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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: June, 2018
Jun 24, 2018

When we get into debt, we think it’s a temporary state of affairs. We’ll get rid of it once we earn more money. However, nothing is more delicious to a financial institution than an indebted individual getting a raise. As our income increases, so increases our access to credit.

Think of someone you know who appears to be very wealthy. Now think about the debt required to maintain that appearance. An expensive home loan, car debt, credit cards and store cards all work together to make it seem like money is no object. As we discuss this week, the price we pay to appear wealthy is often the very thing that destroys true wealth.

This week Rinaldo inspired us to tackle debt in high-income households.

I am a high income earner with money problems…

I contribute 18% of my salary to my employer provident fund and R500 a month to an education endowment plan for my boy who is five years old. That is the sum total of my investments. Oh, and I bought a buy-to-let apartment two years ago and what a disaster. Battling to sell the money-chowing, headache-causing thing now.

I need to invest more but I’ve got the following bad debt:

  •        Credit card of R40,000 at 14.5% interest
  •        Revolving credit of R40,000 at 17% interest
  •        Overdraft of R60,000 at 15% interest

I’ve got a deficit in my budget due to the credit repayments and I'm considering a debt consolidation loan, but don’t want to stuff up my credit record which is rather good because up until now I've serviced my debt well. Should I consider a consolidation loan and where and what will be the impact on my credit score?

No emergency fund, which caused the debt.

How did you do it?

Jun 17, 2018

Look, if it’s the end of the world we’re all in for a bad time. Your only hope is to be at the site of the asteroid hit at the moment of impact. Be patient zero - dying will be more fun than trying to survive the apocalypse. A financial crisis is not the apocalypse. It happens in financial markets once a decade. It sucks, but you’re not watching your family getting melted by lava.

Two things have always been true of financial crises:

  1. We are dreadful at predicting them.
  2. We recover from them.

This week, both Flipi and Ross were worried about financial or political collapse. We talk about the things within our control when it comes to our investments and those that aren’t. As any World War II survivor can tell you, when things go dreadfully politically, your wealth isn’t worth much. That doesn’t mean you should live large and wait for the end.


Flipi is concerned about a global crisis. He lives in Japan, though.

Are you guys reading/hearing or similarly being exposed to more frequent comments about another crash, correction or 'bad period'?

Would there be any preparations (perhaps even just emotionally) that people may make to ensure they don't do stupid things during such times, and perhaps come out better for it (or not worse off than everyone else) post such periods?

Weirdly, Ross has a similar question.

I have an RA with 10x investments. What would happen to my retirement should South African experience an economic collapse similar to Zimbabwe? Is there any sort of protection against this? I realize it may be an extreme scenario, but I would be nice to know what would happen.


Win of the week: Mpho almost had me in tears. This is one of my favourite emails of all time.

I have had a listening marathon of your podcast from episode 1 until the recent 101 episode and decided to finally write to you as your podcast is one of the reasons we are on this path to financial independence. I’m 33 married with 2 kids and for so long being on autopilot mode when it came to making decisions - especially money-related.

I’ve been told do well in school so I can get a job and the get married and then have x number of kids, which I did without even thinking about it.

For some reason when I turned 33 I had a freak out moment and started taking a good look at our finances. Making a combined income of around 90 000 a month life didn’t feel any different for us compared to when we had a combined income of R18 000 10 years ago. We had 4 credit cards between us with personal loans, car loans and a bond - not forgetting a R50 000 loan from my sister. I forgot about the overdraft. All these decisions were made without even thinking about it. I don’t know how we got to this point.

I started listening to your podcast and reading up on personal finance. From last year May we have paid off all the credit card debt, one overdraft and we are also ensuring that we are building up our emergency fund. We are not investing yet as focus is on building up that fund so we don’t find ourselves back in debt. The plan is to pay off all the loans, one of the cars and my sister before the end of the year.

I’m sometimes filled with regret when thinking of all the stupid money decisions we have made and how we have allowed the lifestyle creep to creep up on us without even realizing it. We now analyze our spending and have really started communicating about money, which is something we didn’t do.

We’ve cut our expenses and continue to identify areas where there is potential to cut (DSTV premium had to go). It has become a challenge to find creative ways to have fun and create memories without expensive outings and this has actually made us reach out to families and friends and spending more time with them.

I look forward to when our debt will be completely paid off and we start investing. I’m also looking forward to spending my money on things that I value and not being on autopilot when it comes to my life. Thank you for the information that you are sharing out there and will e-mail after that last bill is paid.


Josh is looking at a buy-to-let investment club

A friend invited me to join him and 2 other friends in an investment club.

He wants to set up a company for this purpose.

They want to get into buying properties.

Each member will contribute an agreed-upon amount monthly, increasing annually.

