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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: 2019
Dec 29, 2019

Timing is everything in investing. If you could get the timing right on every single investment, you’d be rich before anyone else. What we want, in theory, is to put the money in when it costs the least and take it out when it costs the most. That’s it, really. 

Unfortunately it’s impossible to know for sure when that is. We guess, we try. Sometimes we get lucky, but most of the time we aim for the ballpark. In this episode, we help Nicole work out when is a good time to take her money out of the country. 

What we come up with is really simple: don’t do it when people are panicking. 


Nicole

I’m on board with Patrick's thinking. I’d like to move the majority of my discretionary money offshore. 

I've been waiting until I'd saved my first million so that I can use interactive brokers without large fees. 

I'm finally there, but I'm concerned about the exchange rate. I don't want to end up like the person Simon mentioned who waited 13 years for it to get back to the amount at which they took it offshore. If we assume South Africa will be downgraded in April, do you think the currency will recover at all before then? Is it just a generally bad idea to take it offshore between now and then?



 

Dec 22, 2019

Why is it so hard to talk to family about money? Shouldn’t the people who love and care about us most be most open to what we have to say? At our live event in Cape Town, someone wanted to know how they can convince their family members to think like them about money. We said it’s impossible, but Ivan disagrees. If this is a problem you’ve been longing to solve, you don’t want to miss this episode.


Ivan

I listen to the Dave Ramsey Show podcast.  

On one of the shows someone asked the exact question on how to get his wife on the same page financially.  

The response was to talk to him/her about their “WHY”  He recommended talking to your loved one about what they want to achieve in life and showing them how saving now and sacrificing in the short term can help him/her achieve that dream. 

I thought long and hard about this. With the financial info I had from my father’s affairs made a spreadsheet and powerpoint presentations. I started walking him through the baby steps with a whole comprehensive list of “why’s” he can achieve once he has reached the baby step 7.

I pitched the idea to my father. It gave him hope to change his behaviour since there was a reason and a plan to change his behaviour. It is still early days and it takes effort to remind my father why he is not spending on a credit card anymore, but there has been changed behaviour from his side. This has impacted his finances and his sanity since he has a plan for the future and his life.

Talking about WHY he does things now has changed a lot of elements in his life.   I understand that it might not work for everyone but maybe it can work for other people as well.



 

Dec 15, 2019

If you know you'll be leaving the country for good in the next few years, should you invest your money or keep everything in cash? In the first of five mini Fat Wallet episodes, we help Karlien think through some options.


Karlien

Your show gets me excited to invest, but I'm at a weird place right now. 

I'm getting married next year and then we want to immigrate to the Netherlands because I'm a Dutch citizen. We aren't very likely to return to SA permanently. I have no debt and I'm currently saving for the wedding and our big move. 

Considering our imminent departure in the next year or two, should I be investing in something like a TFSA or ETFs now, or should I wait until I'm on the other side? If now, how do I make sure I invest smartly considering our move.



 

Dec 8, 2019

The end of the year is a good time to take stock of how things went financially. At the beginning of 2018, Simon and I discussed our money resolutions for the year. At the end of last year, we revisited some of our financial assumptions

To wrap up our 2019 Fat Wallet year, we once again discuss our personal finances and which assumptions we’ve come to challenge throughout the year. For me, learning to relax is always a challenge. I spent a lot of money on a holiday and it took me a while to realise that my financial journey is only for me. I don’t need to justify my choices to anyone and if I want to spend a fortune on a holiday, I damn well will. 

I’m also starting to be a bit more sceptical of smart beta ETF strategies. After three years of writing the ETF blog, I’ve looked under many hoods and heard many explanations of why a particular investment strategy is simply perfect—on paper. With a market trending sideways for an absurd number of years, these strategies should have come into their own, so why haven’t they? Colour me weary. 

We will record a few, short episodes to ensure that you get your Fat Wallet fix throughout the holidays, but this is the last full one for the year. With that, we’d like to thank you so much for your support and participation for another full year. This show is community-driven in every way and wouldn’t exist without you. We appreciate every single download, email, tweet and visit.


Bleeped version is here.


Win of the week: Anna

I finally decided to start investing after listening to your show. 

I am starting by maxing out my R33 000 tax free for this year. 

While researching tax free accounts I came across an article on Stealthy Wealth "what these 9 experts hold on their TFSAs"

Simon holds Satrix prop 31.8%, Ashburton Global 1200 36.6% and sygnia itrix MSCI world ETF 29.5%.

I then decided to research the fund fact sheets of each one and noticed that the Ashburton 1200 and Sygnia itrix MSCI basically invest in the same companies just at different percentages. 

I'm totally new to this so what am I missing? Isn't that then just investing in basically the same product if their holdings are basically the same? What would the reasons be in investing in both these options?


Colin

My parents are reaching retirement age. They mostly worked government jobs and have decent government pensions. 

They have a portfolio of properties which is supposed to be their retirement income along with the pensions.

They’ve kept the bonds maxed and used the allowable tax deductions through the years really well.

Getting closer to retirement age, larger chunks of the bonds are getting paid up, as they are going to need to start drawing an income from it within the next five years. They are finding it more and more difficult to find enough deductions on the property alone to cover the profit.

Should they take the money out of the access bonds and put it into a fixed savings? At Tyme bank they’ll get 9.75% for 100k and the remainder with African bank where you get 9.2% on a two-year fixed deposit. (5 year fixed at 10.75%, but wouldn’t want their money tied up for that long this close to retirement). 

By doing this they’ll minimising the profit made on the properties as the interest paid will be much higher with the bonds still being maxed. 

To wipe out the remaining profit made, calculate what’s needed in RA contributions to have enough deductions to get as close to making a loss as possible annually.

If they're moving R2m out of the bonds/mortgages they're going to be paying tax on the interest earned in any case. So they could then just take 200k odd out each into fixed savings, 30k each into TFSA, they left with R1.5m sitting in bonds/mortgages. Come retirement they could just take the money out of the TFSA and fixed accounts to pay off the bond. Should they put a lump sum into a RA to offset the profit made? What would be the best way to mitigate the tax payable?


Emmanuel 

My wife and I have maxed out our TFSAs (ASHEQ and Satrix MSCI) and we are looking for the next best thing to do with the extra income.

  1. What is your ideal framework for extra income investment after TFSA? 

Normal/discretionary long term investments (ideally for withdrawal between 40-55, if it is favourable) and RA

  1. Did you ever find the answer to the tax efficient way to invest in RAs? Is the 27.5% the best option assuming emergency fund and other needs are in place.

He’s currently building his DIY RA on Sygnia. Here’s what he has:


Kyle

We systematically worked through our expenses and 30 minutes later, viola!!! A revised budget, with greens all around. The next step was putting the plan into action and one month later, most of the plan have been executed... which included amongst other things:

  • Cutting back on food budget (we don’t eat less, just buying more efficiently – Yes, 50% off Checkers meals is our thing now)
  • Changing bank account to Capitec – Full time (changing debit orders wasn’t as cumbersome as I thought)
  • Reducing airtime allocation
  • Reducing internet speeds
  • Paying up and cancelling ALL retails accounts
  • Changing to a cheaper gym
  • Driving less, reducing fuel allocation
  • Consolidating and changing insurance
  • Retirement savings remained the same (RA and TFSA for both of us)
  • Short term savings reduced by 80% (but we are still trying to save as much as we can, even with one income)

While the process is ongoing and it hasn't been easy, what I’m most grateful for is that bloody complex-as-all-hell budget spreadsheet.  

If you lectured Budgeting 101 to the masses, how would that lecture go down? What do your budgets look like? How is it structured? Excel? Paper? What are the must have categories or line items and do you do your allocations down to the R1 like I do or is it a little more of an estimate. Would love to hear your take on this one.

Dec 1, 2019

For the longest time I thought a progressive tax system referred to how we spend our tax money. Poor, naive me. It turns out that a progressive tax system means there’s not one tax rate. How much tax you pay depends on how much money you make. Your tax rate gets progressively higher as you earn more income. In a way, you pay less tax on the money you make first. 

The table below shows how your income is taxed. Unless you’re in the lowest tax bracket, you’ll notice a rand amount before the percentage you pay on your salary. When you multiply the highest amount in the tax bracket above by the corresponding tax bracket, you get to that rand amount. In other words, all the money you earned before you got to your current bracket is taxed at a lower rate. 

A good way to think about this is by allocating a lower rate to the money you earn first. Let’s say you earn R423,000 per year. This puts you at the upper end of the 31% tax bracket. However, since tax is progressive, you actually only pay 31% on everything above R305,850. In other words, you only pay a rate of 31% on R117,150, not on the full R423,000. 

If you earn R423,000 per year, you earn R1,185 for every day of the year. Your first R195,850 is taxed at 18%. For the first 165 days of the year, your tax rate is therefore 18%. We got there by dividing the upper end of the first bracket by your daily income. For the next 92 days, your tax rate is 26%. The last 96 days of the year brings your tax rate is 31%.

At this point you might notice there are 12 missing days in your year. Those are the 12 days the government gives you for free. Neat, eh?

It’s good to know the upper limits of your income tax rate, because income from interest or rental income gets added to all your other income and taxed accordingly. This affects your investment choices. If you notice that income from your investments might push you into a higher tax bracket, you can start making choices that might be more tax-efficient in the long run.



Win of the week: Chris

Please tell fellow SA’ns traveling abroad, that the Revolut App is amazing. 

You can transfer money into a wallet for 1.6% flat rate and from then on you pay zero fees. 

You can also order a card for around R80 , but if you have Apple Pay it’s not necessary as you can just link it. 

You pay zero fees per transaction and get really decent conversion rates. It’s much cheaper than any SA bank I’ve ever used.  


Martina

I have resigned from my job and October was my last month. I have been offered a scholarship to study overseas in Italy for six months. I have a small side hustle but will not be earning a stable income whilst I am abroad. I have no guaranteed job to come back to. However, I don’t plan on going back to a corporate environment again.

My work will pay out my pension fund which is through Momentum Funds At Work (which has not performed well in the last 2 years). Is it best to put my pension in a preservation fund or an RA? 

My understanding is that preservation umbrella funds should carry lower costs / fees than preservation funds and retirement annuities available to individuals, but  the Momentum preservation fund fees are 0.76%. and Sygnia Skeleton Retirement Annuity fees are only 0.65%.

I’m not sure if there are hidden fees and what the advantages are of putting it in a preservation fund vs a RA, besides being able to draw from a preservation fund before 55 as opposed to after 55 for an RA.


Charmaine

I heard that you can transfer your annuity from one provider to another for a fee of R650 or something. 

I don’t know if this is for living annuities only. If one has a RA with those money grabbers, there are high penalty fees.

What are the options? Shall one turn it into a living annuity and then transfer it?. Shall one draw 17.5% just to get the money out. I think if the value is less than R247,000 you can take all the cash, with obvious tax implications

What are one’s options if you are stuck in an expensive retirement annuity?


Frank 

I too have been looking for an offshore investment broker and was looking at Degiro as well. I just wanted to share that unfortunately there have been recent changes in regulations in the EU which resulted in Degiro now requiring its clients to have both an EU bank account and be resident in the EU. That said all existing non-resident clients can remain clients. So it looks like the door on EU based brokers is solidly closed and I'll have to start looking at US investment brokers instead.


Marco

We're currently putting at least R10 000 extra into our bond access facility. This is also essentially our emergency fund. At current projections, we should get the house paid off by late 2023.

My plan is to essentially arbitrage the interest on my house debt (8.9%) to fund a Tyme bank account that earns up to 10% interest. 

The plan would essentially be to stop paying R10 000 extra into the bond, but put it into 10 day notice Tyme bank account. If we started with what we have currently saved up, and put in 10K a month from now, we should reach 220K around early-mid 2021 with monthly compounding, and then it should start paying ~23K a year in interest.

Once this is achieved, resume paying the 10K into the bond as before, except now we have 23K a year extra to put into the bond, or an emergency fund that pays for 2/3rds of a TFSA every year (hopefully they increase this amount). If we put the 23K extra a year into the bond, we'll pay off the house by mid 2025(July 2025 ish), around 18 months after if we had just put the 10K a month into the bond. 

The argument could be made that we can pay the bond off earlier (end of 2023), but then we're left with no emergency fund at the end of 2023, and have to essentially build it up. The 10K plus the extra money freed up by not having bond payments would build it up faster, and assuming Tyme has the same 10% account, to build up the emergency fund to 220K(probably higher with 6 years of inflation to add to living costs) would take around 12 months.

Also, since my partner and I are married, double interest exemption can be gained per year eventually for the emergency fund. Although we really only would need around 220K for a 12 month emergency fund, so not enough to attract interest and dividends tax--we have no other interest earning amounts.

I know the adage, "time in the market is better than timing the market" holds true, and this plan would limit our RA contributions and TFSA allocations for a year or two, but the payout would be a chunky enough emergency fund that pays 10% p/a and would contribute 2/3rds of one of our TFSAs--not bad for an emergency fund.


Pieter 

Do I need exposure to local equity?

Assuming a 100% equity ETF portfolio, are there benefits to holding South African stocks in addition to global index ETFs? I know that the JSE has historically outperformed world indexes, but there is no guarantee this will always be the case.

I am not pessimistic about SA, but I want to be optimally diversified. I am already invested in SA by virtue of the fact that I earn and save Rands. Is there a reason to put those Rands into South African stocks, other than to bet that the JSE will outperform the rest of the world?


Marvin

I am a bit stumped and need some guidance.

My dad has finally reached retirement age 65, however, does not have sufficient funds to sustain my mom and himself through their life. He does do the odd job by this is not regular and cannot plan based on this income.

I’ve assisted them in paying off their flat (Current Value R 750,000) so all they need to cover is lights, water, rates and levies (R2,500.00). We have gotten their total living expenses down to R8,000 pm.

My dad’s RA is worth R 175,000.

His pension is worth around R600,000. When my dad lost his job 8 years ago, we stopped contributing to it as the odd private jobs he did went to living expenses and I felt it would be better they pay off their flat.

My dad is expecting an inheritance of ±R100,000.

They are both currently receiving a pension grant from the government.

Thankfully they are both still healthy and as kids, we have them on a very basic medical aid.

 I really need guidance as to what I should do now without putting their pot at financial risk.

My plan is as follows: 

  •         The flat is a large part of their retirement source and needs work done to the place. If we were to sell it in the future or rent it out, we would need upgrades. The plan is to use half the inheritance to upgrade and invest the balance. (At this point, I have no intention of selling the place, as they still need to live somewhere).
  •         Regarding the RA and pensions, my dad is keen to take the 3rd, but will this still be tax effective or even worthwhile?
  •         If we take the 3rd, we would then take a living annuity out for the balance, and invest the 3rd and balance of the inheritance (50k) in The SATRIX World ETF and only use this when the living annuity runs out. Else I saw Africa Bank is offering 10.75% on a R100k deposit for 6 years. This works out to an effective interest rate of 13.33% due to compounding. 
  •         Do I invest the 3rd and inheritance in a TFSA?

