Compiling a financial plan before you earn an income or when you have very little is ideal. You can’t afford any bad financial habits yet and your cost of living is probably as low as you can get it. As it happens, those are the two most important ingredients to rocking your finances.

Generally, our umbrella financial plan, the one-size-fits-all beginning to financial life, goes as follows:

• Pay off your debts
  Set up an emergency fund of between three and six months’ living expenses
  Protect your assets with dread and disability cover and insurance
  Invest in ETFs using tax-free savings accounts
  Have a retirement annuity

In this episode we use this framework in the context of unemployment or low income. This one’s for you if you’ve never worked, if you worked and then lost your employment and if you have less than R500 per month to invest.

P.S. Remember to mail us if you want to help us sell Just One Lap.

Win of the week: Margharita

Since discovering Just One Lap three months ago, my finances have undergone a HUGE spring cleaning. I'm saving 50% of my earnings; am maxing out my RA; have opened a TFSA; started investing in the stock market through EasyEquities; changed banks (to Capitec); reviewed all my policies and got rid of those that overlapped; started using 22Seven to track my spending and last but not least, did the homework on (and then eliminated) costly financial advisor fees. Thanks for providing a great resource, as well as the encouragement to manage my finances "like a grown up!"

My questions:
1. You both love the Ashburton 1200 ETF. Why do you prefer this to the Satrix MSCI World ETF, when the TER on the latter is slightly lower?
2. If I invest in the Ashburton 1200 ETF, is it best to do this within my TFSA, or in my general investment account? Or both?

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Santosh

Capital Legacy stated that if someone dies in a hospital, the hospital reports it using the person’s ID and an online system and immediately the bank accounts freeze.

No time to "go to the ATM" as the death will be reported even before the family knows

Desmond

My mum has been waiting five months to receive her pension. We've been to the GEPF and have only been shunted from pillar to post and promises. There has been no assistance from them whatsoever.

Aman

I've just completed a cash out of my EE USD account to my FNB Global account. I'm assuming this would work the same to the similar global-type accounts offered by the other SA banks.

There was no charge on the EE side for the withdrawal. The only fee was the cost of the receiving bank (mine being R55 for the amount of $33/R465).

This gives me peace of mind as EE isn't clear on the cash out process in their FAQ section.

Anton

In the offshore investing with Candice Paine, investors are cautioned to have a will(s) in place that properly deals with any offshore assets.

If memory serves me correctly, in another podcast Kristia mentioned a company well versed in preparing offshore wills. However, for the life of me I cannot find this podcast and it would be quite a challenge to trawl through all the likely podcasts (I have attempted some but without success!).

Do you perhaps recall the relevant podcast and the name of the company?

ZAQfin

Kieran

I have grown to be an advocate for low-cost, index-tracking long-term investing. I have begun to advise my younger sister financially in this regard, as she has recently started earning. Personally, my investments are simply split between:

- S&P500 (Sygnia), MSCI World and Emerging Markets (both Satrix) ETFs in TFSA (27% of total);
- 10X High Equity RA (41% - aiming for lower but contributed a big lump-sum a few years ago);
- Cash balance in Capitec account (32%).

I’ve advised my sister to first and foremost use her full TFSA allocation and buy S&P and MSCI World. Thereafter, to purchase the same ETFs in her standard non-TFSA brokerage account. In addition, an emergency fund of somewhere between 5 and 10 months of expenses, obviously in a savings account with high interest (Capitec/Tyme).

Assuming she still has additional funds to invest, is an RA the right way to go? I like 10X because it maximises Reg28 allocations and mirrors the low-cost, index-fund strategy of just buying ETFs, the major benefit of course being the tax-deductible contributions.

But the money is 'locked away' for much longer, and potentially shielded from the full returns of its underlying indices (S&P, MSCI World, etc), because of the Reg28 limitations. Would love to hear your thoughts on when and why one might or might not begin contributing to an RA

I grew up with the idea that you can lose “all your money” in the stock market. I’m sure many people did. Movies about the stock market don’t do much to put us at ease - if it doesn’t end with someone losing their last penny, it’s not very entertaining.

This week, Nadia got us thinking about what it really means for your portfolio when there’s a stock market crash. Her anxiety was provoked by Rich Dad, Poor Dad author Robert Kiyosaki, who stated in a recent interview that all money is fake and we should all buy gold and silver. Fat Wallet veterans can guess how we take this news.

We talk about what we actually mean by a stock market crash and the different ways that could affect your portfolio. We also share some gems from our Twitter community.

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Nadia 

I was wondering if you guys could help ease my mind a little. 

I've been wanting to do a lump sum deposit into my TFSA and split it between the Satrix top 40 and the Satrix MSCI world. I have most of my TFSA in the Coreshares equally weighted but I think I've given up hope for that ETF and I'd like to cut it out once it's back in the green (if that happens). 

When I was about to do my lump sum, I came across this article "Rich Dad Poor Dad' author warns South Africans of 'biggest financial bubble' ahead".

This made me a little nervous and got me thinking about a market crash. I don't know if I understand exactly what happens to all your investments when the market crashes. What will happen to my TFSA investments, my RA, Unit trust etc if the day comes where the markets crash. 

What do you do in that situation? Do you just wait a few years for it to restore itself? Should you buy while the price is low and hope for it to climb up the ladder again? For example, if I had 50k in a Top 40 ETF, does this mean I could potentially lose that 50k if all those top 40 companies fall flat? Could this happen in a market crash or would it only be a few companies who take the plunge? 

I think having a better grasp on what situations could unfold in the future would help me feel more confident about where I'd like to put my money and it'd help me understand what to do or how to handle things if shit hits the fan.

Thanks again for the amazing work you guys do. Honestly, I'd be completely lost without you.

From Twitter

@SammyJoeD

Lol I don't know but I'd like to think it's a closed system (don't ask me to elaborate, it makes sense to me that way), the money goes into someone else's pocket, say someone who has placed a bet on the option that the market will crash. 🤷

@andrevdwal

It hits the vehicle's windshield!

@Gerda04288858

Peeps panic and jump out of windows. Some unlock the safe and use their gun. Bad stuff. 

@adelinerodd

Nothing

@tshidadoz1

When the market crashes, u loose all your investment... then other  non- finance people laugh at you for wasting money by investing so it would have been better to chow it🤷🏽‍♀️

@adriaan222

Is the money invested in shares, or in cash form? I think it stops being money when in share form.. 

@OneAfrica12

It immediately stops growing. Waits for market recovery and grows very very slowly while investor recovers his losses.

Win of the week: Brett

My short journey started in 2017 when I became a financial advisor/broker (not an IFA) with Liberty. I’ve always wanted to be someone who made a positive difference in people’s lives and I thought that this was the perfect opportunity. I drove to all my clients, so this gave me loads of time to listen to podcasts. Then I started listening to your podcast.

This is when I started to understand what was actually going on. I looked deeper into the investments I was recommending, and the fees charged for them. I always knew there were fees involved, but I did not fully understand the impact they can have on your investments over time.

After asking my Regional Manager why the fees were so high I was told:  “There are loads of costs from our side and you need to earn an income too.” This made me mad, but I did have to earn an income as I was earning on a commission-only basis (another huge problem with the industry). 

When you start out, all you want is to be as successful as you can. But that success often comes at a cost to someone else, someone else can only afford to put R400 away per month for their retirement but would have to pay a fee of 4.2% per annum. 

Most of the time they were not even aware of this. As Simon says, ”It should be illegal”. I also found out that 90% of active fund managers underperform the index, so I was basically being paid for poor returns since I could only provide active funds to clients. 

It got tougher and tougher with each passing week and I felt the main reason I had started the job had been compromised. I could not carry on so I quit and hoped for the best.

Since then, I have learnt more and more about investing and saving, and even got a job at one of my favourite companies (10X Investments) as a consultant. I am paid like a normal person (basic salary) and don’t take any fees. 

I believe the problem is not with the advisors/brokers/wealth managers. The problem is with the companies that do not educate or train them properly, especially when it comes to passive investing and low fees. It’s just sad to see that the people who need the most financial help are the ones being screwed over the most by the big companies.

I have never been happier since I left ’the dark side’ and believe that I have helped more people now than I ever would have previously. So I just wanted to say thank you to you and others, like Sam Beckbessinger, for shining the light.

Smith 

I have a few thousand to invest over 10 to 15 years. Are the current open Barloworld KhulaSizwe shares are attractive in large volumes - in my situation between 1,000 and 10,000 shares.

Should I buy 1,000 shares only and invest in other investment vehicles. What would be suitable ETF to buy with the remaining money with relatively good returns in the next 10 to 15 years.

Robyn

In the five concepts podcast, you mentioned that dividends were paid out to you and you got R500 odd for doing nothing.  I recently bought my first shares and ETFs through the Standard Bank Online Trading platform and want to know HOW the dividends are paid out?  Does the money go into my trading account or into a personal account? Also, when are dividends usually paid? Is there a specific time of year or is it different for all companies?

Andy 

I have a significant amount of money invested in the Liberty Evolve Capped Tracker, which is a Top 40 Tracker.

I’m not 100% sure the costs involved but the Financial advisor who sold it to me said that there are no costs but the returns are capped at 8% for the first three years (any returns in excess of 8% is shared with Liberty) and thereafter returns are uncapped.

The Effective Annual Cost (EAC) is at 0.6%. 

The investment to date has grown by 3.1% pa (lost all first quarter gains in May unfortunately)

Should I exit as soon as I can (August 2019) and move it into the Satrix 40 on my STD BNK OST account? I will have to pay CGT on this,  but I don't understand the product and not sure what costs are hidden. 

Would you also suggest putting a portion of it into STXWD? The amount in question makes up about 40% of my net worth. I have the other 30% of my net worth in a residential flat in Cape town (Access bond completely paid off) earning a nice yield (11%pa) and the other 30% is made up of individual shares (more speculative smaller caps) on OST, an Allan Grey RA and a small amount in STXWDM.

Jonathan

My financial advisor friend says the better funds in SA have a proven track record of 10  years beating the index

Because 10x reports before fees while all other funds report after fees, 10x is obscuring a true comparison.

10x released a video today showing their performance comparison after fees, against "average fund managers", which isn't pretty for fund managers. However, he argues that calculating the average with a 10x hat on will include all the worst funds to push down the performance.

Could you comment on these figures from 10x, allan gray and investec opp:

10 year performance:

10x: 10.2 before fees

Allan gray: 12%

Inv opp: 11.3%T

Gerhard

“Most active managers have a hard time beating the index. Why do they have a hard time beating the index? The index owns the haystack. In the haystack are several needles. The index doesn’t need to go hunting to find the needles. They just bought the entire haystack and all those needles came with it. The S&P500, Apple, Microsoft, Google, Facebook comes with it - all kinds of businesses that have incredible economics and tailwinds are just part of that haystack. An active manager goes and tries to find the needles in the haystack. What ends up happening is they also end up owning haystacks, but those haystacks have no needles in them. The index is too dumb to know it owns Amazon. The active manager is too smart to pay up for Amazon.”

Adam M sent a link that explains the debt snowball method we’ve discussed before. 

Find the Just One Lap DIY debt repayment plan here.

If you are earning money, you probably know you should have an idea of where your money should go and why. Most of us avoid drawing up a financial plan because we think we don’t know enough to make good decisions. For some reason, the head-in-the-sand approach is the only comfortable thing about money when we start out.

In this episode we argue even a terrible financial plan is better than no plan at all. Without a financial plan, it’s so easy to fall prey to noise. Sometimes the events that inform our financial decisions have nothing to do with money. In these moments we make emotional decisions that could very well destroy our wealth over time.

You are welcome to copy my financial plan until you come up with your own. Here it is.

1. Get assets

An asset is something that can earn more money in the future. Since I’m only at the start of my journey, my brain is my biggest asset, because that’s what I use to earn an income. Educating myself is a further investment in this asset.

The income that I earn is a consumable until I turn it into an asset. I do that by buying shares. Shares are assets that will bring in more money in the future by going up in value. They also pay dividends as long as I hold them.

I buy shares using my retirement annuity and through my EasyEquities account. In my EasyEquities account I’m buying the Ashburton 1200. You can find out why here.

2. Protect the assets

Accumulating assets is what wealth creation is all about. Once you manage to get your hands on an asset, you want to hold on to it so you can earn an income from it. Most of the time, you need to protect your assets from yourself.

I protect my hardest-working asset, my brain, by having a medical aid and dread and disability cover. Should something bad happen and I can no longer earn an income, I have insurance that can take care of me.

I protect my income by managing my tax burden. I do this through my retirement annuity allocation. Because I pay less tax, I have more money to turn into assets.

I protect my shares with my emergency fund. I want to sell my shares on my terms at a price that I find acceptable. If I need to sell my shares to take care of myself in an emergency, I have to accept whatever price I can get in the market, which means I might lose money. Selling shares can also trigger a tax event.

I further protect my shares by using a tax-free account. All the income and profit from selling shares at a higher price than I paid for them goes directly into my pocket, tax-free.

That’s my entire strategy. This strategy holds up, no matter what’s going on in the market or in politics.

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Win of the week: Gerrie

When I realised every R300 in my hand on the day I retire gives me R1 per month for the rest of my life! Screw the 300 rule. Don’t see it as a rule. Make it practical. Even better... Since I'm a good few years from retirement the number is even better. Every R200 I put away today will get me R1 per month from age 60 till I check out much much later. I now check all my non-critical expenses against that number. Servicing my car last week was necessary, but it stole R25 per month from my retirement. So my next car should be simpler and cheaper to service.

See the full conversation here.

Dirk

I recently became a US citizen, I have a 401(k) and a small equity portfolio with some single stocks that pay divvies, some ETFs and flyers I took on recent IPOs.

The rest of my family is still in SA and unfortunately my dad is sick so I’m thinking about coming back to the Republic at least semi-permanently or chasing the summer months between the Northern and Southern Hemisphere.

I have zero assets in SA, not even a bank account, but I’m fo’ sho jumping in on the TFSA. I’ll still be working for a US company remotely from SA, earning dollars.

Will SARS come after me for money I earn while living in SA for less than six months out of the year? Should I skip the advantage of a TFSA to remain “off the books” for SA tax purposes and just be liable to Uncle Sam? I suppose a tax pro will help but I’m trying to tap into the wisdom of the crowd here with your excellent podcast.

Adam

Quick one on one of your adages on working towards financial independence. Make sure you are well covered for medical expenses - at the very least have a hospital plan.

My son was recently admitted to hospital - he ended up in the NICU for almost a month. Throughout the process I continually checked with the clinic about our "tab" just to make sure things were fine. He was diagnosed with a very rare blood disease (1 in millions) and passed away after fighting for four weeks.

We were left with all the invoices to start making their way through and the bill ended up around R1.3 million. Thankfully Discovery (who have been very cool throughout everything) paid over 95% of that. Small blessing, especially when one of your frequent reminders of his fight are the bills that come afterwards.

Just wanted to put things into perspective for the larger crowd. These things DO happen.

There's an organisation called Rare Diseases which acts as a support group for parents with children diagnosed with a rare disease. But within that organisation is something called Rare Assist who support parents (for a small monthly fee) with the administration of dealing with medical aids. I kid you not we were getting around 10 daily notifications when my son was in hospital and eventually you just left it to white noise.

Anyway, this organisation helps ensure all the invoicing was done correctly, all in-hospital expenses are carried out accordingly and they even motivate for additional costs to be paid. Such as the 200% / 300% scenario where they motivate the gap to be paid. In our cases they recouped close to R15,000 for us. Not bad for a R270 monthly fee. Also, they can support even typical households - it needn't be rare disease.

You never knew such organisations exist unless you are caught up in that world. Call this part testimonial / advice for parents out there.

Lloyd

I’m not a first-time buyer. I’m selling a property that will give me R1m in my pocket to invest.

A crappy house costs R3m and entry point is closer to R4m. These same houses can be rented long-term for R15-20k per month, vs the R22k a bond would cost.

I’m trying to work out if it is better to invest the R1m or to put this down against a bond of R3.5m on one of these expensive houses.

If we rent for R15k and invest our cash elsewhere, we have flexibility and save a whack on maintenance and property taxes, which can be as high as R2k in these areas.

It seems like a no-brainer, except you eventually end up with a "valuable asset" at the end of the bond where I am not sure my R1m will grow as well?

Mbasa

I have a preservation fund that can wipe out my home loan.

Would it be wise to take a tax knock to pay off my home loan and use the free money to add to my TFSA account? I want to contribute the full R33k and max it out as quickly as possible.

Riaan

Until now I’ve been maxing out my TFSA in a savings account at Investec earning 8.62% per year. I didn’t know anything about ETFs,  but still wanted to save TFSA money.

I then discovered your podcast, stopped contributing monthly towards my Investec TFSA and started contributing to an EasyEquities TFSA (Satrix Rafi 40 and Satrix MSCI World).

Do I leave the money with Investec or transfer it over to EasyEquities to buy ETFs? Do I stick with the Rafi 40 and MSCI or do I diversify a bit more?

