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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: July, 2018
Jul 29, 2018

I’m finally doing it. I’m buying a house. I’ve had a cold winter and I’m finally accepting I didn’t turn out to be a jetsetter who lives in luxury hotels around the world. Clearly, this isn’t a financial decision, but it doesn’t mean I can’t be smart about what I’m doing.

Here’s what I have so far:

  • I’m looking in the price range of what I’m currently paying in rent in an (almost certainly futile) attempt to contain my cost of living. This is yet another reminder of the benefits of renting. In buying, I’m banishing myself to the outskirts of the areas I love. Everything in my range is tiny, most of it very old. I knew it all along, but it’s good to be reminded.
  • It’s very hard to compare units. Even in the same price range, they differ by age, by size, by area. I’ve decided to use cost per square metre to help me figure out if something is cheap or expensive. This makes it much easier to determine value.
  • I’m only using half the bond amount I actually qualify for so I don’t find myself strapped for cash when there’s a special levy or interest rate hike.
  • I’m terrified. While I’m perfectly capable of multi-year commitments, I don’t like to be reminded of it upfront. I guess I’ll just have to get over it.

This is the Mister Money Moustache article I mentioned.


Win of the week: Sean, for editing our swearing and for making us a spreadsheet. He, like many other people, disagrees with Simon’s view on tax-free investments for kids.

TFSA numbers_Spreadsheet

I understand kids might use the money to buy a car or holiday and can never get that allocation back.

The other side of that coin is that a TFSA started at birth creates generational wealth. You can set up your kids to never have to worry about retirement regardless of their job. Or ideally pay it forward to their kids (ie only save R500k per kid) for them to retire young (best case 38!!).

Isn’t it better to try your absolute best to educate them on the value of TFSAs and retirement? You have a whole 18 years to get it done before they can take control of their TFSA (dead means longer than 65).

I know TFSAs are not and should not be viewed as vehicles for things like education etc. But as a “pay it forward” vehicle its pretty magic (assuming you can educate your kids).


Francois is wondering about the impact of dividends on tax in offshore total return ETFs.

I've been comparing the two MSCI feeder ETFs from Satrix and Sygnia. The Satrix one reinvests the dividends, and the Sygnia one pays them out. They are both about a year old.

Instead of paying out the dividends, the Satrix ETF will simply raise the ETF price by the dividend amount.

I can only see this if I overlay the STXWDM and SYGWD charts, squint, and use plenty of imagination. A year is a very short timeframe to see a difference, so I've searched for SENS announcements for details on if and when this has happened. Will there be any info on this?

The Sygnia one has paid out dividends twice since inception. According to the June SENS, you were exempt from local dividend tax both inside and outside a TFSA. This is because the foreign tax amount, which you always pay even in a TFSA, was larger than the local amount.

It seems unlikely that Satrix will have a different price inside a TFSA, even if they had to account for local tax after raising the price a hundred times. Can the situation change if our dividend tax went up to say 25% and start exceeding the foreign amount? Ignoring the difference in TER, it would then be better to hold the Sygnia ETF in a TFSA, wouldn't it?


Gerhard has a great tax tip.

Many people don't submit their monthly RA contribution amount to their HR / finance department at their place of work. When I ask why, they say that they enjoy the bonus they get from SARS when they submit their tax return.

The benefits I see for supplying this info to your employer:

 - You get the tax break upfront

 - You don't save your money at SARS over an average period of 8.5 months not earning any interest.

 - You can increase your monthly RA contribution without affecting your pocket, for example:

You can only afford R1000 pm for an RA, if you submit this amount to your employer and you are taxed at 25% then you would get an increase in your net pay of R250. Now you can actually pay R1250 instead of R1000 into your RA or R250 into an ETF.

 - If you have a dispute with SARS or they delay the refund, as sometimes happens, you already received your tax rebate throughout the year.

I see no reason why an employer can refuse this if you have the proof of your contribution.


Robert found a sustainable farming investment website, which is kind of like the cows website we discussed last week.

