In our second Fast Fatty, we spoke about Suzanne’s PPS account. PPS felt our assessment of their product was inaccurate. We offered them a right of reply. Read their reply here.

Pru has had a rough start to her investment career. She had a financial advisor she was struggling to shake off. Just as she worked up the courage to let them go, the advisor got fired for committing fraud. This shocking news encouraged Pru to take a closer look at her investments. She was not happy with what she found.

Many of you have expressed your frustration at the returns you’re getting from your investments this year. In this episode we help you and Pru figure out exactly what happened. As always, we explain how a high fee puts you at a disadvantage from the outset. Next, we discuss asset allocation, diversification and the general madness of the market. 

Being able to read investment documents is an important skill to develop. We wrote three articles to help you make sense of these documents. You can find them here, here and here. 

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Pru 

Discovery gave me a call and told me they were doing a forensic investigation into my financial advisor. It turns out they forged my signature on a policy document, as such Discovery did the heavy lifting for me and took them off my policies. 

The rage regarding the forgery forced me into action. I started the process of moving my TFSA from Sanlam to Easy. This led to me scrutinising my TFSA portfolio and you two won't believe this! (Or maybe you will) My portfolio has done FUCK ALL (Sorry Sean) since I started it in 2017!!!! I have actually lost R 20 000 of my contributions!!! I am so upset! 

Where I have gone wrong and what the FUCK happened????!!!

Meanwhile, back at the ranch, my demo portfolio on Easy Equities has made a profit of R5000... There are not enough exclamation marks and expletives in this email to describe how I feel right now. 

Thank you again for all the help. The two of you are doing the Lord's work, literally.  

Dirk

How can I determine how safe my investment is with respect to the investment issuer/provider/platform?

Many investments are for the longer term. What guarantee can an investor have that the investment provider will still be around in the future? There seems to be an increasing number of issuers, platforms and providers. How can I determine the risk associated with them?

What is the situation in the case where I buy an UT or ETF via a platform (e.g. AG/ABSAStockbrokers/EasyEquities/etc/etc/etc) that is issued by another issuer, for example, AG/Satrix/Sygnia?

Rudzani

Given that cash is no longer king, what is the implication for people like me who have significant equity in our bonds? Should we looking to invest it elsewhere in the meantime? The bond has served as a mechanism to reduce interest rate expense, bond term and easily accessible large sums of savings. 

I have ETFs and max out my TFSAs each year. I sadly hold some unit trusts but I got those before I knew about ETFs and have just left them. What are some strategies with the cash currently sitting in the bond? Do I just leave it?

Christiaan is intrigued by the new ESG ETFs from Satrix, but he’s not convinced that the money will follow the ethics. He wants to know if we have any strong opinions about it.

Brent

I am investing in ETFs for the long haul. I’m maxing out tax free first, but I’m referring to non-tax free and non RA investments. 

Say I buy shares monthly for the next 30 years and then I want to sell some, how is tax worked out on that? I will have been buying shares at different prices over time and now I’m selling them at whatever the price is at the time of sale. Will SARS tell me how much tax I should pay? Will Easy Equities? If I bought shares in Ashburton 1200 for R50 in 2020, then R300 ten years later, then R1000 another few years after that. If I sell them for R1200 the tax on the first shares I bought would be huge, but not so much on the last shares I bought.

Sarel

I follow the one ETF strategy, buying the world, bought Asburton 1200 and MSCI world.

I have resources to add some spice to the mix. Any opinions regarding Sygnia ISO and 4th IR.

Suzanne is wondering whether she should continue investing in ETFs once she’s maxed out her R500,000 tax-free allowance?

Guy

I invest using EasyEquities and focus on ETFs primarily (I’ve been listening to your guidance).

My main investments were Satrix Nasdaq, Emerging Markets and recently the Ashburton 1200 (you mention it so often I couldn’t ignore).