We don’t recommend jumping into your first investment before you have your financial house in order. The humble emergency fund is at the heart of any good financial strategy, followed by insurance.

At the beginning of your financial journey, you don’t have many assets. When you’re starting out, whether it’s getting a handle on debt or starting from zero, your ability to earn an income is your biggest asset. You need to protect that asset first. Your emergency fund covers your expenses while you find new work, should you lose your job. Your medical aid helps you take care of your body so you can show up for work. Your dread and disability cover replaces your income should an accident or illness render you unable to work.

Once those risk management strategies are in place, insurance to protect you from having to cash in your assets (once you start building those) become important. Car insurance and insurance on things that allow you to work, like your laptop and cellphone, are recommended.

The purpose of insurance is to protect your assets. Once you start investing, you want to remain invested for the long-term. If an emergency could put you in a position where you have to sell your investments to pay for the emergency,  you want to make sure insurance covers you for the emergency.

However, on your personal balance sheet, insurance remains an expense. It protects you from needing to destroy your assets, but it doesn’t build your asset base.

As you accumulate more assets, your wealth can pay for emergencies. This is called self-insurance and it’s wonderful. You can take care of yourself without destroying your asset base. Once you stop your insurance contributions, that money goes towards building your asset base even further.

This is a delicate dance. Over-insurance means your money goes towards an insurance company, not towards your asset base. Under-insurance puts you at risk of losing the assets you already accumulated. It’s worth keeping your finger on the pulse of this issue all the time.

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Sebastian

Once you reach financial freedom would you cancel your current life, income protector and disability policy? I do have 3 rugrats, hence the current need for the insurance.

John

I know you guys always say people without dependents don't need Life Insurance. My broker said that while this is true, I am still young and healthy with a low monthly premium ~R150 a month. He said that should my health status change in the next few years it would be way more expensive to get life insurance then. (I know he would be getting a kick back but that’s ok). I get returns into my PPS profit share account which is expected to have enough capital after 7 years to pay for the cover itself. What are your thoughts on this?

Paulo’s son qualified as a dentist last year.

He needs to 'insure his hands' for obvious reasons and he needs to insure himself against malpractice. What route or products would you guys suggest he use?

Hickley Hamman: MacRobert Inc Attorneys

"Insuring his hands" is maybe more specific than he needs to go. Most income protection/disability policies cover you for an inability to practice your chosen profession. If his chosen profession is dentistry, that should do it. An insurance broker would probably be better placed to advise him.

On the malpractice insurance front, again a broker is always a good idea. He can also contact the South African Dental Association at 011 484 5288, although I think they may be allied to a particular indemnifier. There are a number of good players in the market, the main ones are probably Dental Protection (UK based but big presence in SA), Natmed and EthiQal.

Professional Indemnity insurance is one of those things you think and hope you'll never need, but it happens. He should make sure that the cover he receives is for the costs of a legal team, damages (probably minimum R500k) and also covers matters before the HPCSA.

Some of the insurers will also offer benefits beyond all that and will provide advice on general ethical issues, and also cover for criminal proceedings (it happens). Generally speaking in an increasing litigious environment, I think it's a good idea to get broad cover.

Win of the week: Bongani

Today I had a conversation with mom about retirement. She doesn't have pension fund at work and her salary is not enough. I still look after her, she’s never had a proper job.  I had convinced her to save R150 a month and I will add R200 a month. I want to open easy equities account for her. She is 50 years old, which ETF I can pick for her? I know R350 being invested for 15 years it will make a huge difference, better than not putting money away.

Boitomelo

Suppose I have already contributed R66,000 into my TFSA account and I happen to receive a lump sum. Is it possible to "pay in" the R434,000 and thus max out the TFSA? Or is it a case of, once you start the annual thing, you must continue that way until you reach the limit?

Hugo

I belong to my company’s Retirement fund. It is by far the biggest contribution I make to my retirement, combined with a generous allocation from my employer.

The default Balanced fund I am in has a EAC of 0.75% (Not bad for one of the largest fund managers in the land?!) The Umbrella manager of the Retirement Fund gives us the choice of several funds, some the same cost, some more expensive, all Reg 28 compliant of course – just with different strategies.

Now I noticed they have a “Passive fund” – with a cost of just 0.35%.

They say:

Its asset allocation is directly comparable to the Specialist LifeStage Range (Which I currently invest in), but instead adopts a passive multi-manager investment approach where it selects skilled managers that can passively replicate the exposure to these asset classes.

Sounds like they use ETFs to replicate the more expensive actively managed funds. It almost sounds too good to be true. The benchmark asset allocation is very similar to my current fund. Based on fees alone, it seems like a no brainer. Wonder what you think?

Jonathan

I used to hold a handful of stocks, most performed crap, and I just bought ETFs. I'm holding on to Shoprite and Discovery. I back both companies in the long term, so I'm not worried about the awful performance (I'm down 15% and 20% respectively). I was wondering though if Simon and you could comment on the price movements.. Discovery swings wildly, while Shoprite has more of a constant movement (down).

Why does Discovery swing much more than Shoprite and why does the market hate them?

Next one - you made a comment that you're paying 11.5% on your house. Surely you can do a percent better somewhere else, given your in financial sector? Or are you impacted by the fact that you're "self employed"?

Santosh

I have a lump sum to invest and my options are cash or stocks.

With the performance of these classes over the past three years and instability in the global markets it appears that wherever an investment is made, it either all moves up or down.

No longer are bonds the hedge it once was - it also moves with stocks. Asset classes are no longer decoupled the way it was in the 1980s.

What I find particularly frustrating is that the efficient market has become very efficient in efficiently taking away in one week what it had given the previous week.

Last week I lost R130K overnight over three days and made R30K back by Friday, which saw me end off the week about R85K poorer, through no fault of my own!

I have noticed is that the Allan Gray Stable Fund does not suffer the wild swings given the performance of the JSE, MSCI World and X-Rate (ZAR/USD)

Does this not strengthen the case for a Stable Fund or portfolio structuring to mirror a typical stable fund by way of asset class allocation ?

Mbali

I have an RA and Investment for my son’s education with an additional life cover with Liberty. I’m pretty happy here.

I have a money market fixed deposit account with Investec. I got this 5 years ago. I feel like I should be looking into the interest I’m getting, but honestly I’ve been saving into this account for so long I’m not sure what I need to be looking out for. I don’t remember there being a tax free element.

I’m looking at opening a dollar account, can you share some insight on what the benefits and disadvantages of these are for saving? Noting that the dollar is pegged to the UAE Dirham. So this is very good for me.

I’m looking to get a tax-free account through Standard Bank to build a future emergency fund. I’m sure you’re asking what the hell is this? Well I figure that I might come home in the next 5-10 years. So I would like to come home to an emergency fund in case I really struggle to get myself back on the market and my business up and running.

Questions:

1. How do dollar accounts work, who provides the easiest and best dollar rate? What are the tax implications for me as an expect after the dreaded changes in 2020?
2. Should I be worried about having so much of my financial planning in South Africa (operating in Rands)? Dubai is not really an option for me to save as interest offered is so low (between 1%-2.5%).  I’m only comfortable with South African’s financial regulatory framework.
3. I won’t make the R1m a year mark for 2020 tax, but I’m wondering if I will be hit with any of the above financial instruments I do have and the ones I want to get?
4. I would like to dabble in the ETF market, reading a lot and listening to you guys a lot. Just a question for you guys:  Am I adding too much to my portfolio? I am willing to be aggressive with a small amount to start off. Where should I go?

Get Down Adam

Donate your relatives to science! Ka-ching!

My gran died and we gave her to Wits medical school to use as a cadaver. They collect the corpse and take it to Wits. The Med students do their thing and then at the end of it, they wrap the cadaver up in - I guess what you would call it is gauze. Anyway, long story short, a year and a half after the death Wits sends you an email to come and collect a little box of ashes from their anatomy department. Cue the triangle sandwiches! Wallet remains fat!

Before we begin, please take a moment to complete our survey. It would really help us out.

Investing is daunting because there are no clear answers to basic questions like, “How much money do I need?” or “Am I on track?”

To make matters worse, financial institutions like to exploit our limited knowledge on the subject by making promises that aren’t exactly false, but not exactly true.

If you’ve been investing or listening for a while, you know the market has been struggling for years. As a result, we are getting a growing number of emails from investors who are concerned that their lacklustre portfolio growth is the result of either the products in which they are invested or the institutions managing their money. Two weeks ago we talked about when poor performance is the result of bad management. Find that episode here.

This week we help you think about what your performance actually means. My tax-free account is up by 17%. However, I started investing in my tax-free account in 2015. Inflation for the period is 21%. I am 4% poorer, even though I have more money. My discretionary investment account paints an even bleaker picture. That account is 5.6% in the red. Since I started that investment in 2013, inflation has been 32.8%. My investments need to gain 38% for me to be back where I started. If I didn’t understand the impact of inflation, a 38% growth in my portfolio would seem like payday.

As it happens, our friend Stealthy wrote a blog about the effect of compounding, not only on your investments, but also on your costs. He made a compounding calculator that will bring a tear to your eye, which you can download here.

You might enjoy running your own numbers.

The discussion was inspired by a discussion on The Fat Wallet Community group. Join here.

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Win of the week: Carl

Perhaps you're just Starting Out on your Journey, a 21 Year Old with Too Much Bad Debt & a Small Investment Portfolio, receiving a Few Hundred Rand in Dividends every other Month, Thinking, 'this is gonna Take Forever & I'm Never gonna make REAL Money so why bother'.

Perhaps you're a Financial Genius and the rest of us are just a 'Cautionary Tale' to you.

Perhaps you're a Lowly BlueCollar just like I am... and the Only Time you get to See the Inside of the Boardroom is when you're Cleaning it... and Nobody Ever Asks about your Ideas or Opinions, in Fact, Most don't even know your Name even though it's Printed on your Uniform.

LIFT your Vision for your Salvation is at Hand - and who's Coming to Save you from yourself? YOU! Which is GREAT because that Means Complete Control is in YOUR Hands!

I Feel I have Absolutely NO Reason to Boast, because I only Managed to Start Investing at Age 38... after Making Sure I Squandered every single Opportunity Life threw at me..

For Most of my Life I Thought the Best Plan was to Spend my Last Cash on the Day I Receive my Next PayCheck…

As you Grow Older you'll Realise that Time isn't Important, it's EVERYTHING - because of the Compounding Effect.

So, are you Going Laduuuuma! - or are you Constantly Scoring Own Goals?

How about Setting Small, Incremental, Reasonable, Realistic, Attainable Investment Goals - BabySteps, because your Personal Investment Journey is Probably a Daunting Sight...

When I Started Investing ALL I Dreamed about was Receiving my First Dividend... and the Golden Egg was R130 Laid by Country Bird on 21/11/2011- Because everyone Likes Chicken, Right?

It was the ONLY Dividend I Received in 2011... but I was Ecstatic with Joy because I Reached my Initial Investment Goal - I Felt like a Millionaire, like I wanted to Buy Drinks for Everyone!

Then I Started to Dream about Receiving a Dividend EVERY Month... and 2015 was that Year.

Yet Again I Felt Immortal, because I had Reached my Goal.

Then I Started to Dream about how Cool it would be to Receive R10K in Dividends in a Single Month...Well, End July 2019 WILL be that Month - and yet another of my 'impossible' Dreams WILL be Realised! - and this Time I WILL be Buying Drinks for Everyone - because Everyone Loves Bubbles, Right?

Now I'm Starting to Dream about what I Need to DO in Order to Receive R10K in Dividends EVERY Month, of EVERY Year...

I'm Thinking about WHY it Took 9 Years to Reach this Goal.

I'm Thinking about HOW to make it Happen Again.

I'm Thinking about How to SHORTEN the Period - Perhaps Halve it to 4.5 Years...

If you're NOT Dreaming - START!

If you ARE Dreaming, NEVER Stop!

If you Give Up, the Outcome is Predictable & Guaranteed, so Start Climbing that Mountain Standing between You & F-I-R-E.

Don't Start Tomorrow, don't Start Today, START Right NOW - and ADD another Zero to the BottomLine!

Khwezi

I just turned 35 and came to the realisation that I don’t have money to retire on, let alone to leave for my wife and child, in 15 years (as I plan/ planned).

Would it be possible to structure my portfolio as follows:

3 Defenders (those that provide cushion/ prevent loses, giving +/- 15-20 year returns)

4 Midfielders (a champions league great mix of conservatives, and aggressors giving returns in about +/- 10-15 years)

3 Strikers giving returns in 5 - 10 years.

I recently joined the Just One Lap community and before your shows have been tip-toeing around in the dark with no clue whether I am going forward or sideways to a cliff.

S’fundo wants to know what homework he should do before investing. He’s 22.

I recently started my investing journey, and I am looking forward to investing for long term returns (15 - 20 years) so I can take full advantage of compound interest.

Which are the most effective due diligence processes to undergo when valuing a company or ETFs to determine if they are worth buying for the longer term? How can someone with no prior knowledge of the markets or finance world learn going through those processes effectively?

The sad thing about the work we do is that it has a 0% sexy rating. Once you understand the five financial concepts we keep harping on about, it becomes easy to figure out the rest. The things we invest in won’t make you rich overnight. If it did, we would be sipping champagne cocktails on a beach, not talking about the five financial concepts a hundred times a day.

However, the work we do here will hopefully help you identify poor financial choices before you make them. This week, Karabo shares the story of her grandmother’s funeral cover. All hell broke loose on Twitter after I posted about it. The feedback was either, “If her grandmother had died in the first month it would have been a great idea to get funeral cover.” Or, less kindly, “Funeral cover is a scam.”

This week, we offer ways to think about funeral cover. It’s an insurance product, and insurance plays an important role in financial management. However, like all other short-term insurance, there comes a time where you have to stop paying for it. The sunk cost fallacy makes that much harder in funeral cover.

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Karabo

My grandmother passed away recently. I found out from my mom that for the past 13 years she's been contributing R250 towards a funeral policy that paid out R10,000.

When I do my own calculations, if she had simply saved without any interest earned, she could have saved R39,000.

She's trying to convince me to get a funeral policy but I'm not buying the maths as a funeral policy would only work if a person dies in a few months.

Is there a way of saving money that can earn good interest as a death insurance for family members without taking out a funeral policy? How can I convince my mother to consider alternatives to funeral policies?

Andy

Was listening to your "What the Fee" episode (March 10th) and wanted to let you know that Ucount rewards can actually be redeemed as cash. (Nothing against Playstation VR, but I am an XBOX guy)

I racked up about R9,000 worth of Ucount over five years and received an expiration notification. I redeemed R8,000 and put it into my investment properties bond.

What you have to do is redeem the points into a pure save account (terrible savings account), from there you can transfer it where ever.

I see they also have options to put it directly into a TFSA etc. They can only be redeemed in R2,000 increments.

I currently contribute a total of 10% of my salary to my RA which is compulsory at my work. (my work pays 50% of my contribution, so 5% myself and 5% company).

My company has chosen to use Allan Gray and we have some Durban-based advisors.

The actual Annualised return since inception has been 1.72% and over 3 years 1.74%.

The admin fee, platform fee and advisor fees comes to 2.66%.

I would love to max out the contribution to 27.5% but I don't want to put it into that RA. What options do i have here? Do i have to negotiate this with my company or can I open a separate RA and contribute 17.5% to ETFs?

Lalitha is 59 and she has a nice lump sum to invest. She thinks she’ll probably retire at 65. She already has a tax-free account. Where should her money go?

Beyers

What is your opinion about keeping a portion of your emergency fund in Kruger Rands as a currency hedge?

How are Kruger rands taxed when you sell them?

Milan

On Sygnia's platform you are able to buy Sygnia ETFs in a RA wrapper. The net result is one of the cheapest RAs you can get at the moment. I have attached a breakdown of my fees. The EAC is just 0.41%

There is also a check to make sure you are Reg 28 compliant. You do not have to invest in bonds or cash to be Reg 28 compliant. Your portfolio can comprise of just Equities and Property. If your custom portfolio breaches Reg 28 allocation rules you have 12 months to fix it.

Anne

I am trying to teach my kids to save money and buy shares with their savings. My son insists on buying gold shares. Is there any etf with the word “gold” in that could be a good long-term investment?

Sometimes we say you should move your investments, sometimes we tell you to stay invested no matter what. This week, we receive two questions about moving investments. We use them as examples to discuss when it’s a good idea to cut your losses and move on and when you should hold tight and wait for the market to recover.

Sign up for our movie night here.

Tamryn

I have RAs two with Old Mutual.

I contribute R1,500 a month to one, increasing by 10% a year.

I transferred the RA from my previous job to the other one, so it was just one payment.

I tried to work out the growth using Stealthy's formula. If I did my calculations correctly, they are not doing well, unless I don't understand the results.

The lump sum one grew by 7.7% pa. The other one was even worse, over 177 months, only returned 3.9%.

