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The Fat Wallet Show from Just One Lap

The Fat Wallet Show is a show about questions. It’s about admitting that we don’t know everything, but that we’re willing to learn. Most of all, it’s about understanding as much as we can to make us all better investors. Phrases like, “I’m not sure” or, “Let me look that up and get back to you” or, “I don’t know” don’t exist in the financial services industry. If you ever had a financial question you were too embarrassed to ask, you know what we’re talking about. In this business, appearances matter, and nobody wants to seem like they don’t know how things work or what the outlook is for the buchu industry. It’s easy to excuse that little vanity, except that people in the investment industry are meant to service investors - people like you and me who need to figure out what to do with our money. There’s no such thing as a stupid question in this show. If you have unanswered financial questions, this is your opportunity to have them answered in a way that even I can understand. Pop them to us at ask@justonelap.com. Hosted by Kristia van Heerden and Simon Brown
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Now displaying: 2017
Dec 31, 2017

Happy New Year! We hope to make this your (and our) most successful financial year ever.

Sticking to the theme, we talk about our financial resolutions for 2018. Last year I made the same financial mistake twice. In trying to avoid cost, I incurred unnecessary cost and aggravating effort. This year, I hope to develop mental models so I can stop making the same irritating mistake.

Simon shares his financial goals for 2018, as well as why he doesn’t believe in goal setting. Since 2017 proved me an excellent goal setter, we disagree on this point.

Kris

Dec 24, 2017

While every question we receive on this podcast pertains to a completely unique financial situation, some themes recur. More often than not, the questions we receive pertain to property investments, tax efficiency and foreign investing.

In this mini podcast, Simon and I discuss the answers we give most often to these questions. If you’re a regular listener, a lot of this might sound familiar to you. Perhaps hearing us talk about them again inspires you to revisit these areas to ensure you’ve got the right mix for your financial situation.

We are so happy that you’re taking a break from your merriment to share a few minutes of your holiday with us. We hope it’s a pleasant day, however you choose to celebrate it.

If you have a pressing question, sleep on it for a few more weeks. We’re back to our inboxes on 15 January 2018.

Kris

Dec 17, 2017

It’s safe to say that I think about money slightly more than the average person. Once bitten, twice shy and all that. Weirdly, though, my financial hyper-vigilance sometimes results in exactly what I try to avoid. 2017 felt the need to teach me that lesson more than once.

In the second of our mini podcasts, Simon and I talk about the financial mistakes we made this year. Mine cost a little, Simon’s a lot. Even so, I’d like to do better next year.

We are now officially on holiday, which means I won’t get to your questions until January. I hope you enjoy your festive season as fully as I intend to enjoy mine.

Kris

Dec 10, 2017

Fat Wallet listener Hugo Schuitemaker and his trusty Excel spreadsheet made a startling discovery. An amount invested at the beginning of the year would have to earn a 19.5% return to catch up to a 10% discount on his child’s school fees.

“Sometimes schools offer a discount for paying the full annual amount upfront. In my case its 10% if I pay the full annual amount of school fees by 1 January. So this naturally called for an Excel spreadsheet. Upfront payment vs Monthly payment.

I worked out that the 10% discount is a huge savings for me. If I chose not to make use of the discount and paid the monthly amount, whilst keeping the balance of my capital invested, I would need to make a return of 19.5% over the year, just to equal (break even) with the discount I would receive from the school! It’s a no-brainer for me.

I would even argue that if you can loan money at an interest rate of less than 19.5% (out of you bond for example), with a 10% discount on school fees it would be in your best interest (excuse the pun) to do so…”

In the first of six holiday mini podcasts, Simon and I discuss the merits of taking a lump-sum discount instead of investing it. We also drink some bubbles and eat popcorn. Yay, holidays!

School fees discount calculator

Kris

Dec 3, 2017

In investments we fall victim to all the consumer habits we’ve developed over a lifetime. We are fooled by bells and whistles, make impulse purchases, get home with things we don’t need only to realise we forgot the thing we went to the store for in the first place.

By the end of an investment year, it can be hard to remember why we own what we own. This is especially true if you haven’t formalised your investment plan yet. With easy-to-use investment technology, it’s fun to experiment. These experiments hopefully help us develop a coherent investment philosophy over time.