Tim

I have a query based on being penalized 40% by Sars for transferring equities and money from SGB to easy equities within the TSFA ring fence environment.

I was under the impression account transfers were tax free (we didn't withdraw the money and re-deposit)

Has anyone else suffered this injustice?

We have disputed it with SARS and have asked easy for help in the interim. 

Would be nice to know if we are a first or if the community has had similar issues. 


Lungi

I started listening to the podcasts two weeks ago and I pretty much listen to you guys all day, every day: at work, at home and while I'm jogging :)

One thing you have brought to my attention that wasn't even on my radar was the fees issue on my investment products. And boy did I get the shock of my life!

I'm currently contributing to an RA with Liberty and I have one with Old Mutual which I don't contribute to anymore. 

I also have a Pension Fund Preserver Policy with Liberty (which is currently invested over 4 investment products each with its own management fee). 

This afternoon I decided to look through my statements and found that I was being ripped off in fees for the current RA that I am contributing to.

I currently contribute R535 premium and according to my calculations for September 2019, after the monthly fees of R321.20 (over 2 investment products), only R213.80 actually goes into the RA. So basically, 60% of my premium goes to paying management fees. This is a very poor investment. 

  1. Will I be able to consolidate all my RAs and Pension Fund Preserver into one product so I can pay one management fee. Or is it better to diversify?
  2. I can only currently contribute R500 to an RA - looking at the fees charged by the companies, am I better off putting that money elsewhere till I can afford to contribute more? like in my Easy Equities Investment Account? Will other RA companies be able to get me a better deal than the one I currently have?
Nov 24, 2019

Whenever I hear from someone about to make their first investment (or take their first yoga class), I get a pang of nostalgia. I’ll never forget my first investment — the thrill, the terror, the sense of achievement, the self-rewarded grown-up badge. 

Fear was definitely the biggest part of it. True to form, I made it as hard as possible on myself by doing a single lump-sum investment. It was the biggest amount of money I’d ever had. Sending it into the unknown was nerve-wracking. When I finally made my first investment, an RMB Top 40 product via etfSA.co.za, my money disappeared for five days. Nobody had warned me this would happen. “Great,” I thought. “I lost all my money in the stock market.”

We dedicate this episode of The Fat Wallet Show to those about to take that leap for the first time. We hope to ease you through some of the scarier parts without robbing you of that first time feeling.




Kabelo 

I am able to save R10k a month. I have no clue where to invest. Seeking any tips to help me invest?


Win of the week: Brendon

I am currently debt free after three years of a hell ride trying to free up all my debt.

I am now at a point in my life where my partner and I have a combined amount of 21k a month to invest.

I am thinking about an emergency fund before investing as well as going the ETF route in a TFSA.

Do you think this is enough fuel in my investing engine?


Quinton

Should one rather invest in a low volatility ETF like the NewFunds Govi instead of a money market type portfolio with similar annual returns because of the tax implications. Are you investing in an asset which is subject to CGT instead of income tax? 


Robyn

I invested in six different ETFs in my tax-free account. I also mistakenly bought Woolies shares through my normal online trading account before I heard about the tax-free account.  

The brokerage cost more than doubled the cost of the three shares I bought. It was a rookie mistake but I know better now. 

Last week I received a tiny dividend on those three Woolies shares (a whole R2.69). I also own CSTOP50 ETFs, and Woolies is one of the shares within it. Should I not have received dividends on that?

Is it ok to use my online trading account as a savings account as it gives me 8%? I’ve been told that’s what I need to get on my investments to reach my financial freedom number.  

I’m not getting 8% on my ETFs, so I thought it better to put some cash into the online account instead of investing in flat lining ETFs.  What do you think?


Siphathisile

I was listening to  the "Keep your expenses low podcast" and I laughed because I know I'm a hoarder, I keep things because I always think "One day..." . 

I have this pair of jeans I bought with my first "hard earned money" when I worked over school holidays during my A Level holidays in 2005. Because I had been home for a while, I wore a size 34. A couple of months later I went to varsity and I have been size 30 to size 28 since. I kept my near-brand-new jeans because "one day...". Finally last Christmas I gave up and took them home to my mum to give away because clearly I was never going to be a size 34 in my life. 

Guess what, I'm a size 34 right now and am laughing at myself. But still, keeping that one pair of jeans would not have made much difference I guess.


Hazel

I have a dollar investment offshore in some sort of a Momentum insurance/endowment wrapper. I opened it years ago through 'financial advisers'. At that stage it was too daunting to do it myself. 

It has done nothing but lose money for the last five years and it has very high fees. I'm just trying to figure out how to move it to a low-cost tracker fund without incurring too many expenses. 

Needless to say they are not going to help me and I just want to be free of them. I'm getting pretty desperate! I do have a UK bank account, if that helps.


Terrance

If one has bought the same share every year for a number of years, does SARS use the average price to calculate your capital gains?

OR do you have to work it out in the bundles in which you bought them at that bundle price. This seems a messy and complicated way of doing it, especially if you have been buying the same share every month for the last 20 years. 


Hannes

I find the concept of buy-to-let properties is quite attractive. I recently had a discussion with a friend who wants to do exactly that in order to generate some basic passive income in about five years time. He’ll pay off his first small property, then buy a second one, supplementing it with the income from the first, etc. up to a point where the passive income is enough to cover basic living expenses (hopefully this makes sense).

What are good ways to generate passive monthly income from investments only. Right now buy-to-let properties still seems pretty good for this.

I'd like an apples vs. apples comparison between investments & buy-to-let properties for passive income generation.


David

I have attached an EAC calculation that I received from Discovery for a client. 

If Discovery's EAC over the term of the policy is - 0.10% (notice the negative sign, as per attached doc) shouldn't we all be investing with them as they are essentially paying us for the privilege of having our RA with them? 

I’ve been through the notes and it states that if a client sticks with their Life Cover premium and RA premium until retirement they will receive a bonus which basically reduces their fees to less than nothing! 

The problem is that Discovery have a stipulation that all RAs must increase the premium by a minimum of CPI+3% pa (under the age of 30) and this increases to CPI +4.5% above 30 years old. 

I take it that Discovery realise that most people won’t be able to afford this increase in the long term. If the client makes any changes to their life cover OR to their RA contributions they won’t receive this magical bonus. They also need to keep their life cover in retirement when they probably don’t need it anymore. 

When I come across smoke and mirrors like this it just makes me so frustrated. I would love to hear your comments and point out anything that I have overlooked. 


Javier 

My wife and I are opening an RA to contribute up to our 27.5% of our salary and TFSA which we intend to max out every year.

We are pretty set on investing in the TFSA and RAs with the low-fee operators in the market.

What are the risks of both of us using the same providers, not in terms of performance but of the companies going under, or doing a Steinhoff? 

Should we diversify suppliers to avoid these risks? If a provider defaults, what happens to the investment, ETFs, unit trust etc that might have been bought throughout the years?


Ramoloi

I currently stay with my parents, but have been property hunting for a while now. I’ve set myself a savings target for various things, including a comfy emergency fund, a fund for household items like furniture, as well as helping my mom with whatever I can. 

I have been disciplined enough to contribute to this target, I haven’t met it yet because the time I have set to achieve the target has not elapsed.

I recently found a property that appears to check a lot of the right boxes. I am yet to view the property itself, I have driven around the area once ( and plan on taking a few more drives around the area). I’ve done Google Maps Searches around it, as well as checking the kind of internet they have in the area (they have fiber, which is huuuuuge plus for me).

While I am willing and ready, I have not "gotten my money right". I know exactly when my money will be right but I worry the property might be gone by then. 

Is there a way I can buy the property now and start paying and move in at a later date of my choosing? 

I'm aware that buying a property is not an overnight thing (a friend told me that his purchase could take 3 months to finalize). What are the costs and possible penalties I could face from trying to do this sort of thing and is there any reason why this might be a bad idea?

Nov 17, 2019

This week’s show is the second of the risk-series, sponsored by the Index and Structured Solutions team at Absa CIB. In the first episode we spoke about financial risks that aren’t investment-specific. This time, we talk about risks specifically related to the stock market and your portfolio. 

When it comes to investing, we’re most concerned about losing money. In share investments, losing money generally means selling a share at a lower price than you paid for it. However, it’s also important to remember that an investment that goes neither up nor down over a long period of time is losing money through inflation — that dreadful, silent wealth killer. 

We go through risks related to specific investment products, starting with cash and bonds, all the way up to individual shares and actively managed portfolios. We talk about using ETFs to manage these risks and how holding too many ETFs can actually introduce risk.



Wins of the week: Wilhelm

In the past three months two medical officers also working in Livingstone Hospital has asked me if I am the Wilhelm who has sent emails to The Fat Wallet Show.

Both of them are my seniors with whom I have never discussed personal finance!

So kudos to both of you for the great work you do to educate people about personal finance!

The knowledge is spread out as far as the Eastern Cape!

The value of what you do is immeasurable and it is such a privilege to have been a small part of what you do.

My personal finances are doing great! I’ve reached my annual limit for my TFSA and am already saving up for next year’s allocation (utilising the 9% p.a. you can get from TYME bank). I received a nice tax return from SARS of which half was immediately reinvested in my RA.

I’ve found mountain biking is generally quite bad for personal finance. But then again everything in life isn’t about FIRE!


Win of the week: Gerhard

* The easiest way to look at it, is that you get 25 days from the date of your statement to pay your credit card. 

* You must pay the full Closing Balance on that statement, before those 25 days are over to not pay interest. 

* If you don't pay the full statement amount, then you will be charged interest on a daily basis from there on in, and the whole interest free portion falls away - until you pay it all off and the cycle resets. 

* If you only the pay the minimum, you always pay interest  - there is no interest free period then. This is why it's always important to pay the full outstanding statement balance.

* Read your statements, there should be a pay by date on the statement (At least on FNB there is)

The whole up to 55 days thing comes from, if you buy something on the first day after your statement date, you won't get interest charged on that item for this statement month + the 25 days leeway you get to pay this months statement.

A credit card is a useful tool to have, but it's important that you budget your spend on it and do everything to pay that full amount every month.


Boitumelo 

Would you please tackle the grim matter of estate planning?

I am asking for myself so that I can prepare adequately. I am single with no children and I live by myself, but I also have family members who have no Wills. It would be a tragedy if one did all the work in living a financially responsible life as much as they could, but fail to put measures in place to adequately 'protect' it and those who are to benefit after one is gone. 

1)     What happens to all your money/accounts upon one's death? 

2)     Importance of a Will and its place during a death

3)     Implications of dying without a will

4)     What is an executor and how does one go about choosing/appointing one? 

5)    Other questions I may not have thought of yet related to the topic


Daniel

I am busy applying for finance for a car for R170,000.

I have R40,000 saved up in cash for a deposit. Trade-in for my current car is R25,000, so I have R65,000 in total.

The guy at the dealership said if I put down a bigger deposit they will give me a higher interest rate because they need to make the loan worth their while. He said I should put down a small deposit and then a month or two months later when I have locked in the interest rate I put down the rest of the money into the loan to lower my repayments. Do you guys think this is a viable strategy?

I thought bigger deposit = less risk = lower interest rate but dealership guy says otherwise. Not sure if he is incentivized in any way by the size of the loan amount.


Pascal

I've just begun earning an offshore, tax-exempted USD salary that is paid into a Standard Bank offshore account. Aside from maxing out my tax-free account every year, I'm opting to keep as much money in US Dollars as possible since I can see myself Immigrating in the next five years for work.

I've just opened a TD Ameritrade US brokerage account. It turns out any South African can do this and it seems to be much cheaper, fee-wise, than Standard Bank Web trader.

I plan to start investing in US low-cost broad-market index funds from there. My big question is.. Tax. How does foreign withholding tax work and how will it affect my returns? 

Is it 15% or 30% because I find conflicting information online. Am I taxed twice by both the IRS and SARS? Can I claim back tax in the event of being double taxed? Are there any other tax considerations that I'm missing that might significantly impact my investments or land me in hot water with SARS?

What happens to my South African TFSA if I choose to move to another country?

Nov 10, 2019

What are the implications of buying two ETFs that have similar holdings? Raesetsja is trying to figure out if they should add MSCI World to a portfolio of S&P500 holdings. In this week’s episode, we show you how to figure out what doubling up would mean for your portfolio using local Satrix ETFs as an example.

Remember, you can find the minimum disclosure documents (MDDs) on each issuer’s website, or find everything in one place on the etfSA.co.za website.



Raesetja

I currently hold the Satrix S&P 500 ETF in a TFSA, into which I make R500 monthly contribution.

I have another R500 to invest monthly. Often you guys suggest the Satrix MSCI World ETF. 

I just had a glance at the MDD and the top 10 equity holdings in the S&P500 and the World are exactly the same.

Is it worth buying the World if my exposure (at least of the top 10) is the same as in the S&P 500? Should I rather invest R1000 a month into the S&P 500?


Win of the week: Javier

I discovered your Podcast and just listened to the last 40 of them — that’s 40hours of questions which have been awesome and fun. Though I’m extremely lucky and I have quite a few things already lined up, your podcast has made it clear how to make it even better.


Johann 

I have a few dollars in a local USD account. If the government loses its mind and confiscates part of people’s savings like the Greeks did a few years ago, will this money be safe?


Leonora

I am 59. Retired at 57. I have a living annuity with Momentum, invested in Deutsche Bank Coreshares S&P 500 at a 2.5% drawdown. I have other income for the time being and wanted to escape regulation 28.

I am looking for lower admin costs. 10X could not assist me in 2017 and on enquiry now, they still seem to be unable to do so. Any other suggestions?  Sygnia?


Ruben

I invest in the Satrix MCSI world ETF and the dividends are automatically reinvested. When the time comes and I one day reach FIRE can I change the way the dividends are paid out, or do I need to sell the ETF shares?


Jorge

I am currently investing in PTXTEN and have done so for the past three years or so. However, the PTXTEN seems to be going one way and that’s down.

Is it not time to move to another property ETF and if so, what are the options and if not, why should I continue with PTXTEN.

What is the largest liquor company listed on the JSE as SA Breweries is no longer listed?

I have found Distell (DGH) on the JSE but they only registered in 2018.


Mike

Given the short/medium and longer-term risks in the SA economy, what are your thoughts about the % of offshore exposure in a portfolio (medium to high risk)?

If I backtest a portfolio of 20% Fairtree income fund and 80% Satrix MSCI world index I get 6.5% above inflation for 5 years annualised (11.5% gross) and 6.2%  above inflation (11.6% gross) for 10 years. In ZAR.

That's well ahead of my long-range target of inflation plus 4%.


Dave

My plan is to live off the cash I have saved until I am 60 or older. At that time I’ll decide if I convert any of my annuities to a pension draw-down.