Are they doing terribly? I know they would have been affected by the stock markets not growing a lot the last few years.  I have been thinking about moving, but there will be a huge penalty.

Follow-up:

I just received the EAC for my two policies, the once-off one is 4.1% p/a. The one I pay in monthly, the 1st year, the EAC was 17.5%! Year 2 was 7.9%, from now until I retire  its 4% pa.

I'm just waiting for them to let me know the penalty for moving.

I can't believe it! 17.5% and this was an advisor my gran used and trusted so my mom and I used him too.

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Zee

Recently I started taking control of my own investments. After being invested in unit trust at major brokers for years, the growth and dividends were not satisfying.

I now invested funds in smaller amounts in units trusts, more in a TFSA and the rest in ETF. After listening to a few of your podcasts and studying a few blogs, I have diversified accordingly.

Can you advise if my current portfolio of ETFs are the right choices or if I’m duplicating any:

- STX40

- STXWDM

- STXNDQ

- STX500

- PREFTX

- PTXTEN

- Standard Bank Rhodium ETF

- Standard Bank Palladium ETF

I also bought equity shares via EasyEquities in Discovery and Shoprite.

Lastly you spoke about Bond ETFs. Any recommendation to which one will be suitable with a portfolio like mine?

Lavinia

And if I haven't said it to you and the team recently, a HUGE big thank you for this blog. I have learnt so much since signing up.

Truthfully, for the first time in, like, FOREVER, I feel as if I am on top of my finances and finally working towards getting down debt and building wealth.

I read your blog whenever it comes out, I try attend the Power Hours when I can, they are gold to meet and hear the experts in person, and dare I say it, but the dream of financial freedom is attainable. Which is saying something, as I seriously inherited some bat shit crazy, nonsensical, hysterical money mythology from my poor parents.

So thank you for all the effort to host the Power Hours, the effort to write and research and to share all the info with me. Li'l old me is making sense of this money stuff, finally!

Rudolph

How are some defensive stocks, 'defensive', if they are also sensitive to interest rates, for example, banks, utilities, and real estate? And also possibly stock market volatility?

Cait has a relative who gets an irregular income from running a preschool. They’re trying to work out how to calculate the 27.5% they should put towards her RA. She pays the expenses of the school and uses what is left over for her expenses.

Antoine

1. I have no obligation to save for my kids’ retirement. As far as I am concerned, it is their life, which means it's theirs to mess up or succeed with.

I’d much rather give them the education they need to succeed and make sure they never have to look after my wife and I financially. If these priorities are ticked and I have some cash left, I'll pay for them and their spouses and children to go on family holidays with us. What's left when I drop dead, will go to my grandkids' education.

Give your children the best shield and sword and send them off to slay their own dragons. I think you take a big risk on future interest rates, to rely on a possible student loan while saving for their retirement. The only place I see use for a TFS account for kids, is for saving birthday money they get from uncles and aunts.

2. Say you borrow money at 10% per year, and you invest it and get a super 13% return. If your income tax is 30% you will be left with zero minus any costs involved including vat. What am I missing? Can you deduct the 10% interest on the mortgage loan from tax? I don't think SARS will fall for :" I use this mortgage loan to earn an income on the stock-market." This will only work if you are making money by renting out the bonded property.
3. If the people have R100 and government have R100 and the GDP increases, government prints more money. So if the inflation is 4% it means government will print R8, which is 4% of the total R200.

So the end result is government has R108 and the people have R100 but the R100 can buy 4% less than the year before.

This is why government bonds can always keep track with inflation.

Do I understand this correctly?

Ronald

I am a bit surprised that no mention has been made of the EURO STOXX 50 Index listed as the SYGNIA ITRIX EUROSTOXX50 here in South Africa. This index fund was recommended to me by a German stockbroker friend who has had 40-years experience at the Dusseldorf Stock Exchange. In his portfolio the Euro Stoxx 50 comprises of 85% of his portfolio the rest DAX and DOW JONES and cash.

Lorin wants to know if we can recommend a wealth mentor.

At what point did South Africans become so obsessed with having money offshore? For a while everyone was obsessed with gold, then something about Jacob Zuma and suddenly Magnus Heystek was a thing, like a bad dream.

Our friend Edwin has this ability to ask a question in a way that stretches my brain more than any answer ever could. This week, his question was simple, “What’s the point of taking money out of the country?” What, indeed!

P.S. If you wanted to catch a movie with us at the JSE, you can register here.

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Edwin

I have little money offshore from a previous company share scheme. It is in an account managed by the company scheme and doesn’t cost me anything or grow. It just sits there.

It’s in pounds, so every time the Rand drops I feel richer. I also like the thought of having an emergency stash offshore should I need it one day.

I have thought of repatriating this money and it raised a whole lot of other questions. What is the point of sending money to another country when you can

1) Buy global shares and ETFs with Rands from SA

2) Buy currency if you need it quite easily through a number of platforms e.g. Standard Bank Shyft, Easy Equities.

Unless someone is buying a villa off the south coast of France, or planning to spend time overseas why do people bother “sending money offshore” when you can just as easily buy the Rand hedge in Rand in a locally sold ETF or in currency itself?

What am I missing? Is there an advantage to having your physical currency in another country or should I bring my pounds back home and just buy a low cost ETF?

Pierre

I’ve been contributing fairly regular lump sums to an offshore USD denominated Allan Gray unit trust since about 2016. According to Allan Gray the costs of this investment are as follows:

1. Annual investment management fee = 1.16%
2. Annual platform administration fee = 0.56%
3. Annual financial advisor fee = 1.15%

I’m not sure if this total of 2.87% includes fees that the company who does to actual exchange from ZAR to USD charges every time I add to the investment.

Should I just stop contributing to this unit trust, hope for the best and continue contributing to my EasyEquities USD Vanguard S&P500 ETF? Should I try to close this investment, have the funds exchanged to ZAR and reinvest it into EasyEquities USD. I am not aware of a way to have the investment directly transferred from Allan Gray US to EasEquities USD, are you?

Mzwa

For all the noise that comes with it, BBBEE schemes in my opinion are not radical at all, and barely benefit the average black retail investor. Instead they largely benefit high net worth and these BBBEE connected folks and well-poised trusts and institutions.

I say this because mainly because of the complexity that it comes with. At times you don’t even get access to main shares. The company offering the BBBEE deal is basically just providing the loan, and and any dividends must first pay up the debt.

The discounted share price is countered by the debt that needs to be paid back, and missing out on dividends. Does not seem very worthwhile on paper for small time investors who likely do not have a tax free account, and are nowhere close to maxing their RA yet, and perhaps only trying to learn about the financial markets.

What’s different about the BarloWorld deal is that it’s a sale and lease back agreement, and with guaranteed cash flows, the debt might be paid up quicker and value realised perhaps around 5 to 10 years.

I just would like to hear you weigh-in, especially for people like me who could still put in money into Tax Free savings and/or RA. I am still young and not yet high earning, but I don’t have any debt. As much as my financial principles say first look at ETFs in Tax Free, the urge of not letting such an opportunity go is peeking my interest.

We reference Craig Gradidge's excellent BBBEE Power Hour in this discussion.

Moya

This will sound clichéd, but you guys have totally altered the way I view money and financial advisors (sneaky little shits).

I’m a medic, recently qualified specialist at age 33. With all this education I was schooled in finance by my junior/minion at work. With the hierarchy in the medical fraternity you can imagine how this felt.

He introduced me to ETFs,TFSAs and the Fat Wallet podcast.

My mom recently retired when I came across all this new info. She was a professional nurse and her retirement fund was the government “dinosaur” pension fund. Her fund has paid out the ⅓ (she still refuses to disclose how much it is regardless of how much I flaunt this new knowledge) and the remaining 2/3 into a living annuity that pays her monthly.

She wants to invest a big bulk of that ⅓. She anticipates being around for more than 20 years, my gran died at 102, so it’s understandable. What products would you suggest for that money?

Gregg

Base – Emergency Fund – 40%

Next tier – ETFs and Bonds – 35%

Top tier – Equities – 25%

Do I need to sell some of my equities to free up cash to do the rebalancing – I could take some profits from some equities and also sell some of the losers? What would you advise?

How do I invest directly into Inflation-linked Government Bonds where the maturity period of that bond is in line with when I want to retire - for example a Govt Bond that matures in 20 years time?

Is this a wise investment as part of diversification?

Is it better to invest into a bond ETF as opposed to directly into the bond – what is the difference?

Darren

I want to plan for certain savings goals, like yearly veterinary council fees, car maintenance, local holiday trips and overseas holidays.

Let’s say I would like to save R1000/month in total for all of the above savings goals together. Do I buy different ETFs for each different goals or do I take the R1000 and split it between different ETFs. I feel it is quite overwhelming choosing them?

Boitomelo

I will most likely continue with the Ashburton 1200 only or maybe add a local one as well and have only 2 ETFs. In my current EE normal account, I have the Ashburton 1200 and the Satrix Divi Plus. What do you guys think of that ETF? I have been wondering if I should swap it for the Satrix Top 40 or just leave the Ashburton and sell out the DIVI.

Pierre

Over the last year I’ve closed unnecessary bank accounts, halved my monthly contribution to a managed collective investment scheme, run by my financial advisor, and I am now investing it myself in an ETF portfolio via Easy Equities.

I’ve also moved my TFSA from my financial advisor’s product to Easy Equities. I manage my tax better and I have a hands-on approach when it comes to my personal and business affairs, instead of just leaving it to “the professionals”.

I’ve been thinking about moving my RA from Discovery to 10X to decrease fees. I raised the issue with my advisor and received a response that I couldn’t make head or tail of, except that I shouldn’t move. Armed with the knowledge from the Fat Wallet Show, I scrutinised my policy documents and came up with the following:

I actually have 2 RAs! (never knew that)

The first is called the Discovery Retirement Optimiser RA. I started contributing in March 2017 when I was 34 (please don’t freak out, I built up a sizeable GEPF pension while I was doing in-service training).

Discovery reports that the Internal rate of return with their built-in benefits since I started contributing has been 5.21%. Without their benefits has been 4.08%.

The TER on this investment is 1.92% and transaction costs are 0.18%, so total investment charge is 2.1%. I suspect my financial advisor must also take a fee, but he’s been beating around the bush to tell me.

The gimmicks: if I match my monthly RA contribution to my monthly Discovery Life insurance policy premium, then Discovery say they’ll pay me back an Accrued Life Plan Optimiser which is equal to my insurance premiums paid up to 65. This will be paid back in 10 annual payments over 10 years after retirement. So far, I stand to get just under R50 000 back over 10 years after 65 (if I purchase a Discovery Retirement Income Plan at retirement). Discovery reports that an early exit fee will be just under R15 000, and of course you lose the Accrued Life Plan Optimiser.

The second RA is called the Discovery Core RA. I invested a lump sum of R100,000 in Feb 2017. The policy is now worth just under R110,000. The Discovery reported internal rates of return with and without benefits are similar to the first RA, as are the fees.

The bells and whistles: Discovery “gives” you a Boost Accelerator of 20% of your investment to use to pay your administration fees. This Boost Accelerator diminishes by R2 for every R1 admin fees paid. When the policy reaches 10 years, Discovery will pay you what’s left. I have just over R14 000 at the moment left after 3 years of admin fees — by my reckoning Discovery and I will be “quits” in 10 years, so I won’t see a cent of the Boost Accelerator, but I would have scored on fees. Again, I’m sure my financial advisor is claiming some kind of fee, but I don’t know what.

Kristia will understand my feeling of "Is die kool die sous werd?" If I take the knock and move the Discovery Retirement Optimiser RA to 10X, I’ll be able to catch up the losses in fees before retirement and don’t have to worry about matching my life insurance premium, blah blah.

I’ll keep the Discovery Core RA, because I don’t pay fees, and threaten my financial advisor to take my business elsewhere if he doesn’t tell me exactly what his fee for this policy is. Would you agree?

Brecht

Would it maybe be better to make the policy paid up and just leave it and then open up a new one or is it still worth moving it?

"Shareholder fee is calculated as 10% of gross investment growth (before management fee and tax).

Although it is called a shareholder fee, these days we refer to it as a growth fee, calculated on the growth of the portfolio.

Below are the ongoing fees on the policy:

Policy Fee = R26.82 pm

Allocation charge = 10.25% of each premium"  

The world is changing so quickly that talking about the pace of change is starting to feel a bit clichéd. We measure optimisation and innovation by software updates, not generations. This allows us to customise our lives to a great degree.

From time to time we need to check whether rules of thumb of previous generations still apply to the world as it looks at the moment. Most of the time, large systems and institutions struggle to keep up with how quickly the world changes. One improvement often allows for improvements in other fields.

In this episode we continue to discuss how we can think differently about retirement. We talk about why it’s important to shift our focus from retirement age to financial independence. We also dream about different ways to think about tax.

If you’re new, this episode might feel a bit too hardcore for you. Feel free to start with one that’s more relatable. We just couldn’t help ourselves.

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Win of the week: Slade

Imagine SARS offered a scheme whereby a taxpayer could invest as much money as they wanted into the markets and enjoy all the profits and dividends tax free, but upon death all remaining assets would be left to SARS?    

Of course there would be finer details to work out like:

Does it all go to the remaining spouse until their death then to SARS?

Or 50% to SARS and 50% to remaining spouse?

For those without children or suitable heirs, it would be a great option to unlock the value in the assets that we inevitably can’t take with us.  

Stephen

I want to minimise the drawdown on equities during a recession. My question is, how best could this be tackled? Would I need two Living Annuities or are there products out there that would do this for me? I know I could opt for the ABSA Volatility ETFs but I want the pure offshore exposure.

John

When you invest in an RA, you are really buying a pension.

I know you can take up to one third in cash BUT with the other two thirds, you still have to buy a pension! At what point over the age of 55 do you take your pension.

I suggest when your payout equates to R195,850 p.a (before tax) or R16,320 per month (before tax). After tax is becomes R13,385 per month. One (under 65 years) can earn up to R75,750 and not pay tax, but above this amount one pays tax at the rate of 18% up to R195,750.

Above this amount the next tax bracket is 26% (way too high).

If you are under 55, monitor the tax tables to find the revised numbers for when you reach 55. If you own a pension you will pay tax so keep the tax as low as possible.

Have enough cash to give you R23,800 interest per year, because that's the amount of tax-free interest you can earn.

At this point you have a virtually certain monthly salary of R15,365 after tax. ( R13,385+R1,980)

If your dividend yield is 2.4% after tax you earn R2,000 per month for every R1m invested.

For CGT - If like Simon you are not going to leave anything behind, cash in R40,000 p.a or another R3,330 per month.  Hey! now if you need even more money your CGT is around 11%.

TFSA - the last place to fleece money and it's tax free.

It is as important to have a budget and know and control your spending as it is to invest. When amounts from points 1-5 exceed expenses, financial independence happens. ( If you are cautious add an extra 25%)

Lastly, when you reach FI you don't have to RE but you do have the choice on what to do.

Santosh

I finally scheduled a meeting with 10X, following your show's continual compliments on their products, fees and market approach.

I had expected a "hard sell", but was pleasantly surprised when the consensus was "stick with what you're doing, no need to move".

This shows true integrity from both the advisor and 10X. While we are not doing business currently, it has given me the confidence to keep 10X as one of my top two choices if ever the need to appoint a product and service provider in the future.

Bonolo

I live with my parents and I am a field worker. They live in the townships of Pretoria north and I work in Pretoria East, Centurion and Mpumalanga (once a month).

1. I had an original plan of saving up the money I have left and the incentives I get quarterly in a money market fund until I am 30 years old. I’ve estimated that I'll be able to buy a townhouse cash or at least have 70%-80% deposit. I work in a very high stress job and unstable in terms of employment, so that's why don't see myself paying for a house longer than five years.
2. I could rent but I am also a firm follower of retiring early so I MUST have a home when the time to retire (early) comes and renting doesn't satisfy that part of the plan.
3. I also wanna chuck the money I have left over in index funds and figure my shit out when I am 30, but I don't want to feel like I am watching paint dry. I know there will be a time I'll certainly break because it would feel like I am doing nothing with my life. Also, I don't think I want to live with my folks (they are really cool roomies) that long.

Do you think I can retire on just my provident and tfsa at age 45? Should I focus the money I have left over on getting shelter and invest the extra money after sorting out a fully paid shelter?

Diversification is an important part of risk management in a portfolio. Unfortunately, as with all things finance, there’s no simple diversification solution. This week, we address two diversification concerns: being too diversified and not being diversified enough.

In my own portfolio, I pay attention to three diversification criteria, namely assets, regions and sectors. Since I want my portfolio to grow as much as possible, I prefer equities as an asset class. I don’t diversify this much, since I understand the risks involved and I have enough time to recover from market events.

To diversify across regions, I choose equity-only investment products that invest in multiple regions. ETFs with world-wide exposure are excellent vehicles for regional diversification.

In terms of sectoral diversification, I prefer investment products that invest in sectors relative to their importance in the overall market at the moment. I do this by avoiding sector-specific investments.