Those of us outside of the retail sector have a bit more time for reflecting this time of year. It’s a great opportunity to take a critical look at our portfolios. In this episode, we help a listener make choices about individual shares cluttering her portfolio. We also consider strategies to deal with duplication resulting from ETF holdings.

This was our second-last recording day for the year. We are looking forward to recording six mini-episodes over a bottle (or two) of bubbles next week.

Kris

Nov 26, 2017

This week, two listeners help Simon score free wine and free petrol using loyalty programmes. Here’s a new Fat Wallet rule: if it gets us free wine, you are automatically the win of the week. No questions asked.

We discuss medical aid and how much to save towards the education of two toddlers. We received a question about the Warren Buffett indicator. I figure out halfway through the discussion that it’s basically the P/E ratio of a country and nearly die of pride. I just love those moments where my brain makes a connection that I didn’t know it was capable of making.

By the way, Craig Gradidge blew my mind this week when he explained a very complicated principle in a way that made it clear as day. This, to me, is the mark of true intelligence.

Jonathan de Freitas found an awesome workaround for price alerts on the If This Then That (IFTTT) service. Check that out here

Lastly, we read through all of your tips and suggestions in our survey and we spend the episode talking about the things you guys want. We’ve had many requests for show transcripts, for example, to make the site more searchable and help people who are hard of hearing.

We dedicate this episode to the ideas we loved, the suggestions we don’t agree with and our listeners’ wicked sense of humour. Thank you all, one last time, for taking the time to help us serve you better.

Remember to join us IRL on 7 December for our final Power Hour of the year. It is always our favourite event. We can’t wait to hang out with you.

Kris

Nov 19, 2017

How it happened that November turned into the retirement annuity month, I’m not sure. Following our previous two episodes, we were bombarded by questions and concerns around RAs. It seems our episode on choosing an RA spurred many of you into action.

We hear from an 86-year-old listener how far the 15% savings rate actually gets you. Hint: not very.

We help two listeners figure out if they’re paying too much for their annuities. One listener is struggling to find the right answers to his retirement question from his provider, Discovery. We also discuss Stealthy’s reasons for not loving RAs.

I can send virtual dirty looks to expensive providers for days, but the last three episodes reiterated the importance of keeping a very close eye on my investments. I contribute more to my retirement annuity than any other investment. We’ve seen providers won’t be brought to book for selling expensive, wealth-depleting products. We’ve seen legislation change. My future financial security rests solely with me, as yours does with you.

Kris

P.S. Our survey results are in. Check them out here.

Nov 12, 2017

I’ve had a great time chatting retirement at two separate events last week. Both times I came away feeling uneasy about the go-to 15% savings rate for retirement. I suspect we’ve been anchored at that number because that used to be the tax break. I also suspect that number is only correct under very specific conditions.

If you started saving 15% of your salary since your first pay cheque and you plan to retire at 65, 15% might be enough. Then again, it might not be. How would you know?

Here’s what you need to work out how much you’ll need to retire.

  1. Your current cost of living per month times 12 for your annual cost of living. Remember not to use your income for this amount. You won’t be saving towards retirement in retirement.
  2. Multiply by 25 to get to how much you’ll need to retire today.
  3. Adjust for inflation to get to the lump sum you need by the time you retire. Here’s an online calculator to help you
  4. Assume, for the sake of this calculation that you will earn 10% per year on your investments.
  5. Include the savings you already have.
  6. Use this calculator to get to your monthly savings goal.

At my current savings rate, I’ll be able to retire in 17 years. At a 15% savings rate, I’d only be able to retire in 25 years. That’s taking into account the 27.5% I’ve been putting towards my RA already and my current tax-free savings.

I could still retire before 65, but I’m a long way away from my early retirement goal. Even at my current savings rate I miss my retirement goal by 10 years. There was a time I was set on retiring at 40. Guess that ship has sailed.

I have two options to reach my retirement goals. Save more, or cut down on my cost of living. Saving more means earning more, which is largely out of my control. What I can control is my cost of living. Time for some planning!