How do I invest my current cash savings, which I will use as income for the next couple of years? 

I will obviously be drawing from this on a monthly or quarterly basis, but would like to preserve as much as I can. My thoughts are to just transfer all the funds to a Coronation Money market account. 

What is the best vehicle to use from a tax perspective? I’m currently in the highest income tax bracket. 


Aubrey

I am building emergency fund for at least six months to a year. Which cash account or investment options I can use to grow my savings? I have a seven days notice saving account with one month salary for emergencies. I want to open another account where I can put my six months emergency account.

I was  thinking of money market account or should I open another Tax Free? Another question is safe to have all your TAX FREE with one organization?


Nico-Ben 

A few people have written you about student loans and the very low interest rates.

I had a student loan. The interest rate is low (8% in my case), but you start paying interest immediately.  By the time I finished studying, my loan capital was just short of R90,000. By that time I already paid R45,000 in interest without paying a single cent on capital.

I struggled for a while to get a stable job and was only able to pay the absolute minimum.  The loan period is so long that the cost multiple looks worse than a home loan.

It was only after four years of working that I finally managed to aggressively settle the loan.

On the upside, working through the loan, and listening to your podcasts made me learn about finances and looking at these costs. 

One expects a high salary with a degree, which I have seen in my field (engineering) is not the case.

The point is that the interest rate is not the only factor. Just as with any compounding a long-term loan is expensive, even if the interest is lower.

I had no alternative but to take a loan, but if you can avoid it I would strongly recommend it. The repayment period does put a hamper on you ability to fully utilize a TFIA and/or RA.


Jack

I started listening to your show a few months after I read the book Expat Millionaire — where cost of funds and fund damagers was highlighted. I don’t mind sitting in traffic anymore.

Since then my wife complains that I have become a little obsessed with personal finance and budgets.

If a very nice family member wants to give another family member a lump sum of between R500k and R1m to assist in paying of his home loan. What are the tax implications?

What is the best way of doing this?

Nov 3, 2019

This is our very first live recording in Cape Town, and what a pleasure it was. Our conversations with you change the way we think about our money. Also, seeing people laugh at your stupid jokes instead of hoping to goodness that someone finds you funny is a wonderful ego boost. 

This week we help Antony figure out if it’s time for his family to self-insure their medical aid. While the consensus seems to be that it’s not worth the risk, I enjoy playing Devil’s Advocate. There’s more than one way to skin a cat. I still maintain it can be done, albeit with a fair degree of footwork. 

From our live audience, we field questions about family and money, fear and optimism regarding the future of the country and fees. We also get to answer some listener questions.



Antony

Over the last 30 years I have contributed R2m in today’s money to a medical insurance fund, but have only claimed R100k for the birth of three children.

I realise that insurance is a sunk cost, but I classify myself and family as above average healthy and medically low risk.  I retired this year at 50 and have a sizeable investment portfolio.

I have discussed with my three children if we should start our own "medical insurance”, and they are very keen. I plan on starting off the fund with a lump sum and having each child contribute per month to the fund.

Both my wife’s and my parents are deep into their 70s and are spending an annual amount of R40,000 but are contributing R60,000 to their medical aids.

At what stage of financial independence do I (or others) medically self-insure if I believe my family to be low risk?


Audience questions

  • If we get downgraded to junk, is there an opportunity to be had if we’re young and can ride out the volatility ? Or should we just keep on with our current strategy ...
  • What are your suggestions for saving for someone unable to work or manage their own money due to a mental illness?
  • How do you talk about financial planning to a partner or a parent who doesn’t like thinking/talking about money ?
  • When do you draw the line on moving for lower fees? I've moved once from old-school policy to 10X, but 1% is still a lot these days. Now tempted to move to Sygnia. But at some point a new player will offer even lower fees, or 10X will drop, or Magda will increase. Would be expensive to keep moving.

Richard

Is there any reason to invest locally?

The JSE offers very traditional sectors - finance, resources and retail. Is there any room for significant growth, particularly in a stagnant economy?

There's no tech (bar Naspers), no bio-tech, no AI, I would even settle for marijuana stocks at this point or any sector which could provide some sort of upward momentum.

If you are 20+ years away from retirement, wouldn't the fact that the Rand structurally weakens vs US$ over the long-term benefit your investment?


Mike

I have TFSAs for myself and my two kids, with four ETFs and one balanced fund in each of them.

As you know every quarter those generate dividends, which I re-invest.

My question is what is the best way to distribute the reinvestment?

  1. Split the available cash evenly across the funds so the purchase values remain equal.
  2. Distribute according to which fund generated which dividend.
  3. Use cash to rebalance the funds so current values get closer to being equal.

Nick 

I’ve listened to your show for some time now, but I can’t make up my mind about how to handle my current situation. 

I have a big bond on my home as a result of a foolish impulse to keep up with the Joneses.

If I liquidated all my other investments I could settle half, maybe more, of the bond. If I included other long-term investments like pension and RAs, I can cover more than 100% of the bond. 

More than 50% of my equity investments are fully offshore.

More than 50% of my local equity investments are also invested in Rands in offshore ETFs and unit trusts, the rest in Sygnia and 10X RAs. 

I have a decent percentage of hard currency and local currency equity investments. But the interest on my bond alone is R22k/month. Should I reduce the amount of the bond to reduce interest payments to a more manageable level?

I can’t sell the house (unless I get divorced). I am trying to cut other expenses down to fund bigger bond payments but it’s been tough and our expenses are stretched. I can’t bear the thought of selling equities to repay debt and then watch the debt become nearly worthless anyway and the equities increase in value.

Oct 27, 2019

In this second instalment of my Holiday Show Load, we are not nearly so clever. We tried to push through as many questions as we could, but you know how chatty we get!

This is the Double Jenny episode, which delights me no end. We discussed some of the things Jenny the First can do to choose the right ETF for her. If you find yourself in a similar position, you can find some more tips on making this choice by reading the below articles: 

Comparing ETFs: Costs

Comparing ETFs: Asset classes

Comparing ETFs: Methodology



Maryanne

If I check on the ETFSA site the TER for my Sygnia ETF is .6 &.8 % pa.

When I look at my statement I pay TER & management which is more like 1% . When I asked why so much for a passive fund I was told  DBX charged the same. 


Margaret

SARS want to know your net gain/loss as well as your capital gain/loss. Could you explain the difference between these?

I have a TFSA with Sygnia and Allan Gray. The Syngia IT3 gives me interest, dividends and capital gain/loss. The Allan Gray. Gives me net return, interest, dividends and capital gain/loss. 

Allan Gray had this explanatory note that they owned the underlying investments, so the tax implications accrue to Allan Gray. Given the whole point of TFSA is that you don't have tax implications. Can you explain what's going on here? 


Jenny

I recently opened a brokerage account and bought a couple of ETFs.  I’m a newbie and need a little advice on my portfolio.

I bought: 

  • Satrix MSCI world
  • The Satrix S&P 500
  • The Satrix Nasdaq 100
  • Ahsburton Global 1200
  • Sygnia msci US
  • Sygnia 4th industrial rev 

I am invested in property in South Africa and am looking for global exposure.

I was just wondering if it’s wise to put money into all these different ETFs of which some are very similar.

Would it be better to cut down and rather put more money into one? 

What should I do going forward with the ones I have? 

I invested in tax-free savings account. I’d like to open a normal investment account soon, but I’m not sure how many ETFs to choose?


Jenny

I will be receiving some inheritance in the near future - R3m.

I feel a responsibility to look after it and make it grow and not blow it on a bad investment. 

I am 44 and I have a bond on my home of R1.5m. 

I don’t necessarily have to pay my bond off with my inheritance as I rent it out, so I can deduct the interest from my rental income for tax savings. 

I am invested in property in SA so would like international exposure. Do you think I can invest it all in two or three ETFs like the Satrix s+p 500 and msci world. Would this be a good idea or do you have any other ideas on what I could do?


Santosh

From my experience, this can be accomplished via direct dividend paying shares, or buying a Dividend ETF like the Satrix DIVI.

The other is to buy mutual funds that pay income on a bi-annual or quarterly basis. These will pay different amounts depending on what's invested and hopefully will cover all expenses during the course of a year.

At a 5.5% typical bond fund yield, around R4.4M is needed in capital and if we assume 20% goes in tax, we'd need R5.45M to be comfortable. 

I'm not accounting for inflation as I'm assuming the capital will never be touched, so it will move "up" hopefully with the underlying unit price. I'm further assuming that the "Cents per unit" paid will increase with time and thus account somewhat for inflation (I know this is a risky bet!)

Do you agree ?

What would be your suggestions for the best funds to use for this purpose, excluding property.

If RSA goes to junk, the yields will increase, which will mean a good regular return if bonds are used as an investment and as the prices will fall, one can buy more bonds for an even larger "income".

IF this is true, why invest in anything else but bonds?  Am I correct in the above thinking, or am I being too simplistic.

We discuss income ETFs here.


Mona

Since listening to your show my wife and I have seriously been looking at some financial options. My wife currently has R1.8m in a 32 day call account earning R10 000 interest per month. 

We know this is not the best option, but our financial advisor from Standard Bank has told us to give notice and he will invest it offshore rather. Is there a better option? What would you say is a conservative fund to do this with for a period of 10 + years?


Katie from summertownpictures.com

I have heard your cries about fees, and decided to act. I have a TFSA with FNB. I decided to call them up and ask for my EAC for my Tax Free Shares Account. 

The consultant was unaware of what the EAC was and sent me a tax certificate. Sensing some disgruntlement, she got hold of someone higher up in the food chain and he told me my account costs R20 a month and gave a vague brokerage fee.

This took roughly an hour over the phone. 

And this is not the EAC expressed as a percentage as per ASISA standard requirements. Am I right? After explaining this to him, he told me he could manually work the EAC out for me.

My complaint was escalated, and this is the response: "I have gone back and requested some information from our Product manager regarding EAC on Tax Free Share accounts. He has advised me that this would apply to the Tax Free Unit trust accounts and not the Tax Free Share accounts as EAC is specific for providers that are ASISA members like unit trust providers. FNB Share Investing is not an ASISA member and therefore not required to provide clients with a EAC of their product."

Does that sound right to you guys? Based on this I shall be moving my TFSA to Sygnia PRONTO. See ya later FNB.


Franko

I started working at the age of 21 and started investing into an RA through some crap that was sold to me. 

After a few years I stopped contributing to it and left it. I have since changed jobs twice and have been working for a wonderful company for nine years now. 

This company contributes to a provident fund on my behalf and has been doing ok. About two years ago I started to really think about my retirement. 

I tracked down my old RA and moved to a new rip off scheme and started to contribute to it again. After reading some books I realised the fees are mad and moved it again to Sygnia and got rid of my “advisor”. I only contribute R600.00 to the RA as my main focus is my TFSA.

 After the move and my new lower fees I started doing some more research. I had no idea how TFSAs worked.  

I thought it was like a savings account at the bank that you can save money at a low interest rate and pay no tax on it. I dug deeper and found out I was so wrong. 

I opened an account with Satrix and started investing into the S&P500 and trying really hard to contribute the max amount each year. Listening to your podcast I think I need to diversify even more. 

I want to invest in either the Ashburton 1200 or the MSCI world index fund. But what do I do with my S&P500 investment? I know selling it will reduce my overall tax saving years from now and the amount already contributed cannot be contributed again in another fund. Do I leave it and stop the contributions to open the new TFSA or do I sell and move on?

My S&P500 investment has been doing really well and if I am correct, the S&P500 is at an all-time high or close to it. If I do continue investing in it, do I buy now at this high or do I wait a while to see what it does?


Jamie

  • I have an emergency fund (6 months expenses) - In an account earning 7.2%
  • I contribute to an RA through my Financial Advisor with Stanlib and am quite happy with the asset allocation. My contribution is currently only 5% of my gross salary.
  • I currently have a very small equities portfolio which is currently doing terribly :(
  • I have a Unit Trust with Investec (Equity Fund Class R) - I do not contribute to monthly. 
  • I have a TFSA which I have maxed out for the last 2 years in the following ETFs:
    • Sygnia MSCI World - 35%
    • CoreShares SciBeta M-FI - 35%
    • CoreShares PropTrax Ten - 20%
    • Ashburton Global 1200 - 10%

I am currently sitting on R1m cash (after CGT) due to the sale of shares in a company I was involved in. This money is sitting in my bank account earning 7.2% until I decide where to invest it.

  • How do you feel about my weighting and choices for the TFSA? Should I be contributing more to the Global 1200 - I hear you speaking about this a lot?
  • Should I be contributing more to my RA?
  • Where should my R1m be invested considering all of the above? I would like to have some cash available for the odd splurge if needed ;). 
  • Would it be wise to keep some money in cash to then use to max out my TFSA at the beginning of each year without having to contribute from my salary?
Oct 20, 2019

In honour of my long-awaited holiday, we spent two shows doing nothing but answering questions. This is the first. 

Don’t forget we’ll be at the JSE in Cape Town for a live recording of The Fat Wallet Show on 31 October. 


Win of the week: Jonathan

The fees are a little confusing, because the quote has three different fee tables, all represented in a slightly different way. Depending on who you are, this is either super transparent, or designed to confuse - or both. 

I learned three things. 

One, Sygnia allows investors a lot of flexibility, so you can really build your own portfolio. You can build your RA portfolio to align exactly with your investment strategy (reg 28 compliant, of course).

Two, Sygnia is really cheap, and fees are fucking confusing. Sygnia quote an annual fee as low as 0.36 inclusive (!!) but then show an effective annual fee of 0.52% year one, 0.46% year two in the same document (still good but wtf). The EAC seems to be the "what you're actually charged" amount.

The 0.52% EAC is basically the lowest I could get with the available Sygnia products. The main "downside" is that international equity is all SP500 and not true global spread - because the SP500 ETF is almost 0.5% cheaper that the MSCI world!

The biggest issue for me is because of market movement, there is really no way of realistically 'checking' what you are being charged, so you really just have to trust the provider, which I hate, because the quoted fees are always so absurdly vague (all providers!).

Third, RAs don't have to provide less returns that the rest of your portfolio! 

My question is whether the last option is a good shout, or whether such a large component of global property is not a good idea for some reason. Which would you do? Which would Simon do?


The bleeped version is here.


Stephen

REIT dividends: There are still those quite insistent that REIT dividends qualify for the interest exemption. They do not. I'm not in the biz of arguing, but for clarity this is the situation as per the tax legislation.


Ria

I can finally call it mine, 3 years after I signed the OTP, and 2 years later than it should have been transferred to my name. 

During this time all my savings went into a MM account with the idea to put a big lump sum towards the repayment. After the monthly bond repayment, levies, rates & everything else, I still make about R900 p/m off it (I rent it out) which I set aside for maintenance etc.