They sort out the insurance and the administration on your behalf and claim to offer an internal rate of return 12% and 16%, depending on the investment you choose.

They also mention on their website that there is a tax benefit and that you can write off a portion of your asset in the first tax year. Sounds a bit like you need to be a tax guru if you ask me.

It will be great to get your thought on this. It feels like a new hipster and responsible way to invest, but is it wise? It might be a unique way to diversify?

The one option is berries, the other is solar energy, the other is beehives.


Vincent is curious about counterparty risk at African Bank.

I compared Capitec, RSA retail bonds and African Bank. I am fully aware of what African Bank went through, but having a look at their investment options I think it's viable given that the SARB has a grip on them.

They have no management or administration costs and no fees on withdrawal. Everything can be done online or via phone.

Their tax-free interest is quite high and they have two other attractive products: [Access Accumulator - 12 months [8.2%] & Fixed deposits - 12 months [8.45%].

I seek to keep the Access Accumulator and Fixed deposits short term; but I'm not sure of investing a third of my maximum Tax-free contribution to African Bank, because where will they be in 20 years time when I want to withdraw my TFSA portion?

I don’t recommend that you use your tax-free savings account for cash investments.


Edwin has a great question about the last big purchase we can make before we retire.

At some point before retirement we probably have to buy our last big-ticket items e.g retirement home, retirement car.

If I want to spend my retirement exploring the bush in a 4x4, I must purchase my last 4x4 with my savings before I retire.

If it’s a good car it will be affordable to maintain and reliable so I would be looking for that car to stay on the road for the next 10 to 15 years as a minimum. Hopefully it lasts forever.

The problem is that if I buy a cheapie it may not last all that long and break down...or I could discover that I really don’t like it and would have preferred to buy a more expensive car when I had the money. By then it is too late to change my mind. I would already be a pensioner.

Are we better off stretching ourselves when younger to buy something slightly better, but that will serve us better in the long run?

I want to drive a Range Rover in retirement, should I sacrifice the savings while still earning an income? Should we be making provision for our last “big ticket items” before retirement. Or is this a trap?


Mbasa wants to know why we’re limited to R33,000 tax-free contributions per year. Why can’t we max out the full R500,000 allowance at the outset.

Jul 22, 2018

 


Marriage is a long-term commitment to build a life with someone else (among other things). A wedding is an expensive party. This week Dr. Woofington Von Barkshire wants to know if we think it’s a good idea to spend money on an expensive wedding when you have debt and not very much money. We don’t.


  1. I have to buy a ring of the engagement type due to the expectations of my 6yr girlfriend (the time we have been together, not her age). I don't think it’s the right time to get engaged. But she is a year older than me and feels that is a life imperative to get engaged. I estimated the cost of a ring to be like R25,000.
  2. I need an emergency fund.
  3. I need to start saving for retirement. (RA and tax-free savings)
  4. I need to save for a wedding which I need to finance myself. Her parents are poor and my mother needs to save for retirement. She also has study debt (R110 000) and car debt (R120000).

My options are:

1. Defer the engagement until I am in a financial position to afford a wedding. Save on the engagement ring insurance and earn interest on the cash (savings of R30 000). And endure the fights about not being married/engaged.
2. Sell all my shares and try to do a budget wedding. He has R45k in shares.
3. Get debt to finance the wedding. I hate this option. But it is an option.

If I chose to defer engagement, should I sell all my shares and rather invest them in ETFs? Should I, instead of saving for wedding etc, assist my girlfriend in paying off her debt? Which will then quicker enable her to help me save for the wedding? Should one still get married, even though it is a bad financial decision?


Win of the week: Roland made a commitment to paying off his debt.

I am starting to pay off my debt and aim to make use of 2% of my increase to pay off more debt. I am planning to pay off one account and roll over that amount into the next account and so on. This is what I did. It’s a great strategy because of the immediate feedback.

