and EasyEquities superstar Carly Barnes.

Remember to join us for our annual tax-free presentation at the JSE here.

Since talking about money is my day job, it’s easy to assume that I have no financial anxieties. That’s not the case. Money speaks to such a primal part of our humanity. I think everyone is susceptible to a degree of fear around their ability to meet the basic needs of themselves and their families.

Making big lifestyle changes always results in massive financial anxiety for me. Buying a house  - a lifestyle decision whose financial implications I always distrusted - had me on tenterhooks. Instead of throwing myself into the planning, I resorted to a small degree of avoidance during the stressful process of finalising the sale.

When I was finally ready to look the beast in the eye, I was greatly relieved. Forgetting my previous budget and starting from scratch was a way of reminding myself that I was actually in control of the process. I could make decisions to ensure my financial comfort because of good decisions that I made in the past. Good for me!

This episode is for those of you who recently underwent a big change that requires a new approach to your money. We talk about my own process and offer some ways for you to start over. Remember to let us know how it goes!

P.S. Don’t forget to join us for our Power Hour on 21 February at the JSE in Johannesburg. Register here.

Join our Fat Wallet community page here.

Win of the week: Peter, who simply wrote: Love your show and don't miss any new posting. Also Ben, for sending a question and then figuring out the answer himself.

Clean swearing bleeped out show is below.

https://justonelap.com/wp-content/uploads/2019/02/TheFatWalletShow_133_20190204_bleeped.mp3

Lady Kabelo

Can you explain the relationship between world/US ETFs and the rand in village idiot terms.

If I buy the S&P500 and the rand weakens against the dollar, is this good for my investment? And vice versa.

I assume the same would apply to the world, global property and emerging market etfs. Is this correct?

From an investment perspective, when the rand weakens should I be happy or sad?

Because the S&P does its own thing and the rand does its own thing, I can never tell what's going on and why.

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Kgosi discovered he was being overcharged for his dread and disability cover. His cover came to almost R3,000 and he’s only 26. That’s too much.

Brendan wanted to add to last week’s episode on getting your tax in order for the new year.

There is also a donation to an s18A public benefit organisation (PBO) that listeners can consider making. Up to 10% of our taxable income is deductible for this purpose. SARS is effectively paying a portion (by reducing our taxable income and therefore the tax we will pay) of a donation we make to a cause that we care about. There is a list of S18A PBO’s on the SARS website.

Hannes, who just turned 30, is feeling some anxiety over his finances.

I quit my shitty-paying, toxic software job in 2015, dipped my hand into business which never took off, after which I settled on international stock trading in the US markets for two years. The reason for US markets? I felt like SA was lacking liquid, affordable stocks for active day trading, and at R50 per trade at Standard Bank at the time I thought I might as well try my hand across the pond. Before this endeavour I've never dealt with the financial markets, local or international, and I had no knowledge, so I put on my big boy pants and started learning and obsessing about the financial industry.

I vastly underestimated the time and capital required to learn to be a consistently successful trader (especially in USD), and my money was slowly drained by education, "school fees", software costs, exchange fees and broker commissions over the two-year period.

I retired from the US markets in late 2017 and subsequently cut all ties to the financial world and returned to my original career path and "stability". At the ripe age of almost-31 I'm in a financial position where I can start building a life, and start realizing my plan for long-term investing.

As it stands now, I have no investments, no property, a small bit of manageable debt (relatively cheap car which is also my hobby), no RA, no TFSA, and R100k tax-free (tax directive) money in my savings account earning around 6%.

On top of that, I realized that I will need to get on top of my parents finances as well. They have always earned a decent income due to my father's business, but they have neglected their retirement completely. They are both in their late 60's. My two older siblings do not work and rely on their husbands to support their families, so ultimately I will be the only one actively contributing to my parents retirement, all while trying to create a life for me and my hopefully-soon-to-be-wife.