I save about R8000 p/m, and my outstanding loan is about R1m. Do I:

1)      Put everything towards repaying my bond ASAP? (Apart from my 33k p/a for TFSA)

2)      Invest everything in ETFs and let the rental income continue to pay off the bond?

3)      Go halfsies – 4k p/m into the bond and 4k p/m into ETFs


Dave

I have been amazed by the consistency of your message. I think the only two things that have changed are DBX World is now the Ashburton 1200 and your attitude to tax changed from pay tax, to try only pay tax once.

After all 162 podcasts, I have the following points/questions lingering:

  • Why haven't you two moved to Durban?
  • A lot of people are worried when they die that their dependents will be left stranded while the estate is sorted. First thing is that some life insurances pay an advance (maybe 10%) and another option is to set up regular payments to another account in their name to cover key expenses. Set it up now. Be ahead, for when accounts are frozen.
  • With the TFSA for children - it is not binary. Try give 1-2 full years, ask friends and family rather to pay towards that than buy another toy for the toy box. This gives them 18 years to internalise the compound effect, something that took me 15 years after I understood the maths. It also gives a real discussion point about money. It still leaves 90% of the allowance (which could change) for the child.
  • Last point is that how people think of risk bother me. They say something is risky (or aggressive), but risk has time and context factors - for example, cash is riskier than investments over time.

Anyway, thanks for being awesome and helping me catch-up on the SA Financial Scene.


Dr Dan

I am, at times, a government employee and they, when I can't choose not to, contribute to a GEPF (Government Employee Pension Fund) on my behalf. 

I’m in the process of getting hold of my current pension statement. I assume that the maximum 27.5% contribution is the combined total that goes into my GEPF as well as the amount that I contribute to my own RA?

ps: Why is it called 'Just one lap' I'm sure you get asked frequently but I haven't heard the answer yet


Jens

Just a reminder, to COMPLETELY read any updates of your Insurance contract.

I started with a new company in 2017.  I only read the 2018 update superficially, and then got a surprise when I read the 2019 update.

My father in law’s car, which was insured on my policy, had the name of the owner changed from his mane to my name (without any communication by the Insurance Company - in 2018 or  2019). When this was queried with the Insurer, they stated that only vehicles that I owned could be insured and was informed that my father in law’s car was therefore not insured in the two-year period (luckily there were no claims!).  Still trying to get this issue fully resolved by the insurer after two months.


Errol

We now are avid ETF investors which are awesome for my wife and our future. We are 45 years old so have a 20-year investment plan in place in terms of ETF investing. On top of our existing RAs and pension funds

We have bout R10,000 worth of ETFs in Ashburton and Satrix 40 etc through EasyEquities.

What if the website shuts down or the company goes under. What happens to the money I invested in and how would I get access to it should something like that ever happen?

I don't want to ask them directly for fear of a biased answer.


Dave

0) get professional advice. Use the following as a prompt to unpack some of the issues. I’m a professional, but not in tax or finance. I have spent several years living & working in the USA on a work permit/ visa and submitting tax returns in both countries.

1) to answer Simon - it is possible to have dual- SA citizenship

I think there might be a requirement to inform / request permission SA Dept Home Affairs when applying for citizenship of another country.

2) when Dirk got his USA green card, he went fully onto the US tax books. The IRS taxes US citizens on global income. 

Any TFSA held in his name in SA, while not taxed in SA would probably be assessed for tax in the USA. There is a double-taxation agreement between SA & USA but I can’t see any tax advantage to a person who has tax residency elsewhere (health warning: I’m an engineer, not a tax specialist).

3) there are a number of SARS criteria for triggering tax residency in South Africa based on the period of time spent in SA. 

To keep it simple - Dirk should limit time in country to 90 days or less per tax year to avoid being tax resident in SA.

If he does become tax resident in SA, then SARS will want a share of US income & he will have to rely on the double-taxation agreement to limit total tax. 

FYI While US tax rates on income tax are lower than in SA, but US tax payers also pay social security tax and might also pay state taxes.

4) the 180 days that Simon refers to is for SA tax residents who meet several requirements to be exempt from paying SA income tax on income earned offshore. This will be capped at R1m in the next tax year FY2020 & makes working in low / no tax regimes (like the Middle East) less attractive to SA tax residents working overseas. It will no doubt prompt some of them to do a financial emigration from SA.

FYI: The issue of tax residency is in tax law one of intent and does not require financial emigration. Financial emigration is a SARB exchange control process that also results in the person ceasing to be tax resident in SA. 


Brendon

My wife and I max out our tax free savings account every year and currently invest roughly 50% of our monthly income into a range of bonds, dividend ETFs, property ETFs and international ETFs.

We are both 38 years old and have had the idea of emigration on our minds for several years. Although we haven't yet taken the leap and don't immediately plan to do so, it is nevertheless something we would consider.

My wife has an RA which she contributes minimally to in comparison to the rest of our joint investments. I don't have an RA. The reason neither of us are very focused on RA's is because if I’m not mistaken, we would be heavily penalised for closing the accounts early to emigrate.

So I have two questions:

What kind of penalties would we be looking at for closing an RA early and withdrawing the funds if we were to one day emigrate?

Would it be worthwhile (even considering any penalties) for me to open an RA since my wife already has one and for us to both start contributing 27.5% to each of them. Alternatively we would continue with the ETFs which we can withdraw any time.

In the end, emigration is not a definite plan but rather something that we are open to and have therefore not focused on RA's up to this point.


John

The cost of MWeb unthrottled, uncapped Fibre has now dropped to R399 down from R899 last month for a 10meg line.

The catch however, is they dont drop the price unless you specifically phone in an request the new package.

Oct 13, 2019

FW_141019If you’re a regular listener, you already know your emergency fund is the most important thing in your financial life. It’s boring, yes, but crucial. You should protect the assets you have with insurance. For as long as you’re earning an income, you are your most important asset, so dread disease and disability cover is a big deal. 

Once those two elements are in place, where you go next becomes more complicated. We think everyone should have tax-free investment account. If you’re a salary-earning tax-payer, taking advantage of the tax breaks offered in retirement products is a good idea. 

In this episode, we get five versions of the same question: which investment option is better in the long run?

We come up with the following check-list of questions to help you decide:

  • Where can the money stay invested the longest? 
    • Time is a powerful ally in investing. The longer you can leave your money to compound, the better.
  • Is the money guaranteed?
    • This ties in to how long you can afford to stay invested. If you need the money in the short term, you want to put it where the outcome is guaranteed.
  • Is there a limit to the up-side?
    • Once again, this comes down to time. The market can go up forever, whereas a fixed rate or guaranteed product can only deliver what was promised, nothing more.
  • Is it the most tax-efficient route?
    • When you’re talking investments and time, your risks are inflation and tax - both of which will affect you whether you are aware of it or not. The sole purpose of investing is to counteract the effects of inflation. That just leaves tax.
  • What is the opportunity cost?
    • The very act of putting your money into one vehicle means choosing against all the other vehicles. What is that choice costing you?
  • Are you considering all the moving parts?
    • When it comes to offshore investing, are you thinking of the currency move and the market move? When it comes to asset allocation, are you accounting for your retirement savings allocations too?
  • Are you taking your money out of the country at a high rate?
    • We tend to move money offshore when the rand crashes, which means we’re taking money out at a high rate. Money should be taken offshore when the rand is strong. 


Win of the week: Candice

My “work husband” recommended the show. This was roughly around the time I found out I was pregnant. I mostly started listening out of fear, but since then we’ve paid our debt and started an emergency fund.

Is it advisable to max out our daughter’s TFSA annually and just deposit bits and pieces to our TFSA?  Or should we spread our contribution equally across all three?   

We will only draw from her TFSA in 20 years, if we need to for studies. If not, we’ll hand it over to her for her 21st.

I have a company ra with the green company, but we’re going to start contributing to a 10X RA as well.   

We don’t want to be financial burdens on our daughter when we’re older. We want her to have enough money available to not have to take student loans etc and get a helping hand at starting life. I just want to know we are on the right track. 

Herman wrote an algorithm. The results are in an article called “The ideal pre-retirement allocation mix” on justonelap.com.

Nico-Ben

It seems the market is currently going down. At the moment my Satrix 40 is at a loss.  This does not bother me as this is a long term investment. In one of your podcasts, you said this should be seen as the JSE is having a sale, just like a retail store might have a sale. This  makes perfect sense. 

I was planning to put the rental income into the bond, and top up my TFSA balance in February.  Looking at the prices dropping, it also seems like I should consistently buy the Satrix 40 in the TFIA. 

Which course of action would you suggest?  I get it that we cannot predict the market from now to February, and that is too short term to really expect any real profit.

Guido

After maxing out my tax free savings I'm not sure whether I should carry on saving in a global vanilla etf like Ashburton 1200 or something like the 10x high equity fund.

Should I invest in both or am I overexposed as the 10x fund invests in the satrix msci world as well. I am 40 years old and looking for long-term growth. I prefer a global etf at the moment as S.A equity is not doing much. The 10x high equity fund has 50% local equity but otherwise is nicely diversified. Which one should theoretically give the better return in the long run?

Gerhard

I currently maintain a 50/50 split between international and local investments. Every month I use the new money to try and keep it in balance. Hopefully it's 20+ years before I need to touch any of this money. 

Recently I stumbled across Galileo Capital's YouTube channel. One thing Warren Ingram keeps mentioning is the "fair value" of the USD to Rand. He feels it's at about  R13.90 to the dollar. One should only move money offshore when we are below this level. This includes buying the international ETFs on our local market.

Should I just ignore the USD/Rand and keep buying international every month?

Or, does one keep the money earmarked for international in cash, and wait for the Rand to strengthen back to those levels?


Andy

I now own three properties in Cape Town. 

I live in one (paid off, but lets ignore this lifestyle asset) and 2 investment properties. 

Paid R800k for the first flat and I’m renting it out for R7800, which covered the bond repayments and the levies and rates.

I ended up settling the bond with a lump sum. I used the bond to pay "cash" for the 3rd flat.
I now have bond debt of about R600k (on the first investment property) which I’m smashing with my monthly salary savings and rental income from my 1st investment property. 

The third flat hasn't got a tenant yet as I bought it off plan.

I do have market exposure and the necessities covered. Example:

  • I currently have that Liberty evolve product that tracks the top 40, which I will move into simple Satrix top 40 shortly.
  • I also have some individual stocks which are taking a hammering. Mainly speculations on my part. I’m slowly moving away from individual stocks but they are so ridiculously cheap now that I refuse to sell them..
  • TFSA is maxed (missed one year becasue im an idiot)
  • Emergency fund is adequate.

Do I start filling up my Standard Bank OST account with my favourite ETFs or do I smash the bond and then fill up on ETFs?


Albert

I stumbled across your podcast while trying to find out why the yield of the Satrix MSCI World Equity Feeder Fund Unit Trust was less (by a few hundred rands) than the yield of the Satrix MSCI World Equity Feeder ETF in my TFSA over a period of two years. 

On a simple TER basis the Unit Trust version of the same product was 0.63 more expensive. At first this didn’t seem too bad, until I started running the mathematics with a few assumptions and looking at the lost return over time. Naturally this infuriated me beyond belief.

Since then, I’ve been working my way through your library while going through all of my expenses, investment activity, insurance and pension funding. 

Being in my early 30’s, I have some investment groans about poor investment choices in my 20’s like:

  • buying a new car in my first year of permanent employment
  • transferring my previous company’s provident fund savings to a preservation fund which has a TER of 3.2%, 
  • investing into equities via Unit Trusts without an emergency fund and occasionally dipping into the capital to fund emergencies. 

That said, I currently don’t have debt, have always contributed as much as possible to my employer’s retirement fund and am grateful to have some savings and enjoyed some treasured memories of overseas vacations.

You have both inspired the following change in my personal life:

  1.       I have penned a life plan and investment strategy;
  2.       I have set up an emergency fund which will increase over time (thanks Tyme);
  3.       I have reconsidered my luxurious expenditure (mostly eating out far too often as I live in JHB), and increased my monthly savings rate from 30% to 35%;
  4.       Launched a crusade against fees in my personal life:
    1.       Short & Long-Term Insurance premiums,
    2.       Moving from an Asset Manager platform to a Stockbroker (Goodbye expensive Unit Trusts),
    3.       My RA’s and preservation fund (this move is still ongoing),
  5.       Drafted a will, and
  6.       Placed a mandatory review of my finances firmly in my 2020 calendar.

The Question:

Given the amount of money I ought to have saved this year thanks to your sage advise (far better than any financial advisor I’ve met), I would like to send through a bottle of Veuve Clicquot. Then I took a look at the price of those particular bubbles, and surmised that it is beyond what I am prepared to pay for quite a while. Would it be possible for you to set up a Patreon or something? I wouldn’t mind kicking a few rands your way on a monthly basis to keep the show running.


Alexander

From listening to your podcast and speaking with friends and family, I would like to avoid credit. But I am also cognisant of the fact that I’d most likely have to incur at least some debt for a house one day. 

The Standard Bank consultants informed me that building up a credit score starting now would make applying for future loans easier and that I’d possibly get lower interest rates.

  • Would building a positive credit history (by using credit, instead of my normal cash, and paying it off in 30 days with that exact cash that I would have used) actually allow me to negotiate for better loans in the future?
  • How important is having a credit score in reality?
  • Does your asset base (i.e. my investments) influence your credit score? Surely having built up an asset base would count for more than having a positive credit history, or am I wrong?

Do you have any general tips/advice for how I can start planning/structuring my life to minimise my future debt and living costs? At this stage in my life I’m very flexible regarding where I decide to work, buy a house and so on.


Chris

On the Sygnia website they claim to charge an admin feed of 0.2% on Sygnia ETFs and 0.4% on other ETFs.

Since my ETFs are all from other service providers, the 0.4% admin fee would apply + the TER of the ETF itself. (e.g. Satrix World = 0.4% admin + 0.35% TER = 0.75%).

However, on the Sygnia RA platform, there is a tool for calculating EAC fees which gives a slightly different output. It states my current EAC fees are 0.89%.

On my quarterly statement, it gives a table of each ETF, with the respective TER and management fee applied. The management fee ranges from 0.1% to 0.3%, which is quite reasonable. However this does not tie up with the EAC quoted on the online platform.

I'm a bit stumped. 

The way I see it, worst case I am paying 0.89%, which is in range of the 10x fee of 0.9% so this is acceptable. The fee appears to go down to 0.61% over time which would then make it

cheaper than 10x.

I should also mention that you do occasionally have to rebalance the portfolio to remain Reg 28 compliant. Sygnia charges a 0.1% brokerage fee for these transactions


Ross

I have my money back home in a brokerage and savings account. I would like to invest my overseas earnings into something without converting back to Rands. Preferably into USD, EU or GBP. What options would you suggest? Are there any multi currency account banks that accept sign up without residency? 