I invest in shares through my USD account on EE but was wondering if it would be best to move the ZAR to USD and buy the MSCI World ETF from iShares / Blackrock.

Jason

My question is regarding index fund platform offerings in SA. As you know, this would be different to ETFs - not trading live on the exchange - but trading like unit trusts that have updated NAV daily. The Vanguard Index funds are the prime example, having the same constituents as the ETFs but not trading live.

This allows one to purchase these passive instruments on auto instruction, without worrying about losing out a spread due to the product not being live on an exchange, like an ETF would. 

I have an account with EE and the recurring investment option often sees this spread resulting in some low volume ETFs being bought at a premium, which puts me off and spoils the opportunity of letting my portfolio function truly passively.

Anyway, I hope you guys can help with suggestions or at least expand on the conversation about the recurring auto-invest instructions getting spreads horribly wrong from time to time.

We use my long-awaited holiday to catch up to some user questions for the next three weeks. We hope you enjoy the shorter episodes as much as I plan on enjoying my break!

IM

I have an Old Mutual Endowment policy that matures in November 2020.. I also have a lump sum in a TymeBank account in various GoalSaves, which I don't need to use any time soon. I have another lump sum in an African Bank account. 

I'm not sure whether I should pool all the money and put it into a fixed deposit account with African Bank for 5 years (the interest rate is very attractive at 10.01% annual interest payout) and have the interest payout annually, so that it doesn't go over the R23,800 tax exemption.

Or should I take the money and invest it into ETFs, split 50/50 into local and international. With the idea of investing for dividends and growth. I know that I won't be sheltered from taxes if I do this.

I was thinking of splitting it between the following ETFs (I use the same ETFs for my TFSA):

• Coreshares Preftrax
• Coreshares DivTrax
• Satrix Divi
• Coreshares Top 50
• Coreshares Property Income
• Coreshares Global DivTrax
• 1nvest Global REIT
• Satrix MCSI World
• Satrix S&P500
• Sygnia 4IR

If I decide to do the fixed deposit, then I was thinking of using the interest payout each year and invest it in ETFs (and be subjected to taxes).

My wife doesn't know anything about RA/TFSA tax benefits or investing, and has absolutely no interest in using her TFSA. I even helped create and set up one for her on Easy Equities. I could use the fixed deposit interest payout and then fund her TFSA each year and then top it up to max it out as well. However, the disadvantage is that on death, then the TFSA will form part of her estate.

And then lastly, I could also put it into my RA, which I currently have with Sygnia (Sygnia Skeleton Balanced 70). I won't benefit from a tax return, but will possibly benefit from CGT, DWT and tax on interest earned.

I'm finding it difficult to make a decision on what would be most beneficial. Any suggestions on what I could do with this lump sum?

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Ash

I switched the Sygnia MSCI USA to their new Health Innovation fund. This is an active fund (with performance fees 😱) that uses the MSCI World Health index as a benchmark and applies an ESG filter. 

My reasoning was that new developments in health care (including a COVID-19 vaccine) are likely going to play an outsized role in the world economy and I wanted a piece of that action. 

Unfortunately, there are no local ETFs which track any health-related indices, so this seemed the only available option for someone who wanted global exposure to this sector. I’ve attached the factsheet and I’d be interested to know your and Simon’s thoughts on this fund.

Guillym thinks he knows why Anne’s Liberty fees are 12% of her monthly contribution. 

This is probably because these sort of products also can give one cover for illness and disability. Not that they not screwing you over, they probably are so fuck em, just this may explain away a bit of why its to high. 

Stephen

Give Edwin a Bells!

I have invested in some Thematic US ETFs and was worried about overlaps as I have ARKK (Ark Innovation (Active ETF)) and BOTZ (Global X Robotics and Artificial Intelligence). The comparison highlighted no overlaps whereas I was expecting a few. I should have done the due diligence via vlookups etc but the anchor equity for ARKK is Tesla whereas BOTZ anchor equity is NVidia. I like both equities and I also like the fact that both these funds consist of between 30 and 50 equities so are not over diversified. My 3rd ETF is iShares Global Clean Energy.