Based on my calculations I should have all my debt excluding a car loan paid off by Jan 2019. Would it be best to pay off the car loan and close off all debt or should I keep some accounts to keep my credit score up?

https://justonelap.com/podcast-should-i-save-or-pay-my-debt/

https://justonelap.com/podcast-upping-credit-score/


Justin sent a message about cutting his losses. At the end of the message he says, “It was great being able to type swear words. Sorry to Sean for the extra work!”

A couple of years ago I started investing in shares. I was in my late twenties and having accumulated some money to invest I thought I would be brilliant at choosing my own stocks.

I got input from the team at the trading desk, but mostly my own decisions. Two years later I’m not even dreaming about growth in the investment, and rather sitting at around 25% down.

A large portion of this is due to Steinhoff (thanks Markus, you doos), but most of my shares are firmly placed on shit street. I have a knack of buying when shares are at their peak.

I have done waaaaay more research and know that ETFs are best for me. If fancy private bank traders can’t beat the market, it’s a lag that I thought I could.

But now I’m stuck with the predicament of actually realizing the loss. Does it make sense to take it on the chin, sell it all up and buy ETFs now, or should I ride the storm a bit? I would of course not like to sell at the bottom either!

Some of the shares include: Mediclinic, aspen, Steinhoff PSG and Steinhoff African retail (GREAT combo!), reinet and Ascendis.

I’ll probably hold on to the Steinhoff just to keep me humble. But also - who are the madmen who would buy this share from me?

Any advice would be greatly appreciated. I know I am young and can at this stage afford the knock. But holy fuck id like to minimize it.


Chris has a question about dividends tax on offshore investments within his TFSA.

I managed to pay off my debts recently and now have an investment portfolio which still small but starting to grow. My current strategy centres on maxing out all saving incentives which SARS gives and thereby minimising the tax payable on my salary and investment returns.

I'm currently able to put 27.5% of my salary into my company pension scheme and max out my tax free savings allowance every year. Any further savings is put into a global equity etf investment.

I would like to increase the portion of my portfolio in global equity, however from a tax perspective, I believe it's most efficient to buy a top40 or local property tracker in your TFSA since you get the double bonus of no capital gain, and no dividends tax, whereas a global etf will still incur dividends tax abroad (I.e. in whatever country the underlying companies are registered in).

Is this thinking correct, or shouldn't I be worried about foreign dividends tax in a tax free account?

Note: my underlying assumption is that the top40 will return roughly the same as a global equity tracker in the very long term (20+ years).


Jaco wants to know what we think about cows as an investment strategy.

You can invest into a pregnant cow, a calf or a portion of a cow (I think this is called steak). You earn income from the sale of the calf and help cover its feeding, medical and insurance costs. You can pick on which farm do you want to raise your cow and it looks like you can even go and visit!

I'm curious if anyone who listens to the podcasts is dabbling in this? It certainly makes much more sense than "investing" in bitcoin…

This is from the Take Charge of Your Money blog:

Invest in a calf (or in a portion of a calf if you cannot afford the full cost)
Help it grow by paying an all inclusive fee for feed, insurance & veterinary expenses
Share in the rewards. On maturity Livestock Wealth buys back the grown cow and you will receive an annual payout based on the collective sales on the farm.
The current projected ROI (return on investment) is 12.4% and is fully explained in the FAQ page.

You need to pay fees twice a year and receive a payout once a year.

https://takechargeofyourmoney.blog/2018/05/14/holy-cow-what-an-investment/


Christoff made an excellent point about Margaret’s question last week. She was worried about counterparty risk and the potential pitfalls and benefits of diversifying by supplier.

As you and Simon stated, the probability of a big, well-known RA company to go bust is very small, plus your holdings there will just be moved to someone else to continue administering your investments.

The one thing not mentioned was the sliding scale for fees by a lot of these RA providers. If you have all your investments at one specific company, you can end up with much lower fees (for example first million is at 1% annual cost, the next million is at 0.85%, etc)


Rakgomo wants to know how to invest in ETFs.