I've decided to sketch out a financial plan for myself, my girlfriend and my parents in an attempt to remove them from the grasp of their financial advisor in order to set a clear cut path to some sort of retirement.

I've drafted a plan below, which I think makes financial sense and should start me off with a well balanced portfolio:

• Max out TFSA with R33k on 1 March 2019. (Leaving me with R66k left in regular savings).
• Keep R33k of the remaining R66k as the starting point to my emergency fund (which I'd like to grow to about R150k).
• Use the remaining R33k to invest immediately in ETFs / other "good" financial instruments (I could really use your input on what is considered great first investment financial instruments).
• Open an RA with 10X (need more research on this) and start contributing to that around R3k per month, unfortunately no contribution from my employer.
• Don't buy a house. Don't panic. Be patient. Reduce living costs even more (lean already). Try not to panic because I want to get married soon, have a honeymoon and travel. Did I mention don't panic? It's fine.

Because my girlfriend (29) and I (30) are only starting our investment journeys this year, do you have any strategic paths you would recommend as the most efficient way to start ?

is not happy about the Ashburton 1200’s TER. Chris Rheeder wrote in about it too

I have heard you and Simon mention the Ashburton  Global 1200 several times as a solid, diversified, reasonably priced rand hedge ETF. However, while doing research recently I discovered that the TER for the aforementioned fund is now 1.33 percent! (See the latest MDD: https://www.ashburtoninvestments.com/docs/sa/ashburton-exchanged-traded-funds/ashburton-global-1200-tracker-fund/a-class)

I recall that the initial TER was in the region of 0.45-0.55. In other words, the TER went up by more than 100 percent, which is ridiculous and highly annoying as I invested a fairly large sum of money based on the diversification and relatively low TER. I appreciate that prices do at times need to go up but this is just not cool.

I just wanted to alert the community that this is no longer a low-cost option. Satrix, Sygnia and Stanlib offer much cheaper options that are fairly similar.

Brendan is having trouble deciding on a vehicle for his retirement.

When I joined the company I work at, we had a mandatory pension. At the time I said "Okay, cool!" and felt very grown up and responsible.

However my contract of employment will soon expire. That means I will have to move my pension thingy. It's a Momentum product called funds at work.

Upon realizing I have to move the pension thing, I started looking into the various options and I had no clue what is the right option for me.

Retirement funds, plans, annuities, pensions - there seems to be thousands of options and I don't know which one to go for. Could you please provide some clarity on this fuckery?

I was thinking I want to be with a place like 10X and I want to have my own personal contribution going off my account so that I can max out my tax break, but with all the other products out there and the various differences I thought it would make sense to hear what you have to say.

My line of works means I will usually be hired by companies on mid-term contracts +- 5 years at a time and I thought maybe always having a personal retirement annuity would make these transfer periods easier and allow me to keep my money consolidated.

Charmaine wants to sell some of her existing ETFs and buy new ones. She has DBXWD and Satrix40. She made a loss on the one and a profit on the other. She wants to know how to handle the selling off in terms of tax.

Tax is probably the only thing I managed to get right about my finances when I first started working. I had no idea what was going on, but I was sufficiently scared of the government to pay someone else to deal with it. The R800 rebate I got that year might as well have been a million bucks. I didn’t understand at the time why I was getting the money, but I was happy to roll with it.

If you’ve never filled out a tax return form, this is the tax year to start. If you’re worried that you left it too long and SARS might take your things, pay someone to help you. A small fee paid to a tax professional is worth your peace of mind.

Whether you like it or not, tax is much part of your financial planning as inflation and bank fees. You can hate it, but you still have to do it. Spend a little time on it and you’ll probably come to enjoy becoming efficient at it.

If you’d prefer some guidance, we’ve heard great things about Tax Tim.             

Win of the week: Zakithi from The Fat Wallet Community. Our community wizard Kay asked, “What's the one thing you did this week you're proud of or that made life better?”

Zakithi said, “I am planning +preparing weekly menus for my family. More time with my kids+relaxing 😍”

Nico wants to know when to call it quits.