Tania

You guys often discuss the Ashburton 1200 ETF.  I am considering cashing in my young kids’ Unit Trusts and rather investing it here.  You once mentioned the Ashburton Global 1200 isn’t like a ‘normal’ feeder fund and that one actually owns the underlying shares.

Is this still the case and it seems to have read somewhere that this might have changed recently? I would prefer to own the underlying shares as this as it feels ‘safer’ that the investment is then not under SA jurisdiction (even though it is Rand denominated.)

I have called Ashburton but they couldn’t help me and said someone from The First Rand Group would fall me back and no one has...

Adam

https://theirrelevantinvestor.com/2020/09/25/how-much-money-should-you-have-saved-for-retirement/

By 30 you should have saved 1x your salary - by 40 it's 3x! Scary...

Anton

How do you choose a living annuity once you get to the stage where you must go on pension?

I would prefer low cost/high performance Living annuities.

I will not draw more than the 4% rule.

I think having 3 years of money in the cash/money market and bonds. (Low risk)

3 to 5 years money in combination with bonds and equity ETFs. (Medium risk).

And the rest of the money in offshore ETFs (High risk).

I would like to structure and manage my own living annuity in one of the companies.

I think you can do it in Alan Grey but I am not sure if they cater for ETFs and it seems they are also more expensive. 

It seems that Outvest has no living annuities.

etfSa and 10X have living annuities, but it dont seem like you have the option for only offshore.

We use my long-awaited holiday to catch up to some user questions for the next three weeks. We hope you enjoy the shorter episodes as much as I plan on enjoying my break!

Suzanne

After finding your podcast during hard lockdown, I have been binge listening …..and can honestly say: You have changed my life! Thank you! I have kicked Sanlam and their 5.4% TIC under the arse, and moved my Retirement Annuity to OUTvest. 

The buggers charged me a R30,000 exit fee; but thanks to OUTvest’s amazing product – within 5 months I made up the loss; ½ coming from my contributions, and ½ from real returns!

Following Nerina Visser’s fantastic presentation, I am also spreadsheeting everything, but have run into a bit of a snag and hope you can help.

As a medical professional, I hold a PPS Policy which includes a sickness- and disability benefit, as well as life cover.

Thanks to Stealthy Wealth, I now know that ‘PPS is a mutual society, and doesn't operate like a normal company. They distribute any profit they make back to the policyholders’.

These profits are linked to the above policy, and deposited annually into my PPS Profit Share Account. Annually, PPS provides me with a current Rand value, for the value of my PPS Profit Share Account – and I am happy to say it has been growing steadily.

On my policy statement it further states that ‘These accounts do not vest until the policy holder reaches 60 years;….and on this date the Profit Share Account can be taken TAX FREE as a cash lump sum’.

Can I safely count this Rand value, and the projected growth, towards my retirement planning? And if so, any suggestions on what would be the best (tax efficient) way to do it?

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Brett

If you take out a life policy of a R1 000 000 and nominate a beneficiary.

-Then SARS assesses you and says you owe them R800 000.

-You don't pay the debt due to SARS.

-Can SARS nominate the Insurance Agency as a 3rd party in terms of the Tax Administration Act to collect the outstanding debt from the Insurance provider?

-In other words whose money is it/The beneficiary or the policyholder.

-I have looked into this a bit and it seems that creditors cannot access life policies which would indicate it belongs to the beneficiary and not the policyholder.

Kobus

I have offshore funds in a Bank account earning nothing at the moment.

I am considering  investing this in the Sanlam Glacier Global Life plan and will do this without a FA to save on costs.

What other reputable companies in SA offer this service where you can invest directly without the help of an intermediary?

