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The Fat Wallet Show from Just One Lap

The Fat Wallet Show is a show about questions. It’s about admitting that we don’t know everything, but that we’re willing to learn. Most of all, it’s about understanding as much as we can to make us all better investors. Phrases like, “I’m not sure” or, “Let me look that up and get back to you” or, “I don’t know” don’t exist in the financial services industry. If you ever had a financial question you were too embarrassed to ask, you know what we’re talking about. In this business, appearances matter, and nobody wants to seem like they don’t know how things work or what the outlook is for the buchu industry. It’s easy to excuse that little vanity, except that people in the investment industry are meant to service investors - people like you and me who need to figure out what to do with our money. There’s no such thing as a stupid question in this show. If you have unanswered financial questions, this is your opportunity to have them answered in a way that even I can understand. Pop them to us at ask@justonelap.com. Hosted by Kristia van Heerden and Simon Brown
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Now displaying: February, 2020
Feb 23, 2020

This time of year is like Christmas for money nerds (or maybe it’s just me). Everyone’s tax situation is unique and there are so many variables to tweak. It’s truly magical. 

In this episode, we take you through some tax basics. We explain why the end of the tax year is significant, even if you don’t file a provisional return. We help you work out why tax-free savings are so important and discuss some of the similarities between tax-free investment products and retirement products like annuities and pension funds. 

If you don’t find tax exciting yet, it’s only because you don’t know enough about it. Let us change your mind in this episode.



Win of the week: Janesh 

In 2016 I moved to CPT and started renting. I was busy with my Masters and working at the same time. I went from a fairly decent Department of Health salary through 2017 with poor cash flow. I still managed to get by, even after getting married in the year.

In 2018 - cash flow improved and I could start thinking of buying a house, which we did in April 2019.

I started a new medical practice in July 2019, so cash flow came to a screeching halt and my emergency fund dried up due to the purchase of the house.

I'm also sitting with a hefty tax liability as the people previously doing my tax hashed it a little bit.

I was just listening to the episode on financial planning. My plan is to pay off some of my debt and at the same time build an emergency fund again.

I think i just need somebody to say, it’s okay - these situations are part of starting your own business.


Pascal 

Since I asked my question referencing TD Ameritrade there has been an escalating fee war between major US brokerages. Most of them now offer no account minimums, no maintenance fees and zero commissions. What a time to be alive!

Why wouldn't you want to invest directly through a US brokerage that allows it, now that they're so damn cheap? I'm still new to this game. Is there something I'm missing? Obviously foreign exchange fees and international wire transfer fees are unavoidable. 

I want to support local companies as much as possible, but when it comes to offshore investing, how can you say no to zero commissions?

TD Ameritrade seems to be the only one that welcomes South African investors. They even provide a digital "Ben10" form on your profile to reduce your dividend withholding tax through the platform without using a third party company (Interactive Brokers does this too). 

The funny thing is, I personally can't even use them, because my Standard Bank offshore account happens to be in the UK channel islands which is on TD's list of restricted countries. Something you can only learn by going through the process of opening an account and trying to fund it. What fun. I now invest my USDs with Interactive Brokers. It's not free, but still cheap! Thanks Patrick!

If it interests you at all, after MONTHS of intense reading and research, I've settled on this simple equity-only offshore portfolio:

  • 80% VTI - Vanguard total US Stock Market
  • 20% VXUS - Vanguard Total World Excluding US

Together these 2 ETFs make up your well-mentioned VT - Vanguard Total World, but I've weighted more towards the US Market for now for a number of reasons, most importantly because it's the economy I'm most comfortable with, and not least of which, in your own words: If the US is fucked, then we're all fucked :)


Vivesh

I opened a TFSA with Standard Bank this month. I bought a third each of PREFTRAX, NEWFTRACI and NEWFNGOVI after watching Simon’s webinar on TFSA on OST platform.

I understood that the distributions are reinvested in the TRACI and GOVI. The TRACI price chart goes up annually by 7.1% due the reinvestments, but I don’t see this with the GOVI. 

I thought maybe the quantity of the GOVI ETF held would be adjusted upwards but that did not happen at last distribution.

I can see the money received and reinvested in my cash balance history. How and when do you actually realize the growth/yield from this bond ETF if there is no capital gain from price appreciation due to distributions. The GOVI MDD puts the yield at about 8.65% ish, higher than TRACI. 