The point of this episode is that the perfect retirement savings number will be different for everybody. Run the numbers for your goals and make sure you’re on track. Do this once a year to make sure you are where you need to be.

Kris

Nov 5, 2017

In a previous episode of The Fat Wallet Show we discussed how to compile your own ETF portfolio. In theory, once you know which factors to consider and understand all the information, you can make informed choices about your investments. However, putting together an ETF investment is child’s play compared to choosing a retirement annuity.

Unless you’re an outlier, your retirement annuity is the most important financial decision you’ll make. It’s not only the largest sum of money you’ll ever invest, but it’s also the investment decision with the least room for error. I don’t mean to overstate this, but it’s the decision that’s going to determine how the second half of your life pans out. If you’re lucky enough to die somewhere between 80 and 90. Live to 130 and you’re on your own.

This week, we try to unpack some of the factors you should consider when choosing an RA. We talk about moving existing pensions and annuities and completely fail to distinguish between them. You’ll be unsurprised to learn that fees play a major role in our decision-making process.

We asked 10X to help us think through some of the factors to consider when it comes to RAs. They identified five parameters by way of very helpful questions. They are:

  • Is it a traditional, policy-based RA offered by a life insurance company or is it an investment-based RA offered by an asset management company?
  • Are you forced to use an advisor or another intermediary?
  • How much are you paying in fees?
  • Are you taking on the appropriate amount of risk?
  • Is your service provider honest about the impact of these factors?

I also decided on a whim to make listener Jaco Marais rich. If you are planning on signing up for Stash next year, use Jaco’s promo code. He gets R10 every time someone new signs up. Code: JAC8747

We also share the story of a man who found R400 000 he didn’t know he had.

Kris

Oct 29, 2017

If an investment grows more than a savings account interest rate, is that a good investment? If it performs on par with the Top 40 index, but below inflation, is that good or bad?

It’s surprising that we got 70 episodes into this podcast without ever discussing when a share is performing well. On the face of it, it seems almost too obvious to warrant a conversation. How much do I want a share price to rise? Infinity!

In this episode we discuss some of the metrics you can use to determine how your investments are performing. Identifying an under-performing share is pivotal to making choices about which shares to sell and which to give time to recover. Kind of important, no?

Fernando Nieuwfelt dangled an intriguing hypothesis and we couldn’t resist, “I switched out a local market cap index for the STXEMG. The performance is very similar, it's less volatile and more diversified.”

We talk about the merits of selling ETFs with purely local exposure in favour of the new Satrix Emerging Markets ETF.

Speaking of things we couldn’t resist, Mike O’Donoghue issued a challenge. Let’s find the Fat Wallet listener whose tax-free account is performing best. Simon and I did a quick comparison and I was happy to take the lead with just shy of R113 000 on Thursday, 26 October. I’m feeling strong. Shots fired.

In case you missed it, we released a bet-you-didn’t-see-this-coming bonus episode last Friday. We help a listener make a difficult financial choice using our five financial building blocks. Listen here.

Thanks for listening to The Fat Wallet Show.

Kris

Oct 26, 2017

Getting to be great at money is like losing weight. Those who are successful at it don’t reach their goals because they perfectly stick to a plan. They are successful because they make more good decisions than bad ones over a long period.

We’ve long theorised that there are five financial concepts that underpin good financial decisions. We posit truly understanding these concepts will remove a lot of the uncertainty that often fuels financial decision-making. Taking the right variables into account, you will hopefully end up making more good choices than bad ones.

We discuss each of these concepts in this episode, but to recap, they are:

  1. Assets
  2. Interest
  3. Inflation
  4. Compounding
  5. Index-tracking products

In this bonus episode, we help one of our listeners solve a property dilemma by applying these parameters to his specific situation. Follow our line of thinking and see if you agree.

Kristia

Oct 22, 2017

We are 70 episodes strong! What a ride!

As you may have noticed by now, The Fat Wallet Show tries to help you figure out how to think about your money. The theory is if you understand a few surprisingly simple concepts, you have the tools you need to make great financial decisions. Once you have a handle on these concepts, you need a solid financial base. Getting that in place takes about a month, if you focus.