Rudolph

I have a decision to make that I am a little confused about. I am wondering about the order that I should give preference to. I am currently first trying to max out my RA for the Tax benefit, but keeping myself from accessing the funds till I am 65. Then I try to max out my TFSA and Finally I allocate the remainder of my extra money to my house bond to pay it off quicker. I am not sure if this is the best order to give preference to.

Ken

We used to contribute to Little Eden and St Bernhards Hospice as part of our monthly tithe. But with our aging parents, and their lack of retirement savings, we are anticipating needing to help them out in the years to come. So we are diverting our tithe savings into a Allan Gray money market account (lowest fees on the market from what I can tell). But I often have a pang of regret when I think that we are no longer supporting these companies that are working so hard to help others. I wonder. if by no longer supporting them, we have resulted in them having to turn somebody away.

My idea is a Charity "ETF". like the "top 40" of non profit worthy (researched and vetted) organisations that are helping others. The Charity "ETF" fact sheet will look a little bit different, with links to all of the top 40 organisations websites and a brief description of what they do. I was daydreaming about it popping up as an option when you are submitting a trade on Easy Equities (like the R2 KFC thing). There would be a management fee for whoever was running the "ETF" I suppose, but ideally all of the contributions go directly to the top 40 organisations. 

The main thought behind having the Charity "ETF" is that it may seem silly wanting to send, a once off, R100 to one of these organisations. And even sillier to try and split that R100 up into smaller amounts to spread the contribution to multiple companies. But that is what an ETF does best! take a little bit of everybodies money, combines it into one big pot and distributes it to the top 40 organisations.

What would really be nice is if Easy Equities could provide you with a section 18A receipt at the end of the financial year as part of all the other tax certificates they provide.

Greta

Having recently been paid a lump sum (divorce agreement), and needing to live off the yield of my investments for the rest of my life, I have educated myself on personal wealth. I have a pretty sound understanding of my options and how I would like to invest - again based on sound investing principles that you and Simon live by.

My question now is a completely practical one: I have the investment pots - one for growth, one for emergencies, one for income. But how do I give myself a monthly income drawdown (I am not a retiree or of retiree age - still 13 years to go). 

What investment vehicles are my options to hold my three years of expenses in from which I will draw my monthly income - is it a bank account? Or is there some other investment vehicle I can use to invest my 3-year-expenses money in and get a monthly income drawdown from? 

Robin

I'm interested to understand how Bonds work as an investment vehicle. 

Can you and Simon dive into when and why one should invest in bonds? Should they be SA or Int. Bonds, and which Bonds should one consider? 

In the next month, I will have a maturing fixed investment, where I was getting a reasonable 7.58% compounded return. I want to re-invest these funds. However, with the decline in interest rates this year the bank will now only provide 4% compounded return, which doesn't help my cause at all. 

I have Tax Free savings in place, I have a Living Annuity that I recently moved from an RA as I can allocate the full investment to offshore equities rather than on 30% as per Reg 28, where the 2.5% compulsory payout of which I re-allocate to my TFS. 

I have a diversified SA ETF portfolio (SYGUK; STXNDQ, STXCHN, GLODIV, ETFPLD, ETFGRE, ETFIT, CSPROP, CSP500, STXEMG, STXRES, STXWDM, SYG4IR SYGEU, all in equal allocations) which I am building on (waiting for lower prices to allocate more funds). I also have an offshore Investment portfolio that I actively manage in both Offshore Equities and ETFs.

 My goal is to increase growth over the next three years, therefore I have taken an active investment approach. (I am 57 years old and I live abroad, therefore having both an SA and Overseas Investment Portfolios serves me well)

Any pearls of wisdom where I can invest the funds that will be freed up next month? Taking all of the above into consideration.

We use my long-awaited holiday to catch up to some user questions for the next three weeks. We hope you enjoy the shorter episodes as much as I plan on enjoying my break!

Willem 

I have an endowment in my portfolio which was a five year investment which started in July 2003 with the last payment in July 2007 which matured July 2008. 

