If nothing else, 2020 was humbling. There were many things we thought we knew about the market, about gold, about interest rates and about predicting the future that just turned out to be not so.
In this year-end episode of The Fat Wallet Show we share some thoughts and insights, as well as a nice bottle of bubbles.
Here’s to a happier 2021.
Win of the week: Tayo
One thing I do however is set up separate scheduled transfers with different references if I have a more specific goal.
So instead of transferring R100 every month into my EM, I'll have a transfer with reference UPGRADE_KITCHEN of R20, another with R10 for UPGRADE_PHONE_FUND and the rest a normal EM dump.
This way I can just search for UPGRADE_KITCHEN on 22seven and I can see how much I've saved up for that particular goal.
Extra points for using the same UPGRADE_KITCHEN reference when taking out of that 'fund' so I know how much I've spent and how much I have left.
I make sure to keep it simple:
1 bank account (also 1 banking charge), no excel admin
In honour of Christmas this Friday, this week’s episode is the first ever Fat Wallet fairytale, written by Suzanne for her daughter Nina.
Happy Holidays, everyone!
Win of the week: Suzanne
I just want to say thank you for the great work that you are doing. I know that we as a society tend to use the word EMPOWERING quite loosely, but there is no better way to describe how I personally have experienced this whole journey into personal finance. I also feel it has made me a better parent to my kids – that can now guide and empower them on their own road to financial independence.
I attach a little Christmas Fairytale I wrote for my daughter, that I hope you will enjoy – and as a little ode to a Fairy Godmother that you may recognize……
A CHRISTMAS FAIRYTALE FOR MY DAUGHTER
As smart as a whip, and with a feisty personality to match,
Princess Nina was considered by all to be quite the catch.
But frowns of worry have been darkening her day,
For on the eve of her sixteenth birthday, she was unsure of her way…….
“OH”, she cried, while munching on her two-minute noodles,
“This world has to offer me oodles and oodles,
Yet I am unsure of what I need to do!
I know I am a Princess, and being one too,
Cinderella and Rapunzel I should probably like you,
And don’t forget Snow White, she is in the mix too.”
“But, being rescued has never really been my vibe,
I think I am more part of the Katniss Everdeen tribe.
I wear my hair in a bob, and can really whack a hockey ball,
I don’t really mind people, but love dogs more than all.”
“I have no desire to be rescued by a prince,
To me that sounds about as appealing as a bowl of pets mince!
I don’t want to toil away my days in some remote castle tower,
I want to learn Korean, travel the world and find my own Power!”
It was then that it happened, in a flash she appeared,
The extremely tall fairy godmother, all mothers-in-law feared…
She was known through the land from north to south,
For her sensible advice ….and her potty mouth.
“Girl”she exclaimed, ”I heard your pleas,
And I think you are cooler than the fucking bee’s knees,
So in your future there will be no dwarfs, prince’s or even a count…..
What you get is a Tax Free Savings Account.
With the whip of her wand, she quickly set about,
to set up an Easy Equities TFSA account….
“That is it”, she cried,” my magic is done!”
“Now, my dear princess, starts all the fun.”
“You will go out into the world, and chase those dreams!,
But you will also be smart, and live within your means.
You will graft at your craft, and your joy will be astounding,
You will also be saving a shitload, and experience the magic of compounding.”
“This blessing and wisdom I bestow upon you,
Is not one to be horded, but for you to share with other princesses too.
So should Cinderella come crying about her boring days,
Or Rapunzel curse about her man’s whoring ways…….”
“You can exclaim: “Girl, I hear you cries,
so let me sort for you, the truth from the lies…..
You don’t need to live your life as prescribed,
Where fate is fate, and choice is denied.
You don’t need a blesser, or a large inheritance amount,
You need a Tax Free Savings Account!”
Investing history teaches us success is all about asset allocation, as Grant Locke explains in this presentation. History is unfortunately annoyingly silent on what precisely the best asset allocation would be. Where does that leave those of us investing for the long haul?