My single ETF strategy also takes care of my diversification needs. When I can no longer afford single asset class exposure, I’ll have to start including assets that are less risky. For now, one ETF rules them all.

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Bhiri

Can it be wrong to be too diversified?

My portfolio is probably made up of 75/25 between ETFs and pure direct shares. The 25% shares I am not worried about as, as I get older this percentage will only get smaller and most of my investments will be in ETFs. I'm 37 now. I have the ASHT40, GIVRES, STXIND, S&P500, STXNDQ, SYGWD ETFs and also the STXPRO and SYGLB in my TFSA.

Stefan

I was doing some housekeeping on my two ETF portfolios. I ran a report on all dividends received in the 2018 calendar year.

Even though my PTXTEN from a capital appreciation perspective is deep in the red, I was really happy with the total div received compared to all the other ETFs in my portfolio.

My other property ETFs are not performing as well. For example CoreShares S&P Global Prop did about 50% of what my ptx 10 did.

Which other ETFs have a similar yield? I would like to diversify and buy more etfs but with yield in mind for this particular portfolio. I’d also prefer etfs that are more geared towards global exposure.  It doesn’t have to be property.

Matthew

I have taken a more active approach to my TFSA and am now sorting out my TFSA with EasyEquites.

Now that I have gained the confidence to self manage my TFSA, I am wondering if I should do the same with my RAs?

Between a Retirement Annuity (RA) and a Tax Free Savings Account (TFSA), which should be prioritised?

Is managing your own Retirement Annuity through a site like EasyEquities a viable option?

I noticed the RAs have fact sheets and it feels similar to TFSA. The fees are also under one percent which is way cheaper than with my current provider.

Do I have to take into account Reg 28 when I am investing on the platform? I currently assume all available options are all Reg 28 compliant and I can just invest where I desire.

Are there any investment strategies with regards to a RA? I am only away of appropriate risk e.g. high risk early and move to low risk near retirement.

Could a RA be seen as an alternative to life insurance (assuming living annuity)?

E.g. Take life insurance for the first 5 years of your working life and after that, cancel the life insurance as the RA will pay out to beneficiaries to an equivalent life insurance?

RAs will pay out on serious ill-health / Disability. Is this not an income protector or are there scenarios where an income protector would still be needed as the RA will not cover? Also, would you even recommend an income protector?

Jonathan

My mother, who moved overseas, sold her primary residence.

She has around R1.4m sitting in cash. She is 55 years old, has just enough money to live off from alternative income. Listening to your show, buying another property to rent out seems like a bad idea.

She has a place to stay and enough money to live off. She would like to know what is the best thing to do with the money as she grew up thinking buying property is the only good thing to do with large sums of cash.

Karabo

10x is relatively new and my friend asked what would happen to the monies invested with the fund manager should they go bust.

Is there a way we can "insure" our investments against funds managers going down.

Cliff

I have a few debit orders with EE and I want to be sure that when buying on those predetermined monthly dates I am not penalised by buying at inflated prices (when market maker is offline). How would you suggest I go about this?

Nerina pointed out the cost of debit orders.

Steve

‪If we ask our financial adviser to drop his fees - and rather pay for his/her time - what rate is reasonable? And how much time per year ?

I have only a basic RA and basic cover (disability / income protection) - under the financial advisor’s care. I doubt it’s more than 2-3 hours per year? ‬

For my actual meetings with my adviser I am paying close to 20k per year - last five years are hardly beating cash - with a pricey platform (AG).   

Don’t want to be insulting but short of cancelling and moving to 10x I thought I would offer to pay per  hour and see if anything changes?

Doug

My wife and I max out our TFSAs and have been for the last two years.

I have a pension fund through my work which is relatively fixed. My wife works for herself so, based on advice at the time, opened up an Allan Gray (bleh, fees) Unit Trust. We have ceased contributing to the fund but are unsure of what to do with the amount sitting there (approximately R120k). We have a home loan and are well ahead of curve there - likely to be paid off in about 10 years or so.

What do we do with the R120K?

One option was plowing it all into the home loan to reduce our debt. That would sure feel great but then our only retirement savings would be our TFSAs and my pension fund from work. This feels a bit light and the R120k was initially set aside as part of a retirement investment plan.

The second option we considered was putting this amount into some low cost ETFs on easy equities as a discretionary investment.

The third option was some sort of a split (80/20) between ETFs and the home loan.

Is there something else I am missing?

With the potential of kids in the future we are unsure of our ability to push as aggressively into investing or the loan.

I’ve only ever known debt as the wrathful destroyer of wealth and happiness. Lately, however, I’ve come to realise debt can be a powerful tool in your financial arsenal - if you treat it with respect. Someone recently explained the logic behind maxing out his child’s tax-free account instead of saving for her education.

If a single year’s tax-free contribution can cover much of your child’s living expenses in retirement, imagine what 15 years’ worth can do. Giving a tax-free account time to grow will have greater benefits in the long run than if she started contributing when she started working. Instead, she can use her starter salary to pay back low-interest study debt with her retirement taken care of. It’s genius.

This conversation got me wondering whether I’m making the most of the debt I have available. My home loan is currently the dumping ground for all my savings. This brings down my repayment period and guarantees a higher interest rate on cash savings than any bank can offer me. In this episode we discuss how low interest debt instruments like student loans and home loans can be used to inch us forward financially. We discuss why cars and clothing accounts won’t form part of this strategy and try to figure out when a credit card can help.

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Alexander

My studies are financed by my parents’ home loan that has an interest rate of 9%. This interest rate is still currently better than student loan interest rates I could obtain (10%+). The idea is that I’ll start to repay my parents as soon as I start working. I calculated that I’d most likely graduate with R350,000 to R400,000 student debt owed to my parents.

Should I use the very little free cash I have from my monthly allowance, vacation work and mentoring remuneration to:

1. Contribute to my all-ETF TFSA at EasyEquities?

or

1. Contribute to my savings account with TymeBank (at a 10% interest rate) to pay off my student debts sooner when I graduate?

I know the amounts I’m investing/saving now might be insignificant relative to the massive amount of student debt. But I’d still like to know what is better: investing in your TFSA or attacking student loan debt as soon as possible?

Clarke

My wife and I are in the process of finalising plans to build our dream home. We’ve saved up about 50% of the funds required, which is sitting in a money market account.

We hope to get close to 90% building loan from the bank which would enable us to use very little of our own cash in the initial stages of the build. Hopefully we can pour that money into the loan as required in order to keep interest payments to a minimum while having access to the bond if required.

I’m currently working on an exact schedule of cash flows, but I would require to draw down our investment periodically over the next 7-9 months in order to keep the loan amount to a minimum.

Which investment would you advise I could look into apart from money market accounts or fixed deposits that might yield greater returns without substantial additional risk?

Siphathisile

When I did my articles 2017-2019, I went to the SARS website and answered questions to see if I need to file a tax return. The website said I didn't need to, I'm guessing because I earned too little. Now that I am a qualified professional I know I will have to and I have no clue where to begin...stories about long queues at the SARS offices make me keep procrastinating on going there.

My company offered to pay half my medical aid. Should this affect my PAYE tax amount? Am I paying tax on my gross amount or on my (Gross plus medical benefits) ? I asking because the difference in the amount is nearly R500 and that hurts.

Am I liable to pay UIF since I am not a permanent resident and I am not a citizen of south africa? Will I be able to claim if I was ever unemployed in South Africa?

Shaunton

Do you think it would be more beneficial to add more contributions to my RA or do you think I must open an easy equities ETF account if I want to save more over and above my TFSA and RA?

Steve shared an excellent article.

• Reduce your tax bill in the current tax year
• Reduce your tax bill in the next tax year or in future tax years (any unused portion carries over indefinitely)
• Reduce your tax bill when you withdraw or retire from a retirement fund
• Help you to get tax back from SARS on your living annuity income when you file your tax return
• Reduce the tax bill on cash your beneficiaries may choose to take from your retirement fund or living annuity on your death

Francois has an idea for a calculator to work out how much money you have left until you die.

It should show you how your savings grow on a daily basis!

So what must it do?

1. You tell it how old you are and when is your birthday.
2. You tell it to what age more or less you intend living. 8, 90,100
3. You tell it what your balance is of all your money and assets.

It then works out how many days are left from your current day to that age and it calculates how much money you can spend per day up to that age. If you don't spend any money today, tomorrow your daily spend automatically increases since you did not spend anything today or you received interest overnight or whatever.

You see your balance grow NOT monthly, but daily! Later you add on expenditures and it automatically calculates your new daily balance and so on.

MacGyver

I have a TFSA through FNB. I max it out every year, it's the first money I put away.

However, it sits in cash in this FNB TSFA. How do I go about transferring this to Easy Equities Tax Free account so that I may invest in ETFs instead of it simply sitting in cash in my FNB account?

Register here to attend Stealthy Wealth’s meet-ups.

I learned a lot of important financial concepts from the FIRE (financially independent, retire early) movement. The most useful is the difference between retirement and financial independence.

The days of companies supporting retired employees in retirement are a distant memory. If you are plugged in to your finances, this is great news. It means there’s no correlation between your age and how long you have to work. We focus instead on financial independence.

All of us have a magic money number. The great news is that our number is entirely in our control, because it’s based on our spending. Simply put, your monthly spending times 300 gets you in the ballpark of your FIRE number.

That formula works because of the 4% rule, which our friend Stealthy Wealth lays out in this post. Basically, 4% is how much of your portfolio you should be able to cash in every year to allow your capital to grow by inflation. That means your portfolio never shrinks, so you never run out of money.

If you accept the 4% rule, you have to reject some age-old ideas about asset allocation as you approach retirement. In retirement planning, we are often advised to deduct our current age from 100 or 120, depending on what you suspect about your longevity. The number remaining is the percentage of your portfolio that should be in equity. Unfortunately that means a person who is 50 years old will have half their portfolio in low risk, low growth assets.

The 4% rule is unlikely to apply to such a conservative portfolio, since it’s unlikely to yield high enough above-inflation returns. Remember, you can only use whatever you earn above inflation to keep your capital in tact. If inflation is 6% and your portfolio only grows at 7%, you can only use 1% of your capital. Unless you have a huge amount of money, that won’t be enough to sustain you for a year.

In this podcast, we brainstorm new ways to think about how to set up a portfolio as you approach financial independence. We work on the premise that you need between five and 10 years’ worth of living expenses in low-risk assets on day one, so you have the option of not drawing down your portfolio during a market crash.

We offer more questions than solutions in this one. We are excited to hear what you have contribute.

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Colin

I signed up for a Just One Lap's ETF portfolio subscription account over two years ago and have been using the recommendation for my TFSA. There are supposed to be subscription fees payable after the first free year, but I have never been approached to pay any fees to keep my subscription account active and my login still works!

I am concerned however that the portfolios I see when logged in are perhaps not the most current, because I have not paid subscription fees! This concern is brought about by comments I have heard on the Fat Wallet podcasts, that make me wonder whether the current  > 10 year portfolio (that has holdings: CSEW40 40%, SYGWD 40%, PTXTEN 20%) is the current recommended portfolio. For example Simon often mentions on the podcast that the Signia MCSI World ETF have much higher costs that the Satrix equivalent, and given Just One Lap's emphasis on watching and reducing costs where possible, that makes me wonder why the SYGWD is still in the >10 year portfolio and whether I am seeing updated portfolios.

Margaret

The recent discussions about CoreShares changing their index made me want understand more of the underlying methodology of the underlying index.

Indices for one country seem relatively simple (e.g. S&P 500, our Top 40 index), but if you want to go for the one ETF to rule them all strategy you have to have more complexity. I see there's the Ashburton 1200 and the MSCI world that track the global markets. Could you explain how these indices are created?

Are there any indexes that track emerging markets over the world? BRICS? Latin America and Africa?

Kristia’s ETF analysis checklist:

• Asset classes: are you buying shares, bonds, property or a combination?

• Regional exposure: where the companies in the index operate

• The investment universe: is it the whole market or only a sub-sector of the market, like technology

• Methodology: how the index is weighted.

• Sector exposure: what types of companies are in the idex

• Cost: at the moment TER is the most universal indicator

Philip

A financial adviser suggested we take out life insurance on our parents as a future investment. My parents agreed and I have a little under R5m cover for about R2750 p/m.

The policy is now eight years old and the payment amount only adjusts for inflation. So does the payout.

1. a) It's my understanding that I will not pay tax on this payout.
2. b) I hope I don't lose my dear mother for the next 30 years! And even if she lives until 90, my calculation is that the contribution will never exceed the payout.

To me this seems like a good investment as part of a bigger portfolio (RA in addition to my Work pension, Standard Securities -started trading on the lazy system {yay me! I'm a trader!} etc).

Are there any pitfalls I am missing, or can I tell my sister to consider the same type of policy?

I guess I just want a sanity check here.

NC van Heerden

Over the past year I’ve listened to all of your podcasts since inception-sometimes obsessively. Luckily I started listening only a year after I started working before I had the time to make poor financial decisions. Following the great advice you have been giving, I have:

-          Started a maxing my TFSA which I spilt 70/30 between STXWDM and STXEMG

-          I have created a sizeable emergency fund, which already saved me on one occasion

-          Started some discretionary investments in the ETF space

-          Moved my RA from a advisor-fee stacked unit trust to 10X. I’ve stopped contributing to this fund to keep the opportunity to move overseas without Mr SARS having his cut – these funds are currently going into my discretionary investment (thank you to everyone who did all those calculations about if the RA vs discretionary)

I currently have a contract until the end of 2019. Thereafter there is a high possibility of hopefully only a few months of (f)unemployment. At that time I am hoping to cover my expenses by working as a locum while waiting for a post to open up. Luckily I have no debts – thank you just one lap.

In preparation I want to try saving a bit more money into my emergency fund this year. I’m currently using FNB’s money maximizer account (decent-ish) interest rates but 100k minimum and monthly fees, but it has easy access via the FNB app (which I use anyway) and I can move money immediately).

Since I will be adding some more money into my emergency fund I was looking at  at saving it somewhere with a better interest rate. According to tigersonagoldenleash.co.za at the moment the best interest rate seems to come from Tyme Bank (10% after invested for more than three months and taking a 10 day notice on withdrawal – downside is a maximum investment of 100K).

Does that seem sustainable on business grounds? I always have the uncomfortable feeling that something seems too good to be true (looking at you Absa with 13.5 percent interest and then fine printing it as simple interest). I’m also considering African bank as it seems a bit more established.

Please also advise if you think there would be a better place to park some extra emergency fund money for the next few months.

Rudolph

Do dividend yields rise or fall in a boom or a recession?

Hannes

You’ve mentioned a few times already that buying your house was a mistake and you'd never do it again. I would love for you to elaborate exactly the reasons why you believe it was a mistake, in as much detail as you can.

I find it difficult to believe its a financial mistake when you are planning on paying it off in five-ish years, paying very little interest because of that, and having the benefit of not having a rent / bond payment after said five years. To me the pros of this far outweigh the cons.

I apologise to Four Cousins for saying they probably add bubbles using a SodaStream machine. I've learned my lesson and vow to buy a bottle should I see one in store.

Investing in listed companies is a great way to learn about investment risk. It teaches us that sometimes the market isn’t rewarding at all and that individual shares can do better or worse than the average. We also accept that bad market periods are generally followed by periods of growth. We develop respect for the fact that no company operates in a vacuum. The economy is a complex system that can impact the performance of individual companies in surprising ways. We learn all of this while also thinking about the companies or products we invest in. We have to keep it in mind, because we are stock market participants from the moment we buy a single share.

When it comes to unlisted investments, the risks change. The biggest risk is not being able to find a buyer for the investment. In addition to providing a secondary market to buy and sell shares, the stock exchange requires a degree of due diligence from companies, adding a further layer of security. While unlisted companies can be good investments, it can be hard to keep track of the market in which they operate, to be sure that they comply with the law and to get truthful information at regular intervals.

The case of the Highveld Syndication Scheme that Liezl invested in is a great example of the types of risks we take in an unlisted environment. While the company initially operated legitimately and offered great returns, a management change resulted in great losses for investors. Was there any way for an individual to predict this change? Unlikely.

In this episode we discuss some options when you’ve made a bad investment. We talk about some of the risks of unlisted investments and how to know when to get out.

Read more about the Highveld Syndication Scheme here.

Liezl

I invested in the Highveld Syndication Scheme (HS22) when I was still young and dumb.

We opted for a settlement arrangement a couple of years back to get at least 55% of our initial capital back over a 3-year period. That did not materialise.

In the beginning of March we received a letter offering us APF (Accelerated Property Fund) shares to the value of 25% of our initial capital amount as a final settlement by Nic Georgiou.

The catch (of course there is one) is the shares are offered at NAV price (R7.50) and not market value which is around R3.40. The highest ever price recorded in 2016 was just under R7.00

A second catch is the CEO of APF being Michael Georgiou.