I want to invest in ETFs but I don't know where to get them, or even trade them. may I get some guidance in getting access to ETFs and where I can trade them?

Jul 15, 2018

The phrase “all their money” gives me the creeps. Throughout my life I’ve heard that line followed by something completely ridiculous. Some examples:

  • “He made all his money from property.”
  • “They made all their money from GNLD.”
  • “He made all his money from farming.”

The phrase also goes the other way, except this time it’s true.

  • “They lost all their money when their business failed.”
  • “He lost all his money in property.”
  • “They lost everything in an investment.”

The key message I got from Simon’s recent conversation with Charles Savage is that users remain uninvested because they are afraid of losing all their money. The bigger problem is that people misunderstand what the stock market is and how you make money from it.

In this episode, we attempt to explain how you make and lose money in the stock market. We follow that with why it’s very unlikely that you’ll make, or lose, ALL your money by investing.


Win of the week is Shane, for sending my favourite email of the week.

Just wanted to say - this morning's podcast was terrific! Busy researching into a shared Credit Card for myself and the missus.

Whilst we have been VERY good at mindful spending and savings, we just found out we're (unexpectedly) expecting an addition to the family 😊

Time to step it up a notch... BIG TIME.

Thanks for all you do!


Margaret wants to diversify for counter-party risk. She has investments with Sygnia and Allan Gray.

Is it better to have more money in fewer funds (to increase the power of compound interest) or have the money split over more funds/management companies to decrease the risk? Sally had a similar question this week.

Is there a rule of thumb for how many funds you should be invested in to manage this risk reward? How do you resist trying out several funds given the abundance of options?

In America they talk about investing all their money with Vanguard or in a S&P 500 fund. Here in South Africa with scandals like KPMG and Africa Bank I'm not sure I'm comfortable with having all my money managed by one company and/or one service provider.

How big is the risk of fraud/mismanagement given the regulation of the industry? I.e is it fine if I stop the debit orders to the managed funds and put them back with Sygnia?  Or should I go with another index tracking company such as Satrix?


Derek is about to retire and unsure how to choose a living annuity. He says he won’t take what we say as financial advice because he doesn’t trust people who don’t like to braai.

I need to decide in which Living Annuity product to invest.  

I naturally would favour an index-based LA for low fees and comparative net returns.   

I have convinced myself that a Medium Equity Living Annuity (CPI+5%) would best suit my personal risk profile; and allow a sustainable 3% draw-down while keeping pace with inflation and costs.

I notice that there are substantial differences in the net returns of the Living Annuity portfolios that are currently on offer.  

Direct comparison is complicated by the fact that the performance numbers are sometimes based on theoretical (back-tested) data as opposed to actual results.


Mbasa wants to know if it’s cheaper to buy ETFs at your ETF provider like CoreShares or Satrix.

When you buy shares directly via Computershare you only pay broker fees when you buy or sell, unlike having an account with a broker where you pay monthly fees e.g. Standard Bank online share trading.

I think my question is, is it better to own ETFs directly from the provider such as Satrix or Coreshares instead of buying via platforms such as Easy Equities?

TER

https://justonelap.com/etf-understanding-ter/


Danie has some feedback on Capital Legacy that Sephatisile wrote about.

Just a correction on the Capital Legacy information.

We use them a lot, but, they do NOT pay your Estate Duty upfront.

They offer an Indemnity Plan that "effectively indemnifies the costs of the Executor & Trustee services as well as Conveyancing Attorney fees that are necessary to wind up the deceased Estate."

This is a very unique and cost effective solution to estate planning, especially when kids are involved, or complex wills need to be drafted.


Patrick is earning dollars. He wants to know if he should keep them or bring them home.

I am earning US Dollars. I’ve already invested some of the dollars into an Allan Gray unit trust account and was wondering if I should keep in dollars or send money back to South Africa and invest in a unit trust there.