We discussed the things you need to understand to make a good financial decision here. To recap, they are:

  • Assets
  • Interest
  • Inflation
  • Compounding
  • Index-tracking products

We discussed your financial base in a two-part series on how to structure your pay cheque. Listen to that here and here. To recap, those are:

  • An emergency fund
  • A retirement annuity or pension fund
  • Dread and disability cover
  • Medical aid
  • A tax-free savings account

In this episode we bring everything together by telling you how to put together a tax-free ETF portfolio. We discuss diversification by asset class, region, sectors and investment strategies. This is the process we use to put together our ETF portfolios. You can subscribe to those here. We were inspired to revisit this by this slide from an S&P Dow Jones Indices.

 

We have our first ever giveaway this week. I’ll be speaking at the Liberty Retire Well Masterclass on 9 November. To win one of three tickets worth R250, let us know which financial concept or term you think is well understood by everyone but you.

Thanks for listening to The Fat Wallet Show!

Kris

Oct 15, 2017

Simon had some family matters to attend to this week, so I did my first ever solo Fat Wallet. Turns out talking about money alone in your living room isn’t quite as entertaining as doing it with a friend. I’m sure you’ll miss him as much as I did.

Two episodes ago, Daniel Jacinto wanted to find a good alternative investment for income. He currently owns a buy-to-let property that helps him pay for his parents’ medical aid. He looked into a Finbond product that offers 11% interest on a deposit fixed for six years. It’s a solid option, but it does mean the principal investment will lose buying power over time, and the 11% payout won’t keep up with inflation. This week, Riaan Honeyborne and Johan Harman both wonder if Daniel wouldn’t be better off just investing in an ETF for income.

The problem with equities as a supplementary income source is that you have zero control over the market. In my investment lifetime (short though it is), I’ve never gotten 11% return on an investment. When you are relying on that income every month, not knowing whether you are going to hit that target is going to cause you stress.

Maxwell wants to know whether listed property instruments can out-punch buy-to-let as a second source of income. I think not. If it’s the monthly income you’re after, you can probably get there much quicker with a buy-to-let. You can also buy an investment property on credit and use one as surety to buy another, gearing your portfolio.

However, you end up with a huge amount of concentration risk, and if you pay off a bond on a buy-to-let, you end up paying more for the asset than it’s actually worth. If I’m going to be throwing a lot of money at an asset, I prefer liquid, diversified and maintenance and paperwork-free.

Links and sources

Roneil sent a link to a Mybroadband article about great value smartphones. If you’re after a device that gets the job done, there are some great alternatives here. I’ll certainly be thinking more along these lines once my current phone dies.

I also mention Ingé Lamprecht’s hilarious article about going for a cheaper cell phone contract and the subsequent chaos. It’s “penny wise, pound foolish” in action.

I also mention that fantastic Power Hour Magnus de Wet did for us on listed property vs buy-to-let.

Listener Love Index

You know things are bad when you start thinking about losing as a sliding scale...

Kristia


 

Oct 8, 2017

The Sygnia World and Satrix World exchange-traded funds (ETF) both track the MSCI World Index. ETFs are priced on their net asset value. That means the share price is calculated by adding up the prices of the shares within the ETF to arrive at a fair value. Unlike ordinary shares, ETF unit prices are not subject to the forces of supply and demand to the extent that ordinary shares are. When there is demand for ETF units, the market maker produces more units at fair value. When there is too much supply, the market maker buys back units.

How is it then that the share price movements of the SYGWD and STXWDM aren’t equal, asks listener Gerhard Jacobs this week. Simon and I discuss the impact of dividend reinvestment on price, as well as the unreliable nature of the closing auction price.

Aiden Whitaker not only inspired young listener Ernst Jordaan to start making his dreams a reality, his question also got Kenneth Collett and De Wet de Villiers thinking about tax efficiency for a side hustle. Kenneth suggested registering a small business corporation to reduce his effective tax rate from 27.4% to 24.8%. De Wet finds a way to reduce that amount even further, to 21.08%. We discuss this voodoo in this episode.

Links and sources

If you are a South African living abroad, you might want to pay attention to the proposed changes to the 185 day tax resident rule. Thank you to Kim for bringing our attention to this Moneyweb article

Listener Love Index

It’s a tough time to be in the love business.