I bought some Warren Buffet and an Emperor International Baskets through Easy Equities.

I have learned not to make assumptions like, if the bundle is called Warren Buffet, it should perform more or less like the namesake.

I’m trying to be patient in my investments, but these two bundles are falling fast! I can’t take it anymore! Warren Buffet is down 18.64% and Emperor down 13.83%.

When can I admit I made a mistake, cut my losses and try again, or should I close my eyes and stick it out (please don’t tell me the second one).

Liam wants to know our reasoning behind investing our RA rebates in tax-free savings vehicles.

I have noticed that you talk a lot about investing into RAs and then taking your tax rebate and investing this in your tax free savings account. I find this an interesting concept, I have always worked on the basis of investing the rebate in the RA and thus effectively compounding the tax rebate as I will get a further rebate on that. Could you please explain the logic behind investing the rebate in tax free savings rather, I am very new to tax free savings and have not given enough thought to how to best utilise them.

Gerhard

I've opened TFSAs for my three-year-old twins and I would like to add the maximum to

their TFSA before the end of Feb 2019.

I was thinking (and pls confirm if you agree):

• 1/3 - Satrix 40 ETF
• 1/3 - Ashburton 1200
• 1/3 - Sygnia Itrix Global Property ETF (or better REIT/Property ETF)

Dominic is about to get some money.

I am 25 years old and just entered the working world. I have an emergency fund in place in a flexible Capitec account and no debt. I try to live as cheaply as possible (but sticking to the structuring your paycheck suggestions is hard at my income level and age). I have been actively saving and have a provident fund at work that I contribute the maximum towards.

I am about to inherit some money from a trust that will be maturing that I estimate will be around R325 000.00.

I don’t have a RA yet but I am thinking about going for the 10x one after doing some research and listening to your debates about it.

I would like to move my emergency fund into a 32 day notice at another bank as Capitec doesn’t offer them - probably FNB as I would get around 6.65% on it which is second best from my research without having the hassle of the Nedbank (6.75%) private bankers trying to convince me to bank with them.

I haven’t got a tax free savings account and I’ve only recently started scratching the surface of this idea of ETFs and tax free accounts and what not.

At my age what would you recommend I do with this money? I suspect in due course over the next 2-5 years I will be looking at things like paying for a wedding and buying a house (even though everyone says this is a bad idea, I haven’t quite made up my own mind about it so I would like to keep my options open).

Education is a tough nut to crack. It’s an investment, to be sure, but just like any other investment, the rewards need to outweigh the risks. Unlike other investments, however, risk and reward are extremely difficult to measure in education. Private school kids could be doing better later in life because of their education or because they come from wealthy families that have access to everything from better nutrition to more free time.

Parents will spare no expense to give their kids whatever they can to ensure their future success. Does that mean private schooling should be the goal for every parent, no matter the cost? I’m not convinced.

In this episode, Simon and I try to put our childlessness to good use to try and answer whether a single kid’s education should cost more than R100,000 per year.

Our discussion was prompted by this excellent question from Edwin:

I have three wonderful children and very high expectations that they will have better opportunities in life than I did. This I suppose is a normal aspiration for any parent.

Is it worth spending large sums of cash to get my children premium private school education? The most expensive boarding schools cost over R200k per year and the premium day education can set one back about R100k per year. All figures per child! In the public system one can get away with costs that range between 50-70% less than this per child.

Is it worth throwing everything at getting the kids this premium experience? Or maybe just get them an education that’s good enough with a focus on getting into a University rather? The opportunity cost vs saving and investment is high.

I attended one of these premium establishments and having it on my CV means it has opened a lot of doors and served me well. However, some of my classmates are in jail. One became a bank robber.

Just not sure. Is it worth it?

Win of the week is Tshembi.

I have been listening since September 2018 and you have inspired me to get started on my financial freedom journey.I’ve always wanted to be an investor, but it was hard to find the right information and I was always scared of losing money. Listening to your show has given me confidence and I have gained knowledge on different types of investments products.