Oct 6, 2019

FW_071019This week, Ben inspires us to delve into how ETF units are priced. A recent presentation of our favourite five concepts made me realise how far removed share prices are from the companies whose shares we buy. After the initial public offering (IPO), what happens to the share price can be entirely unrelated to the business. 

When we talk about how ETF units are priced, we refer to the net asset value (NAV) or the “fair price” of the ETF. However, NAV in ETFs have nothing to do with the NAV of the companies represented in the ETF. This is confusing, no?

In this episode, we use our price-weighted index as an example to illustrate how ETF units are priced. We talk about how much of the pricing model is science, how much is whimsy and where ETF issuers actually make their money.



Ben

When is it a good time to sell an ETF? On EE it seems that you can only use a market order and sell at the particular unit price at that point in time. They have no option for a limit order. Would you say this is a major issue, in that you are forced to take the price right then.  

Is it better to wait and buy at an opportune time each month as opposed to a monthly debit order that will buy at a unit-price that may be suboptimal?

How often is an ETF re-priced? Is this only done once a day at a particular time?


Win of the week: Richard

I upgraded the service plan to a maintenance plan so I was covered, which cost R10k for 5 years. Worth it.

I noticed that during services they didn’t seem to do much. Oil change here and there, maybe a spark plug. I got the feeling it was built to cost them nothing to service for five years.

Then the service plan expired. To extend it for a year was R15k. So five years for R10k and 1 year for R15k? That seems weird.

I didn’t extend and paid for my next service. A couple months ago I noticed it was using a lot of oil. Like 1 to 4 pints per refuel. Asked them to check a few things out.

That’s on a car with 73000km on it. They added almost a rand per km.  If I saved R1,000 per month it would take me five years to pay it off. That’s more than the fuel bill over the same period. That’s a great addition to my child’s school fees. Or a nice holiday. Or a nice anything that will leave me with something better than what I had a year ago.

Sep 29, 2019

Earlier this week we introduced ourselves to the education department at the financial sector conduct authority (FSCA). They recommended we spend some time on what you can do when you feel like you’ve been wronged financially. In this episode we discuss what rights you have on your financial journey. We also offer some ideas of where to go if you need to report shenanigans. 

We help you find the answer throughout your financial journey:

  • Debt 
    • If you didn’t take on the debt
    • If you feel like you have been treated unfairly
    • If you’ve been handed over
    • If you can’t take on any more debt
  • Savings
    • If your money got stolen
    • If you’re not getting what you were promised
  • Insurance
    • If your insurance company isn’t paying out for things you feel you should be covered for
  • Investments
    • Fraudulent investments
    • Bad market conditions
    • Losing money
    • Bad returns
    • Pyramid schemes
  • Advice
    • If you received the wrong advice

The bleeped version is here.


Win of the week: Hilois

I have just finished the latest episode highlighting rookie mistakes, and I have made a BIIIG one.

Earlier this year I moved from my company providing a provident fund with Momentum, to a company that does not include a retirement option. I decided to get an RA. Conveniently I received a call from a 3rd party consultant for Discovery (where I have my medical aid). I was in a rush (and obviously hadn't started listening to The Fat Wallet Show) and signed up for an RA with 3.5% fees, not including the consulting fees (EEEEEEEEEK!).

Luckily this only started in May, and before I completely fund someone's Merc I would like to make a move, but I now feel completely overwhelmed with where to look and not to be ripped off.

Do you have any recommendations for where to open an RA, and look for life / dread disease and disability cover?


Enesh 

I am a Surgeon and have been offered shares in Cure Day Clinic in Midstream. The shares are unlisted, but I can buy in at R250k for 2.5%.


Megan

Are there any tax benefits I can claim or get with a retrenchment package? How would you suggest I go about it? 

Is there any way I could get more of the money in my pocket, even if it is at a later stage? I'm not sure if I would get the money in a lump sum or installments. Not too sure how it works. 

My plan is to settle all debt, mostly my car. I can then fund my emergency fund and my flip-a-table fund.

I have a TFSA that I haven't put money into this financial year.

That's about what I have in place. I want to put money away for both my parents to say thank you to them for standing by me. My mom is in her 60s and my stepdad in his 70s. I get the feeling I am their retirement plan. So this needs to be part of whatever I'm planning with the money. 

In the meantime, I'm doing online Teaching from my apartment. That's $10 an hour. I'm busy finishing the TEFL course which will increase my rate by $5. So that's an income for me. I know I can claim back a bunch of things with working from home and sorting out my own tax. Although it's a priority, it's not high up on my list. The big thing is to sort out the retrenchment package benefits, get my parents sorted, cancel debt and have my six months flip a table fund.

If you have any suggestions, even if where to read up, that would be great. 

Sep 22, 2019

fw_230919The downside to doing my job is that I don’t get many opportunities to talk about my own financial insecurities. As with most things, there’s a distance between theory and implementation. I have my bad habits and anxieties around money as much as the next person.

Billy’s question around minimalism and frugality gave me an opportunity to talk about some of the things with which I struggle. An ever-present challenge is finding a balance between spending and saving. I’m always too far in either camp. You can accuse me of many things, but lacking the courage of my convictions is not one.

Far be it from me to tell you what to take from these episodes, but I do hope our conversation sheds some light on the importance of the process. It’s a lifelong journey, full of surprises and challenges and new joys. That’s what makes it fun.



Win of the week: Billy

I saw Simon in Woolies the other day (I was like a silent groupie lurking in the shadows). Next time, I'll buy you guys a bottle of bubbles to say thanks for the awesome work!

I'm a 30 year old engineer (another one for Kristia's collection!), and in great part thanks to you guys, I recently moved to a smaller place, got rid of a bunch of useless kak, and also scaled down on my car. This also extended to my finances, where I scrutinized all my financial products, cut unnecessary costs, negotiated better insurance premiums, and started to actively put money away in cheaper investment vehicles (such as Easy Equities).

I know that both of you have decided to actively keep your living costs low, and I recently read an article where Simon mentioned that he decided to scale down a lot and move to a smaller apartment with his wife. The idea of having very few possessions to tie me down, whilst having plenty of money put away appeals to me quite a lot. I've realised more and more that having lots of things means having lots more to worry about. Physical clutter, financial clutter and emotional clutter are different sides of the same die. As much as we like to think finances are separate from other aspects of our lives, everything feeds into our overall well-being, freedom and contentedness. 

So, thanks to you guys, I've developed a bit of an aversion to unnecessary "kakkies" - specifically financial and insurance products laden with complex "kakkies" that only serve to obfuscate real costs and returns. I like Kristia's idea of investing in one ETF (or at most very few), and not over-complicating my portfolio, as more products could mean more blind spots.

To get to my question: Being minimalist seems like a full-time struggle - an active raging against the beast of financial dependence. What are the principles you both follow to keep your living costs low? What did you cut down on that made the biggest difference? Also, how do you prevent the activity of keeping costs low from becoming a cumbersome penny pinching exercise that ends up defeating the purpose? 


Donal 

While all this was going on, I was also busy researching possible brokers that I could use to purchase Vanguard All World (taking Patrick McKay's advice!). 

I ended up with a company called Degiro. While their fees are low, they are nothing like the "easy" I'm used to with Easy Equities. Their registration process is a bit of a pain in the ass and their online trading platform is not as user friendly. 

I jumped through all the hoops and signed up for a Basic Account. I made my first lodgement and did my first Vanguard purchase. I did a small amount first to test the water. All went well and I was ready to plunge all my funds in. 

At this point I got a little nervous and did a bit of triple-checking online just to make certain that there were no negative comments out there about Degiro. 

Apparently, when you hold a Basic Account, they have the right to lend out your shares to other investors who use them for the purpose of short selling. I guess it's their way of making some cash on the side using my shares. If you don't want to allow this, you need to open a Custody Account, which means that they cannot lend out your shares. The catch is that they charge 3% on all dividend payouts for a Custody Account - compared to 0% for a Basic Account.

Is this type of lending out of shares by a broker commonplace? Do you know if EasyEquities do it? If they do, then I would feel a lot more reassured to carry on with my Basic Account. But if you guys think it's unusual for a broker to do this and it carries a high risk, then I’d rather close my Basic Account and sign up for a Custody Account and take the 3% hit on dividends.


Captain Pants

I plan to pay off my bond within the next six months, which will be 10 years early. A scenario I hope many Walleteers will experience in the future. 

While looking forward to redirecting my repayments towards ETFs, I'm wondering what are the best practices when paying your bond off early?

As far as I know there are two options:

  1. Almost pay it off and then adjust the bond repayments to a negligible amount.

A benefit of this would be that the bond stays open as easily accessible cheap debt. However there would be a fee of at least R69 per month for the next 10 years (~R8,280).

I would not be the owner of the property - the bank would still be. So I would be unable to mortgage it (correct?), but can dip into the flexi-bond if need be.

What monthly amount should I aim for? Would the bank allow me to pay off R1 per month + fees for the next 10 years?

  1. Pay off the bond in full, close it and become the owner.

I understand there may be a fine attached to this. If it is less than fees I would pay over the next 10 years it may be worth it?

What are the benefits of truly owning a property? 

Also, is it possible to overpay your bond? ie. have a positive balance in it? Would that earn interest?

Is there anything I haven't considered?

Will wait by the wireless for your response.


Karabo

I have rental properties. I've been saving my emergency fund in their bond accounts. The challenge is that this emergency fund reduces interest paid on the properties in effect increasing my tax liability on income earned over the year. Income earned on rental property is taxed as income.

Where else can I invest my emergency fund to reduce my tax liability on these rental properties. Should I still keep the emergency fund in the bond accounts or save it in a different account.


Stephnie

When each of my nieces (who are now 2 and 4) were born, I invested a once-off lump sum into SATRIX Top40 ETF for each of them. 

I opened an account on the SatrixNOW platform for this purpose, and currently both lump sums are invested in a single account. 

The account is in my name. My plan is that the investment will be my gift to each of my nieces on their 21st Birthdays, and they can then decide whether they want to cash in the investment, or keep the ETFs.

At the time that I opened the investment, I just stuck the money into SATRIX and didn't think too much beyond that. But now I am starting to think about how to ensure that this investment will be as tax efficient as possible and as fee efficient as possible.

If my understanding is correct, if my nieces decide to cash in the investment when they turn 21, I would be liable for the capital gains tax since the account is in my name. Is that correct? Is there any way that I can avoid or lessen the capital gains tax burden on my nieces' investment? 

If my nieces want to keep the ETFs when they turn 21, will I be able to transfer the ETFs to them? (i.e. is it possible to transfer ETFs to a stockbroking account in their name?). Are there are taxes or fees I should be aware of, aside from the usual charges incurred when transferring an investment from one platform to another?

Would there be any benefit in opening investment accounts in my nieces' names now, and transferring the ETFs to them now? 

If you have any other thoughts on how I could structure and handle my nieces' investments to be as optimal as possible - I'd love to hear it.


Maureen

I've inherited some Kruger coins and would like to get a fair value for them. Is there a website that will give me a fair price on any given day? Also, I've heard you say not to sell them to a Scoin shop. Where can I sell them for the best price?


Justin

I am in the process of paying a student loan and an unfortunate car loan. I have a little money left that I would like to make use of and not just lie in my account adding temptation. 

I am lucky enough that my parents still help me out and I have medical and a Providence fund with the company I work for, so I can't really see the desperate need for an emergency fund. 

Should I put the little money left into a TFSA or should I start an emergency fund anyway? If I should start one, what is the best way to go about it rather than hiding my money under my pillow were all it does is finance the dreams of buying bubbles?


Ben

My parents stay in France (not near Champagne unfortunately) and they are UK citizens. They have a unit in a complex in SA that they are going to sell. They would like to gift/loan us the money to help us buy a house with a granny flat where they can then stay when they visit.

My understanding is that the tax on gifts are 20% for everything above R100k, so we thought of doing something like a low-interest loan in order to circumnavigate that tax. Do you perhaps know who can advise us on this to ensure we do this right?

Sep 15, 2019

Our first ever paid episode of The Fat Wallet Show is courtesy of the Index and Structured Solutions team at Absa CIB. If you see one of them, show them some love. 

In honour of this newfound wealth and the cool products that made them possible, we decided to dedicate this episode to financial risks that aren’t market-related. In November we’ll follow this up with market-related risks and explain how those freaky new ETFs hope to bypass market risk.

We spend some time in this episode on the most sinister of all non-market risks - inflation. We’re all subject to it, yet we so easily forget to account for it. We also cover the risk of losing your income, fraud, counter-party risk, tax, divorce, death, income disparity in households and over-insurance. We offer some ideas to help you prepare for these risks.



E&H

My partner is in his early thirties and I am in my late twenties and we have some questions about offshore investing. 

- we like investing passively in the stock market, ie index funds

- we try to save aggressively and are inspired by the FIRE movement

- we assume that the rand will likely continue to lose value in our lifetime

- we plan to emigrate within the next 5-10 years, partly for lifestyle factors, and partly for the purposes of studying and gaining new skills. We might be keen to return to SA later on. 

- we are hesitant to invest if the investment pays out in rands, and essentially want to start contributing to an offshore fund that we can access in the foreign denominated currency once we've emigrated. 

  1. what is the cheapest way to get money offshore?
  2. what are the currencies/offshore accounts that you could recommend?
  3. what is the best way to invest our money to achieve our goals?

Jon-Luke

I’d love to know what you guys think of this offering from Investec:

Guaranteed 40% over 42 months - Effectively 11.43% P/A (not compounding?) - meaning if you invest R10,000 you will make R4,000 profit.

If you were to put the R10000 into African Bank at 9.20% (Compounding) you would make R4 428,16 profit.

So I guess the Investec offering has the possiblity of making quite a bit more - but how is this worked out exactly… And what are the chances of the S&P 500 going up by that much...


 

Sep 8, 2019

If you’re reading this, you are one of the few survivors of last week’s internet dumpster fire. This week, Simon and I spend time putting together a model to help you make sense of the news. We focus specifically on when a news report should move you to action and when you should just walk away. 

Here’s the formula we came up with:

  1. Figure out what the claim is.
  2. Find evidence that supports the claim.
  3. Find evidence that disproves the claim. 
  4. Ask yourself whether the claim has any bearing on your investment strategy. 
  5. Act accordingly. 

My thought in choosing this topic was that we’d spend a few minutes discussing some mental models to help us interpret the news and the rest of the episode answering questions. 50 minutes into the discussion, I felt like we had barely scratched the surface. For that reason we didn’t get to a single question this week.



Win of the week: Adam

I disagree with the consensus on pet insurance. In all honesty this goes against your rules that you cannot abscond on something like this. If you are a serious pet owner (and not just getting a goldfish because meh) then do it the right way. It's the same argument that instead of having health insurance "you save funds into an index tracker" etc. etc.

You are healthy when young, so the likelihood of a serious health issue is small, but you still have health insurance.

Just don't have a pet if you place a financial cost on it like that.