Should we pick a mix and stick to it? Should we adapt our asset allocation mix to suit the current market conditions? While Ash asks this important question in relation to a retirement product, it’s a question each DIY investor would have to answer for themselves.
This is an excellent way to end our Fat Wallet year, because we’re once again reminded that intentionality and mindfulness matter when it comes to money management.
2020 gave us all a lesson in having high expectations of a new year, so this year I won’t toast 2021. Instead, let’s all raise a glass to the end of 2020 and have that be that.
Thanks for listening!
Ash
I get that you partner with Outvest and their Coreshares offering based on their incredibly low fees. I have since been looking at the passive balanced funds available in the market and have picked up that they are not all the same.
Could you possibly comment on what is termed a "hard-passive product" which invests in ETFs like the Coreshares OUTmoderate Fund that has a Fixed Asset Allocation? vs a "soft-passive fund" like the Sygnia Skeleton Balanced 70 that is able to adjust its asset allocation on a regular basis however it still uses ETFs and low cost passives in its portfolio.
When reading multiple articles online it's seems asset allocation brings in the bulk of your returns over stock picking, so wouldn't it be beneficial being in the Sygnia portfolio that is able to adjust its asset allocation to market risks over time?
A prime example being that Sygnia currently doesn't hold any property in its portfolio vs Outvest with 15% exposure to Property (Domestic and Local).
When looking at their returns it seems that Sygnia may be more expensive by roughly 0.2% per annum but has managed to deliver far better performance because of its flexibility over the last few years making the 0.2% difference probably worth it.
Win of the week: AN
I started a Stanlib Unit trust when I was 23 and had stable employment. I injected approximately R100k p.a averaged over the 8 year period. The average returns have been about 7%. However, I suspect that I am being too risk averse and losing out on many opportunities.
Please can you help me decide how to progress from this into more diversification. I have opened a TFSA with EE and I will be purchasing ETFS. What amount of my current unit trust should I move over to ETFs as a guideline and what would be the best 2 or 3 ETFS for me to start with?
Pascal
When you guys mention Interactive Brokers, you imply that it's totally off limits to anyone with less than 100,000 USD.
There is no minimum account balance with interactive brokers. Only a small monthly "inactivity" fee if your balance is less than 100K. It costs 10 dollars a month, minus the cost of each trade made in that month (at 1 dollar a trade).
So if you buy shares of 2 ETF's each month as I do, your monthly fee is 8 USD (excluding the trades). In other words, aside from the 10 dollars a month, you can buy and sell ETFs for free, up to 10 trades a month, so you're never paying more than ~R160 (at current rates) a month.
R160 does not seem like that much for access to global markets though such a feature-rich platform. To put that in perspective, that's less than the fee for some current accounts in SA.
When you consider EasyEquites USD fee is 0.56% of each trade value, a 10 dollar fee equates to a trade value of (I think) ~1785 USD. So, IBKR actually becomes cheaper than EasyEquities anytime you invest more than 1785 USD a month. (if my math is correct? Please feel free to check this).
Magan
If one passes on with a living annuity, can the spouse transfer the amount that is due to her to her own living annuity? What will the tax consequences be, if any?
Andy
I would like to believe that I was listening before the famous Wilhelm stole the limelight. I was also on the ships and scratched my head on similar issues faced by some of your doctor listeners.
I’ve made so many of the mistakes you have spoken about in your show, but I can certainly say I have learnt some lessons and am getting better.
From a horrid financial advisor who had never even heard of ETPs, to being invested in some kak expensive funds on Alan Gray. (Said advisor had also not heard about TFSAs).
A lot has transpired since then.
I now run my own portfolio except a minimal amount for my RA with GEPF (which I can’t control) and 10x, which I am kind of okay with.
I’m now 5 years into TFSA. The majority of my other investments are in ETFs and I’ve had some success (read luck) and some failures (read Woolies) in single stocks. I’m also teaching interns who want to listen about the pitfalls of getting a good starting salary with little financial background and I find this really rewarding.