Kris


Oct 1, 2017

So much of what we discuss on The Fat Wallet has to do with investing for some future date. We never really get around to what to invest in if you need money right away. Unfortunately the first thing you need, for those of you who suddenly perked up, is capital.

Listener (and great guy) Daniel Jacinto is paying for his parents’ medical aid with income from a buy-to-let property. Since discovering The Fat Wallet, Daniel has realised there’s more than one way to skin a cat, and if that way doesn’t have to involve levies and maintenance it’s probably more fun.

This week we discuss Daniel’s options, as well as the cool new products we love and we get to peek inside a very decent investment portfolio. Since we haven’t recorded a Fat Wallet in two weeks and haven’t really had a chance to hang out since Simon’s return from holiday, this one seems to get to the one hour mark without us.

Links and sources

At the beginning of the episode I get a bit lyrical about Stash

We also talk about a new robo advisor from OUTsurance. Find OUTvest here.

We didn’t think it was possible, but our Listener Love Index seems to be doing worse than before.

Kris


Sep 24, 2017

If you’re a Fat Wallet regular, you know I love thinking about bonds. Despite my fascination with the asset class, I don’t hold any outside of my retirement annuity. If all goes well, I won’t be cashing in my investments for the next 20 years. Bonds are a more conservative asset class. They reduce volatility, but they have an upside limit built in, and I’m a sky’s-the-limit kind of gal.

 

This week, listener Dale Towert reaches the same conclusion about bonds, “Everyone says a well-diversified portfolio should consist of stocks, bonds, property and cash. At what stage do you think it’s a good idea to start introducing bond ETFs to your portfolio?

I’ve been restructuring my portfolio, and thought it might be a good idea to have at least 10% exposure to bonds. This got me thinking: the purpose of bonds is level out the ups and downs of the rest of the market. At 10%, if things go really badly in the rest of the market, 90% of my portfolio will still go down with the market. At the same time, if things go well, 90% of my portfolio will also go well. In other words, at 10% the effect of the bonds will be fairly minimal.

To have a greater levelling effect, you’d need much more than 10% in bonds – probably closer to 40-50%. But the returns (incl. interest) on bond ETFs is pretty poor over time, so unless you are already, or about to retire, this doesn’t make sense either.

At what stage do you think it’s a good idea to start introducing bond ETFs to your portfolio, and at what percentage (if at all)?”

In this podcast, Simon and I discuss the bond dilemma. We also talk about having more than one retirement annuity, Sygnia funds, what will happen to Steinhoff shares and whether biotech is the future of money.

Links and resources

We pre-recorded this episode on 13 September, so we have no idea where the Listener Love Index is, but if past behaviour is a predictor of future behaviour, I’m not hopeful.

Kris

Sep 17, 2017

Investing can be overwhelming because there are so many moving parts. You need to understand what a broker is and then make a decision about which one to use. You need to familiarise yourself with investment products like index-tracking funds and then make a decision about whether to go that route or invest in individual companies. If you go for individual companies, you can easily spend the rest of your life pouring over company results and reading SENS announcements. All of this happens before you even buy your first investment.

Once invested, things get even more hairy. Fees are always a big concern, followed very closely by capital gains and dividend withholding tax. More often than not there seems to be no good reason for market movements (although there’s no shortage of experts who will dream up reasons). Political events can have a huge impact on a portfolio. Economic conditions reflect in your portfolio long after real economy has gone in a completely different direction. Add, on top of all of this, currency moves and inflation and it’s little wonder that the decision to start investing can take years.

In this episode, Simon and I discuss the impact of inflation on capital gains liability. I realise there’s something that will impact my investments that I’ve literally never thought about. The worst part is there’s nothing to be done about it.

André du Toit’s spreadsheet that takes into account inflation can be downloaded here. Thanks very much, André. CGT Local vs Offshore revisited

Links and resources

Our Fat Wallet Listener Love Index has been flirting with, but not quite committed to, being 3% in the hole. This displeases me.

We don’t advise opening a tax-free investment for a child’s education. The video below has everything you need to know about tax-free accounts.