Secondly, the PREFTRAX for example pays out quarterly dividends which could be used to supplement income, but how would one use the TRACI/GOVI for income purposes? Do you keep investing in TFSA to R500K limit and then when you need the income you sell the ETFs that reinvest distributions and go to cash or ETF that pays distributions?


Guillym 

I stopped investing when I lost my life savings in 2012, when I was 25. 

I had close to R200k in my current account. I knew I should do something with it, so invested it all into a single scheme, and lost every cent. Simon may remember when the owner of RVAF Trust Shares shot his partner and then himself.

As you can imagine I was rather jaded after that, even though I was mainly burnt due to being an idiot. So I started on properties.

Actually, first for about three months I spent every cent I earned and partied like a rock star. I was used to saving two thirds of what I earned. All of a sudden I could afford to go to the pub/club every night. 

After that I saved for a while and bought my first flat in Cape Town in Jan of 2014. Now I own three flats (the bank owns like one and a half) in Cape Town.

Since finding your podcast, I have started diversifying away from property. I put some money into a trading account and then took it out to see that it wasn't gone. 

Have like 6k in there now, all over the place. Will probably move R33k in before the end of the financial year for TFSA. I hear all the merits you guys mention on investments over properties, and have done a lot of the math. I am not sure how much better off we would be if I hadn't gone the property route, but I understand it is now time for ETFs and the like. 


Marius

My parents just sold a property to finance a badly planned retirement.

They have R1.4 million to invest and can take care of their monthly expenses, but they cannot do anything more. What would you recommend?


Candice

When you speak of being over-diversified, what difference does it make if I put R10 into the Ash1200 or R5 into the Ash1200 and R5 into the Satrix  MsCi World? 

I know they are very similar but one will outperform the other one day and is it not better to dabble a little in both? 

Feb 16, 2020

Conventional wisdom has it that a budget is at the heart of any successful financial strategy. My wisdom has it that a budget is an excellent tool for self-deception. Nobody was better than drawing up a theoretical map of how money should be spent than me not spending money that way.

In this episode we discuss where budgets fall short. We each share our own approaches to budgeting and offer some more useful alternatives.



Win of the week: Ken from the Fat Wallet Community Group on Facebook.

I've looked for a post on STXWDM + STXEMG vs ASHGEQ in various places, including this group but I can't find one.

In episode #85 ASHGEQ was voted by Kristia and Simon as the one ETF to rule them all.

Stealthy Wealth voted for STXWDM as the one ETF to rule the world.

The argument for ASHGEQ is more diversification + emerging market exposure.

The argument for STXWDM is lower fees.

DOES STXWDM + STXEMG GIVE THE BEST OF BOTH?

The argument against STXEMG could be too much Tencent exposure. In episode #72 Simon did some math and determined that there was less Tencent than in a JSE top40 index, so that seems ok.

Does it cost more to hold two EFFs than it does one?

STXWDM has a TER of 0.35%

STXEMG has a TER of 0.40%

For the sake of simplicity, I'll assume they both have a TER of 0.4% and R100 is bought in a 50/50 ratio.

Holding only one ETF = 0.4% of R100 = R0.40

Holding two ETFs = (0.4% of R50) + (0.4% of R50) = R0.40 i.e. same same but different.

ASHGEQ has a TER of 0.6%

Does this mean that the combined cost of STXWDM + STXEMG is less than ASHGEQ?

I presume there would be the cost of an additional trade? Two trades vs one. I don't know what that cost would be.

Using EasyEquitites to purchase the ETFs, would buying both still work out cheaper than ASHGEQ after considering both transaction costs and TER?

Assuming that the cost does in fact make it cheaper to buy STXWDM + STXEMG over ASHGEQ, and assuming those are the only two ETFs one buys, I'm interested to hear in what proportion you guys would suggest buying them, assuming a time horizon of 20+ years?

In Stealthy's article he says, "I estimate the Emerging Market component of the Ashburton 1200 to be 3.5%, but let’s be generous and call it 5%."

Following that, one might buy 95% STXWDM + 5% STXEMG to emulate to the 'one ETF to rule them all'.

But just because that's the ratio of the ASHGEQ, doesn't necessarily make it the best ratio, and so I'm interested to hear what ratio others would suggest?


Mariette 

I've had one for a few years now, and there are the stupid things that they do for me which I can live without. They do help a lot with emails getting lost in the big ship. There have been a few times where I've requested cession documents, interest rate adjustments, etc. where it would take very long to sort out, and if I put my private banker on the matter, it's sorted within a day. I'm busy moving my tax free shares account over to EasyEquities, and I'm battling, this is where he will come in very handy.