I also believe the share price will even drop further once these shares are allocated and everyone hits the sell button on day 1.

One tiny silver lining is the anticipated opening of the Fourways Mall this year which forms part of the property portfolio.

I'm thinking of just taking the settlement, get it over with and play a bit of monopoly?

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Win of the week: Jonathan

Thank you for such an incredible podcast. I feel on top of my financial life, and it is truly because of the idea of "don't get financial advice, get financial education". I'm happy to say that your podcast has been the cornerstone of my financial education and continues to reinforce the principles that I need to focus on.

This question is something I've wanted to ask you for a long time. You always say we don't talk about Japan, and it truly is the single area which I feel you and Simon fail your listeners in. One of the most important financial principles is to confront the truth and then deal with it. Basically, I think you owe it to your listeners to TALK ABOUT JAPAN.

This video sent by Dhiraj explains a bit of the economics of Japan. 

Mike

We bought a townhouse and were lucky enough to afford to keep it when we bought a house when we had our kids.

While it has appreciated 40% in value in the six years we've owned it, beating SA equity markets over the time, it's been pretty flat the last two years.

I am wondering whether we should sell it, settle the bond (we don't pay any tax on net rental income yet), and invest the R1m or so we'll have left after fees into low-cost ETFs.

The property is located in a great suburb, but it's only 1km from our current house, so I worry about concentration risk.

The net yield after all costs is also not great at around 6% based on current market value (9% on original purchase price), but what's nagging me is that at some point the property market must bottom out and Newlands would be one of the first areas to start growing well above inflation again.

Brecht

I’ve had a Momentum RA policy since 2002. The fees are 2%. The penalties on a R160,000 policy are R30,000 if I want to move to another provider. Do I move this fund or just stick it out because of the high penalty? My thinking is I will make that loss back and some more if I can move this fund to a better growth product and less fees?

I’ve had a Discovery RA for the last 10 years. It has only brought me growth of 1.89% pa and the fees are in the range of 2.5% - 3%. I am expecting a fee payback in April which will at least boost it a little, but the returns will still be shocking. On top of this I have 2 other preservation funds with Discovery that have done around 6.5% pa respectively over the last 10 years. What shocked me even more is that 60% of my combined Discovery portfolio is in cash. I haven't found out the penalty cost of moving the RA as yet but definitely need to move them and especially into a more Equity driven fund.

Is it possible to combine the two RAs into one fund?

Is it possible to move different preservation funds into one and is it wise to that?

Brandon

Are there rigorous studies (literature) available that address your premise that advisors add approximately zero value. I'm asking because it seems logical to me that your conclusion rests on that premise being true.

My concern is that if there were say, a number of comprehensive global studies that arrived at the opposite conclusion, would that not have a significant impact on the financial advice that you deliver on your platform? Are there global studies that examine the question, do advisors add so called alpha -- put simply, would an average individual working alongside a professional competent advisor, outperform that same individual, operating on their own in a parallel universe.

If it were true that the net effect (after fees) of working with an advisor were positive, the compounding arguments you make in your podcasts would work in precisely the opposite direction.

We mention the SPIVA reports, the Morningstar research, as well as the Berkshire Hathaway newsletter: Berkshire Hathaway letter on fees

Theo doesn’t agree that a home is just a lifestyle asset.

When staying in a paid up home you are not paying rent, so your paid up property is saving you the equivalent rental. It is indeed an asset, although you are not earning a yield you are saving opportunity cost of paying rent. The rent also increases every year which makes the benefit of owning your own asset even more beneficial.

Sandile

Heading into 2019 I've set serious objectives around how manage my money, which has been a lovely journey so far. I've become the biggest cheapskate, focusing all my efforts on saving as much as possible.

My next step is building a long-term investment strategy, I've received pricing from my advisor. I am beginning to question every piece of his advice due to the insurance matter. He is suggesting I invest in Allan Gray Balanced fund and Coronation Balanced Fund. Last year he recommended Allan Gray and the Investec opportunity fund.

I have looked at each fund in detail and the confusing element is 1) fees and structure. For someone who is new to the game it definitely is overwhelming. 2) Most of these fund invest in the same companies?

I'd also like to invest in ETF funds but I see there a plenty options to choose from.

Bruno

Would it make sense to duplicate the same investment strategy for both of us in a TFSA? In other words, purchase the same ETFs for both of us.

Money is inextricably linked to every aspect of our lives. Every milestone and setback is either helped or hindered by our financial situation. When we plan for life events like weddings, babies, retirement or death, we also think about their financial impact.

Most of us fall short in planning for things we don’t like thinking about. When our nightmares become a reality, the last thing we want to worry about is money. This is normally what insurance is for. Sadly the insurance industry is a flakey ally.

In this week’s show, we discuss the financial impact of debilitating sickness. We talk about the preparations you should think about when you’re healthy, as well as some options for people who are already dealing with this difficult reality.

Louis

Over the last couple of years I went from buying a new, heavily financed car every one or two years, to (almost) owning one car for four years and the other for 10+ years.

I scaled down after parting ways with a major client. I decided to pay off all debt except my house. I saved the R8,000 I would have paid on my car each month and in 2.5 years had the money earning interest in my bond. I started investing in the stock market and also have a number of ETFs, including a CoreShares tax free account that actually gave me a good return over the last three years.

We adopted at the ripe young age of 45, which changed my outlook on money. My wife was diagnosed with MS last year. Suddenly all the insurance policies and annuities became important as we had to become a single income family.  

We took out a combined policy with life cover and LIVING LIFESTYLE COVER (with all the PLUSES, which Liberty say they gave us for free). According to what my current broker and I could deduct - upon diagnosis we should receive 25% of our insured value.

This is not the case, though. Liberty has their own definition of MS and you should tick a number of boxes. Even though my wife had several problems relating to MS, we were not entitled to any payment. Not once did Liberty make contact with my wife’s neurologist, doctor or anyone else.

My wife had a relapse during the year. At first Liberty again refused any claim without making contact with anyone. Eventually they paid 25% according to their sliding scale. Now that my wife stopped working, I’ve had to employ a neurologist to advise me in order to decide on further action.

In our situation we will survive on my income, taking into account retirement provision might be a problem. What do other people do when the sole breadwinner is in the same situation?

Secondly I checked the annuity we have been paying for the last 15+ years and realised that the return was just over 6% for the period after cost.

The obvious thing to do was to cancel, for which the charge is 5%. They say that after 15 years they have not recovered all their cost. There is a contribution charge of 4.5% and then they charge a management fee of almost 2% on top of that.

I wrote to the pension fund adjudicator and after waiting almost seven months and requesting feedback a number of times, I received feedback basically saying they can charge up to 20%. I am moving the money in any case as I am sure we will be able to do better somewhere else. R14,000 on a R280,000 value. If you deduct the R14,000 my real growth over the period is probably very close to 0%.

What is the best fund with a moderate to high risk to try and make up for lost years? We already have investments in Allan Gray Balanced and similar funds.

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Gareth

The problem with dread disease cover is the companies’ definitions of their sicknesses. I unfortunately had the same claim disappointment when my wife was diagnosed with Crohn’s disease, I then only found out that they pay out 25% of the dread disease assured amount. The same goes for MS and most autoimmune diseases.

We pay discovery R12,000 pm on the top Medical aid so they can pay R30,000pm for her medicine.

Liberty should’ve asked for medical reports etc from the doctor as part of the claim process.

I always say that dread disease is a nice to have, same as capital disability, but the most important benefit to have is income protection. The income protection doesn’t look at your illness but more at your ability to do your specified occupation. It is more expensive but will pay out in a lot more cases.

Win of the week: Riani, who is 13, and her sister Juané, who is 7. Their mom tells me they already know what the ALSI is.

Brendon

I’m able to invest R15,000 a month. Should I go down the ETF or individual share route? Do I incorporate property ETFs too? Should I open an EasyEquities account or with another company?

Steve

I’m still left wondering what to buy, especially for my TFSA. There just doesn’t seem to be any right or wrong answer?

All things considered, what would be your preferences if you wanted exposure to the following:

US Markets?

World Market - Developed?

World Market - Developed & Emerging?

South Africa?

My understanding is that the US leads the world economy so what are the chances of their markets slowing down while the rest of the world starts ticking? If that’s unlikely, surely one could just as well stick with the US?

Donal

I did a spreadsheet to work out the tax for the two scenarios and I then backtracked and worked out the present value. There's not a huge difference. The tax man would get almost the same amount of tax from me eventually even if I leave the pension alone!

I've listened to you guys saying many times we should clear our debt as fast as possible.

I currently have a large car loan at prime + 0.9%. I change my car approx every 2.5 years. In that time I'll generally only have paid off half the loan. My trade-in value usually just covers the outstanding amount and then I need to get a new loan for the full value of the next car and the cycle starts all over again.

I commute to work and drive approx 1,000km per week. So after 2.5 years I've clocked up around 120,000km. That's around the time that things start to go pear-shaped with a car.

I could pay extra into the loan and reduce the capital quicker. Let's say, for example, instead of paying into my TFSA I put R2750 per month into my car loan. So, like I do, I've run a spreadsheet and I've found that after 18 months (which is when I will change again) my capital balance will be R60k less than if I didn't pay in the extra. So the loan on my next car will be R60k better off. This sounds great, but the problem then is that my TFSA capital doesn't grow! And if I continue to do this every time I buy a car I'll then my TFSA will always suffer.

Eventually I'll be in the situation where my initial loan amount will be small enough that I'll be able to pay off my car loan before I have to change my car again. In that period I can catch up on savings for a few months. But I reckon it's going to take about five more car changes to get to that stage! By then I would almost have my TFSA maxed to R500k and I should be sitting back with my feet up watching it grow and grow!

The thought of not investing in my TFSA for the next 10 years is extremely painful and seems to be counter-intuitive. But should I just suck it up and rather focus on clearing my car loan every month?

Sabata

You guys were slagging retirement annuities as if they are lepers!  Any unused contributions to an RA can be carried forward, which you mentioned somewhat unconvincingly.  

This is not a 'small benefit', as you stated.  These unclaimed contributions can be carried forward all the way to retirement.  By then you probably won't be investing for retirement. You can use these to increase your tax-free lump sum you're allowed to withdraw, or to reduce the tax payable during retirement.

Say you retire with R 50,000 per month. Tax payable would be R 12,582.25 per month.  Let's say you have enough unclaimed contributions banked. You could then claim your 27.5% of taxable income as an RA contribution. This would reduce your taxable income to R 36,250 even though you will no longer be making these contributions.  Your tax would be R 7,521.25, a saving of R 5,061 per month! That's worth a lot of bubbles, especially if you drink Four Cousins!

About your diplomat who is based in Botswana, is she exempt from RSA tax because she is out of the country for more than 183 days, or is it because of her occupation?  I think it's the former.

Rieneke

I have a slightly different take on the issue. Use life cover as life cover when you need it, but change the purpose to inheritance when you no longer need it.

You often take out life cover with a young family as you have to provide for them should something happen to you. As the kids then leave home or you no longer have dependants, the life cover is cancelled. Especially older folks who might no longer be able to afford the cover. In that case, offer it to your children as an investment. You have low premiums, having started young.

Taking it out with the purpose of inheritance when you're older is too expensive and taking it out with this purpose when you're young is also expensive due to time and as your fortunes change, might also not be able to sustain it, in which case it was wasted.

Ros

I'm keen to move my emergency fund from a Money Market account to TymeBank. This seems like a no-brainer - If I understand their Ts & Cs correctly, once your money had been in a GoalSave account for 90 days, you get 10% interest for a 10-day notice period, up to a maximum of R100 000.

I mentioned this to my Mom and she was very concerned that the bank could go under, a-la African Bank or VBS. What are your thoughts on this?

Stealthy Wealth’s FIRE-people are organising get-togethers in Durban, Cape Town and Port Elizabeth. Find out more here.

When you’re just starting out on your investment journey, dividends seem like much ado about nothing. That’s because dividends get paid per share. If you don’t have many of those, dividend amounts can be laughably small. It’s hard to get excited about R25.

However, long-time rich-ass shareholders will tell you dividends become way more fun the longer you invest. It’s a good idea to have your dividend strategy in place while you’re only getting a R25 twice a year. In this episode, we share some options for your dividends.

Sheldon from Twitter

When looking to invest in equity with the aim of receiving dividends. How much should the price action influence your decision? I.e. if price action is bearish/flat but the equity pays decent dividends, how does one ensure they don't lose money.

Morore from The Fat Wallet Community

What is the best strategy for reinvesting dividends within a TFSA? Do you reinvest in the ETF that paid out? Do you use the dividends to buy the cheapest ETF at the time within your portfolio? To keep the "right" balance, do you reinvest them in terms of your predetermined allocation strategy?

Caroline

I was using the strategies above, but then I decided to reinvest the dividends back into the ETFs that earned them to get a better idea of the ETFs overall performance.

Win of the week: Gerard has a tip on avoiding the huge spreads on EasyEquities.

On the Buy screen where you fill in the amount you want to buy, click on "What's been happening to STX40 in the market".

This will show you a graph, and three prices - Last Price, Selling At, Buying At. You want to make sure your Last Price and Buying At price are close together. If Buying At is much more expensive than Last Price, then odds are the Market Maker is offline, and you should rather come back later and try again.

EasyEquities is not a perfect system, but it is cheaper than most... just don't get burnt with this annoying thing.

Tash

I had an opportunity to work in Germany and have been here since 2012 on a temporary residence permit.

I'm on the compulsory pension system and have an RA to squeeze the tax man back. I plan to be here for the long run, but home is where the heart is and I would want to spend lots of time in South Africa when I retire.

I’ve opened a TFSA with EasyEquities in 2018, because we don't have such a wow savings initiative in Germany. Here the tax man does his best to grab deep into your wallet at every opportunity.

That said I want to have a long-term savings plan in South Africa. German interest rates are laughable and the savings plans are even worse. I listened to Simon's recent lecture at the JSE and one of the first things he explained about the TFSA is that you have to be a South African resident. The term “South African resident” is coming under scrutiny with the new emigration laws.

Will my TFSA be valid and inviolable if I remain a South African citizen, with a residential address ?

I maxed out my 2018 contribution and plan to do the same till I hit the R500,000 limit.

What implications are there for a TFSA if you spend most of your time outside South Africa and your main income is earned in Germany?

The Bank’s Cash Cow

I’ve gotten myself into a debt hole, and it’s completely my own fault.

I'm trying to figure out which one I should pay off first, and if i should consider debt rescue.

I thought I should pay off credit card, then motorcycle, then college, then car.

Gerard

I watched a lot of Simon's trading videos in 2016. I wasn't planning on trading, just thought I might learn some stuff. Using Simon's Lazy System, I back-tested some of the things I hold, and the signals there are pretty clear for when to sell. It probably would've have meant that 2018 would've been a positive year for my TFSA.

In one or two of the videos Simon states that when he hits 100K in his TFSA, he will start trading in the Tax free account.

I'm now interested in starting to trade my TFSA, but there is an alarm bell going off in my head:

Why does Simon, who is an experienced trader, not trading his TFSA and recommending that it's probably better not to ?

Sarah

If you want to sell some of your shares, to the precise degree that you can get R40,000 of capital gains in a year, and no more: How do you know how many shares to sell?

The online platforms will give you a form AFTER 28 Feb telling you how much capital gains you had on that year’s sales, but that is too late to inform your selling decision.

In Cape Town, rental prices on average increase by 10% per year. House prices (excluding the Atlantic seaboard) increase at more like 6%. What does this mean for rental prices 10 or 20 years from now? Does it mean that renting will become inhibitive at some point? Do you think the market will balance itself?

You mention that moving in a bit early and paying occupational rent before the transfer goes through. Can you explain a bit more why that would be a beneficial thing to do? My guess is that if you move in a month or so before the transfer goes through and you discover things like leaks, cockroaches, etc. it will be too late to change the terms of sale at that point anyway, due to the ‘voetstoots’ understanding.

The tax-free investment case is so appealing, it’s almost always a good idea to do your tax-free investing before anything else. Even fancy algorithms like this one finds that. Sadly, life happens to our money and a full tax-free allocation isn’t always possible.

This week, we help a father of four figure out how to balance his educational priorities with his tax-free allocations. The good news is there’s no one right answer. You have many options, including pausing your tax-free contributions and taking it up again later, as Njabulo pointed out in this podcast. The bad news is sometimes two options have more or less the same benefits and shortcomings. In that case, it’s time for the soft sciences.

I always talk about the importance of knowing what you want your money to do. Since Tinus chose to have four children, we can assume his family and children are his top priority. His finances should reflect that. Secondly, a great education will empower his children and offer them a greater likelihood of being financially secure themselves. Tax-free is important, but it’s not the be all and end all.

Tinus

I try to max the contributions for myself, my wife and my four kids every year, even if it means I need to sell from my existing portfolio to get the required cash.

I hope that I’ll be able to teach my children enough about finances that they’ll handle their TFSAs with care once they turn 18.