Kris

Sep 11, 2017

Risk factors are a big consideration when I make investment decisions. Generally, I consider sectors, regions, currency and asset allocation when deciding between ETFs. I’m by no means claiming these are the only risk factors, but these are the ones I understand. Considering I only invest once a year, it’s kind of nuts how much time I spend thinking about this.

Last week I wrote an ETF blog about how weightings can affect the performance of ETFs that track more or less the same companies. In the local market, the Satrix 40, the CoreShares Equal Weighted 40 and the CoreShares Top 50 all track the performance of the same group of companies, with a bonus 10 in the case of the Top 50. (I’m just saying that to be thorough. Hopefully you arrived at that conclusion by yourself.)

While these ETFs track the same companies in the same market, they don’t perform in the same way because of how they’re weighted. What would happen if I had to invest in all three of them? My exposure to different risk factors wouldn’t change. I’d still be investing in the same sectors, regions, currency and asset classes. The only variable is how these indices are put together.

In this podcast, Simon and I discuss what this would mean for my portfolio. As always, cost is a huge consideration. Aside from the brokerage, I would have to pay TER on all three products. Would this make a huge difference to my performance? If I hold all three, would I end up exactly average, or is there a chance that I could slightly outperform?

Links and resources

Our friend Stealthy Wealth made a spreadsheet! This time it’s to work out how much capital gains tax you would have to pay on an offshore investment. Play around with that here. Stealthy Wealth-CGT-Local vs Offshore

If you’re interested in joining an investment club without doing any of the work, Chris de Jager shared this link to the Platinum Wealth investment club.

Since this is a show about questions, remember to send yours to ask@justonelap.com.

Kris

P.S. Our Listener Love Index is living proof that sometimes love is not enough. Check how we're doing here.

Sep 3, 2017

We often speak to people who want to set up investment clubs. I like to fly solo, especially when it comes to money, so I never really paid attention to it. Of course, now that I might have to set one up, they suddenly seem a lot more interesting.

We’ve been chatting to Njabulo Nsibande (who became a dad to a baby boy last month!) about his investment club for a while now. He alerted us to the possibility of a Satrix money market ETF. His club is about the start making investment decisions. This week, Simon and I discuss his investment options, as well as the structure and format of investment clubs.

We talk about a few Moneyweb articles in this episode. First, Adrian Diergaardt won the week with his whiksy. The article that inspired him to see how much his whisky is worth is on Moneyweb here

Ros Brodie wrinkled my brain because of an article she read on Moneyweb. Here’s how I understand it.

If you invest in an offshore ETF through a local broker, you’ll experience two movements in your portfolio. Firstly, the performance of the underlying investment, the ETF, will affect your portfolio. Secondly, the rand/dollar exchange rate will move your portfolio up and down.

Offshore ETFs like the Satrix World are denominated in dollars. Your rands have to be converted to dollars before the units are bought. If the rand weakens, a single dollar can buy you more rands. Because your portfolio is in dollars, every dollar is worth more rands, pushing the value of your portfolio up in rand terms. The opposite happens when the rand strengthens against the dollar.

There is a chance that your portfolio could be profitable because the rand weakened against the dollar even if the ETF stayed flat. This has capital gains implications when you sell your ETF.

If, on the other hand, you converted your rands into dollars and bought the ETF through an offshore broker, you would only be liable for capital gains on the performance of the ETF. When you sell the ETF, you’ll convert your dollars back into rands without being taxed on any profit earned there.

I can see why some people would consider going the offshore route to avoid the capital gains implications, but this can easily be more expensive than going local. I suppose the challenge is to figure out if profits from currency movements will result in more tax than the fees of investing with an offshore broker.

Kris

Aug 27, 2017

When we discuss financial principles on The Fat Wallet Show, we try to make them a rule of thumb. More often than not, debt is bad and saving is good. Most of the time, retirement and tax-free should be where your money goes first.

Of course there are exceptions to these rules. There are as many unique financial situations as there are people. Sometimes a set of circumstances leads to an opportunity. Other times you do everything exactly the way you’re supposed to and it still doesn’t work out.