I like sharing the information with my younger brother, because I don't want him to be left behind. Thank you for making it easy for me to learn and to be able to teach others. The  OUTstanding money series of articles has really helped me.

For my birthday last year I decided to buy myself assets (Ashburton top40 & Ashburton MidCap ETFs with FNB Tax free shares account) instead of a gift. I’m so proud of myself for taking the first step to my financial freedom.

However I have an Easy Equities account and I’d like to move my FNB TFSA to EasyEquities because its cheaper and you always talk about it in the show. I also want to be able to buy Ashburton Global 1200 ETF to get the international market exposure and since i'm just starting out i think this is the best ETF to choose.

1. Will I be taxed for Ashburton Global 1200 ETF on a TFSA since it gives the international market exposure?
2. How do I go about transferring my TFSA from FNB to Easy Equities?

Helen also wanted to know about moving her TFSA from Capitec to EE.

Nico took out a policy to pay for his kids’ education and made a terrible discovery regarding his fees. He took out a Classic Saver Endowment Plan with Clientéle. He received his annual fee increase notification.

Now that I know what to look for (thanks to your podcast) I saw that my fees are around 5.5%. I bought this policy 12 years ago through IFA, but about a year ago asked them to remove the IFA franchise fee of R65 and deposit that amount into the account as well (now directly from Clientele).

I would like to have your input on the following.

1.       My son will be in GR 11 next year (2019). Is it wise to move the money to an ETF now or should I keep the policy running?
2.       If I must move the money, which funds would you suggest, keeping in mind the short time span until I will need it.
3.       If I move, will the fees I save make a noticeable impact on the end amount?
4.       I have an account with Easy Equities. Should I rather deposit extra money in that and leave the police as is?

Donal needs to make a decision about his kids’ studies.

I'm an Irish citizen who is now a Permanent Resident, married with kids and a homeowner (well actually I'm a bond owner!). I have a very decent job, a healthy pension plan and both my wife and I max out our TFSA allowances (thanks to you guys!). I'm approx 15-25 years from retirement depending on how patient I am and/or how rich I become in the meantime.

I have concerns about my kids’ future prospects, especially when it comes to tertiary education. I'm planning for the worst case scenario that they have to go overseas for University. That brings the possibility that my wife and I may decide to move with them.

I have been looking at starting to send some cash to Ireland on a monthly basis for investment for the next 15+ years so that we have a nest-egg for that possibility. Of course it's also a handy way of diversifying my current investment portfolio. I still hold an Irish bank account so I can easily use that account as my base for such an investment.

My wife recently resigned from her job and started working with a new company. Her provident fund has now become available.

I did get one of those light bulb moments and thought to myself - what a wonderful instant Irish nest egg this would be!! How cool would it be to just whack this lump sum over to my Irish account and invest it in an ETF so I don't have to worry my little head about sending monthly amounts over to Ireland for the next shitload of months!

Am I crazy to even consider this or is it a good idea? I know there are a million and one different variables at play here which makes it such a difficult decision. For starters we would lose approximately R100,000 to tax if we were to withdraw the fund now. I know I would also be liable to pay CGT to SARS on any foreign investment growth. But the possibility of having an instant emergency fund available overseas is a nagging temptation that I can't get out of my head.

Nakedi is 25, just completed her degree and got a three-year internship. She’s starting her career with some student debt in the bag. She needs help on planning her future. She has student debt from the National Student Financial Aid Scheme (NSFAS).

I did the math on my salary and expected expenses which leaves me in the red which is something I don’t want.

1.       NSFAS is quite reasonable when it comes to repayments and interest (at 80% of the repo rate), unlike a bank. Now should paying off my loan be top priority or start saving to build up my asset base?
2.       The job requires that I have a car, which means more debt. I may do the work without a car for the first few months but as time goes by I will need it. In my current financial position it’s highly unlikely that I would qualify for car finance, so how do I go about building a good credit record without drowning in debt?