I'm soon not going to have one anymore, I'm downgrading my account to save on fees. Slightly ironic that I need this paid service when I want to invest better.


Mariana 

What salary is referred to when people talk about % of salary going to savings. Is it:

  • Cost to company, which Includes employer’s contribution to: Pension/Provident fund (to which her employer contributes 10%) and 60% of medical aid, UIF
  • Gross salary (Cash salary excl employer’s contributions as above)
  • Take-home salary (Deductions: Tax, pension fund contribution (7% of cash salary) , 40% of medical aid, UIF, Group Insurance)

When they ask about “after tax salary”, is that cash salary minus tax but still including my other deductions like PF and Medical aid?

They (her pension fund provider) have a normal one indicating what my annual costs would be if I continue with the policy. Then they say I should use an alternative table if I’m considering moving the RA to compare with the new provider’s costs.

Are they trying to make themselves look better (still horribly expensive) or why would the second table apply?

At the moment I compare the current fund value plus the ongoing fees (table 1) against the termination value (> R50000 penalty) and the new provider’s fees for the remainder of the term 8-11 years( 55-58 age), am I missing some point with this 2nd table?


Column two:

 

EAC if you are considering replacing your investment

The table below shows the EAC calculation assuming that you terminate your existing investment immediately. The EAC table of the alternative product needs to be compared with

the information below in order to determine whether or not the replacement may be in your best interest from an impact of charges comparison perspective.


Minnaar

With the upcoming elections in the US, there is lots of talk of certain technology companies having to be split up (either by congress or public pressure) (these include Amazon, Facebook etc). What happens to these companies that are major constituents in an ETF?

If Amazon (which is now around 9% of the NASDAQ 100) decides to spin off Amazon Web Services into a different company, what happens to something like the Satrix NASDAQ 100 ETF? Do those new shares simply land up in the constituents immediately, or will it only benefit at the next rebalancing date?

Essentially - do ETFs actually benefit from these occurrences?

Javier

An important advantage for new investors in using ETFsa would be the advisory service combined with the no fee on moving products to different providers in the future. It allows new investors to grow and get advice and if in the future with what they have learned they think their money is better off in a different RA product or TFSA then they can move it at no cost. I think this would help avoiding many rookie mistakes. Plus at the beginning the fees of a smallish portfolio will not have a huge effect in the future.

And the one thing that made me the happiest is that they will manage the transfer of existing products my wife had in Old mutual, so we will not have to do any admin! just for that it’s worth it!


Chris

The 1nvest product tracks the the MSCI World Index. It has a total investment charge of 0.5%, with a total expense ratio of 0.4%. It’s almost identical to the Satrix product, except it pays dividends, while the Satrix MSCI product is a total return ETF. 

Where can I see where, when and how much my dividends in Asburton will be?


Olyn

I’ve resigned. I am not sure if I should split my fund into 50/50 between RA and preserve preservation fund. I am 43 and starting a new job in Feb. Which preservation fund and pension is better?


Louwrens

I only discovered your show about a month ago and have been binge listening ever since. I am a scientist with the government. I don’t know if you collect scientists in bottles as well, or is it only engineers? I have a great pension plan and 100% of my expenses will be covered once I retire. My other investments are just bubbles money!

Currently  85% of my discretionary investments are in a RA with shitty returns due to me paying for Old Mutual’s Christmas party every year. I am in the process of fixing this. The other 15% is in the MSCI World ETF.

 I created a spreadsheet with sector distribution for each and then calculated the total % for each.

I want to have at least 15% in Technology,10% in industrials and 15% real estate. This is personal preference only and not based on anything.

To do this I have calculated that I need to invest the following

31.5% in an Industrial fund (like Sygnia ITRIX 4th industrial revolution global fund)

8.5% in REIT

This will leave me with the following:  MSCI World    8.7%

                                                                        RA                     51.1%

                                                                        Industrial fund     31.5%

                                                                        REIT                  8.7%

 What do you think about this kind of approach? does it make sense, or am I going to over expose myself?

Feb 9, 2020

“Return” is one of those words that Finances Bros simply love to throw around. Good luck trying to have a conversation about investments without hearing all about it. This week, we discuss why return is something you can basically forget about, if your Finance Bro will let you. 

We explain what the word “return” could mean, depending on the circumstances. We help you figure out how to know whether a return is good or bad. This is important, because a positive return can be a bad return. It’s one of those, “how long is a piece of string” things that we so love. As always, you can rely on inflation to just ruin things for everybody. We also explain how you can work out the return on your own portfolio. 