Anthony almost dethroned Shane for the win of the week

While listening to the radio one morning I came across an advert about a company called VeriFi. It's an online tool that provides you with an immediate and up-to-date overview of all your life insurance and investment policies. It does this by sourcing information from all the major life insurance companies – including Old Mutual, Sanlam, Liberty and others. The information is presented in a comprehensive report.

https://www.verifi.co.za

I did all the formalities and wanted to see if there was a better RA with low fees that they could offer.

They offered me a Liberty Retirement Annuity Builder for R1000 p.m

Thanks to you guys I SCRUTINISED this policy to see if I was getting ripped beyond repair.

They even threw in a compound interest table (with an assumed growth rate p.a of 10%) to see where I would end up in 35 years’ time. How fucking kind of them.

This compound table didn’t take into account admin fees and performance fees and advice fees and service fees and ongoing guarantee fucking fees and management fees and ongoing commission recovery fees.

ALL I SAW WAS FEES FEES AND MORE FEES

So, the quote from a fellow listener came to mind:

“It blew my mind that if I get 10% growth and inflation is 6%, there is only 4% left for growth (compounding) and if I pay 3% of 4% in fees, I will only get back what I put in (adjusted for inflation).”

The fees totalled close to 6%

Not to mention the ongoing fees, performance fees AND the service fees which are excluded.

I had to read this policy with a  bottle of whisky to numb the pain.

I’ll stick to my current RA with Discovery, for the time being as my life policy is linked and all – not happy about all the boosters and links etc…

But it made me feel happy that I’m not going to get ripped by these ridiculous fees presented to me.

Jul 8, 2018

 


Crushed under the weight of debt and desperate to get out, a younger, dumber version of me would often resolutely put money away - either toward debt repayments or honest-to-goodness cash. As often, I would have to cover some unexpected financial event (some more legitimate than others) and my resolution would dissolve. Eventually I’d accept I’m bad at saving and give up. It was easier than living with failure month after month.

For most people, repaying debt and saving at the same time is impossible. Just like we want to be rich right away, we want to sort out our money right away. Resolution is the work of a single insight, so a systematic solution is frustrating. Sadly, implementation happens payday by payday.

Sean asked, “My wife and I are going into our 30s and have no savings other than our provident funds and RAs.  We earn a net income of R28,000 and have R10,000 debt in total. We can’t afford to save more than R1,000 a month.

Whenever we save, something seems to go wrong and we use that savings to bail us out. We never go out or get take aways. The last time we bought new clothes was three years ago so we look like hobos. Our cars are fucked and we can’t replace them because there is no extra money in the budget. My wife and I don’t drink, so there is no wastage there.

I’m not sure what we are doing wrong.”

In this episode, we discuss what Sean might do differently.


We have two winners this week. Both win because of the homework they did.

Sally did a lot of legwork to understand an interest payment amount. She deserves a win for that.

I changed my debit order date (on my home loan) recently. I wasn't aware of this, but apparently if you do that they charge you interest twice.

She did a lot of investigation, calculations, eventually got in touch with her home loan provider and discovered the following

Because you change the debit order date,  they work out the interest you owe from the original date until the date you change it.

Then they calculate the interest again on the day after your new debit order date.  

Together they’ll make a month’s interest.  So they do charge you twice, but not double.

She deserves to win, because:

 

  • She knew immediately that two interest deductions went off her account.
  • She did her own calculations.
  • She wasn’t afraid to ask for clarification from her financial institution.
  • She really loves horses.

Nadia wrote us in the financial crisis episode to ask if she has the right exposure in her ETF portfolio. I sent her a link to the article on the six questions to answer before you buy an ETF. She did that, sent me her answers and in the process read up a lot more about the ETFs she holds. I’m very proud.


In the episode on preparing for a financial crisis, we spoke about Sanlam dangling a carrot for Wim to keep his RA with them. Brett wrote to explain how the echo bonus works.

I started an RA with Sanlam at the age of 22 which was based on their Echo bonus feature.