My dog has had two surgeries, but over and above that throw emergency visits to the vet here and there and insurance has us covered (well mostly - they don't cover dog biscuits).

Sep 1, 2019

FW_020919The biggest challenge in supplementing a parent’s retirement income is whether to save in their name or your own. This week, we help Kim and her sister think through their options to help their mother in retirement. 

Kim

I cannot describe to you how empowering The Fat Wallet Show has been in my life. You have made such a profound impact I can't thank you enough. I grew up in a home with ZERO financial education. Throughout my engineering degree there were no lectures or exposure to the topic of personal financial management. 

As a result of your show, I now have a financial strategy for myself, I feel I am in control and I sleep well at night! I can find and read an MDD and understand it, without feeling overwhelmed and confused. A few months ago I struggled to distinguish between financial products, all these names I didn't know - TFSA, RA, ETF etc. Now I can eat them for breakfast :) You have helped me bring a real sense of peace and security into my life and I will always appreciate it. I recommend your podcast to anyone whom I think would find it beneficial.  

Her mom is turning 60. She started her discretionary investments late, because she was in a marriage where she didn’t have an eye on her finances. When she finally did, she realized she owed SARS a lot of money, which she has paid back. 

She has a company pension fund and started saving some money in a tax-free account, but at a very high fee over over 3%. 

Kim is concerned that her mother will fall short in her investments based on the rule of 300, by about half.

My sister and I want to both invest on behalf of my mother, to improve her circumstances going forward. 

I know you have both said go into safe investments as you near retirement, but my mother needs good growth.

We can collectively invest a lump sum of R80,000 and then a further monthly sum of R10,000/ month.

Invest heavily into local equity. 

If the SA market dips / crashes in the next  5 - 10 years, we're screwed. However, if we assume that mom keeps this for a full 10 - 15 years and only withdraws it when she is 70 - 75 yrs old, perhaps it will provide a nice boost for her later. 

Invest heavily into foreign equity to avoid a local crash.

Is an offshore ETF that invests in international equity still based on the JSE? In the case of an SA Stock Market crash, will this ETF still hold its' selling value ? OR if we want foreign, is it better to invest in USD? We are worried about currency conversion & fees the EE USD option.

Invest 50% in equity and 50 % in bonds.

If the stock market crashes / SA politics goes south, is there be a risk of the government not being able to repay its' retail bonds?

Don't do so much investing on her behalf

If both my sister and I focus on building our portfolios, we can reach a point in five yrs where our dividends/ growth can be withdrawn and given to mom. This is of course not the best idea i.t.o. compound interest so more practically we will stop contributing to our investments and pay mom out of our salaries. 

My mom has no other assets. Even though it will be a huge drain, my sister and I are considering buying her flat to give her security and reduce her expenses.

In a TFSA, if you keep reinvesting your dividends, in addition to your annual contribution, won't you end up exceeding your maximum contribution? If you're in funds that don't pay dividends, your growth will also push above the threshold. I am assuming the limit is on your contribution and not the value of your account?



Christoff

When you invest offshore directly, you only pay CGT on the investment's gain, not on the currency devaluation.  If you on the other hand invest indirectly like with an offshore ETF, you WILL pay CGT on both the investment growth AND the currency devaluation.


Lethabo

I have an RA and TFSA with the same broker. I have noticed that some of my ETFs in my TFSA had dividend payments (yay!!) but the same ETFs in my RA did not. I am not sure if I am missing something but it just seems kinda strange. How do dividends work with RAs?


Brent

I have my TFSA ETFs amounts and allocations bedded down. I am now reviewing my provident fund. Is one able to cash out a provident fund and put it into an ETF? Will there be tax implications for the early cash out? 

Would it be better to decrease the % contribution and start my own ETF investments on the side. My employer does not contribute towards the provident fund. I don’t have an RA.


Nicky 

In an attempt to diversify my portfolio fully, I thought I would buy some bonds.

The fixed rate bond (5 years) is currently at 8.25 % according to treasury website, which is very similar to interest rate offered by Capitec for I think > 100K for 49 month term.

Any advantage of the one over the other?

How are bonds handled in your estate?

How are bonds treated in terms of tax?

If no gov retail bonds have no tax advantage, why would people choose them over fixed deposit?

I am worried I am missing something as surely the government would tempt people into lending them money by making bonds in some way more attractive than fixed deposit.


Keegan

Do you guys suggest using an IG account and buying foreign shares listed on other stock markets? or Should I open an online account as a citizen of an EU Country? 

What are the tax implications? 

I have some extra cash I’d like to invest. The ROI on my investments have been greatest in my business although it is somewhat high risk. Do I reinvest in the business and buy more equipment and try expand or do I look for ways to build up a stronger financial portfolio while I am still young?


Rahzia

I plucked up the courage to stop two debit orders for an RA that I held at Sygnia and a unit trust at Coronation (which charges -1.74% fees). I wanted to contribute to my tax-free account only. I do contribute to a pension fund with the organisation that I work for (8% employee and 15% employer).

My husband and I want to get out of our car and home loan debt within the next six years. We bought the house this year. 

The extra money after the debit orders are cancelled will go towards the debt repayments. We do have about 2-3 months worth of expenses as an emergency fund.

Is it better to put all money into getting rid of debt and then focus on saving/investing as much as possible thereafter?

If we were to do this, it would mean no ETF investing for six years. However, all extra money after the debt has been repaid will go into saving and investing as much as possible. What about the time aspect?

If we don’t put all the extra money we have into paying debt, we won’t meet such an aggressive target of six years to eliminate the debt.


Candice

My husband and I have historically had a terrible relationship with cash and anything finance-related.

We have recently had a baby.

My one requirement for having this baby was that we do it debt-free. We are in our last month of paying off debt and then we are free. We don’t own our cars (corporate cars) and we currently rent our home.

Do I use a broker to start off with or do I try to go at investing on my own and figure it as I go? We both currently have RAs (with the big green company you despise) and medical aid. We have a savings account with 24 hours access for emergencies and a 32-day call. 

I would like to get a tax free savings open for our baby now and then stop contributing to the above savings and rather invest the cash elsewhere, but have no idea where to start?

How do I know where to invest, what to invest and how to trade? Is it not better to use a broker who can advise better?


Anne

I managed to save R100,000 in a savings account. Finally got brave enough to transfer the money to my brokerage account. The plan was to buy Satrix Msci World and Satrix 40. Now I’m just staring at the money. What’s the best plan? Invest all the money on one day? R5000 per month or per week in each fund?

Second question is FNB or Capitec? I earn a salary, have a few debit orders, card transactions draw money once or twice a month and have an emergency fund.


Theresa

I opened an ETFSA investment account six years ago and have a monthly debit order of R500.   The account is in my seven-year-old grandson’s name, but I pay the debit order and his mother is listed as his parent/legal guardian and she has to sign any transaction forms.  

I know it would make more sense to contribute to a TFSA, but I don’t know what to do with the existing account. Should I sell off R33000 worth this tax year and the rest next year to close the account? My daughter has never declared the ETFSA account to SARS.

I’m told I can’t contribute directly into a tax-free account unless it’s in my name.  I wanted to have a little nest egg for him for later but now I’m thinking there must be a better way to invest for him. 

Should I open a TFSA in my name and leave it to him in my will (which would require a trust if he is still a minor when I die) or should his mother open an account for him and pay into it every month from money I give her.  

I already assist with his expensive therapy costs every month as she doesn’t earn much and I am aware there is a limit of R100,000 allowed before tax is payable on donations.

Aug 25, 2019

Not many of us are well-equipped to manage a large sum of money. Our monkey brains spent so much time learning how to run away from predators and exactly zero time learning about financial decision-making. We don’t blame it, of course. Compounding is lost on the dead. 

All this monkey business makes retirement a nightmare. Most of us learn to cope with money one pay cheque at a time, and even then we often do a bad job of it. Over time a monthly income starts to feel manageable. 

Once the corporate machine spits us out, often in our 60s, we are suddenly expected to understand drawdown rates and how a living annuity differs from a guaranteed annuity. We have to make sense of the tax code - a seemingly impossible task. The behavioural aspects of financial management we avoided thus far suddenly become the key to our survival. All this while we profoundly change our daily routine and often our living arrangements. 

Since managing our money in retirement or financial independence (whichever comes first) will involve the most important financial decisions of our lives, we should be preparing for those choices from the day we start saving.

This episode of The Fat Wallet Show is dedicated to that enormous amount of money we have to manage in independence. We talk drawdown rates, what happens when you become too old or too sick to make good choices, what to do when you only have a few years left to prepare and how to think about annuity options.



Johan

I’m nearing 65, which means need to retire now and are clueless as to where to from here.

I mostly saved and invested in single stocks. Lately, as you advocate every day, in ETFs.

But how does one do it from here? I’m comfortable with the 4% rule and relatively sure with a 5% inflation increase per year that my money will last into my 100s.

I am, however, not sure how to actually do it. I think one will sell enough equities at retirement for maybe two years’ income and stuff it in a savings account and draw monthly from there and replenish it thereafter on a yearly basis.

My concern is that at this age one tends to be out of action every now and then (e.g. in hospital with pipes and wires coming from all parts of your body) for a few weeks and then you are incapable to do or think at all. 

Technology also starts to run away from you, you are not that quick anymore to master a new mobile phone/windows/ trading platform/ etc. and you cannot hear the call centre operator at SARS/bank/etc. anymore. You get the picture?

On the other hand I have been milked by many a financial advisor in my younger days and do not trust them and wish to steer clear of them. 

Any idea how one can continue to bypass financial advisors but cater for ones diminishing abilities in this regards?


Syd

My wife and I will be getting at least 90% of our post-retirement income from a guaranteed annuity and plan to supplement this with income from investing in Income Funds. 

We bought the Income Funds with the tax-free lump sums both me and the wife could take from our retirement funds as well as excess contributions to retirement funding. Those will be invested in my wife's name. 

Income form the Income funds are mostly interest income, which will not be enough to make her tax liable. Part of the income proceeds on a monthly basis will then be used to continue contributing to our TFSAs until they are maxed (about 80 years of age). 

In this way I am channelling money whose investment returns would have been potentially taxable into investments in our TFSA's with zero tax implications! 


AJ and SM

I'm the unemployed female partner (61-year-old couple) with ZERO retirement savings. Hubby works in the Middle East. We've managed to save all the SHOCKING parent visa fees needed for a move to Aus, with no guarantee they'll grant the visa. (Our daughter and grandkids are there ... that's the pull.)

Hubby is more or less assured of another 12 months on contract. We now have US$ X amount monthly we can do something with. What is best to do? What is the index? Where does one find a 'fee-friendly' broker for investing in Ireland, for example? 

Also, we have no assets, no policies, but I have just discovered that I have a retirement policy that I had forgotten about. It's paid up and has +-R20,000 lying in a Sanlam acc till I'm 65. How I can I best utilise that money?

We have an adult autistic child that lives with us. A nightmare scenario for the day hubby doesn't have a job anymore. We need to save intelligently for the next 12 months and we are ignorant on money matters. Totally ignorant!


Win of the week: Carl

I finally paid off my student loan!

I now have an "extra" R10 000 per month that I can either use for my vehicle debt or put into my savings.  

I already max out my TFSA and contribute to an RA.  My company provides me with a vehicle allowance each month which covers more than the monthly installment as well as insurance.  

For the age old question:  is it better to put this "extra" money into the vehicle to pay it off as soon as possible?  Or is it a better idea to put that money away? Does the fact that I get a vehicle allowance make any difference?


Deborah

I want to invest in my first TFSA ETF. I am 40 and am playing a bit of a catch-up game so I would like it to be aggressive. Please can you recommend an ETF and who to buy it through? I also see you have One Lap ETF - is that an option?


Sabata

It helps to negotiate and / or fight with your insurer.  

Dialdirect tried to increase my car & household insurance premium from R 1163 to R 1458 per month; a 25% increase.  

I thought this was rather excessive and shared this view with my insurer.  My premium will now be REDUCED to R 1099. I feel rather smug.


John-Ross

Are there any compounding benefits to having one ETF, as opposed to 2/3 ETFs?


Gregg

You mentioned your friend that managed to feed herself and two children on R1,000 a month. I am all for cost cutting, and would like you to please ask your friend firstly, how old are her two kids, and secondly, what type of meal plan does she implement at such a low grocery bill? 

I would love to know how I can economise on food because prices keep on going up.

What are your reasons for using Easy Equities as a broker for your TFSA?  

I am also researching where to place my TFSA. I know you have also mentioned ETFSA before who also appear to have low fees. 

Can you give me some pointers here because I know you are a great one for not wanting to give any of your hard-earned cash away, especially on fees.


Rudolph

How does investing in gold, "fail" to produce "income"?


Adri

Patrick mentioned the Vanguard FTSE All-World ETF. He said that he is buying through his brokerage account. 

Is there a South African platform with US account through which you could buy this ETF?

I see that Easy equities only has the Vanguard FTSE emerging markets available. Can you suggest a platform through which one can buy the Vanguard FTSE All world that is not too expensive?

Interactivebrokers.com 

degiro.ie


Christina

I paid off the last of my debt in 2014, increased my monthly debit order to my savings account and wandered off to pay attention to things I find more interesting. 

After about four years, I realised that my "emergency fund" was getting rather bloated and I should probably start investing some of the money. I went about this in exactly the wrong way. I invested about R 400 000 through Sanlam, set up a monthly debit order and called it done.

All of this was around June of 2018. Then I started listening to your show in April this year and I realized that I had been lazy and I that I was probably paying for it. I went through all my statements. 

Not only was all the funds in my investment actively managed, I was also paying about 1.6% in fees on top of the fees for each fund. I have shut down the account and gotten my money out (minus about R9,000, which is probably a reasonable stupidity/laziness tax).

I have set up an account with a broker and invested about R50,000 of the money I got out from Sanlam (and another R150,000 from the still slightly bloated emergency fund). 

However, it looks like we might be at the top of the market and that investing the rest of the lump sum right now would be a bad idea. Part of me is saying: just put the money in the market, set up a monthly debit order and call it done. 

But I can't help but feel I am being lazy again. Is it a better idea to actually pay attention to the market for a few months and wait for prices to drop a bit before investing (given that the S&P 500 is at record highs and everyone appears to be piling in) or is it actually okay to just buy more of my chosen ETFs and assume that things will work out more or less equal in the long run? 


Catherine

I am selling my property with the intent to rent instead

I own my property outright, which means I will be getting a huge lump sum (of about R1.6m), probably at the end of this year. 

I guess I would like to spread across my ZAR and USD accounts in global equity ETFs like MSCI World and Vanguard World. 

This is the majority of my net worth, and I’m unlikely to ever again deal with such a lump sum. What if the market crashes the day after I invest it?? 

Isn't there generally a global crash approximately every 10 years, and wasn't the last one 11 years ago? 