What is the difference between dividends and distributions. What are the tax implications? Which products would be better to hold in the tax free space, one that reinvests distributions or one that pays the dividend?
On a similar vein- if an etf like satrix world reinvests distributions, what are the tax liabilities?
Santosh
I understand the argument on fees, but one has to also acknowledge that service is worth paying for.
When I sold the last lot of my Satrix Property, I experienced the same as most ie. no response to emails, ineffective and incompetent staff on the other side of the telephone, when one could actually speak to an individual.
Ask practically any question unrelated to that day's share price and you're greeted with a stunned silence. Then there's the JSE process and it's associated fees and processing times I decided never again!
The level of service, competence and responsiveness of Allan Gray and Coronation, for example, is stupendous to the point where I'm willing to pay a premium. When I have had questions, I've directed it to the individual fund managers themselves and have received detailed, well thought-out responses. Before I invested with Prescient, one of the fund managers actually took the time to meet me over coffee and today still answers my questions directly.
Would an ETF provider do this ? Never - not in a million years.
The funds are expensive, but the service by the asset managers is worth paying for that is if that is important to you. In 2018 after I met with 10X and he was "blown away" with my interaction with Allan Gray and how professionally and attentive Allan Gray was. Any transaction—irrespective of complexity, local or international—is handled either on the day or 24hrs and really, they respond to EVERY email.
Furthermore, the level of staff knowledge at any of the Asset Managers is incredible! Irrespective of who answers the phone, the competence is assured. I really don't know how these asset managers are able to find and train staff to this level. It seems to be something unique to the asset management industry.
Even performance-wise, the Ash1200 is not without its competitors. The 1-year performance of the Ash 1200 against the Coronation Optimum growth fund is practically identical after fees and in this case, the Optimum Growth fared marginally better.
Taya
I have been contributing to an RA since 2014 through one of the dreaded 'old school' companies. I blame this on a younger, stupider version of me. I am investigating the fees I am paying and will most likely move this to another provider such as 10X / Outvest.
My employer is dead set against RAs. He knows his way around tax (he has a Masters in Tax law and worked for SARS for some time), so I am inclined to give his advice some thought. His view is that by the time I am of retirement age, the government would've gotten their hands on RAs through prescribed assets. In addition, RAs don't typically perform very well. His advice is to take the tax knock and invest your money elsewhere.
What are your thoughts on this? If I am going to continue investing in an RA I need to seriously figure out how to contribute more to it monthly, but I am questioning whether this is something I should even be figuring out in the first place.
Laurence
We're on the bus to Portugal, due to roles that allow remote working and passports for EU access. I have a question around CGT on offshore funds (e.g the Vanguard.VT USD fund) when becoming a non-tax resident in South Africa.
We plan to become non-tax residents in South Africa, and not financially emigrate (even though we assume we won't return to the country).
I currently own the Vanguard USD fund through Easy Equities. I plan to do a position transfer from EE to Interactive Brokers. I would sell up any remaining South African funds (e.g. Ashburton 1200) and convert to Irish domiciled Vanguard funds. I know that Vanguard is US domiciled and there's some concerns about Estate Tax above $60K without tax treaties, but I'd like to think I can manage it based on the fact that Portugal may not be our final destination.
I've (somewhat) come to terms on taking the CGT hit on the SA funds when leaving, but what happens to the offshore funds (e.g. USD VT) from a CGT perspective when becoming non-tax resident of South Africa? Do you have any insights around the need to pay the CGT on the VT gains (to date) in South Africa when becoming non-tax resident, or would the double taxation agreement with another country mean you only pay CGT in Portugal/EU when selling off the fund in e.g. 15 years time?
Alternatively, am I just complicating the hell out of it and should I sell the VT fund whilst it's of moderate size and take the CGT hit now?
Garry
I am in my early fifties, married and dad to two high-school kids. My wife doesn’t earn an income.