This means that all contributions that I made to the RA during its life would be tallied up and given to me at retirement on top of all my investment returns and original contributions. This bonus sounded great, but of course the fund had fees of 3.5% per year, and I am sure you know how the rest would go.

I did some calculations on this and wrote about it in the following article (although I did not name the fund):

http://www.etfenthusiast.co.za/2016/08/fees-matter.html

Sally also has experience with the Echo bonus. She currently has that RA, as well as a 10X one because she didn’t have enough invested in the Sanlam RA to qualify for a transfer.

If I assumed the same rate of growth and contribution from my side, to just compare fees between the two, you pay less fees at 10x (as expected) and the fees at Sanlam are more over the entire term.

However,  because of that Echo bonus,  the end amount I got from the Sanlam RA was similar to the 10x one with the reduced fee.  

That was my situation specifically because the Echo bonus works on how long you are invested with them and all that (the longer you are with them, the higher your percentage).

You miss out on the compounding over time, but at the end of the day, it was much of a muchness for me.  In the end I decided to just leave the two as they were, so I have two RAs now.


Sephathsile found a company that lets you pay estate duty upfront.

Last week I came across Capital Legacy. They offer free wills and promise to finalise your estate matters in 6-8 months with the option to pay your fees in advance as monthly contributions so that your family won't worry about it. They do a pay out to the family within 48 hours so that life can carry on whilst they sort out your estate matters.

https://www.capitallegacy.co.za/

https://www.zaqfin.com/


Gerhard is not loving property right now

I’ve managed to make some bad property investment decisions in my life – of the buy to let variety.

Then I thought let me try this listed property thing, as it supposedly beats buy to let over the long term, and I know you had some Magnus guy doing an insightful comparison on it.

So I am uncertain if his calculations still hold.

My challenge is simply to run this comparison again and see if it still holds.

As you can see below is the graph of the PropTrax TEN and I am no technical analyst but it is not looking pretty.

I would love if you could comment on what in the world is going on with it.

Is it okay to still hold it, I really do not want to climb out of it now… as I am far under water.


Phemelo is about to become a property owner. They want to know:

  1.       I am in the process of getting a bond, I was wondering which is the best option, obtain a 30 year bond and pay it off as quick as possible or get a 20 year bond and pay just the required instalment (something has got to give)
  2.       I am about to become a homeowner and I do not have a life cover, I would like to find out how does one go about getting a life cover for the bond. Do I need to go through the hustle of meeting 5 different brokers and comparing which one is better?
  3.       I would like to get an ETF that pays dividends, however I would like on whereby the dividend payout is invested in a tax free savings account, is this possible and with which financial provider?

Cyrus had to help a family member deal with debt. The process is frustrating, to say the least.

This is the second time you mentioned it (if I recall), in terms of supporting family. Today's mention was about paying off their debt with a low interest arrangement. Previous it was about supporting them if they are in the dwang.

So personal experience - we tried that. The supportive role. My sibling was at rock bottom - maxed out credit card, clothing account, less than R500 in cheque. So I went to town on his budget and came out with a STOP, START, CONTINUE plan.

Part of it was to financially support their essentials. I did not want to pay off their debt since I wanted them (sibling and spouse) to learn how to handle cash.

Things went south pretty quickly as I continually pushed frugality and it was not being met with my expectations. They were not keen on only eating peanut butter. I had a 10-point plan, and they were already challenging point 1.

The short of it is that another family member has bailed them out (with a low interest agreement), however I've stopped my involvement due to the anxiety and friction it created.

Family. Ugh


Stefan has some insights into the EasyEquities offshore accounts and the TFSA for kids thing.

My son is 2.5 years old. Shortly after he was born I opened his own EasyEquities accounts.  As you already know doing so gives you access to three accounts, TFSA, regular EasyEquities and also the USD account.

Every month I add to his savings, but I split it between TFSA and regular EasyEquities, so either half-half or one month I do TFSA and the other Regular.  