I know pooling money is a way to increase purchasing power, in this case for properties, which will be rented out.

There would also be the need to take out a bond on the property in the name of the company so I have no idea how that would work

Does this sound like a stupid idea? I know you guys are not into the whole idea of buying property, but is doing it in a club/company a better way by virtue of pooling money?

I highly recommend you watch this: https://justonelap.com/listed-property-vs-buy-let/


Wim is looking to move his RA, but Sanlam is dangling a carrot.

I am paying 2.3% in fees.

I’ve seen only 6% growth over 10 years and inflation was slightly lower.

I have to move, because my money is not moving.

Here’s a tip when you’re looking at performance over a period - compare it to the performance of the Absa MAPPS growth ETF for the same period. The MAPPS ETF has

Cash (4.48%)

Equity (72.53%)

Inflation-Linked Government Bonds (10.61%)

Nominal Government Bonds (12.38%)

This doesn’t include the 30% foreign exposure allowance in a regulation 28-compliant fund, but it should give you a sense of what a combination of assets have done over a period.

They said there’s a echo bonus being paid out in new Sanlam product.

I requested a detailed growth and cash bonus for remaining 20 years if I stay invested. Am I still getting screwed?

They promise 10% growth but have not been able to do that for 12 years. Is there a way to compare my investment in eg. sygnia RA (skeleton fund) over 20 years with this installment vs the Sanlam pie in the sky prediction?

John recently pointed out when some of these institutions promise a certain percentage growth, they mean for the period, not compounded.


Kelly is getting some first-hand experience in loss aversion.

I'm 28 with no kids, and pay R222.39 for a life policy with Discovery, valued at R751 236. I have been paying towards this for almost 3 years now. I'm not sure whether or not cancel this policy, only because that would mean losing the contributions already made. Should I continue or not?


Mike has a thought about tax on RAs.

One of the biggest issues presented with an RA is the massive tax bill due once you convert your nest egg into cash and an annuity.

If you want to access a third of your R10 million in cash, you're going to pay a whopper of an amount in tax.

However, you don't need to!

You can take the R500K in cash, tax free, and put the rest into an annuity -  it's not compulsory to convert it into cash if you don't need it.

This neatly sidesteps the tax hit and gives you significantly more money to work for you in your living annuity. You'll pay tax on the income generated, but that seems fair, considering it's been growing tax-free for decades. If you've got tons of debt that needs to be paid off, then yeah, getting the cash out might be your only option, but if you've been smart about your impending retirement, then that hopefully won't be an issue.

Herman is in the process of developing a calculator that will help you once and for all find the tipping point. If he succeeds, he’ll be the Win of the Week for a whole month.


Linda is about to kick of their investment journey and wants to know which ETF we recommend. We talk about that here.


Adrian has a question about timing.

I have recently been fortunate enough to exit a business and have some cash to invest -

I haven't invested as much as I should have over the years in traditional savings but always saw my business as an asset I have been investing in.

Having sold this asset I have cash to invest but am worried about the timing of putting this all into equity markets at one point in time (markets priced quite high after a good run).

In this scenario would you do so gradually? If so, what do you recommend doing with cash as you gradually enter markets?


Ross wants to know if he’s on the right track with his ETFs.

I have the FNB Tax Free Share account. I invest in two ETFs: ASHT40 & ASHMID. How does the Tax Free Shares account from FNB fair? Are the ASHT40 & ASHMID decent ETFs?


Nadia is not sure if she’s on the right track in her tax-free account.

I opened a TFSA with Easy Equities this year after doing some research and listening to your show. I've very new to the finance world so everything is a little overwhelming and confusing. I want to tell you what I am putting my money in with the TFSA and I would absolutely appreciate it so much if you could give me feedback on if you think i'm on the right track or not.

These are the "holdings" I've chosen for my TFSA:

CoreShares Top 40 Equally Weighted ETF

Satrix 40 ETF (STX40)

SYGNIA ITRIX MSCI WORLD

CoreShares PropTrax Ten ETF

CoreShares Global DivTrax

Like I mentioned, I am brand new to this game so please excuse me if I sound like a complete dumbass. (No such thing as a stupid question in this show!)

I try to keep track of what's happening in the markets but it's happening so fast, I struggle to keep up. If I had to continue my TFSA with the above mentioned, would you say I'm doing alright or do I need to refresh my choices?

Should I be splitting my TFSA money equally between the above mentioned holdings or should I be putting most of my money in the CSEW40?


Mandla has a warning about using your credit card account as a current account.

Be careful of the credit card interest free periods. A person from FNB told me that I should not be putting all my monthly debits on my credit card.