Tax was deducted on all these investments for this endowment at ACSIS/OLD MUTUAL as per quarterly reports, as well as capital gains tax.

When inquiring at Old Mutual recently, they presented me with a figure for CGT if the investment is drawn upon. The investment was 4 payments of R30,000 and the the last one R36,000. The value as at February 2020 was R572,089.

Would you be kind enough to let me know how else can I get this investment to work for me in the light of being able to access this investment like a conventional discretionary investment without tax complications. I have a discretionary investment, as well as a living annuity in the same portfolio.

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Veronica

You guys seem to be big fans of ETFs but when I looked into buying one they all recommend an investment period of at least 5 years or more (i.e. they're high-risk and therefore long term investments). 

My husband and I are looking to potentially emigrate in about 4-5 years from now. In light of that, where would the best place be for us to invest our savings? I currently have a money market emergency fund and am putting away a bit into an Allan Gray Balanced Fund (both recommended by a financial advisor, although the more I listen to your podcast the more I'm thinking to start handling investments on my own ☺). 

ETFs sound like the best place to invest but are suited for way long term, in which case we might be out of the country before the product matures. Is the solution then to keep the savings in something like the money market? Is it still worth opening a tax-free savings account for 5 years?

James is wondering about Zambezi preference shares.

Can you please discuss the place of this product in a portfolio for someone that is on pension.

Will it help with cash flow during pension?

Pieter 

The thing people miss about the 4% rule is that the study didn’t work on the principle that your money should last forever.

Success was measured on the fact that you would have more than $0 after 30 years at a 50:50 equity:bond allocation. That might also mean you have $1 left for year 31 which accounts for the 95% success rate. Another caveat is the study was run during a high interest period in America. 

Also just on a correction how the 4% rule worked in the study. You withdraw 4% in year one. After that, you withdraw what you did the year before plus inflation, not 4% of your asset base.

Josh

I plan to emigrate to the UK at the end of the year. 

I have been maxing out my TFSA and contributing to a Provident fund. When I maxed out my TFSA for this year, I started setting aside that cash monthly that was going to the TFSA, and reduced the amount going into my Provident fund monthly with a view of investing it when I got to the UK (after having converted it to pounds obviously).

The UK equivalent of a TFSA allows contributions of a max of £20,000 per year (with single shares allowed). I plan to liquidate my TFSA when I move, cash out my Provident fund when I resign (and take the tax hit), and chuck all of that cash into a stocks and shares ISA, probably a Vanguard all world ETF. Also, I'll be using a broker called Trading 212 if anyone is interested.

Do you think this is a silly idea? Cashing out of a TFSA and Provident fund is a big decision.

And just something separate: I wish I hadn't bought a property now that I'm immigrating. I just want to sell the stupid place but am struggling. Wish I just rented a place. 

Conrad 

I’ve requested  information on the OUTvest investment options for a preservation fund. I am not happy with these just by looking at the top 10 holdings in most of these options. I agree with your view on simplified broad-based ETF investments and wondered if these are the only options that Outvest offers or if I can structure a more simplified ETF based combination that will be Regulation 28 compliant.

Sean

I WAS one of those people who has religiously put monthly money away with a broker who was smiling all the way to the bank from the tender age of 15. I am now 29. In the past three years I have been paying a lot more attention to where my money goes.

Thanks to you guys, I had that awkward conversation with said broker and have taken all of my funds away from them and reinvested in a much cheaper, passive investment group.

Although this new firm is cheaper, it’s not as cheap as Easy Equities, so I have been splitting my monthly contributions for the past year with EE. Things have been going so well that I recently started looking into the TFSA on the EE platform. I have been able to max it out for the last three years. If I had known about it earlier it would have been longer but it turns out they aren’t very profitable for high rolling fund managers.

With this being said, I did some deeper research on EasyEquities, and I was shocked!

I have had a great experience with them so far, however I have not tried to withdraw any of my money yet. 