• Don’t make the mistake I made here. Go second-hand immediately.

3.       The job is in the corporate world which means formal wear, which means I have to go shopping.  Since my cash resources are limited I thought of getting a clothing account which means more debt, your thoughts?

• Look up capsule wardrobes and put one together from second-hand clothes.

4.       To avoid further costs I will staying at home but the house is in bad conditions so it will need major renovations which will require more money. Should I save up this or incur more debt?

• A friend told me recently the best thing about staying in your own place is that you decide when you want to do things. Unless there’s a structural issue like a leaky roof or a burst pipe, this can wait.

5.       Both parents are unemployed which means I must chip in to help around the house.

• Have a discussion with your folks about their expenses now and agree what you’ll give them, instead of just giving money whenever. It makes it much easier to keep control of the money you have left. Since you live with them, just think of this as rent.

6.       Lastly, every now and then everybody likes to go on a holiday, how do I save for this and still be able to invest for the long term.
7. Any book recommendations on investing and personal finance, because there are thousands of books if not millions on the topic.

• Manage Your Money Like a Fucking Grownup, by Sam Beckbessinger

Brian wants to know how his advanced voluntary contributions will be taxed.

Advanced voluntary contributions is when you make additional contributions to your pension fund at work.

How will advanced voluntary contributions paid into my defined contribution pension fund be treated in my tax breakdown once I retire?

I expect to retire in 24 months. About ¼ of his pension fund is made up of AV contributions. If I cash in the allowed one third at retirement in full, will the AVC (which was after tax contribution) be tax free in this allowance?

Ben is turning 30. He thinks it’s time to be a money ninja.

I had an epiphany over the holiday in needing to take better charge of my finances. I came across your site and then the podcast which is amazing, thank you so much!

I'm trying to work through about one episode per day properly with notes etc. but still have a loooooooong way to go.

I've done the "normal" thing up until now, as I haven't had a clue how any of this works. I have two voluntary investments, one with PSG and one with STANLIB, an RA with STANLIB, and a joint company with high school friends where we contribute monthly and pool that into something or other at Allan Gray.

I'm sitting with excess money in my savings account (over and above my emergency fund) that I need to decide what to do with. Of that I'll probably do the R33 000 into an easy equities TFSA and go with the Ashburton 1200 for now (one ETF only to monitor and figure out like you suggested in episode 91). I'll probably monitor that and when I'm more comfortable invest a similar amount elsewhere through easy equities.

What's annoying me at this point are the fees on the managed investments.

Do I keep either of these? As I see it I have four options:

• Keep both these investments and see how things are going forward, in terms of markets and my literacy, and take it from there;
• Move the PSG funds over to the STANLIB account for now where the fees aren't as much, and monitor as above;
• Move the PSG funds over to the easyEquities platform where I can manage them myself, or
• Drop both of these investments and reinvest elsewhere.

Always Abundant has a great question about dividend ETFs.

I have never taken the time to understand dividend-focused ETFs e.g. Coreshares Dividend Aristocrats ETF.

However, since the dividends in a TFSA are not subject to DWT, I wonder if they would then have a greater impact on making a TFSA more profitable overall? If so, how much of it is too much i.e should it replace your General Equity ETF?

He also wants to know how the rand depreciates against the dollar.

I've heard people mention an accepted overall rate of depreciation of the ZAR against USD over x years in the future. I don't recall the details so if you know it please share? Is this known with certainty that is must happen? Or is there an equal chance that it could go the other way too?

Nadia has a question about the nationalisation of the Reserve Bank.

Could you please how investments would be affected? I have a RA and Unit Trust with 10x. I also have a Tax free savings with Easy Equity. If government takes over everything, what does this mean for these investments? Should we all be taking our money overseas instead or will it be safe?  

I also have a fixed deposit at Capitec and savings at FNB and I know these will probably be vulnerable but I'm not too clued up on how things would go if the reserve bank was nationalized. Any clarity and advice from you guys would be super amazing!