This week’s question from Vee M got me thinking how a “bad” rule-of-thumb decision can be a great decision in certain circumstances. Another case in point is Simon borrowing against his bond to buy shares during the 2008 financial crisis. Would I tell my best friend to do that? Hell no! Did it work for Simon? It did.

If you are honest about the risks and possible outcomes, you have your financial base in place and you are a fiscally responsible individual, odds are you’re in the best position to make a call about your finances. Ask for input and advice by all means, but never forget that the success or failure of your financial plan affects you and your family. Whether those you consult agree with you or not, you have to live with the decision.

What I loved about Vee’s question is that she had the following information:

  •   Exact amounts owed on all her debt
  •   Exact amount of tax payable should she cash in her provident fund
  •   Exact amount of interest she will pay should she decide not to settle her debt
  •   Exact amount of cash she would free up should she pay off her debt

This information enables her to:

  •  Assess her net worth by comparing her assets (provident fund, fixed deposit savings and home) to her liabilities (debt on buy-to-let property and car)
  •  Compare the once-off tax liability to the accrued interest over time. Being able to do this makes a complicated decision as easy as, “Which is greater?”
  •  Decide what is important to her. Is the current debt stress better or worse than the stress of providing for her future? Vee understands how quickly she can rebuild her retirement annuity because she knows how much she’ll be able to invest every month.

Data is power when it comes to financial decisions. Data overrides the fear and greed of financial decisions. Vee hit the nail on the head.

Links

We built a spreadsheet to help you work out how long it will take you to make up the penalty you have to pay to move your RA. Click on the link to download it. Moving your RA

Chris de Jager sent a link to a forum discussion on estate duty. The discussion follows on the discussion we had with Candice Paine about investing abroad.

Danie de Waal sent shared an article on how index funds can affect the market. Read that here.

P.S. Our Fat Wallet Listener Love index took a beating at the time of recording. Hopefully by the time you read this things will be looking up!

Kris

 

Aug 20, 2017

Fat Wallet regulars know that index-tracking products are at the heart of our investment philosophy. Even Simon, with his individual shares and trading accounts, prefers having at least half of his portfolio invested in exchange-traded funds (ETFs). ETFs are financial products that track the performance of an index. If you struggle to understand what an index is, you’ll probably find ETFs difficult to grasp.

In the last Fat Wallet episode, we decided to create our own index to illustrate how indices are put together. Zack Bezuidenhoudt from S&P Dow Jones Indices graciously agreed to help us put together an index of Fat Wallet listeners’ favourite companies. The rules of the index were entirely made up by me. I was drunk with power.

We received 22 submissions between Monday and Wednesday morning. Since some listeners liked the same companies, we decided to give more weighting to companies that received more nominations. We are therefore happy to announce the world’s first index weighted by love. Probably.

We capped the exposure of each company at 10% to avoid over-exposure to an individual share. We also opted for a variation on an equal-weighted index. The result is an index as diverse and colourful as the Fat Wallet audience.

You can have a look at the complete working document here. And finally, below for your viewing pleasure, is the Fat Wallet Love Index, organised by weighting.

Kris

Aug 13, 2017

It’s our 60th show! At the time of recording we were also only a few downloads shy of the 70 000 download mark. What a time to be alive! We are so grateful for your support.

This week we received a bunch of related questions about my favourite topic - ETFs. We discuss:

  • TER: How it’s calculated and what it means for your investment. I also wrote an article about it here.
  • Spread: The cost that’s not a cost.
  • The difference between ETFs and ETNs.
  • How to put together an ETF portfolio.
  • How to choose between two similar ETF products.
  • How to understand risk.
  • How to trade (or not trade) the volatility index.

We also decided on a whim to put together a Fat Wallet index. It’s a fun way to see how indices are created and to see if we’re collectively smart enough to beat the market. You can submit your favourite listed company for inclusion in the index by sending a mail to ask@justonelap.com. Maybe we can get some industry peeps to take us through the nuts and bolts in a future episode.