I was moving things like my monthly rent and subscriptions and recurring payments to my credit card so that I have one statement to look at each month. He says I shouldn't do this because I will get charged interest. Basically, the following transactions still bear interest:

* Cash withdrawals

* Purchase of Foreign Currency

* EFTs out of credit card account

* All transactions linked to Petro Credit card

* All budget facility transactions

I am actually sitting down to look up the terms and conditions to confirm for myself, I thought I'd just share.

I’m looking into credit card accounts myself. While there are interest-free periods, you do pay transaction fees on almost everything. A lot of people are talking to me about the rewards they earn, but nobody is saying anything about fees.

Links:

Six questions to answer before buying an ETF: https://justonelap.com/etf-six-questions-to-answer-before-buying-an-etf/

Should I consolidate my ETF portfolio: https://justonelap.com/etf-should-i-consolidate-my-etf-portfolio/

Jun 10, 2018

Access to a great share at a discount is something to take very seriously. Khuliso’s question about Phutuma Nathi got me thinking about BBBEE shares for the first time. I’ve never really thought about it, because I don’t qualify. However, the majority of you do qualify. How do you make a decision about whether a BBBEE share is a better investment than the ETF you would have bought anyway?

I found this conversation especially fascinating. I’m keen to hear how you incorporated BBBEE shares into your portfolio, or, if you decided against it, why that is.


Win of the week: Michael, who officially moved his TFSA from Old Mutual.

I can officially say that the transfer of TFSA money works. Haven't heard anything official from Old Mutual, but the other side of the fence seems convinced the money has arrived.


Khuliso wants to invest in the Multichoice BBBEE shares, Phutuma Nathi.

I intend on purchasing some shares when I rebalance my portfolio in the third quarter. My motivation for buy is good dividend yield. Would you recommend or be against such a plan?

How are they different from ordinary shares?

What benefits do they offer that ordinary shares don’t offer?

How should you think about them in your overall share portfolio?


Frederick has a few hundred thousand left over after selling his house, paying his debt and stashing money for his emergency fund. He’s not sure what to do.

He wants to put it in a flexi-fix deposit account with Standard Bank, and get a fixed interest rate of 8,8% per annum back. Money is guaranteed and growth is also guaranteed.

It’s always important to remember that these decisions don’t have a one-size-fits-all answer. The best course of action depends on:

  • Your investment horizon.
  • What you want the money to do.

If you know how long you have and you need to know exactly how much you’ll have at the end of the period, then a fixed deposit is a way to go.

If you would just like to grow it as much as possible for as long as possible, maybe an ETF is a better option.

If you don’t have anything saved for retirement, maybe you put it into an RA.


Nitesh and his wife earn a good income, but they have three kids in private schools. He wants to know what the best way is to create wealth in his situation.


John is 70. He has a fixed return investment that’s about to pay out. African Bank is offering fixed term accounts with 10.5% and 12.95% interest. He wants to know if he should be concerned about counterparty risk.


Jaco asked for some clarity on the spending ratio.

To get your spending ratio, you divide the money you put towards paying off debt or savings by your after-tax income for the month. I know it is technical, but isn't this a savings rate rather that a spending rate? If I put R15 towards savings on every R100 I am earning, I am not spending 15% but rather saving 15%? The spending ratio will be my total monthly/yearly spent against my income.

- You're right on this one!

From Manage Your Money Like a F*cking Grownup

"Take your expenses for last month. That's all the money you spent (not money you saved or used for repaying debt). Divide that by the amount you earned that month. Multiply it by 100. This number is your spending ratio.

This number is the proportion of your income you're giving away to other people and businesses. It represents the percentage of your time that you spend working for clothing companies or for your landlord, or for your bank, and not for yourself."


Soobrie is moving their TFSA to Easy Equities.

I have three years' of allocation in the tax free savings account with the Nedgroup Core Diversified fund. I'm planning on moving it into EasyEquities. Which portfolio should I choose as I can leave the money invested for another five years?

They also have 13 ETFs with etfSA and want to know if they should consolidate.

ETF: Should I consolidate my ETF portfolio?


Ben has four ETFs in his tax-free account and wants to know if he should add one for dividends.

Dividends are taxed at 20%, while you'll never pay more than 18% CGT even in the highest income bracket. For that reason dividends are awesome in a tax-free space. The real issue is, what product do you buy?

Jun 3, 2018

 


Interest is a strange thing, because you could at any point be earning it and paying it. In fact, if you have a credit card you could be earning and paying interest in the same bank account.

Tharina has taken steps to get her financial house in order, but she has a dilemma. She has a sum of money earning interest, and she owes a sum of money on which she is paying interest. Should she be using the one to pay off the other?

The answer can either be very easy, or very complicated. We discuss her options in this week’s episode.


Win of the week: Pieter, who has his estate planning situation on lockdown.