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

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

Happy holidays!

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

Pierre also made a spreadsheet.

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

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

First Adam has a private banker.

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

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

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

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

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

Also, there's Absa Rewards.

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

Siphathisile is investing for her retired mom.

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

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

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

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

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

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

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

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

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

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

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

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

Pat

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

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

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

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

Rakhee

I'm in the process of optimising costs.

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

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

Hugo

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Frikkie has a question about blueberry tax.

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

Investing in farming usually allow upfront deductions.

The market is getting Warren down.

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

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

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Save Squack's life!

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

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

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

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

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

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Richard

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

I’m earning 6.75% interest

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

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

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

Win of the week is Adam the actuary.

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

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

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

P.S. not all actuaries are boring

Stefan

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

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

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

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

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

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

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

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

Jan-Johan

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

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

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

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

Gert made Kay a tax calculator.

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

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

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

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

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

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

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

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

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

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

Brian

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

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

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

Do I:

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

Quinton

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

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

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

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

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

Ryan

I have group death and disability insurance with my employer.

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

The only debt I have is my bond.

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

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

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

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

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

Ian

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

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

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

Here are the things you should consider:

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

Carl

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

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

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

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

Dario

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

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

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

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

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

My "growth" stocks are:

- CoreShares Global DivTrax ETF

- SYGNIA ITRIX MSCI US (because 'MERICA!)

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

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

Colin

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

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

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

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

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

No show next week.

======

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

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

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

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

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

Kris

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

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

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

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

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

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

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

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

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

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

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

Emile

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

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Wim

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

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

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

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

She also read a Moneyweb article about the SPIVA report.

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

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

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

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

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

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

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

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

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

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

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

Download the tax calculator here

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

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

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

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

Promise wants to know who we prefer for TFSAs.

Pierre

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

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

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

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

Cash (no risk)

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

Bonds (low risk)

1)US treasury bonds

2)Developed markets

3)Emerging Markets

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

ETFs / Unit trust (medium risk)

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

Shares

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

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

Leverage / Speculative Funds/Small business/Bitcoin

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

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

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

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

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

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

There are 2 parts to the answer.

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

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

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

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

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

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

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

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

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

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

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

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

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

My idea is to buy each monthly.

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

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

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

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

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

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

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

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

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

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

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

I was mortified and went home a different person.

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

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

Extra on Insurance R800

Extra on Fuel R400

Extra on Licensing R 40

That’s R 2940 p/m or R 35 280 p/a.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ben 

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

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

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

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

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

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

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

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

Petrus has two very expensive pugs.

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

However, a couple of things to consider:

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

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

Wesley has a recommendation for independent financial advisors.

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

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

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

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

Fat Wallet Community Page

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

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

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

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

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

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

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

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

Also Jonathan for sharing a great hack for emergency funds.

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

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

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

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

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

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

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

• NFENOM
• PTXTEN
• CSEW40
• ASHGEQ
• ASHT40

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

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

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

1. How do I go about moving my Sanlam stuff away from them? I'm considering moving our RAs and my wife's TFSA to EasyEquities to manage it myself (only platform I care to know).

2. Life insurance and income protector - I'm thinking of leaving it at Sanlam just because I don't know if I can move it? And if I do, are they going to take my blood again?

3. I'm selling my "investment" house. Not sure if I should use the money to pay off my wife's car (interest rate of 11.15%) or use all to buy ETFs. The car's settlement amount is around 50% the pre-CGT money I'll get for the house.

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

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

Johannes is getting a gift.

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

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

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

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

What are your opinions and suggestions?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Rob is about to receive an inheritance.

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

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

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

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

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

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

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

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

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

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

Jonathan sent such a great email. 

Hi legends

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

Hooray!

Tim wants to claim back a loss from SARS.

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

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

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

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

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

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

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

Bongani is concerned about capital appreciation due to rand depreciation.

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

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

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

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