If need be, funds from the regular account can be drawn for things like an education, car, etc in about 18 years. We won’t have to tap into his TFSA and we can let that run until he retires rich one day.

I know there will be a tax hit on the regular account so perhaps I have not chosen the best way, but so far this has been easily managed and efficient.

* Then re the USD account with EasyEquities.

A few weeks ago I logged a ticket with EasyEquities and managed to get some clarity.  The EasyEquities USD account is real money sitting in a bank account in New York so it i’s proper offshore  cash.

EasyEquities does have an easy way to get the cash offshore. You put cash in your regular account and then you can send the desired amount to your US account. |The spreads are wide, though.


Hendrik's awesome spreadsheet is at the bottom of this post.

What is the best way to manage payments and investments between spouses?

Me and my wife each have our own accounts where our monthly debit orders go off.

We also have a joint credit card which we both pay into and use for our day to day expenses (and greenbacks of course, which covers our monthly electricity).

Because we pay a set amount into this card each month it serves as a budgeting tool for our day to day expenses as well.  

We use 22seven to track all our expenses and determine our monthly surplus, which we then split between her TFSA (mine is maxed out for the year), a retirement annuity and paying extra off on our home loan.

I figure that I am guaranteed a saving of 10% interest on the home loan and it serves as a good emergency fund as well. When it is paid off I will save that portion in ETFs/shares as well.


Fred wants to know if there’s a scenario where hyperinflation and exchange controls could lead to South African-based funds that invest offshore could be prevented from trading or shut down.

Free financial calculators

Jul 1, 2018

Dhiraj asks us to defend our index-tracking strategy in this episode. It’s hard to do when the theory works but the practice hasn’t delivered the goods in four years. At this point I can only cling to the success others have had with this strategy and hope.

Even index-tracking product providers are increasingly offering products that will give investors an opportunity to outperform the market. The index weighted by market capitalisation has turned into the ugly stepchild that nobody wants to talk about anymore.

Nobody ever knows WTF is going on in the stock market. Lots of people pretend they do, but since they all keep showing up for work instead of retiring in the Bahamas, we can assume they don’t. Maybe the market will do what it’s always done. Maybe we’ll look back at this period in our investment history, discover the yodelling goat formation and know this is when it all ended.

The index-tracking strategy makes sense to me for all the reasons Simon and I discuss in this podcast. However, when that stops being true, I will jump ship. I am not a salesperson for the ETF industry. I’m an investor, and I want to see my money grow above inflation after fees by any means at my disposal.

That said, I also know pivoting an investment strategy every time I don’t feel I’m making money is a surefire way to incur costs. When I got into investments, I knew anything less than five years is not an investment time horizon. Since I’m only at four years (and, to be fair, I’ve pivoted my strategy a few times already), I’ll hold out and see what shakes out.

Dhiraj shared a video.

You make a case for investing in a broad market index fund over the long term for cost effective wealth creation?

This Youtube video makes a case that one must study the intricate details of the share markets and invest in selected shares for best long-term risk/reward trade-offs.

It provides evidence that there have previously been extended periods where the S&P500 produced zero returns.

How would you counter his views on index fund investing?

Christiaan wants to know if it’s a good idea to have his entire portfolio, including his pension fund, in index-tracking funds.

I am a teacher. Through work we are forced to have a pension fund with the ‘Green Monster’. They have recently brought out a Balanced Index Fund with fees of just 0.30% p.a. It’s invested in the FTSE/JSE Capped SWIX Index Fund, which I have never heard of, as well as the expected bonds, cash and property.

Is it a good idea to have all my retirement assets in these, including my company pension fund?

Lady Kabelo isn’t sure what is passive and what is active in unit trusts.

I have an Allan Gray unit trust, and I'm looking to shift towards ETFs. When we talk about actively v passively managed funds, I think of ETFs as passive and unit trusts as active.

In episode 75 Simon talked about being invested in passively-managed unit trusts. I'm no longer certain that my understanding of the distinction is correct. Could you explain the difference between an ETF and a unit trust, and how a unit trust can be passively managed?