I have a good pension fund through work. I have also been contributing to an RA since 2005.
The RA with Momentum is offshore denominated, which avoids over-exposure to section 28 regulations. I have stopped the 10% annual escalation on this so will now pay a fixed amount until my 55th birthday.
We have an additional discretionary investment into unit trusts. We also have an emergency fund in a USD account. I think by and large we have been doing the right sort of things.
Here are a few things I would like to correct:
Can you please comment on my proposed corrections:
Mary
I wonder if there is such a thing as tax free converting, where you take R36,000 from your retirement annuity to deposit in the tax free account without being penalized. I read this is possible in the US with their version of tax free accounts they call Roths accounts. You transfer money from a 401K to a Roth IRA or Roth401k. It all sounded very interesting. I wondered if you two knew something similar existed here at home.
Although they’ve fallen out of fashion, we like retirement products. In addition to a generous tax break, retirement funds prevent us from cheating our future selves out of money to do luxurious things like live indoors and eat food.
That said, if you’re prioritising investments, retirement products might not be the best place to start, as Dylan points out this week. At the beginning of your career, your tax bracket is quite low. Much as we like tax breaks, it might not be the best use of your investment money.
Win of the week: Stella
Thanks so much for your absolutely fantastic show – I have learned SO much from you and Simon. I think of it as The Gospel According to Bubbles and Chuckles. I’m learning slowly and not there yet, but doing oh so much better with my money.
My mother is 89 and has just sold the life rights to her cottage in a retirement village she was living in (she moved to another establishment where she pays a very low monthly rent of R5,900 – can you believe that?? We were so lucky to get this – it’s a fabulous place in a small town and working out well).
She will receive R451,000 from the sale and I am wondering what she should do with this money to avoid taxes and fees.
She really doesn’t have much money and her income is very low, between her pension and an annuity she gets just under R10,000/month, so my brother and I supplement her expenses – we split her rent in 3, covering various expenses.
Her medical bills are a nightmare – her medical aid and gap cover sets her back R4100/month, and she has just been prescribed heart medication which costs R2,200/month, that the medical aid won’t cover. That’s R6,300/month on medical shit.
Anyhow – she will need to draw on this money to cover said expenses, but it would be great to identify an investment option that allows the money to earn interest, but not have it tied up for years.
Dylan
If I am responsible enough to not use it for living costs it seems like a good place for my money:
It is saving me on a guaranteed interest rate which (even at this stage where the repo rate is so low) is higher than inflation
My understanding is that I will never have any tax implications on these savings since it is not actually interest that I am "earning".
The only negative I can see is the whole "don't have all your eggs in one basket" saying, which also seems like it is not exactly applicable in this case. Even if something bad happens to my house or the property market, I would still be liable for the amount owed to the bank. So whether I have big savings in my home loan or in other investments, the loss would be the same.
Since I am at the early stage of my career, I benefit the least in terms of tax. I only expect my salary to grow from here on, so later in my career I would benefit much more. So should I not be prioritizing TFSAs? My very basic understanding would explain that RAs let you reap the reward now and pay tax later, where TFSA let you pay now and reap the reward later.
My current idea is to contribute the max of R6k per month between myself and my wife to TFSA. After that we can consider RAs and other investments. Then this ties up with my first question: would it not be a good idea to then take what's left after TFSA and contribute that to my home loan? This way, I could really quickly pay off my home loan and only after that start contributing to an RA again. At that point, I would need a new place for my emergency fund, but cash investments should be fine?
If I stop contributing to a RA and rather contribute to a TFSA and my home loan (or any other investment), do I need to tell my employer that? Currently they pay me my salary and I contribute to my RA, but they do specify my RA contribution on my PAYE. Can I leave them and just save the tax I should pay and give the money to SARS at the end of the tax year or is that not legal?
Herman
I have been contributing to my TFSA the max amount for 5years now.
This has been my only savings after my emergency fund. My student debt was low and I managed to pay it off in 3years.