My initial idea was that they would pay for their own studies from the TFSA, but it would probably not be very smart to start withdrawing from the TFSA as the real opportunity of compound growth is just massive if they can keep the investment going.

Projecting the value of a maximum annual contribution up to the R500,000 level and 8% annual return, the account at age of 18 would sit at around R1.2m. This R1.2m becomes R31m by the age of 60, which should allow them a comfortable retirement from the TFSA alone.

Surely this “asset” in the child’s balance sheet would make getting a study loan much easier if required, especially if the TFSA is then moved to a provider that also give study loans (type of a soft security).

How do you balance the contributions made to your child’s TFSA and provide for their studies? I’m leaning towards maxing out the TFSA and face the music to pay for studies when the time comes.

I have always believed in choosing stocks with good momentum. For this reason, I initially chose the Satrix Momentum Unit Trust for two of my children’s TFSAs and I’ve been contributing to them all along with TFSAs at Satrix directly.

I noticed that there is now a Satrix Momentum ETF, that seems to be exactly the same as the unit trust, just lower cost. ABSA NewFunds also have a momentum-based ETF. I am considering moving these two kids TFSAs over to EasyEquities for easier admin and future flexibility, but would like to stick to a momentum type fund for now. How do these options compare (the methodologies are not the same as is evident from the current holdings in each fund).

For my two youngest children I chose the Sygnia 4th industrial fund (mainly because it sounded cool and I thought choosing technology for my 0 and two-year-old can’t be a bad idea).

Their investments have done very well (just lucky timing to be honest). From your recent podcast I could pick up that you are not a massive fan of this fund (it invests in guns etc) and I know that there are performance fees as well. What would be other options in the technology space, just a simple Nasdaq ETF?

Find our house view on tech ETFs here.

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Win of the week is Hannes for sharing a great car financing tip.

For anyone interested in calculating car affordability (because some of us love cars and it’s also our hobby, not just a means of transport), Dave Ramsey has a cool rule stating that you can afford the car ONLY if you can tick off all three of the following:

- You are able to pay a minimum of 20% deposit on the car.

- You are able to finance it for a maximum of four years (48 months).

- The monthly repayment (after 20% deposit and a max four-year term) is less than or equal to 10% of your gross monthly salary.

I've done the math like this and it removes a lot of the thinking involved in buying a car, especially if you're a petrolhead. Use it / don't use it. :)

Alistair

I received my very first dividend from my Ashburton 1200 in my TFSA today (yay), but I was quite shocked to see I paid 26.76% tax.

That seems like an extremely high price to pay for a tax free account - I was under the impression it would be much lower. I do know we are subject to foreign dividend tax, but considering this is how much tax one is paying... is it even efficient to put ETFs like the Ashburton 1200 in a TFSA? Surely (if your finances allowed it) it would be significantly better to fill your tax free with local ETFs and all foreign ones outside of it? Or is the advantage of not having to pay capital gains tax so great that it completely out-shadows the tax on dividends (and the growth that taxed amount would have had)?

I'm curious what difference this tax would make over a period of 40 years, conservatively assuming the growth of the Ashburton 1200 was the same as that of the Satrix 40 (and assuming dividends are reinvested).

Anne

I have an offshore investment with Allan Gray. The money split between Orbis Sicav global balanced fund and Nedgroup Investments Core Global fund.

I wanted to make an additional contribution, and had a relook at the fees. TER 1.08 and admin fee of 0.5%.

It the investment worth the fees? Should I rather stick to ETF in EasyEquities?

Ned inherited R2m.

With such a large amount of money, the fear of investing is damn real. My biggest fear is that I find myself fiddling around with my money until I find myself in a “ah fuck” situation. As a result, I have over R1.9m just sitting in cash. I realise this is a bad thing and I plan to move it all to EasyEquities, minus the emergency fund.

The real fear comes in with my discretionary investments.

I’m 29 and a major career improvement is imminent if all goes well. This will bring with it a MASSIVE change in salary. The plan is to continue dumping all my excess salary into tax free and thereafter discretionary investments. I’m not too sure about an RA at this stage as this is something else I’ve been putting off.

The only real investments I have outside of the tax free are about R18k in Ashburton 1200, top 40 and mid cap ETFs through FNB which I’ve been contributing to since about 2014/15.

Investment fear is a very real, very scary thing. It just gets worse when there’s more money. I realise now how important it is to start early and when you don’t have so much money to stress over. I wish more people would realise that investing isn’t only for rich people. It’s the best thing you can do for yourself.

John

In SA we have the Top 40, so an equal weight equates to 2.5% per share. Our biggest share is Naspers which is about 22.5% of the index, so Naspers is 9 times bigger than the equal weight. (22.5 divided by 2.5)

In the USA they have the S&P500 so an equal weight is 0.2% per share. The biggest share is Apple which is about 3.6% of the index, so Apple is 18 times bigger than the equal weight. On a relative basis Apple is twice as concentrated as compared to Naspers in our market.

Now I am guessing but I believe most of the data to validate the equal weight model has come from the USA and not from SA. This could mean the the equal weight model is not effective in SA.

When the expects say "over the long term shares have outperformed the other asset classes" I guess that they use the the overall index to validate their statement. I guess they are not referring to some bespoke index with smart beta components. To me any "smart or not so smart beta" is moving away from passive investing towards active investing even if the costs are lower. Passive investing should be no more complicated than reproducing the index.

Is it cheaper for CoreShares to change the methodology of an ETF compared to launching a brand new ETF with a different methodology? My guess is that it is.

I believe that CoreShares must stick with their model or front up and tell the market their model is broken.

Martin

I am a 26-year-old Mountain Guide living in Somerset West. I have a wife and a one 1.5 year old little girl dinosaur. My wife doesn’t work.

I am busy studying and I hate traffic so I leave home at 04:30 most mornings to avoid traffic to Cape Town where I then have 1.5 hours to listen to your shows and do other studies while I wait for my clients to arrive. I finish work at 11:00 and can spend most of the rest of the day with my wife and daughter.

Recently I started my own business and make a reasonable income during the summer months and then eat only putu in winter.

I save a fair amount of my income, mostly because we live very basic with no debt.

Anyway my questions are the following:

I don’t plan on living in South Africa for very long, another four years, at most. What impact will this have on my TFSA? Will I be able to keep it growing and fill it while we travel? I don’t plan on emigrating anywhere, so my bank accounts should stay in SA for the moment.

Would it be smart to start investing in a RA if I’m not going to be in SA. Can I transfer my RA across borders later in life?  

I know you did that blog post on the global property ETF, but I was wondering if that is a good investment into my TFSA?  I thought I will only get tax exemption on local property like the satrix property ETF. Will I get dividends on those two global ETFs? What Property ETFs should I be looking at?

This is not the first time I’ve heard people buying insurance products to leave money to loved ones who aren’t financially dependent. In cases of premature death, it’s genius (aside from the dying). However, insurance companies are money printing machines because they understand how to harness probability.

When you take out a life insurance policy, the insurance company works out how many years of contributions they’re likely to get from you before you hop off your mortal coil. They do with your money what you should be doing with it - they invest it. They understand money today is worth more than money tomorrow. If this didn’t work, the insurance industry would not exist.

Lady Kabelo is thinking about life insurance.

It would only be to give my folks, my sister and my partner a nice lump sum when I die, not because they depend on me financially.

I just feel tired of black people dying poor, leaving relatives to scrounge to bury us. I want to leave them with money to bury me and then mourn with bubbles or, if they listen to me, put the lump sum in a retirement fund for future comfort.

You could argue that I should invest that money and they will inherit that. But if I die next year, it wouldn't have grown to a considerable amount. Life insurance would pay out a nice amount between the four of them.

Is my thought process as crazy as I think it sounds, or would this fall into the category of making your money align to your values? I love my people and if I can put some money aside now so they get some money when I die, why not?

Win of the week: Cheryl from The Fat Wallet Community.

Nedbank offers a Greenbacks shop card which allows you to draw your Greenback value in cash from any Nedbank ATM. You could then use this cash to buy your bubbles. I draw mine once a year in December and use this money towards Christmas. I try to get Christmas for free - using Dischem, PnPay points and greenbacks to pay for gifts and christmas lunch shopping. Not 100% achieved but getting closer every year.

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Jacob

I have a debt problem that I need to address, but my wife is not helping. She is also in debt and her business is not making enough money. How do I convince her to start a financial plan so that we can address our debt problem in order to be able to buy a house?

Gerhard

Just listened to Simon’s JSE direct around the changes in CSEW40.

The question I was waiting for but that never came, is what will the impact be on the TER of the ETF if they make the change.

It doesn’t help they smooth the ride, but in the end you lose because of fees.

Bella

I had been investing R500 per month with Discovery Retirement Optimiser Endowment policy for the past 10 years. It grew by 13% in that time.

To say disappointed is an understatement, seeing that I’m just 10 years away from retirement age.

I’ve decided to take the plunge and invest in ETFs with the proceeds from my unit trusts and endowment policy.

I’ve recently transferred my RA to etfSA and also opened a tax-free account. I’m contributing  R1500 p.m towards Coreshares Global Dividend Aristocrat, Coreshares S&P 500, Satrix Emerging Market, Ashburton Global 1200.

Should I open up a discretionary account (with EasyEquities perhaps)? I’m looking at offshore ETFs but unsure on what that spread of the funds should look like. 

I also have an investment property but my tenant has lost his job and is paying a lot less than the amount I’m asking for, and I’m not sure for how long he will even be able to keep this up for.

Should I just consider selling and investing these proceeds as well?

Martinus

My 14-year old car said its final goodbye and had to get a new car sooner than I expected. I only had 50% of the cash on hand to purchase the new car, then I had to to either take out a loan for the reminder, or take money out of my TFSA or a paid up RA. I figured the wiser choice was the loan since drawing from the capital of a TFSA so early hamstrings your future growth.

Considering a high interest car loan, would it be wiser over the long term (20+ years) to put that R2750 pm that would go to a TFSA to paying down the loan and then miss out on the TFSA allotment for a year?

My math shows that if I pay an additional R2500 a month on my car loan I'd pay it off 21 months early, saving me R24150 in interest and R1449 in fees.

I'm leaning towards paying off the loan, because it’s the first time in my life I have debt and I really don't like it.

Boitomelo the Diplomat

I am looking at increasing my RA contribution. I started with a low amount 2 years ago. I’ve read that 27.5% is the maximum tax benefit I can get towards my annual RA contribution. Is this 27.5% of my contributions to the RA, or of my taxable income? If it’s based on my taxable income, how does a person in my position determine what my maximum RA contribution would be since I do not pay income tax?

Secondly, given that my contracts will expire in 6.5 years and that I’ll be without formal employment, is increasing an RA a good idea given that I’ll only access it at 55? It leaves me with an 11-year access gap. I will be looking for a job and other alternative sources of creating income, one of which will be to provide editing and French translation services which I can’t currently do.

I know that freelancing is not easy and that one should be sufficiently financially prepared for it. Should I rather keep the RA contribution as is with a 5% annual escalation, and look into alternative investments options for purposes of creating an income for that 11-year gap at the end of my official ‘formal’ working life? If so, what investment vehicles would you recommend?

Tristan

I think you said you use your tax refund for tax-free deposit. What about adding it back to your RA each year? Wouldn't that have a cumulative refund benefit? Going into the tax free account means no more instant rewards, you have to wait a decade.

My half-thought out idea is to try hit 27.5% each year, e.g. dump in and top-up any bonuses. My thinking is that it'll be easier in future years because of maxing out my refunds.

The end result should be the same as if my bonus was deposited directly into my RA rather then losing much to tax.

Survivors of a battle with the Debt Monster already got a nasty introduction to the world of fees. A combination of account fees and interest on debt will leave you poorer every time. This baptism of fire may have been unpleasant, but it’s not a lesson you’re soon to forget.

Those most vulnerable to the wealth-destroying effect of fees are those new to the financial world. When you don’t have much money and a brush with debt hasn’t yet alerted you to the grimy side of the financial system, a 1% fee on a small transaction is unlikely to set off alarm bells. On a R300 investment, a 1% is only R3. What could you possibly buy with that? Beware, dear lambs, this is how they get you.

In this week’s episode of The Fat Wallet Show, we try to show you why you should care about fees very much. We run the gamut - from expensive, ego-stroking bank accounts to total investment costs in ETF products.

You might be disappointed to find that we can’t offer cut and dry solutions to fees. A lack of consistency in reporting among financial institutions makes it almost impossible to do a side-by-side comparison of fees. Instead, we try to steer you in the general direction of clarity.

We reference this document.

Kelly

I’ve just received my first salary and am extremely eager to make my first investments into TFSA ETFs, however the more I started thinking about life expenses the more I realised that there are a couple of other financial planning decisions that I still need to make. I would like your advice relating to the following matters:

Which bank account for day to day activities? Investec approached us first year trainees with the young professionals’ private banking account. It has a monthly fee of R295 with no additional charges. It gives you reward points and access to airport lounges and all sorts of shiny bells and whistles.

In what ratio would you advise me to invest my savings into an emergency fund and TSFA ETFs? Also, in which bank account would you advise me to keep this emergency fund?

I am aware of the extreme importance of saving for retirement, and am unsure of whether I should be contributing to a pension fund as well as TFSA ETFs or if focusing only on TFSA ETFs for now will be sufficient.  What is your opinion on this?

As I am young, I would like to focus on high risk, high return (hopefully), equity ETFS. I have considered the Satrix Top 40, as it is a known favourite and I can “catch up” on the time I have lost due to the sideways market with the hope of a more favourable market in the near future. I have also considered the Ashburton Global 1200 and Satrix MSCI World ETFs. The new ABSA low volatility ETFs also caught my attention but I am concerned that the risk on these ETFs are too low? Will you please advise?

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Flipi

Any change in your opinions about 10x as a good RA choice?

Would Stanlib's new TFSA be as good as any other? I have some investments with them and it would be convenient to simply move the money across in the next few days.

Other Gerhard

I opened a TFSA account for each of my daughters and did my first transfer.

I did the instruction on their website and the trade was done 09:15 in the morning.

I bought the Satrix MSCI World ETF and the trade price was R39.16 per share.

From another trading system I use on a personal level I couldn't see this price trade anytime during the day. The highest price traded was R38.65 for the day, which means that over and above the normal small trading fee I paid to EasyEquities I also paid R0.51 or 1.32% of the share price.

I invested R10,000 and the total transaction cost according to their break down was R37.40.

But I got charged R39.16 per share instead of R38.65 (assuming the highest price for the day) and therefore I paid another R130.24 in "transaction charges". The total transaction charges therefore R167.64.

If I did the same size transaction on Investec's trading platform I would have paid R151.72 in charges.

Did I do something wrong here?

Always Abundant

In 2002 we bought into an Executive Redemption bond offered by a UK-based Life Assurance Co via the International arm of a large South African financial institution. This was sold to us by our financial advisor (at the time) as a way to maintain our offshore diversification.

In 2012 we applied for a full withdrawal in order to close the policy. We were able to redeem everything other than 1 of the funds (a UK-based Property fund) which had gone bust. We accepted our losses, which were considerable, and forgot all about it. Recently we received a letter from the International Arm of the local company informing us that the annual fees on the policy had gone up.

I obtained online access to the account and noticed that the Property fund in question had eventually liquidated in 2018. The small amount that was generated from the liquidation had gone towards paying these fixed annual fees. But since the fees were charged continually, there is now in a significant amount owing (1.5K USD).

The policy is worth nothing but the fees continue to accumulate even though we had submitted the withdrawal form years ago. No one has informed us about the fees owing.

What are our rights in this case? Surely there must be some kind of Consumer Protection laws to protect us from being liable for these fees? What should be our course of action, if any?

Win of the week: Phasane

2018/2019 Tax Year has been, surprisingly, a good year for me.

• I finished paying off my car, not planning to buy any car until 2023. The only debt remaining is the bond.

• I discovered the Fat Wallet Podcast and the Just One Lap community in general.
• I listened to all Fat Wallet episodes (the weekly wait is now killing me).
• I moved my RA from Liberty to 10X, a process that started late in October 2018 and about to be wrapped up as I write this mail (waiting for some Trustees what what signature but 10X have kept me informed every step of the way). By the way, I started with my RA contributions to 10X in November and contributed to both Liberty and 10X that month.
• Although I wanted to do more, I contributed 16 600 ZAR to my TFSA (up from the R4 620 that I contributed the previous Tax Year). I am comforted by the fact that I have built my emergency fund to levels I am comfortable, from 0 - 4 months worth of living expenses (in Simon's own words, "that makes me sleep well at night").

2019/2020 goals

• Contribute the max amount to the TFSA, this is important considering TIME in the market.
• Add one more month of living expenses to the emergency fund.
• My normal RA contributions will continue, this is a top up to the work pension fund.
• Everything else remaining, including change from the F##k it monthly budget, goes to the Bond. I am planning to settle the Bond in 2022 (9 years from the registration date)

Tax rebates, bonuses and inheritances really throw us for a loop. Most of us have every cent of our salary allocated to some higher purpose, but the moment we find ourselves with a big hunk of cash, we get in our own heads. We all know what we should do with the money, except because this is magical unicorn money we don’t.