My wife is currently a stay at home mom. We have two kids and twins coming. There is a plan for her to go back to work at some point, but currently this is the configuration that works well for all of us.

I am contributing monthly building up a lekker EM fund. I am planning moving the entire thing into her name. I know you mentioned "What about divorce", but honestly she is not earning currently and if something happens to me she needs to be able to hold down the fort.

So our plan is as follows:

Move EM fund to her name. Currently this is just a 30 day notice deposit at FNB.

This also means she does not have to liquidate some of her assets.

It does not have to be a year’s worth of EM fund, because I have proper life insurance.

They pay a R50,000 immediate benefit within 48 hours and the rest in about 2 weeks to a month.

He also has a death letter that explains everything.

P.S. Me and my kids do not mind the swearing. I'd rather they swear and know shit.


Tharina is pretty much on top of her finances except for a car loan.

I took out a car loan. Apart from my emergency savings, I have saved a decent amount to pay off my car. It is not the total amount due. The amount is being saved in a money market account.

Would it be better to pay off my car by putting the lump sum and extra each month into the Loan Account OR would it be better to save the total amount in my money market and then settle the car loan all at once?


Johannes just got a credit card. He’s very worried about it.

I am a 21-year old student and recently upgraded my FNB account to a Gold Account which includes a credit card.

My old FNB account was an Easy account which was R5.20 p/m, but I ended up paying anything between R100 - R210 p/m for additional "services".

I decided to stop that shit and upgrade an other account which is the Gold one.

I decided to take a credit card eventually. What is the best way to use my credit card? I know a lot of people use their credit card for day to day living and pay it off at the end of the month.

I know very little about all the rules/fees that apply to a credit card. How do I use it to my benefit and hopefully save money rather than paying FNB interest each year? I hope to build a good credit score.

I know some people earn a shitload of ebucks that they use for flights etc. Please inform me best on this as well. Some people suggest to pay your salary each month into your credit card and use that...I am lost and don't want to blacklisted.


Jane has something called a “last survivor” account. She wrote back after our death episode.

My husband and I have an offshore joint and last survivor banking account.  In the event of one of us dying the other one is the automatic owner of the banking account.  The bank just removes the deceased spouse from the account.

We have a HSBC account. Unfortunately my local manager was retrenched and now we only have one of the expat banking services.


Isaac is 22 and has his financial situation completely under control.

  • With regard to my TSFA, I have exclusively been buying property ETFs and own the Coronation property fund. Since REIT dividends do not qualify for the usual dividend exemption, the best utilisation of the tax saving would be for REIT dividends which are taxed at a person's marginal rate from the first cent. This is opposed to regular dividends, CGT and interest (first R23800 tax free). What are your thoughts on this? Am I overthinking this?
  • If you sell and buy ETFs often in your TFSA, will SARS deem your intention to be revenue in nature only for ETF's in said TFSA or for all TFSA's in general? (thinking that this might be a sneaky way to day trade tax free. Not that I would day trade, but I like the thought) SARS doesn’t care what you do in your TFSA accounts. Since there’s no tax in those accounts it doesn’t matter if you trade for income or are a long-term investor.
  • I own a small amount in a huge number of ETFs. Is this problem? If it is a problem, should I rebalance and incur some CGT? Remember your CGT is tied to your marginal rate, so if you want to go this route, do it now before you start earning real money. Or just pump money into preferred ETFs and leave the rest as is? (I see an IPO and can't help myself)
  • With regards to Simon's comments on the three year rule and resetting base costs of investments (section 9C): The act provides this section to ensure that investors actually invest as opposed to speculate. Since it is explicit in the act, surely SARS won't penalise the taxpayer for making use of it? Eventually they'll catch on and put in an anti-avoidance provision?

Wim has two RAs and wonders if he should be moving one.

I have a Momentum RA from my employer, which is pretty much compulsory, but I have no issue with that because my employer matches my contributions.

Then I have a Sygnia RA in my personal capacity from before. Would it make more sense to move the Sygnia one to Momentum or not? Also, I feel like I am paying too much in fees. Which RA has the lowest fees? I obviously don't want to withdraw the funds due to tax. Moving them from RA a to b is tax free.


Gerhard checked out Brightrock for life insurance and he’s very pleased.

A while back I asked about life insurance and you suggested I look at Brightrock.

I have and for a product that I am comfortable provides me roughly the same as I had before I am paying R1,200 where my liberty costs were 1,650 before.

This is a massive saving.


Jacques saw a life insurance ad that promises free money. It’s a life insurance product that invests either your entire premium (if you’re under 30) or a percentage of your premium in a money market index fund. (Think TRACI). After 60 premiums you get 10% cash back.

Check out the company here.


Thanks to Londwa for sending a great video about swearing.

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