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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: September, 2017
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

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