This seems to be a huge problem on the platform, if you have a look at Hello Peter. 

It’s a scary prospect to have your hard-earned money on such a platform that “doesn’t pay out withdrawals and doesn’t answer any emails or phone calls” the dreaded word “scam” is even mentioned by one of the disgruntled users.

I know Purple Group is a legitimate, listed company that has legal obligations in place but other people’s VERY poor experiences are something I cannot look past. It has been an amazing platform for me so far, but there is a big BUT in the back of my mind now. 

Is there anything from your side that could put an innocent investor's mind at ease?

With Simon celebrating his birthday on the beach, this week’s episode is a tax bonanza. De Wet de Villiers, King of the Tax Elves and Great Guy finally shares with all of you what he shares with me for free every Monday. I love talking about tax, which is why this week’s episode is much longer than usual, and much shorter than it could have been.

He gives us a useful checklist of things all of us should do when we submit our tax returns, among them: 

• If you earn less than R500,000 per year, you don’t need to file a tax return.
• You can ask your HR department to factor in your medical aid and retirement contributions, even if you signed up for those services privately. 
• You should check your details annually, including address, SMS number, email and bank details.
• Keep a record and declare all income streams available, including directorships and side hustles.
• Make sure all your investments and bank accounts are included.
• Provisional taxpayers should keep track of the following expenses:
  • Expenses: Rental property magazine, conferences
  • Side-hustle: Phone calls, data costs, 
  • Business travel: fuel, vehicle expenses
  • Home office: Fibre at home, cleaning costs
• Don’t accept the auto-assessment. It doesn’t work yet.
• Check your prior-year tax return to look for things you may have forgotten. This is especially true if your circumstances haven’t changed much.
• Get a statement of account from SARS from e-filing.
• Don’t do everything in one go - do a tax recon every quarter so it’s not so overwhelming.

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Win of the week: Jess

Let me start by saying that the Fat Wallet Show and Just One Lap have completely revolutionised the way I think about my personal finances. In fact, I used to avoid thinking about it at all because I found it so overwhelming and confusing. But since listening to your show I actually understand words like "equities" and "diversification" and "All Share Index". I feel like a brand new person, so thank you for that.

I was working on cruise ships and earning USD but thanks to Covid I had to come home. I am currently working in the public sector but might go back on board for another contract. 

Since listening to your podcast I have corrected some financial errors that the ignorant past-Jess made. Luckily, keeping expenses low and saving money comes naturally to me so I was doing that anyway - but my mistake was saving a lot of cash and being afraid of equities. I have an RA to which I am currently contributing 10% of my income, but other than that all my savings are in cash. Thanks to you, I am now moving my TFSA (currently at max) from cash to ETFs (which I did via EasyEquities much to my financial advisor's annoyance - now she won't reap the benefits of my investment). I also have a home loan on a house that I am renting out. The rest of my savings is in cash (32 day account for emergencies, standard savings account, extra payments into my bond and a USD global account) - I know, really silly! 

I want to move more cash to equities but I have a few questions and would like to hear what you think?

1. Should I contribute even more to my RA (which has high fees and a financial advisor fee) first to get the tax benefits or should I rather buy a discretionary investment with lower fees?
2. I stopped paying extra into my bond because of the low interest rates at the moment (in order to keep my rental income profits low and reduce my income tax). Is this wise? Or should I rather continue to put extra into the bond and just pay the income tax but get rid of the debt quicker?
3. Since I have USD I want to open an EasyEquities USD account too. For someone who has no idea where she might live one day, what is a good balance between local and offshore investments? And this might be a stupid one, but what is the difference between investing in global ETFs in ZAR vs buying ETFs via the USD account? 

Gerard

Can you possibly spend a bit of time on Physical Offshore investment accounts and how these things should be declared to SARS.

I have an EasyEquities USD account, and they withhold 15% of  Div tax, so do I get a credit for that or should I apply for a credit?