We get questions about lump sum investments so often that we decided it’s time to devote an entire episode to it. In short: the math says invest it all at once as soon as possible. If your emotions tell you to do otherwise, however, you should probably pay attention to them first.

We talk about our friend Hendrik’s blog tigersonagoldenleash.co.za in this episode.

Andrew

I just received 10 months worth of salary as a bonus. I currently have money invested in my portfolio. I’m trying to decide how to go about investing my bonus. Should I chuck the entire amount in now? (Keep in mind my TFSA is maxed out for 2018, and I plan on investing R33 000 on 1 March) or should I average it out over a few months? Also keep in mind that I have no debt.

Win of the week: Nadia

I listened to the show about my question and I just want to say thanks a million! You guys helped a lot with my decision and I have decided not to get involved with Forex trading. I first need to focus on my TFSA and make sure I understand all the ETFs I have chosen to invest in.

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David

Love the show. I have a question for you relating to picking a Global ETF. I have an Easy Equities Account and have access to investing in ETFs listed on the NYSE.

I was looking at the Vanguard Total World Stock ETF on the USD account and comparing it to the Ashburton 1200 on the ZAR account. The TER is significantly cheaper for the Vanguard ETF – 0.1% vs. 0.45%.

The weighting of the constituents of each ETF are quite similar although the Vanguard has over 8,000 stocks where the Ashburton has over 1,200 stocks which makes it attractive to have more exposure globally.

My feeling is that in the long run, it’s probably worth moving all my investment offshore (into USD) into the Vanguard ETF if I follow the concept of one ETF to rule them all because of the low cost of running the ETF.

What risks other than a strengthen Rand or having a Will in place in the USA to transfer the funds in the event of death would you foresee? How would the tax on dividends / Capital Gains be affected?

Hannes

I recently received a severance package. This money is considered "tax free income" because of a SARS tax directive, which seems to be common with severance packages. It’s been lying in a savings account, and I'd like to know what you think is the most tax-efficient way to put that money to work.

I don't have any investments and no emergency fund. The savings referred to above is currently my emergency fund. The only debt I have is car debt, a monthly expense of R2400. No bond either.

The amount is just enough to max out my TFSA for the 2018 tax year ending in February as well as settle my car debt completely, but then I have no more savings / emergency fund left at all. However I can quickly build up an emergency fund, or to rather contribute aggressively to my car debt with a monthly contribution if I decide to not settle.

It seems crazy dropping a huge amount on my car debt to settle it considering the small monthly repayment, but it's also something I want to get rid of ASAP as it allows for more savings, less essential expenses and more cashflow when I'm rid of the repayment. The risk of course is that I will be stuck without savings / emergency fund for a few months until I can build it up again. I do have a credit card.

Not quite sure what the best course of action is. Should I rather leave the debt as is and invest with this "tax free income"?

Minnaar

I would like to understand how a property-based ETF actually distributes the income that it gets from rentals? How does the ETF distribute this to holders of the product? Is it in the form of a dividend?

Can you explain like I am 5 why some people think investing in REIT properties are a good idea in a TFSA?

Dave

I discovered that you can buy REITSs via unit trusts, exchange traded funds or standalones directly from your stockbroker or financial advisor or a site like EasyEquities.  I can see a sort of hierarchy here but just don’t get it. Are earnings from REITs rental income or dividends? I can appreciate that if held in a property owning company the earnings would be in divs.  But if held by a unit trust how would rental earnings be paid?

Phil

I love this podcast and this a wonderful public service you're offering to all South Africa.

Even though I'm in the UK and a lot of the advice can't be directly applied the thinking still applies and continues to push my thinking.

I want to share stuff that changed my financial life which was given a wake-up call after I took a massive hit on RA when I financially emigrated and was confronted with just how far behind I was. Painful stuff, and wish I had a podcast like yours to point me in the right direction at the time.

I wanted to share some references I use in the UK that I think would be very useful for reference in your offering to the public as well:

- The go-to reddit (I know, don't take advice from unknown muppets, but it's good) for me is  /r/ukpersonalfinance/. In particular I love the UK Personal Finance Flowchart and it's interactive version (which is opensource on github btw...). This flowchart is awesome for visualising where you are on the maturity scale. Super helped my wife with her "O, fok!" moment.

- The second source I love is  moneysavingexpert.com. It's a bit of a marketing-hidden-like-advice site, but it's got some gold-level guides on finance basics for people who were never shown how the basics work.

- The more extreme sites are FIRE the based, but drastically shifted my thinking on what retirement means, in particular @firevlondon on twitter is an interesting feed I follow with monevator.com to frame my thinking on passive investment.

Melissa

I already have some investments with Easy Equities, so just decided to move some funds around so that I can put the full R33 000 in for the 2018 tax year.

I am a bit confused about the limit of R33 000 and the fees involved. When I bought my TFSA ETFs the admin/brokerage fees were deducted and my investment amount only shows as R32 877 (R123 admin fee). I know it is a small difference, but I would like to utilise the full R33 000 that I am allowed for the year. Easy equities however does not allow me to invest any more funds into this account.

Do you have any clarity whether this R33k limit includes the administration fees?

André

I heard you say you had to re-open your FNB account because you have and FNB flexi bond.

Not sure what the exact reason is but thought I will share this. You do not need an FNB account to withdraw from your FNB bond. I also have an FNB flexi bond and I nominated an account at a different institution and I have withdrawn from the bond directly into that account.

Fanie

I’m nearly 70 and earn the biggest part of my income from the following ETFs: PREFTX, PTXTEN and STPROP.

You mentioned that because PREFTX consist of many banking pref shares there is a risk should we get downgraded to junk status by all the  rating agencies. I understand that a junk grading will affect our total banking system negatively in that interest rates will go up. What do you think will be the effect of a downgrade on my income from PREFTX.

Chris

What stops me from opening a tax free savings account with a overseas fund managers like JP Morgan, Investco, Black Rock etc?

What are the tax implications for me as a non-resident in an international based etf tfsa?

What are the risks and is it something worth investigating?

Conette

I am 55 and work for a big bank group, with lots of good benefits.

My emergency funds sorted out and bond debt almost covered.

I want to open a Tax Free Savings (ETFs) account with Easy Equities .

I please need your assistance in my ETF selection? I intend not to 'touch' the investment in the next 15 to 20 years.

Jo

I am in the process of shifting my RA around and moving away from unit trusts and into ETFs.

I started investing in an RA as soon as I started working, but unfortunately I thought they were very one size fits all and so it's all sitting in unit trusts with fees of around 3.8%.

While digging more into finance I came across a TED talk by a doctor in Australia who pointed out that most people's retirement funds are invested in British American Tobacco (BAT). So I looked up the current funds I am invested in and my current unit trust, my work provident fund and the new ETF I was looking into for my RA all invest more than 1% into BAT.

This is pretty disappointing to me. I can guarantee that a large percentage of the general populace wouldn't invest in tobacco if they had the option. And yet they are unwittingly helping fund the industry.

I have tried to do some googling for green funds in SA but haven't really come across anything. I realize that I could just build my own RA by picking shares but would much rather choose an ETF. I would also not like to pay exorbitant fees just to avoid investing in unethical companies. Maybe I will have to suck it up and offset my investment in BAT with charitable donations to cancer research. ;)

Jon-Luke

Is it possible to transfer ETFs that you already own into your Tax Free Savings without having to sell them first?

Rudolph wants to know if yield rise or fall with quantitative easing.

The longer we do this, the more evidence we find in favour of doing tax-free investments before any other kind of investing. To do that, you need to understand why paying no tax makes a huge difference to how much money you end up with. You also need to understand that there’s a difference between tax-free accounts and ordinary investment accounts. Lastly, you need to know why it’s important to buy an investment product within a tax-free investment account.

This week’s episode of The Fat Wallet Show is audio from our annual tax-free investment presentation. In it, Simon Brown explains everything you need to know about tax-free investments and shares some ideas on choosing the right type of product.

Find our conversation on tax-free investing here.

This community is all about not leaving money on the table. Buying and selling shares at the right time can have a long-term impact on the performance of your portfolio. This week we discuss two questions relating to timing buying and selling shares and ETFs.

Win of the week: Mukhtaar, for solving the tax on REIT issue.

In the latest podcast there was a question whether listed property distributions are treated as interest income or taxed as normal income.

I can confirm that it is taxed as normal income and the interest exemption does not apply.

You can see that an exemption only applied to interest income. The REIT income was just added to my other income without exemption. There is no deduction for this.

For this reason, I try to keep all my listed property exposure in a TFIA!

Clean swearing bleeped out show is below.

https://justonelap.com/wp-content/uploads/2019/02/TheFatWalletShow_135_20190218_bleeped.mp3

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Warren responded to Nadia’s question about learning how to trade Forex from last week:

There’s a great site called Babypips where she can learn everything. Also there’s a company called Oanda based in the UK which I’ve been trading on for 6 years and all is legit. No minimums or admin fees.

Paul also had some feedback.

Best thing I heard this week, "if you want to know if forex trading is for you, withdraw R2000 from an ATM, and burn it. If you can't, then you can't do forex trading either" - courtesy of Simon Pateman Brown.

I wish I heard this phrase a few years ago, when I was also sold the yacht and bubbles lie and 'burned' a couple of thousands trying my hand at forex trading.

Stephen

I'm toying with the idea of moving all of my ETFs across both my normal and tax-free portfolios into a Bond ETF (Newfunds Govi ETF).

The idea would be to leave my investment in a more stable environment and then move them back into my original portfolio when the market is low.

My current portfolio across both my normal and tax-free accounts holds:

• Ashburton Global 1200 (20% of normal)
• Coreshares Global Divtrax (20% of normal)
• Satrix Nasdaq 100 (in both - 20% of normal and 33% of tax-free)
• Satrix MSCI Emerging Markets (33% of tax-free)
• Satrix S&P 500 (33% of tax-free)

On my normal accounts, I haven't made enough to warrant Capital Gains - I moved from single shares to ETFs in my normal account after Steinhoff and also not realising I should have sold Dis-Chem in the high 30's!

It was then that I realised that I was like a gambler - talking about the gains but not about the losses! At the moment the only single shares I have are Naspers and Steinhoff (only because I can't bare to accept defeat along with my own single concentration stupidity).

Is this an advisable approach? I want to be fluid for when the recession opportunities arise. Or, should I be looking elsewhere for a stable return during market downturns?

Morné

I decided to convert my portfolio from single company shares to ETFs, mostly to avoid risks and not to have to follow shares religiously for opportunities.

My approach is to slowly sell my single company shares as they move into the green or break even and then use the money to buy ETFs. This is only for my SA account since I already decided to focus on ETFs before I opened my US EE account.

I was delighted to see that the ETFs I thus far chose are also rated highly in your podcasts. As I am selling my single stocks, the cash I have available for ETFs is growing. However, the cash in both my SA and US accounts are earning basically zero interest. This irritates me greatly.

My dilemma now is when to buy an ETF? Do I wait for a price drop or do I buy at any price when I find an ETF that I like, since I am investing for the long term? The same goes for the ETFs that I already own. Should I wait for price drops or keep on adding to them from month to month regardless of the price?

Gerard is also taking control of his finances in a big way.

Four years ago we had a lot of credit card debt, month to month living, always "broke". I discovered MMM and FIRE, took control of my expenses and now have multiple savings and investment accounts and no more debt. It took about tw years to get rid of the most debt (house almost done) - and since then just building investment accounts.

Last year I decided to start adding extra monies to the EasyEquities taxable account, and bought about 40 shares to simulate my own index, based on Coreshares TOP50.

One morning I logged into EE and decided this is just too much admin, for such little long term reward - just pay the TER, buy ETFs and stop stressing about this (Re-balancing and buying 40 shares every month gets annoying quickly) . I then sold everything not really understanding the tax consequences.

Now I'm sitting with my first ever TAX event - +-R300 in realised gains, not big money. Would I be able to put this through as a CGT, as my intent is for this account it to be long term holdings - or is it just better to declare the small profit I made as income?  

I can't yet prove it as long term, other than showing SARS my retirement planning spreadsheet  - so on such a small amount of profit, I just think I'll do it as income declaration.

My one major worry is, is that if I declare this as income this year will SARS always see this account as a trading account, or is it a per tax event thing ?

Our Tax Elf De Wet has decided to give up a cushy corporate to take his Tax Elving more seriously. He’s also significantly downscaling his life. He has some big questions about what to do with his money now that he’s in the wild. He sent a monster email so we’ll be dealing with each topic separately over the next few weeks.

I’m looking to save a percentage of all income per month (both me and my wife) for tax purposes. Anywhere between 25% and 31%. What is the best use of this money during the period I have access to it? This normally sat in my bond / home loan.

André, our new minimalist contributor, had a great insight.

1. The lower your savings rate is, the higher rate of return you'll need to get.
2. The lower your savings rate is, the more important time horizon becomes.

Wayne has some legacy active funds and wants to know what to do.

I am invested in The Allan Gray Orbis Global Equity Feeder A with a TER of 2.16% ( I just threw up in my mouth).

I have a large amount going to this monthly.

It was a great idea before ETFs came along that could give me access to world stocks.

I am also now invested in Sygnia MSCI world in my TFSA with a TER of .68%.

Should I be looking to disinvest or stop the monthly payments in Orbis ( they had a shocking year 2018) and put the funds into my EE account and invest in the Satrix or Sygnia world ETFs?

I am struggling to see the difference in investment strategy between the two options, The etf option definitely has a lower TER, and I do not know who to call for advice.

Mary is 42 and discovered the FIRE idea last year.

I started saving for my emergency fund. I was a bit uncertain whether that expense amount should cover the medical aid as well. If so, I should rethink mine because as of now I have about four months of expenses saved up.

She holds:

1. Satrix 40
2. The All bond index
3. The S&P 500 and
4. The property ETF

My tax-free is in a bank account in cash up to now.

I also have the Allan Gray equity unit trust.

I was thinking of starting a tax free portfolio in ETFs and did not want a lot of extra individual ETFs. Is it better to put 100 % of the tax free allowance in the high equity balanced index fund from Satrix or to spread it around in different ones?

We got a mail for Jorge!

Can you please advise what is the best bond ETF (to reduce risk) to buy in a TFIA which will give the best return. What % of the TFIA should it be as I mainly have equity ETFs in the account at the moment?

Karabo has investment properties for her kids.

I have three properties that I bought in my early 20s as investments for my yet to be born children (I am 30yrs old this year). I bought the properties in my name but would like to move them to a trust. Is it possible to do so? Would it be wise to do so or should I rather register a company that will own the properties on behalf of my children?

I still owe the bank on the properties.

Always Abundant is starting to understand the impact of the exchange rate on their investments.

50% of my portfolio is invested in the Vanguard World ETF (VT) in USD.

The other 50% is Local: Top 40 ETF (Satrix and Sygnia), Satrix indi, Sygnia local property index fund, some local unit trust funds (may include max 25% offshore from time to time), some individual SA shares.

Recently, I realised that the exchange rate plays a bigger role than performance when it comes to the profitability of my offshore investments when converted back to ZAR. This is a scary thought as I have no plans to emigrate and have always needed to sell at an inopportune time (wrt the forex rate)

So, I thought to find a suitable local ETF to counteract that risk. Unfortunately, it seems to me that, apart from mid-caps and local property perhaps, everything is impacted by the ZAR-USD exchange rate.

Is this a logical concern or am I overlooking something at a time when everyone around me is investing offshore? If my concern is logical, what is a good investment for South Africans who do not wish to be exposed to currency risk? I would still like an equity-related return and low cost.

I’m often curious about the finances of people who want to take on some alternative way of making money in financial markets - be it trading or Bitcoin. More often than not, people who are convinced that a single asset or event will solve all their problems don’t yet have solid a financial foundation. Similarly, people who do have a strong handle on their finances tend to favour simplicity, as this interview with Patrick McKay illustrates.

Just One Lap had its origins as a trading education platform. Even so, trading is not something we encourage most people to do. For one, the amount of money required to start a robust trading account can easily fund a real world small business. Secondly, all the psychological factors that make investing hard are present in trading, but on a daily basis under huge time constraints. Unless you have the time and money to devote your life to it, trading is probably not for you.

A question about a Forex training platform from Nadia inspired a discussion about the realities of trading that most people don’t think about. We mention our Trading Boot Camp series, as well as this series of CFD Conversations.

Clean swearing bleeped out show is below.

https://justonelap.com/wp-content/uploads/2019/02/TheFatWalletShow_134_20190211_bleeped.mp3

Win of the week is Christiaan

I am 17 years old and in Matric now. After listening to so many of your podcasts I have this vision of being financially independent before I am 35.

I am in the process of opening a Tax free saving account at EasyEquities and the plan is to invest my money from the get go.