Win of the week: Boitumelo. Jorge has some feedback for her.

Our Church recommends that we keep an “Admin File”. In this file we keep a copy of all the different accounts, investments, bank statements, credit card statements, Last will and testament, RAs, car papers, water & rates, telephone, funeral policies, copy of ID’s, passports, pay slips etc. for both spouses. We then advise the family members where we keep this file.

In the event of death, the person handling the estate will have a copy of everything they need to finalise the estate.

When an account closes or and investment pays out., the item is removed and replaced with the new one.

We don’t file the documents on a monthly basis as this would defeat the object of the admin file which is purely for information purposes.

It is a very traumatic time for the surviving spouse in the event of a death and this enables the person helping the family on this sad occasion, from the info in the admin file, to contact all those institutions to get things going without having to bother the surviving spouse.


Gerhard 

You guys understand investments and are quick to point out how we get ripped off. You sadly don’t have the same understanding in medical aid. I wonder if a lot of the same thinking can’t be applied, since there’s lots of complexity, lots of fear, lots of fees.

Why in the world is it so complex that one can’t understand and compare the different options.

I have a family of 5 (well 4 + me) and I’m currently on a hospital plan at Bestmed for R4059 per month. It’s the best and cheapest medical aid I can get my hands on - probably increasing again in Jan.

I can get medical insurance for hospital-related stuff from Affinity for around R2,500 per month - much more palatable. However there are annual limits. 

The thing is, I don't know what this means. I don't know what amount of insurance you need to feel kind of covered. Also it seems in the States you get options with an excess payment that bring down your premiums, is there something like that in SA?

It feels to me that if one had some clear insight you could potentially make better decisions.


Maryn

I've been recently diagnosed with a chronic illness. I am paying an unforeseen R4000 to R8000 per month for medical bills (a third of my salary). I have a Classic Saver with Discovery (I get a discount for Discovery through my job) of which the day-to-day savings have been exhausted soon after the diagnosis.

I need your expert opinion (or just some cutting through the medical aid bullshit). Do I continue to carry my expensive medical bills month-to-month? Is it maybe worth it to register as a PMB patient, and upgrade my plan with Discovery? Do I look for a different medical scheme? Do I invest my monthly R4000 and run fast (real fast) away from the doctor after each appointment?

I'm 24 and still have a long time for my investments to grow through the magic that is compound interest. I'm very proud that I still manage to invest my monthly R‭2750‬ into my tax-free (thanks again fat wallet), despite the increased medical burden.

Do you perhaps have someone in mind? I'll pay a once-off consultation fee, but no monthly fees on top of fees (learned this trick from fat wallet ;) ). Please, can you share your wisdom?

 

Feb 2, 2020

Life has this dreadful habit of happening. Almost always these goings on require money to solve. The financial foundation we advocate is designed to help you cope with financial crises when they happen. When you have no debt, sufficient short-term insurance, an emergency fund, medical aid and dread and disability cover, you have some tools in your time of need.

Unfortunately life doesn’t sit around waiting for us to have our ducks in a row before causing drama. Sometimes you have to do the best with what you’ve got. In this episode we offer some ideas about what to do when life happens before you’re ready to cope with it. We talk about dealing with emergencies when you have debt and no emergency fund. 

We have no elegant solutions, but hopefully a few of the strategies can help you navigate a tricky time with grace. 

Good luck!



Keith

According to the national credit act (NCA), debt should be repayable at any moment by a borrower without any penalties. If a loan at the outset has a, say, 16% interest rate over its life, then the lender is not allowed to capitalize the entire life of interest over the life of loan so that early repayment penalizes you.

As far as I can tell, that is illegal.

NCA gives the borrower the power to ask for the full and final settlement account at any moment. Hence, if you are 2 years into a 10 year loan, they cannot go and add 8 years of interest into the loan’s capital amount. This would, surely, be illegal.


Gregg

I was listening to a program on TV where the panelist said we need to be aware when buying equities through Easy Equities, they are on the balance sheet of the brokerage. If the brokerage goes under, you are not guaranteed of getting all your funds back.

Can you explain what this means? Perhaps explain using an example. If I buy Satrix 40 ETF – does it mean if I sell them that EasyEquities may not give me my money and that I have no direct claim from Satrix itself because the ETFs I bought are lying on EasyEquities balance sheet?

This sounds like a risk. Is it one worth being nervous about? I would assume that as an Easy Equities user yourself, you’ve done your homework? 