Please can Simon look in his crystal ball and tell me when the next crash will be. 


Tshedza

I have just noticed that since I decided to track my expenses, I analyse too much what I spend on and what value I get in return.

For example; the R3.50 cost of a plastic bag at Evergreen in Tshwane Market (I now request an empty box or just put everything back in the shopping trolley and pack them nicely in the car boot).

In June R600 bought me 329 kwh of prepaid electricity and this month the same amount got me 255.50 kwh. This change was brought by the start of the new financial year for municipalities and this appears to be what R600 will buy me going forward. Plus my bank charges me R1.50 to buy electricity on their app. 

All these are things I would have easily ignored during my autopilot days, but not anymore. Am I just being too analytical or am on the right track?

Aug 18, 2019

Bonds are wonderful, magical things, but they can be tricky. Pool them all together into an ETF, and it gets even more complex. First of all, the tax on a bond ETF is tough to figure out. Coupons are taxed at your marginal rate, after an exemption. 

When your coupons are reinvested, as in the case with our total return bond ETFs, do you also pay capital gains? The answer is surely no, but when SARS comes knocking for an audit, would you be able to strip out the coupons reinvested for the period? 

What about inflation-linked bonds, where your capital amount increases by inflation with a coupon on top? You’d pay capital gains on the inflation-adjustment and income tax on the coupon. Will you be able to show which is which for the period?

I love thinking about bonds and bond ETFs. On the one hand, they’re incredibly simple, but once you start thinking about the tax implications, the simplicity leaves the building. 

This week, we approach bond ETFs from two angles. As a short-term investment vehicle, bonds make a lot of sense. However, once you start delving into the tax aspect, a bond ETF seems less appealing than an ordinary government retail bond.

The role of bonds in a retirement portfolio automatically limits you to bond ETFs, but why are the inflation-linked bond ETFs underperforming the all-bond index?



Victor

I am required to travel to Mozambique and Zambia for work. 

I require a car that would be able to get me there and back reliably. I currently drive a 1992 Nissan Sentra which breaks down about once every few months. 

Luckily my father lives nearby and he can frequently provide me with assistance (this would not be the case when travelling for work).

I was looking at a second-hand Honda Jazz as they seem to be reliable and provide a good fuel efficiency. The current cost of this car is about R150k. Ideally I would like to buy this car cash in about three years.

I have received an offer of 13k for my car. I think it would be best to sell this car and invest the money, then use my partner's slightly more reliable 2004 Ford Fiesta in the interim (she lives close to work and does not use her car very often - also she is aware of this arrangement, i.e. I won't be stealing her car). 

Considering my budget and still contributing to my TFSA, I estimate that I would be able to contribute about 3.5k per month to savings for the car (increased annually by 15-20%). Taking into account inflation of an assumed 5% p.a., and low average market return of 1% above inflation, I should be able to achieve my goal within the specified time frame.

My question however pertains to the best investment vehicle for short-term investments. I have looked at cash/cash-equivalent, income investments, money-market, and bonds. 

Firstly, understanding the difference between the first three is fucking difficult. Bonds I kind of get and I agree with you, they are cool to think about. Should I invest all of my money (13k lump sum + monthly contributions in the same investment vehicle? Or should the lumpsum be in a different place, say fixed deposit or a notice account or one of these weird products which banks offer? While the monthly contributions go elsewhere like a bond ETF or into the NewFunds TRACI or perhaps even a combination of the two?)

Furthermore, I consulted your guide to bond ETFs. I prefer the bond ETFs which reinvest your money, so I would have to choose between NFILBI and STXILB. Satrix have a lower TER and most of their bonds are long term thus providing better rates. Therefore, I believe STXILB is the better product? In terms of cash investments I like products which I can access through my broker (such as TRACI) rather than my bank.

Please assist me as I am very confused about which investment strategy would provide me with the best returns. Does my investment horizon allow me to look into bonds? Or should I only be looking at cash/income/money-market things?


Win of the week: Cindy

What have you done to me? I have turned into that obnoxious person telling people to keep their cost of living low and to invest in ETFs. And I blame the Fat Wallet. :)

I wrote to you a little while ago with plans of tackling my debt like a rugby player after some much needed Fat-Wallet-encouragement. Since then, I have paid off my debt but got back into debt thanks to a shitty emergency fund. Now, I am hella close to paying it off again with the backing of a pretty sexy emergency fund.

Fat Wallet and Just One Lap have been educational, motivational and just damn inspiring. I am so ridiculously into personal finance that I am on a serious mission to change my work environment to the financial sector. As a graphic designer I want my job to fit my values - to design in order to educate people about their finances and not to design to make people buy more crap.


Chris

I'm currently doing an ETF based retirement annuity on the Sygnia platform using the following split:

Local Equity - Coreshares Top50 - 45%

International Equity - Satrix MSCI World - 25%

Local Property - Satrix Property - 15%

Bonds - Satrix ILBI - 15%

Cash - 0%

I'm unsure if I have chosen the correct bond ETF to complete my Reg 28 compliance.

Initially I thought an inflation linked bond would return inflation + 2%, however looking at the historical performance, inflation linked bonds seem to have underperformed inflation over the last 5 years (ILBI index returned 4.37% from 2014-2019). In contrast, the GOVI index has  returned 8.18% over the same period.

How can there be such a huge discrepancy between the two indices, particularly as one of them is linked to inflation and should therefore be returning greater than inflation? 

I still have 20 years to retirement so my goal is to set my RA up as aggressively as possible - I.E. I don't mind short term fluctuations. Do you think the GOVI or the ILBI is the more aggressive fund (hopefully returning better long term returns)?


Willem

My basic fee sits at 1%, but then they add a performance fee clause which is pretty unclear.

I’ve looked at the other options. The only passive investment which I can select is the Satrix Enhanced Balanced tracker with a flat fee of 0.36%, which sounds much better. Do you have any comments on this ETF? 

I’d like to make this change, but I just feel that I don’t really have much of a choice with regards to passive funds.


Ashley

I am looking for the lowest cost provider to put together a bespoke share portfolio (chosen by me) in a retirement wrapper, for part of my retirement investments. PSG offer the service but it requires that you appoint a PSG advisor at an additional cost of 1,15% per annum. You’ve made me allergic to fees that don’t add the required value. I’m quite happy to pay handsomely for the professional services rendered but am battling to rationalise a fee based on a % of assets under management – especially given the size of the underlying portfolio.

I don’t drive a particularly fancy car, but the fee I will end up paying to the advisor would allow me to pay off two more similar cars. I’m looking to invest – without having to buy the investment manager two cars that could be mine.

 I understand that you may be reticent to recommend a particular provider – but could you guide me in my search by suggesting a couple of places where to start.


Brenda

I have just turned 60 and have unfortunately made many disastrous money decisions in the past.   

I have only been permanently employed, and contributing to a pension fund, for the past five years.  

Needless to say, the thought of retirement (age 65) fills me dread and until now I have just stuck my head in the sand and tried not to think about it.   

I have two properties (both currently with big bonds) but on retirement the proceeds from selling one will pay off the bond on the other, so I will have a paid up house and a roof over my head. 

With only a few years to go, what is the best way of investing if one doesn’t have the benefit of time in the market?   RA? or TFSA?

I am contributing a total of 20.5% of my current salary into my pension fund (company contribution and mine together).


Matthew 

My parents have asked me if it is a good idea to put a some portion of their investment portfolio in the DCX10 index. They are not computer literate so I recommended they just stick to ETFs as crypto currency is more complicated to trade, hold, and a great way to lose your investment if you do not know what you are doing. 

Having access to crypto though this index takes out the complications above. So is it an option or is it too good to be true?

Can I view this index as an ETF? By that I imply,

Self healing and removing bad performing currencies.

Gives diversification and a weighting based on some predetermined method[1].

Tokens are generated or issued like ETFs.

Are you protected in some way? (e.g. Trade insurance, compliance as an a financial service provider, etc.) Can DCX10 be trusted to some degree?

Taking past experience into account, will the token still be around even if the crypto market retraces? Remember that the previous BTC retrace in 2018 was over 80%from all time high and subsequently majority of altcoins retraced over 90% from all time high. Can DCX10 cancel the token due to bad performance?


Chris

I have a share portfolio of R1m . I also have a Unit trust portfolio of R1.5m from which I live.

I am considering investing in a foreign ETF.   Will probably start off with R1,000.

Any suggestions?

Aug 11, 2019

For two years we’ve had to live with the shame of the Listener Love Index. The wisdom of the crowd is not quite so wise when it comes to stock selection. Let that be a lesson next time a friend offers a hot stock tip.

This week we finally replace that horror show with our new index - the Fat Wallet Price-Weighted Index (FWPWI). The methodology is one step dumber than that of indices weighted by market capitalisation. Market-cap indices multiply the number of shares in issue by the share price. We ignore the shares in issue and focus on nothing but the price. You’ll find JSE-listed companies within the R80 to R250 price range at the start date. 

I’m curious about how this index will fare against our benchmark, the Satrix 40. In essence we’ve stripped the outliers - at the top we’re talking Naspers and a bunch of commodity stocks. At the bottom, property. 

We end up with a fairly defensive index. You’ll find a number of consumer staples and retailers - those businesses we can’t do without during tough times. The index is heavy banks, which could turn out to be disastrous if that dreaded downgrade finally comes. Here’s hoping Dario is right about that.

Here is a video of how we put together the index. In the podcast we discuss why understanding this matters to beginner investors (and everybody else). The coolest part about this index is that you can easily replicate it for your portfolio. You simply add the average price you paid for your holdings and divide by your number of holdings. That will give you a DIY bird’s eye view of your overall wealth.



Steyn

I’ve started to realise that property might not be a very good investment. As I understand it, there are two factors that make a property a poor investment:

  • On average it only grows at around 7% - just a fraction above inflation
  • CGT doesn’t care about inflation

I ran the numbers and it became clear that the CGT you will pay after 20 years almost strips your growth entirely. 

If you buy a property for R1m and it grows at 7% per year, it will be worth R3.95m after 20 years. 

In today’s money it would be worth R1.23m. So in real terms, your property only grew by R230,000.

If you want to sell it, CGT will be calculated on the total growth of the property and not the inflation adjusted value. CGT will therefore amount to R210 000. After 20 years you only made R20,000 profit. This is sad.

This has not been the case with our two properties. We’ve been very fortunate with both of them:

We bought a rental property in a new development three years ago.

They only finished and transferred last year October. 

Over the past three years, the property has grown tremendously and in the meanwhile new phases were added which made the development quite sought-after. 

The developer kept some units in our block and is now selling them for R1.5m. If I can sell it now I will make a nice profit, but I can’t since there’s a clause that restricts me from selling before five years unless I’m willing to pay a penalty. This is to keep speculators from tanking the prices.

We also bought another house which is our primary residence at about R400,000 under market value. 

  • Is my rationale correct that by cashing in on this equity and putting it into ETFs or an RA, would be better over the long run? 
  • I’m considering putting the two bonds in a structured facility at FNB. This might give us a better interest rate (currently 9.5 and 9.6% respectively). Do you know anything about structured facilities and is there anything I need to look out for?

Lastly, I’d like to share a property hack:

I have a 55 day interest free period on my credit card. So each month I put my whole salary minus debit orders in our bond.

For the next 55 days we live off the credit card’s interest free period. We clear the credit card after this period and restart this cycle. If we continue to do this over the next 20 years, we will save about R260 000 in interest and take 18 months off the term without using any of our own money. 


Dario

SP has kept our credit rating below investment grade....for now.

I can't say I agree with Ramaphosa in all things, but I do recognise that he has the potential to steer this country into a better direction.

I am a firm believer that he will at least get SP & Fitch to upgrade us up to investment grade.

I think we have some time to prepare for this. I don't think 2019 is the turning point just yet. How do we best position ourselves and how much upside is there?

I currently hold some STX40 in my TFSA but I think investment grade affects bonds the most considering our JSE is largely offshore? 


Gregg

You have my school-going son investing R300 a month of his pocket money into a Global ETF – how’s that for awesomeness! I’d much rather he do that than blow his money on what typical teenagers get up to now a days. Well done guys! 

If I buy a house worth R1.5m, but I take out an access bond for R2m, it means I have automatically created an emergency fund of R500K. I don’t pay interest on what I don’t utilise, so I would only be paying interest on what I spent, in this case the R1.5m. 

I totally get it that this is not the same, nor as good as buying a house for R1.5m,  then putting R500,000 into the bond thus reducing it to R1m, but still being able to access that R500,000, all the while it is “saving” me interest. This is ideal. 

But in the first instance, if one does not have a big enough emergency fund, is this not a good way to kick-start one?


Rudolph wants to know if raising taxes does the same thing to the market as raising interest rates does in terms of inflation, economic growth, investments, corporate profits, government revenues, etc?


Ben wants to know if it’s dumb to sell his old EW40s for ASHEQs in a TFSA.

Aug 4, 2019

Making mistakes is a great way to learn. Someone can explain diversification a hundred times without ever having the same impact as one share dragging down your entire portfolio. At Just One Lap, we like mistakes almost as much as we like questions. We know - mostly from experience - each mistake gets you closer to that ideal portfolio. 

In this week’s episode, we use Ntombe’s question as a kick-off point for some of the common mistakes we all make when we start investing. We talk about the tendency to be too diversified when we start out. We discuss why starting your investment journey outside a tax-free savings account is really not a good idea. Here are some other common mistakes we discuss:

  • Checking your investment account daily
  • Taking on too much risk because you’re in a hurry
  • Not taking on enough risk because you’re scared
  • Not having a strategy
  • Not paying attention to fees
  • Waiting too long to begin
  • Leaving your important choices to someone else
  • Thinking you should earn more money before starting

If any of these apply to you, don’t miss this one.



Win of the week: Ntombe

I opened a brokerage account last year. I didn't know much so my thinking was a "learn as you go". 

I bought shares that were very cheap, testing waters. 

Balwin Prop, Vukile, Delta, PnP, Old mutual and Satrix Top40. 

Out of all of them Satrix is doing well. The rest are always in the negative. So I'm thinking of selling even if I lose and just buy more on Satrix T40 and Prop and other ETFs maybe TFSA. What will you advise me to do and which one are good? I don't have much so I use my salary and currently able spend about R200 pm buying on my EE, which is a start for me. 

I was just shooting in the dark. Did not know what I was doing, it was a learning curve. I'm still learning but I'm getting there slowly. They were very cheap, also because I've seen these names and thought they kind of big companies.


Brecht 

I have a savings bank account in Germany with some Euros in. The interest rate on this account is less than 1%. Would it be worth my while to move this to a broker where I could invest this money into ETFs in Germany? How does the tax implication work on this?


Nadia

You mentioned that Robert Kiyosake's advice on buying gold isn't such a great idea. I'm not very clued up about gold and I was wondering if you have done a podcast I could maybe listen to about why you think buying gold isn't such a good idea? My mom knows a lady who also firmly believes that gold is the way to go and I'd love to hear your view. 