I will have a good head start when I get to varsity next year as I will receive free tuition at UP and my parents own a house close to the Uni where I will be able to stay. I do odd jobs here and there and save all my money and receive a small amount of money from my parents as pocket money that I have to sustain myself, buy my own food at school and pay for extra murals. This amount is just under the amount I need to pay tax so I am good there.

I worked out that it will take me just a little bit more than 15 years to max out my tax-free savings account if I pay the full R33,000 a year (will be maxed out when I am 33). My problem is, if I do this there will by no more money left for a RA. Is it necessary to open a RA now as I am not even 20 yet and don’t earn a huge amount of money? Or wait until I maxed out my TFSA and then move the budgeted money I used to put there to my RA?

Nadia

I want to please get your opinion on a company called XXX. I've been trying to get proper feedback on them for weeks now but I can't seem to get an answer.

It's a company that trains people to trade Forex. You pay to access a number of training videos, live sessions, tools they use to trade etc. So it really sounds awesome and apparently the education side of it is really great. But then I find the google reviews that say that it is all a scam and that they just take your money... which is why I am confused. There are some people who say that it is a great product because they really go in depth to show you how trading is done etc.

As far as I know, you pay a monthly subscription fee to be able to use the education platform and then also the tools and programs they use to trade. You can cancel at any time and they money you make from your trades belongs to you. The only way this company makes money is from the monthly subscription you pay. It's pretty expensive so i'm not sure if I should just go for it and see what happens or if I should forget about it. So yes... i'm pretty confused.

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Our Tax Elf De Wet has decided to give up a cushy corporate to take his Tax Elving more seriously.

I need a strong emergency fund (something which was not as important with my current job).

I’m looking at having 6 to 12 months expenses saved up over time.

Where do I invest this money?

I’m looking to save half myself and keep half in my wife’s, as this makes issues on death easier (joint accounts get frozen and the like). This also potentially spreads the interest exemption.

The plan is to save a percentage of all income on a monthly basis till I reach the threshold / top up as extra income comes in.

Emergency Fund is the main goal in the first year working for myself. I will use some of Sam’s knowledge and save for various items in this fund – car related expenses, emergencies, and other non-fun stuff. We will have a separate fun fund (this will be managed by my wife as she is in charge of fun and I look after life).

Like me, Seilatsatsi is trying to find the perfect balance between RA and bond contributions. They say:

Finding your podcast has so far been the best find of 2019 following the best find of 2018 which was Stealthy's site when I started my FIRE movement.

I don't have a company pension fund.

I currently manage my own with an RA, a TFSA and an EE account.

I pay more than double on my bond.

One of your listeners noted that one can submit their RA contribution to HR and have the rebate on a monthly basis compared to once annually. With this option, I am wondering if I should work it out as below:

Stop the extra bond contribution and redirect that to the RA.

If the monthly rebate works through my employer, I can put the extra monthly tax break back into the bond. I am very disciplined and this would actually be done.

Another Engineer has some questions regarding tax on property and RA emigration.

You mentioned that one can transfer an RA offshore, to another type of pension, and I understood that you meant that you wouldn't have to pay the tax. I've looked it up, and one cannot 'transfer' an RA offshore before retirement; you can have it paid out in cash, take the tax knock, and then take it offshore, IF you have financially emigrated. However, if you have a work pension fund, it seems you can take the cash (minus tax) when you resign, without having to have financially emigrated.

I assume after 55, if you wanted to cash it out, you also have to turn it to cash, take the tax knock (which will be less than before 55), and then take it out.

You mentioned that listed property distributions are taxed as interest. I think it's actually taxed straight as income, not interest? Unless I'm not understanding what you meant. The property distributions are not part of your interest exemption etc, I think it gets added straight to your "gross income", with your salary etc.

Tax Emigration - Part One

Edward is currently living in Australia but planning to move back home soon.

I currently live in Australia but will likely have to return to South Africa a few years from now to look after my parents.

I want to start contributing to a tax free savings account but I don't have a South African address which is required for FICA.

Is there any way to open a tax free savings account while living in another country? Could I maybe use my parents' address? Would EasyEquities be an option for my TFSA?

Phemelo could relate to last week’s episode on starting over.

The podcast "starting over" summarises what I have been trying to do from end of July to now.

I thought I had a formula, the grand idea that was going to save me, namely to Increase my income by a huge margin.

A prospective employer entertained my suggested offer of a huge increase in my annually CTC.

In Dec 2018 I was flown to Cape Town for final interview. The interview went well, but then the phone call came on 18:38 Friday evening, telling me they “will not be advancing the offer". I was distraught and shattered. All my plans went out the window. This one job was supposed to take me to the promised land and now "I am starting over", but I remain positive.

Darryn wants to know what account he should use to save for fun stuff.

I struggle reading financial products at the best of times due to time and also pure laziness, my questions are:

1. Is there a specific a account or company you use yourself for this? Can I just use a savings account on the 22/7 app? Are they good?
2. Is there a specific type of account to use?
3. If saving for a new car and a holiday to Cuba would you put those in separate accounts?

Steve is planning to do some tax harvesting.

I heard about the EasyEquities inter-account transfers function between normal accounts and TFSA, so I sold enough ETFs from my other account to transfer to TFSA. I know ETFs are not sold and converted instantly -  I figured T+2 or T+3. When the money didn’t appear, I logged a ticket. I got a reply that the money would only be cleared on 13 Feb, which would be 8 business days later. Is this normal and if so, why so long?

I am building my kids’ education funds in ETFs,  but am mindful of the CGT I will need to pay when cashing in.  

Considering there is a 40k per year allowance, I was planning on selling and rebasing the funds at times when the CGT liability would be close to the 40k. I am buying 6 ETFs per month for next 15 to 20 years.

How would you suggest managing the CGT liability?

I could keep a spreadsheet of each account and each ETF purchase ( x 3 per child per month etc – for 15 years ) -  or is there an easier way? For instance are the providers required to keep the CGT calculation updated for me?

Always Abundant isn’t so sure about the investment potential of property.

I've compared the listed property index (J253  - since STXPRO does not go as far back) against the Satrix 40 over a 10 year period and found that property has performed half as well as equities. If this is generally the case in the long term, are there any merits to investing in a listed property ETF other than for diversification? The reason i am considering this is the added tax advantage for listed property in a TFSA.

Hannes wants to know why your friend who sold everything in 2008 missed out.

In episode 124 Simon talks about an acquaintance who sold everything in 2008, and asked to re-buy a few months ago. In that episode he states that "she missed everything", but I'm confused about this.

I understand there was a massive market swing over the past 11 years, but long term investing dictates that you should hold, so why would she have missed everything if she would have just held through the swing to end up where the market was X years ago due to recent poor performance? Am I missing something here?

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For us money nerds, February is not the month of love, but the Hallowed Month of Tax. What’s the best kind of tax, you wonder? The kind you don’t ever have to pay! In this bonus podcast, Wild and Tax-Free, we get some friends together to chat all things tax-free savings. Joining us in is Njabulo Nsibande, FIRE-man Patrick McKay, aspiring FIRE-man Stealthy Wealth and EasyEquities superstar Carly Barnes.

Remember to join us for our annual tax-free presentation at the JSE here.

Since talking about money is my day job, it’s easy to assume that I have no financial anxieties. That’s not the case. Money speaks to such a primal part of our humanity. I think everyone is susceptible to a degree of fear around their ability to meet the basic needs of themselves and their families.

Making big lifestyle changes always results in massive financial anxiety for me. Buying a house  - a lifestyle decision whose financial implications I always distrusted - had me on tenterhooks. Instead of throwing myself into the planning, I resorted to a small degree of avoidance during the stressful process of finalising the sale.

When I was finally ready to look the beast in the eye, I was greatly relieved. Forgetting my previous budget and starting from scratch was a way of reminding myself that I was actually in control of the process. I could make decisions to ensure my financial comfort because of good decisions that I made in the past. Good for me!

This episode is for those of you who recently underwent a big change that requires a new approach to your money. We talk about my own process and offer some ways for you to start over. Remember to let us know how it goes!

P.S. Don’t forget to join us for our Power Hour on 21 February at the JSE in Johannesburg. Register here.

Join our Fat Wallet community page here.

Win of the week: Peter, who simply wrote: Love your show and don't miss any new posting. Also Ben, for sending a question and then figuring out the answer himself.

Clean swearing bleeped out show is below.

https://justonelap.com/wp-content/uploads/2019/02/TheFatWalletShow_133_20190204_bleeped.mp3

Lady Kabelo

Can you explain the relationship between world/US ETFs and the rand in village idiot terms.

If I buy the S&P500 and the rand weakens against the dollar, is this good for my investment? And vice versa.

I assume the same would apply to the world, global property and emerging market etfs. Is this correct?

From an investment perspective, when the rand weakens should I be happy or sad?

Because the S&P does its own thing and the rand does its own thing, I can never tell what's going on and why.

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Kgosi discovered he was being overcharged for his dread and disability cover. His cover came to almost R3,000 and he’s only 26. That’s too much.

Brendan wanted to add to last week’s episode on getting your tax in order for the new year.

There is also a donation to an s18A public benefit organisation (PBO) that listeners can consider making. Up to 10% of our taxable income is deductible for this purpose. SARS is effectively paying a portion (by reducing our taxable income and therefore the tax we will pay) of a donation we make to a cause that we care about. There is a list of S18A PBO’s on the SARS website.

Hannes, who just turned 30, is feeling some anxiety over his finances.

I quit my shitty-paying, toxic software job in 2015, dipped my hand into business which never took off, after which I settled on international stock trading in the US markets for two years. The reason for US markets? I felt like SA was lacking liquid, affordable stocks for active day trading, and at R50 per trade at Standard Bank at the time I thought I might as well try my hand across the pond. Before this endeavour I've never dealt with the financial markets, local or international, and I had no knowledge, so I put on my big boy pants and started learning and obsessing about the financial industry.

I vastly underestimated the time and capital required to learn to be a consistently successful trader (especially in USD), and my money was slowly drained by education, "school fees", software costs, exchange fees and broker commissions over the two-year period.

I retired from the US markets in late 2017 and subsequently cut all ties to the financial world and returned to my original career path and "stability". At the ripe age of almost-31 I'm in a financial position where I can start building a life, and start realizing my plan for long-term investing.

As it stands now, I have no investments, no property, a small bit of manageable debt (relatively cheap car which is also my hobby), no RA, no TFSA, and R100k tax-free (tax directive) money in my savings account earning around 6%.

On top of that, I realized that I will need to get on top of my parents finances as well. They have always earned a decent income due to my father's business, but they have neglected their retirement completely. They are both in their late 60's. My two older siblings do not work and rely on their husbands to support their families, so ultimately I will be the only one actively contributing to my parents retirement, all while trying to create a life for me and my hopefully-soon-to-be-wife.

I've decided to sketch out a financial plan for myself, my girlfriend and my parents in an attempt to remove them from the grasp of their financial advisor in order to set a clear cut path to some sort of retirement.

I've drafted a plan below, which I think makes financial sense and should start me off with a well balanced portfolio:

• Max out TFSA with R33k on 1 March 2019. (Leaving me with R66k left in regular savings).
• Keep R33k of the remaining R66k as the starting point to my emergency fund (which I'd like to grow to about R150k).
• Use the remaining R33k to invest immediately in ETFs / other "good" financial instruments (I could really use your input on what is considered great first investment financial instruments).
• Open an RA with 10X (need more research on this) and start contributing to that around R3k per month, unfortunately no contribution from my employer.
• Don't buy a house. Don't panic. Be patient. Reduce living costs even more (lean already). Try not to panic because I want to get married soon, have a honeymoon and travel. Did I mention don't panic? It's fine.

Because my girlfriend (29) and I (30) are only starting our investment journeys this year, do you have any strategic paths you would recommend as the most efficient way to start ?

is not happy about the Ashburton 1200’s TER. Chris Rheeder wrote in about it too

I have heard you and Simon mention the Ashburton  Global 1200 several times as a solid, diversified, reasonably priced rand hedge ETF. However, while doing research recently I discovered that the TER for the aforementioned fund is now 1.33 percent! (See the latest MDD: https://www.ashburtoninvestments.com/docs/sa/ashburton-exchanged-traded-funds/ashburton-global-1200-tracker-fund/a-class)

I recall that the initial TER was in the region of 0.45-0.55. In other words, the TER went up by more than 100 percent, which is ridiculous and highly annoying as I invested a fairly large sum of money based on the diversification and relatively low TER. I appreciate that prices do at times need to go up but this is just not cool.

I just wanted to alert the community that this is no longer a low-cost option. Satrix, Sygnia and Stanlib offer much cheaper options that are fairly similar.

Brendan is having trouble deciding on a vehicle for his retirement.

When I joined the company I work at, we had a mandatory pension. At the time I said "Okay, cool!" and felt very grown up and responsible.

However my contract of employment will soon expire. That means I will have to move my pension thingy. It's a Momentum product called funds at work.

Upon realizing I have to move the pension thing, I started looking into the various options and I had no clue what is the right option for me.

Retirement funds, plans, annuities, pensions - there seems to be thousands of options and I don't know which one to go for. Could you please provide some clarity on this fuckery?

I was thinking I want to be with a place like 10X and I want to have my own personal contribution going off my account so that I can max out my tax break, but with all the other products out there and the various differences I thought it would make sense to hear what you have to say.

My line of works means I will usually be hired by companies on mid-term contracts +- 5 years at a time and I thought maybe always having a personal retirement annuity would make these transfer periods easier and allow me to keep my money consolidated.

Charmaine wants to sell some of her existing ETFs and buy new ones. She has DBXWD and Satrix40. She made a loss on the one and a profit on the other. She wants to know how to handle the selling off in terms of tax.

Tax is probably the only thing I managed to get right about my finances when I first started working. I had no idea what was going on, but I was sufficiently scared of the government to pay someone else to deal with it. The R800 rebate I got that year might as well have been a million bucks. I didn’t understand at the time why I was getting the money, but I was happy to roll with it.

If you’ve never filled out a tax return form, this is the tax year to start. If you’re worried that you left it too long and SARS might take your things, pay someone to help you. A small fee paid to a tax professional is worth your peace of mind.

Whether you like it or not, tax is much part of your financial planning as inflation and bank fees. You can hate it, but you still have to do it. Spend a little time on it and you’ll probably come to enjoy becoming efficient at it.

If you’d prefer some guidance, we’ve heard great things about Tax Tim.             

Win of the week: Zakithi from The Fat Wallet Community. Our community wizard Kay asked, “What's the one thing you did this week you're proud of or that made life better?”

Zakithi said, “I am planning +preparing weekly menus for my family. More time with my kids+relaxing 😍”

Nico wants to know when to call it quits.

I bought some Warren Buffet and an Emperor International Baskets through Easy Equities.

I have learned not to make assumptions like, if the bundle is called Warren Buffet, it should perform more or less like the namesake.

I’m trying to be patient in my investments, but these two bundles are falling fast! I can’t take it anymore! Warren Buffet is down 18.64% and Emperor down 13.83%.

When can I admit I made a mistake, cut my losses and try again, or should I close my eyes and stick it out (please don’t tell me the second one).

Liam wants to know our reasoning behind investing our RA rebates in tax-free savings vehicles.

I have noticed that you talk a lot about investing into RAs and then taking your tax rebate and investing this in your tax free savings account. I find this an interesting concept, I have always worked on the basis of investing the rebate in the RA and thus effectively compounding the tax rebate as I will get a further rebate on that. Could you please explain the logic behind investing the rebate in tax free savings rather, I am very new to tax free savings and have not given enough thought to how to best utilise them.

Gerhard

I've opened TFSAs for my three-year-old twins and I would like to add the maximum to

their TFSA before the end of Feb 2019.

I was thinking (and pls confirm if you agree):

• 1/3 - Satrix 40 ETF
• 1/3 - Ashburton 1200
• 1/3 - Sygnia Itrix Global Property ETF (or better REIT/Property ETF)

Dominic is about to get some money.

I am 25 years old and just entered the working world. I have an emergency fund in place in a flexible Capitec account and no debt. I try to live as cheaply as possible (but sticking to the structuring your paycheck suggestions is hard at my income level and age). I have been actively saving and have a provident fund at work that I contribute the maximum towards.

I am about to inherit some money from a trust that will be maturing that I estimate will be around R325 000.00.

I don’t have a RA yet but I am thinking about going for the 10x one after doing some research and listening to your debates about it.

I would like to move my emergency fund into a 32 day notice at another bank as Capitec doesn’t offer them - probably FNB as I would get around 6.65% on it which is second best from my research without having the hassle of the Nedbank (6.75%) private bankers trying to convince me to bank with them.

I haven’t got a tax free savings account and I’ve only recently started scratching the surface of this idea of ETFs and tax free accounts and what not.

At my age what would you recommend I do with this money? I suspect in due course over the next 2-5 years I will be looking at things like paying for a wedding and buying a house (even though everyone says this is a bad idea, I haven’t quite made up my own mind about it so I would like to keep my options open).