I am considering buying through them directly onto the US Market, which is one of their offerings. I want to make sure that I can quite comfortably do this at almost zero risk. 


Dario

Could you guys please talk about how EasyEquities functions as a platform i.e how they are able to provide fractional shares and are there any other good alternatives?

I am asking this because I bought some STXNDQ without looking at the buying price. before logging off I decided to have a look and quickly cancelled the order as there was a 9% difference between the delayed price and buying price.


Mariette

My parents are 78 and 72 years old. My dad gets R14,500 pm from pension, so a lot of the extras fall on myself and one of my 4 sisters. 

I took out life cover on my dad's life (after not such great advice from a 'financial advisor') which costs me a pretty penny every month. The idea is that if something should happen to him, my mom can use that amount (R500k) to offset the 50% loss in income from my dad's pension fund. 

My dad had all his investments with Old Mutual and after all those years had a measly 2% growth. 

He immediately took that money (about R450k) and put it in a 7-day notice account with FNB (6.3% repo related interest). He is dependent on the interest from that investment to cover expenses that are not covered by his pension. He doesn’t want to take any risks, especially with big institutions. 

My mom has a buy-to-let property she bought with some inheritance money and try to save R1000 pm from the income. This can be done in a TFSA, but not sure if it will make such a big difference at their age.

What would you suggest they do to stretch their savings a bit? 

My first suggestion was to move from FNB to Capitec, take R370k and put it in a fixed deposit (8.55% interest) and the rest as an emergency fund with Thyme Bank (10% interest). 

Also to try and reinvest as much as he can and not make use of the full R1000 extra from the increased interest rate. I'm not sure if my dad will go for an income-generating ETF, it's too unknown and too big a risk for him.


Paul

Here’s a list of his spreadsheets: The spreadsheets list my investments; their TER; their individual holdings (i.e. Naspers, BHP, Apple, etc.); how much (%) each investment is of my total value; to tracking what they have been doing on a monthly basis; my monthly expenses; SA inflation, my monthly savings (+-40%); retirement target and how far I am away from it; the amounts from every formal salary slip I have ever received (I can tell how much money I have made over my 14 year working career and my subsequent retirement contributions); to a breakdown of individual index funds for comparison purposes; to the monthly updating Rule of 300; as well as all the graphs in between.

My company retirement fund (which I contribute 27.5% to each year) has increased by about 18% this year, which is great, after the bloodbath of last year.

Should I get an RA or just leave my money in investments? 

My understanding is that an RA is just tax delayed, but with having investments at least you have an accurate representation of what you should get out of your investments as the tax is taken constantly. An additional benefit (or negative depending on how you look at it) to the RA is that the money cannot be touched by anyone until it matures. What is your opinion?


Stephen

I had a legacy Sanlam RA which, after listening to your podcast, I started investigating the charges. To cut a long story short I decided to take the penalty and move it to 10X. 

The problem I have with 10X though is the lack of visibility into what sectors they are investing. I think this is important to know so that you don't over-invest in certain sectors in your TFSA and Taxed portfolios.

I then moved the RA from 10X to Easy Equities. 

My reasons were:

  • Strategy visibility
  • Everything under a single solution

Hopefully future functionality to build my own Reg 28 compliant portfolio.

However, my question is why do these products all tend to overlap equities?

Personally I'd prefer purely Satrix 40 for local instead of the overlap in the different sectors.

For international I'd prefer Satrix World with an element of Satrix Emerging to capture the entire market.

My EE RA is a small portion of my retirement as my main funds are within my work fund (Sanlam) and I'm maxing that out at 27.5% (any contributions above the standard 15% does not incur costs). I'm more prone to go aggressive on my RA and also simplify the approach.

I'd prefer to stick with EE and have a custom Reg 28 RA based on Satrix products without penalties for not using Sygnia products. I'm hoping they release the functionality in the near future. 

Do you have any connections at EE to find out if this is on their roadmap and by when?


Eric

I have a TFSA that I max out yearly. The only ETF that I have is the Sygnia S&P500. Although I've had some great growth over the last 2 years, I'm concerned that due to the market being at record highs, growth may start to stall & taper off in 2020. 

To counter this, would it be a good idea to keep the initial S&P500 investment and start investing any new money into something like the Ashburton 1200? Maybe contribute toward a 50-50 split between the funds or contribute until a 50-50 split is reached? I'm very aware that there may be duplication of the same companies / regions if I choose these funds so is there maybe another fund to counter the exposure to the US market?  

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