Wim

I invested in a cow about 9 months ago and paid R8,500. 

To my surprise last month I received mail saying my cow, Silly, was on its way to the slaughterhouse.

I was paid about R9,600 after all the deductions, feeding,  entertainment etc. 

It was about 8% return on investment in less than a year. I felt chuffed, but haven’t decided to repeat since cost increased considerably.

I have a bond with remaining debt of about R500,000. My wife and I contribute more than double the repayment required. We have RAs. Should we rather push our extra savings currently going into our tax-free saving, RA or into the bond or continue with R2,750 into the tax free/RA?

I would also like to know if it is possible to choose a south African stock at the end of your show or once a month that prove a good investment opportunity. I do realize ETFs remain the primary equity vehicle for investment.


Waldi

What do you guys think is the best type of investment for him seeing as he is close to retirement age? Should he just put the money into a savings account and let the interest run on that amount? Is there still time for investing in ETFs? Or should he look at other things like Property (Maybe to rent out as an AIRbnb) or offshore accounts? 


Joyfully Prosperous

I've inherited some RDF (Redefine Properties Ltd) shares and noticed that the analyst consensus on Sharenet is to sell them at the current price levels. These levels are in line with the lowest in the last 5 year period. So, what am I missing? Why do 86% of the analysts agree that they should be sold. Can these analyst opinions be trusted in general?

Jul 28, 2019

FW1_2907We can all assume the chief economist at Stanlib knows a thing or two about the world. Imagine my alarm when I read he thinks we need to fall out of love with equities. Thankfully the headline was just clickbait and Kevin Lings said nothing about Bitcoin. If you let yourself read beyond the headline (lesson learned, I assure you), you’ll find a thoughtful explanation of why the South African equity market is where it is today.

In this week’s Fat Wallet Show, Simon and I discuss what our alternatives are if we don’t love equity. We get to talk about bonds, which makes me so happy. We also delve into stacking your home loan and the right amount of emerging market exposure for equities.

Roberto

What's a general recommendation percentage-wise in ones portfolio allocated to emerging markets? I have been buying Satrix World and Emerging Markets ETFs in my tax-free savings, split 70% and 30% respectively. Is that perhaps too aggressive on Emerging Markets? I have seen online 20% max is usually recommended, at least for investors in Europe.

@layoutordie

Stocks give a 13% return, but (tfsa aside) you pay tax now or later. Paying off home loan gives a 10.5% (or greater) return, tax free.

Am I missing something, or is a tax free return of 10.5% better than equity?



Win of the week: Shane

We recently adopted a rescue cat named Myshka.

She's 18 months old, has all of her vaccinations and has been spayed.

I've been listening closely to your views on funeral cover and thought that the same philosophy could be translated into pet insurance.

We spoke to a veterinarian friend of ours who indicated that Myshka is unlikely to have any health issues during the first 5 to 7 years. She has a life expectancy of at least 15 years. Diet apparently plays a large part in their health, so she's only getting Science Diet (There go our bubbles...) With this information, the plan is as follows:

Step 1: Obtain quotes for the "Rolls Royce" of pet insurance for an 18 month old female cat with no medical history (Let's let the actuaries assess her risk and do the hard work for us for free).

Step 2: Select the most expensive quote (the theory is that we are selecting the most risk averse actuary out of the lot). This quote came to R410 per month.

Step 3: Round up to R500 per month to build in an extra margin of error for risk and invest this amount into an equity ETF and watch our Money Bunnies grow (thanks Stealthy!).

We worked on the following figures and assumptions:

- R500 per month contributions adjusted annually by inflation (assuming 5%)
- Assuming an annual growth of 12% over the 5-7 year period
- Adjusting the 12% growth down by our assumed 5% inflation figure to 7%

We are assuming we are in a relatively safe space regarding kitty health in the first five years After 5 years we enter the "danger zone" but we have almost R30,000 in today's money to pay for vet bills.

Assuming the pet insurance premiums don't increase (which they will), this means that we would be spending in excess of R24,600 in insurance premiums during the first five years of Myshka's life.

This is the same period of time that she is at low risk. This investment is not as liquid as we might want it to be for an insurance, but that's why we have our six-month emergency fund to draw on in case of kitty emergency. We can then slowly replenish the emergency fund or cash out some or all of our investment to replenish the emergency fund when the market allows for it.

By the time Myshka reaches the end of her lifetime at a conservative 15 years and assuming she hasn't had any major health events, we will have a tidy little sum of R215,000, which can be put towards a royal kitty funeral with loads of bubbles or a golden plaque in memoriam of our beloved Myshka (Don't worry, I'm just kidding, I'd never invest in Gold... Bubbles it is!)


Brecht

A few years ago I worked for MTN and they had a share incentive scheme in which the employee received shares after a certain number of years of employment.

I’ve watched these shares climb very nicely and have watched them drop very nicely.

I am way over invested in one share and was wondering how best to start selling and getting diversified whether in ETFs or other shares. My thinking is to start selling R40,000 a year to not incur CPT and that would be a great start to funding my TFSA and buy some other ETFs with the extra? Your thoughts?

Currently my MTN shares are with ABSA stockbrokers and they charge a +-R80 admin fee every month. Would it be worth moving?


Sexy Bear

Two years ago, I found myself desperate and in a deep, dark hole to the tune of almost R3m.

That was made up of a house, vehicle debt and over R600,000 in unsecured loans and credit card debt. We overspent my income by at least R20,000 per month!

From the outside looking in, I was probably ‘living the dream’. The reality was vastly different! I was unhappy and in debt that I couldn’t even afford to go away for a weekend.

I realised it was absolutely absurd that despite earning a decent salary I was literally broke.

I put the house and my wife’s car on the market, I started frantically paying back debt a little bit at a time, lump sums when I had them.

The legal fees for the divorce set me back a bit in my journey but they were SO worth it, I was divorced within six weeks. I also had an ANC which was helpful…

Today and I am in a much healthier (and happier) financial position!

I only have a few more rehabilitative payments due to my ex-wife.
I am debt free.
I have an emergency fund
I have a credit card with a R 1,000 limit.

The bank initially wouldn’t reduce my R 350,000. I had to threaten to close my account.
I have closed my Allan Gray Equity account.
I have consolidated my RAs into one.
I have fully funded TFSAs for my kids and myself
I am in the process of changing my medical aid from Discovery to Genesis for a R1,500 per month saving.
I have threatened the bank that if they don’t waive my R475 pm account fees, I am changing to Capitec… They have asked for a meeting to discuss…?!?
DSTV is on its way out…
I have life insurance for my kids… and a will…

I max out my RA annually.

This is with 10X now, at 75% local exposure? (Reg. 28) I don’t want any more developing market (or RSA) exposure.

Because I don’t want further rand exposure than already in my RA, I believe the STXWDM is right for the TFSAs. Am I correct in saying that I already have enough emerging market exposure in the RA?

I have a further R500,000 pa that I want to invest in dollars. I prescribe to Patrick McKay’s take on buying the market, so I am interested in the Vanguard world from either Ireland or the US.

Should I use my EasyEquities USD account to buy VT ETFs or try and set up an Interactive Brokers account and buy the VWRD? I am aware of the death duty on the VT, but you can’t control everything (or anything at times!), so it wouldn’t cause me sleepless nights that if I were to croak suddenly there would be a tax liability. If I were to croak slowly I could always sell or move prior to my last croak…

I would need an international will with the VWRD through IB, would I require an international will for the EasyEquities VT?

Is the EasyEquities USD account truly offshore?

If I reach my goal of financial freedom, become an international jet setter and say moved to Croatia, would I be able to access these EasyEquities USDs from there, assuming I have a Croatia bank account?

Do you see any gaping holes in my financial restructuring above?

At this point I will have all my investments in three places: 10X RA, TFSA STXWDM and EasyEquities USD VT, although I feel OK with this do you feel that it is sensible?

Jul 21, 2019

Tax-free savings accounts have an annual limit of R33,000 per year and a lifetime limit of R500,000. It will take 15 years’ full contribution to reach that limit. The money in a tax-free savings account is not liable to any tax, except VAT on brokerage. For as long as you hold the account, you pay no dividend withholding tax, income tax or tax on capital gains. While you can’t make up the contributions you missed, you can continue contributing to the account until you reach your lifetime limit - however long that may take. 

The tax savings on these accounts is what makes them so indispensable to a long-term portfolio, but that by no means implies that these accounts are only for those with a long-term investment horizon. The tax savings start from your first dividend payment, which means they are for everyone who prefers not to give 20% of their dividend to the government. If you listen to this podcast, we’re assuming that’s you. 

Can you be too old for a tax-free account? In this episode, we argue these accounts are not age-dependent. We also spend some time discussing appropriate asset classes as you get older. As Patrick Mckay likes to point out, the tax-free allocation is the last money you ever want to use. If you’re in your 70s, that probably gives you an investment horizon of 10 years or longer.



Joyfully Prosperous is wondering how to handle his mom’s TFSA account.

My mum is 78 years old. Does it make sense to open a TFSA account in her name? If so, would the Satrix 40 ETF be a better option than the Satrix Property (SA) ETF considering that the tax-free benefit will fall away eventually when we inherit shares from the estate.


Win of the week: Jennifer from New York.

I want to express my deep appreciation to you and the Fat Wallet crew for such a thoughtful and informative podcast.

I am 42 and live in New York City. I came across your podcast in a blog post last year while searching for English-language personal finance podcasts from around the world.  I'm painfully aware that my knowledge and cultural biases around finance have been molded by media sources that function as if the United States is the only country in the world that matters.

Through the Fat Wallet Show, I have learned about topics specific to South Africa, and have found connections between those topics and issues we deal with here in the U.S.  In a recent episode, you discussed the fact that some banks to intentionally mislead customers by stating misleading interest rates. Simon pointed out that in the UK, institutions are required to disclose the APR (Annual Percentage Rate). Here in the U.S., banks must also disclose the APR, a fact that I have taken for granted until I heard to this episode. I did a little googling and discovered that in the U.S., this mandatory disclosure only became law in 1968.  This is consumer protection I'm certain most everyone my age here takes for granted.

In addition, I am humbled by your resolve to continue steadily investing through a years-long economic downturn, a situation which we very well may face here at some point. My work colleagues are quick to stop contributing to their retirement accounts as soon as there is any slight downturn in the S&P 500, such as what happened at the end of last year. And of course, they only resume investing when the markets are back up. When the U.S. does enter a real recession, I plan to continue dollar cost averaging into my index funds. I understand that is easier said than done, but I hope I am able to be as steadfast as you are.

As a side note, I've realized that my current top three financial podcasts seem to have a common theme - they are all hosted by women with journalism backgrounds!

  1. The Fat Wallet Show
  2. Afford Anything (hosted by Paula Pant)
  3. This Is Uncomfortable (hosted by Reema Khrais)

Keep up the excellent work, and again, thank you from the bottom of my heart.  If you or Simon ever find yourself in New York City, I'd be happy to take you out for coffee (good coffee, of course).  :)

P.S. Please tell Simon that we here in New York also cannot stand the Orange Man. I must constantly remind myself, although it is a small comfort, that he did not win the popular vote. :(


Kea 

What do you think of a trust for shares?

I am getting married in September. It is difficult for me to convince her family to marry out of community of property.

I want to open a trust to put my ETFs in it. My partner and I have different views about money, I am a saver and she is a spender. I intend paying University and school fees for our children with this investment and am scared she might have different views about the use of this ETFs.

What are the disadvantages and advantages of having ETFs in a trust?


Hong Kong Hans

I'm a new listener and new to researching. I live abroad, so can't deal directly with South African products, but I've learned so much general knowledge from your show and enjoy it tremendously.

You've mentioned several times that buying shares in a company entitles you to a share in the profit. How are we to understand companies that don't pay dividends despite turning a profit? For example, facebook has pretty decent profits, yet have never paid dividends at all.


Fried

So thanks to you guys, I moved my (and my wife's) RA to 10x. Was quick and painless and didn't cost too much. The IT3(a) I received from Sanlam assigned the SARS code 3920 - RETIREMENT FUND LUMP SUM WITHDRAWAL BENEFIT. There's another spot where the code is 3699 but I can't find a description of it on SARS' website. 

I didn't withdraw that money, it was transferred directly to 10x, it didn’t touch my account.

I'm really concerned about this and hope that you would be able to answer 2 questions, and hopefully set my mind at ease.

  1. According to the IT3(a), the lump sum is taxable. Do I now have to pay tax on that money? On money that moved from one provider to another? 
  2. Will this lump sum withdrawal affect my tax-free withdrawal limit when I eventually retire in 44 years, 17 months and 24 days?

Victor

Would the following scenario then make sense as a retirement strategy? My partner retires two years before me.

I continue to work and we cover our living expenses using my salary during this time. 

When I retire two years later, we draw down from her retirement savings (which should then be taxed at a lower rate) to cover our living expenses. Then when I have been retired for two years without earning a salary we start drawing down from my retirement savings as well.


Rudolph

What criteria is used to regard one market as "developed" and another as "emerging"? Does gross domestic product or gross national product per capita play a role, what is the cut-off point?

Are EMs more susceptible to global market volatility, in comparison to DMs? If so, what causes such? Could it be that, their markets, assets, and level-caps, are smaller, therefore less resistant to shocks and volatility?

What type of stocks or asset classes are more profitable in EMs as opposed to DMs? 

In what instance would you rather hold debt and equity in EMs? If the yield is higher in EMs, what determines such yield? How is such yield influenced by political, interest rate, and exchange rate risk?


Rob

As a result I now have about 80% saved in cash and the rest in various ETFs.  I have made the decision to transfer the entire 80% that is in cash into my EasyEquities account and have submitted the relevant forms to EE and FNB already.

Once the cash has been transferred to my EE trading account, should I purchase one or more ETFs immediately or should I buy smaller numbers of shares at a time in order to phase in my investment?

One of my concerns with phasing in is that any cash I have not used to buy shares will attract a cash management fee from EE of 1.75% and only accrue interest of prime minus 3.5%.

Jul 14, 2019

At age 37, Patrick Mckay had amassed enough assets to sustain his lifestyle without ever having to earn an income again. In the biz, this is what we call financial independence. 

The Financial Independence, Retire Early (FIRE) movement has enabled many younger people to think differently about their expenses and assets. Even if you love your job, understanding basic FIRE concepts like the 4% rule is a great framework for making better financial choices.

But what about people who are further along their journey? Is it possible to apply these principles in your fifties? In this show, Patrick and I discuss how older people with insufficient retirement savings can use FIRE to ensure a financially secure retirement. 

Here are some of the tools we discussed in the show. 

https://www.investorchallenge.co.za/com_calc_fire.php

https://investorchallenge.co.za/the-only-way-to-get-rich/



 

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