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.
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:
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
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:
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:
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.
Check it. This is the @SPGlobal version of our ETF portfolios. Green bonds not available yet locally, but go bananas on the rest. pic.twitter.com/f0onkNKMAk
— Kristia van Heerden (@kristiavh) October 17, 2017
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!
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
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.
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