Kris 


 

Aug 6, 2017

Last week, we spoke about the basic concepts you need to understand to make good financial choices. We recap those this week, because understanding these concepts will change the way you think about your money. To recap, they are:

  • Interest
  • Inflation
  • Compounding
  • Assets
  • Indices and index-tracking products

We also discuss the different types of expenses that will impact how you spend your money. They are:

  • Unavoidable expenses that keep you alive
  • Expenses that can be avoided in the short-term, but will ensure your future financial security
  • Expenses that will make your life easier
  • Fees to be part of the formal financial sector. These are unavoidable

This week, we discuss how each of these expense categories will affect your spending in different phases of your life. We start with those who have no financial responsibilities and very few expenses. Then we talk about how to handle debt and finally we deal with family obligations.

The TL;DR version of this episode is:

  • You want your bank statement to reflect your values, so you have to start by asking yourself what you want your money to do for you. That can be traveling the world and discovering new species or building a home for your 12 kids.
  • Everyone needs the same financial base, which includes:
    • An emergency fund equal to at least three months’ expenses
    • A retirement annuity
    • A tax-free savings account
    • Dread and disability cover
  • If you have dependents, your financial base should include life insurance until you’ve accumulated enough assets.
  • You should avoid debt as much as you can and pay back unavoidable debt as soon as possible.

Kris

Jul 30, 2017

Thinking about how you are going to spend your money when you haven’t yet started earning any seems like putting the cart before the horse. However, if you’ve been earning money for a while you probably have monthly expenses that are difficult to account for. Why is that we can plan every other aspect of our lives, but our financial decisions are often without direction.

In our first ever recording in front of a live audience, Simon and I discuss how to create structure around your salary. We explain, once a again, the five financial concepts that will enable you to make a good financial decision every time. To recap, they are:

  • Interest
  • Inflation
  • Compounding
  • Assets and liabilities
  • Indices and index-tracking products

We discuss the expense categories that will apply to most of our finances. First, you have unavoidable costs to keep yourself alive. Secondly, you have a bunch of costs that you can avoid in the short-term, but that will benefit you in the long-term. Next, you have costs that can improve your quality of life. These are the perks. Finally, you have costs that you can’t avoid because you are part of the formal money system. We’re talking here about banking and brokerage fees and interest.

While the first and third categories tend to capture our imagination and the fourth is mostly ignored, our future financial security depends on the second category. Keeping your costs low in category one, three and four frees up money to really help you secure your future.

We argue that your bank account should tell a story about your values. If you don’t know what you want your money to do for you, you’re going to end up spending it on things that don’t matter to you.

When you wonder about what you want from your money, there’s no such thing as a wrong answer. If you want to travel the world with your money, you should. If you want to retire in ten years, write that. If you want to spend your money on your hobby, that’s good too. Once you have taken care of your future self through long-term savings like retirement and tax-free savings, your bank account should reflect what is most important to you.

Finally, we are so grateful to Marc Ashton and the Moneyweb team for the opportunity to speak at the expo and get a chance to interact with all of you. Thanks for stopping by and making our morning a success. Congratulations to Ernst Jordaan for being our first IRL win of the week. 

Kris

Jul 23, 2017

In the current political climate it’s not surprising that we get so many questions around moving money offshore. This week’s episode was going to be about moving pensions abroad, but offshore exposure in general ended up dominating the conversation.

First, we talk about taking your pension fund with you when you emigrate. The good news is that it can be done if you’re not already taking a pension. The bad news is there’s no way to avoid paying tax. Next, we talk about tax on foreign dividends and finally we get to how much offshore exposure you need in your portfolio.

We land, if you’re too impatient to listen, on having much more offshore exposure than local exposure. Think 80-20. The question for a returns junkie like me remains how to work out how much of my offshore exposure should go towards developed markets and how much to emerging economies. I like the idea that there’s a lot of room for upside in emerging economies. It would be naive to assume those economies can only go up, however. The higher returns come at the expense of stability. How do I know how much risk to take?

We also explain how an ETF can be a feeder fund and talk about unitising your portfolio. The spreadsheet we mention can be found here. Information around unitisation is here.

Remember that we’ll be at the Money Expo this Saturday, 29 July. Between 9:00 and 10:00, Simon and I will discuss how your paycheque should be structured. It’ll be a Fat Wallet-style conversation, with the added bonus that you can ask questions. We look forward to meeting everyone!

Kris

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