Lloyd has a three-month old daughter and would like to know where to save for her education.

TFSAs don’t seem a clever instrument for education investment because it erodes the potential before the real savings kick-in from long term holdings.

What is a better vehicle for me to save for my 3 month old daughter’s education. I am more worried about high school and tertiary so perhaps the investment time could be 10 years or more.

I am thinking the right ETF portfolio. How should I set this up to be best positioned from a tax perspective?


Wins of the week: Dan Gobble wrote a word of encouragement for Mpho and Rinaldo.

We turned the corner at just about three-quarters of R1m in useless debt - not car or home loans. I am talking revolving loans, credit card debt and overdrafts from living expenses and starting a business, which promptly failed. Rinaldo is only dipping into it with his 140k :) We swallowed our pride and went to family for help, now all the debt is consolidated with my in-laws at a ridiculously low interest rate. And we are on track to have it sorted in two years.

Also Mbasa, who is FINALLY starting their TFSA journey in July!

What ETFs would you recommend?

I have a provident fund (unit trust) and an RA (10x) at the moment.

I’d like to invest in aggressive ones. Was considering the Satrix Nasdaq 100, Satrix MSCI emerging markets and the ABSA New funds Momentum – a combo of the 3.

What are your thoughts?

I recommend reading Six Questions to Answer Before Buying an ETF: https://justonelap.com/etf-six-questions-to-answer-before-buying-an-etf/


Christoff Gouws has a book recommendation.

There’s one book that I’m busy going through a second time, because it’s one of the best books I’ve read on the topic of wealth building:

The Simple Path to Wealth - J. L. Collins 

Like you (Kris), I’m not one for active investing and trying to beat the market.

I like my Index Tracking ETFs and the amount of effort it takes to invest this way - nearly zero!

Jim Collins makes a great case for keeping your investment strategy very simple.

He proposes a one-index-fund strategy during your wealth accumulation phase of your life and a two-index-fund strategy during your wealth preservation phase.  I like that – as simple as you possibly can make it.

The book also shares a lot of fundamentals about how wealth gets built and destroyed (compounding working for or against you, opportunity cost, etc), explained in very easy to follow layman’s terms.

Edwin is able to answer Ross’ question about what would happen if we turned into Zimbabwe from personal experience.

My Dad worked over 30 years in Zimbabwe and did very well in his career. Company and personal retirement contributions were paid directly into Old Mutual in those days. With his retirement savings and various assets he was able to retire at age 45 with 3 children still to complete University...and he did! My parents had succeeded in giving us a wonderful upbringing, while planning frugally for the future.

Then hyperinflation arrived...

His life savings which, in a normal economy, would have been sufficient to sustain him forever diminished in value as the Zimbabwe dollar devalued.

When the economy moved to adopt the US dollar as legal tender in 2009, my Dad was paid the princely sum of USD250 by Old Mutual. Equivalent today to R3400. Still 3 kids to put through University and still needing to sustain oneself till death. This was a crisis and he had to come out of retirement and rebuild his financial well-being at age 50. It was heartbreaking.

My advice to Fat Wallet Show listeners with regards to financial apocalypse is as follows:

  1. Make sure you diversify some of your liquid assets outside of South Africa. When a loaf of bread costs 1 quadrillion Rand, it is handy to be able to bring USD$10/month back into the country so you know you can eat
  2. If the economy starts to deteriorate very rapidly e.g. Rand goes from R13/$ to R130/$ in 12 months, get into cash very quickly
  3. Convert that cash into hard currency very quickly
  4. Find ways to limit your liquid cash outlay e.g. consider growing your own vegetables, reading news for free rather than buying a paper, using cards to transact etc
  5. Get out of paper "products" as soon as you can and get into save haven currencies as soon as you can

The Zimbo's experienced the apocalypse first hand. When it comes along it doesn’t matter how good you look on paper. All that matters is how much of a stable currency you have access to on a day to day basis. 

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