I have recently been approached to work in New Zealand, and now have too many options to consider - please help:
Tsebang
I was invited to a presentation about Bitcoin Mining, the company that is mining the Bitcoin is Mining City I'm not sure if it is a scam or not. Could you please check and advise? I have a bad feeling about this. They are promising huge returns after 3 years. Candice
What I can tell you is that they are not a platform, so there is no option of selecting external funds when you are not happy with performance. They offer only tracker funds which in general are 0.95% and they only have one actively managed unit trust fund. So the potential EAC would be 0.95 for AMF and if there is an advisor you can add a further 0 – 1.15% so potentially they would be very cheap. So it is extremely important to understand what your selected fund is tracking, currently the 1 yr return on their medium equity fund is 0.2% and they do not have any funds that offer guarantees.
If you are looking for a similar product from Old Mutual it would be our OM Funds only option through wealth which also does not have an admin fee and our tracker funds come in slightly cheaper than 10x at between 0.55 and 0.9 and with a far superior actively managed fund range including offshore.
When you are looking at the optimal plan, you are not buying it because it is cheap, you are buying for possibly the underlying guarantee that your fund may have and then for the future bonuses from year five until maturity.
I would think very carefully before considering moving retirement funds to 10X for the reasons given above…in view of NO GUARANTEESand NO BONUSES paid going forward.Shane
Thank you for a great show and for making me laugh at least N+1 times during each podcast.
Please share your thoughts on trading with a Tax-free account. I've dumped R15k in mine a few weeks ago and opened several ETFs, (S&P500, NASDAQ 100, etc.), and split it evenly. I am a daily trader using equities. I’m wondering if the same can be done with Tax-free ETFs, while staying below the annual contribution limit but maximizing profits? What implications are there that you are aware of?
Tim
I’m 43 and my wife and I are debt free since the beginning of this year. House access bond is basically paid off, R10k left to keep the facility open, but it also is my emergency fund.
I maxed my TFIA at Standard Bank with a couple of ETFs,
I moved my 20 year old RA’s from Sanlam and Old Mutual to Outvest – boy did I get shafted in 20 years!
I still have a Policy with Sanlam. I want to cash it in, but want to use it to my maximum long term benefit. Should I put it as a lump sum in my RA or rather buy ETFs with it?Ross
I realize it's a massive double up and need to streamline the portfolio, I just can't decide what to hold onto and what to sell.
I have also been quite interested in the SYG4IR. I just can't help but think this is the way of the future: clean tech, autonomous vehicles, drones, solar, space the list goes on. If I put a bit of money into it now and let that grow for 30 years who knows what the value of it might be by then, which brings me to my questions:
I only recently discovered that I am completely undercooked in terms of retirement. I had some investments, a bad RA, and some unit trusts for my kids with Allan Gray. (expensive AF)
But was never aware of TFSA's and ETFs, etc...
So I discovered Easy Equities, discovered your podcasts, through advice from my brother in law.
Since then I have devised an aggressive plan to get back on track. Paid off my huge credit card debt and now only left with 2 vehicles.
So, a couple of questions / thoughts.
Priority 1: Max out TFSA for myself and my wife each year.
Priority 2: Invest long term for my kids (2) - TFSA and other
Priority 3: Save for deposit on my first home
Thereafter invest what I can into the market.
What would be a highly aggressive 1 year investment to save for a deposit?
And what would the TAX implications be on that investment?
Prineshen
I am 26 and a budding young investor who started around 3 years ago. My strategy is mainly focused on ETFs in my TFSA with the rest into individual stocks picks and bitcoin for a bit of fun/speculation.
I understand the importance of diversification in a portfolio. However given South Africa's history of fraud scandals such as Steinhoff etc, I have tried to implement a further layer of diversification across brokers and therefore tried to diversify my investments across Easy Equites, Satrix and Sygnia, although I know Easy and Satrix are owned by the Purple Group.
What are the chances of one day waking up and seeing all our accounts at 0?