With the markets in a flat spin, even the bond market is looking a bit peaky. How can it be when bonds are supposed to give us stability and predictable income? It turns out not all bonds are created equal. In this week’s episode we revisit how bonds work and what they’re supposed to do in your portfolio. 

If you are as intrigued by retail bonds as I am, you can buy some here.

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Win of the week: Tee

I am happy to report that the only debt I currently have is my monthly car payment. I still have 2 years to pay off my car, but would like to try and push in more every month to bring the time period down (as well as the interest).

Because of this approach I have taken, I now have no RA funds yet and no other savings to my name. I would like to build up an emergency fund, start an RA and open a TFSA account within the next year or two.

1. Would you still recommend 10x for an RA? Or someplace else? 10X and Sygnia to start off, OUTvest once you have upwards of R500k.
2. How do I go about knowing which TFSA is best for me and where is the best to open up a TFSA account in your opinion?
3. Should I start doing all three these steps at once so they overlap, or take it one by one?

Matthew

I was listening to the latest video from Just One Lap on "Creating Wealth in a Low Growth World"  and was once again reminded by a finance expert that I require bonds in my portfolio.

I identify as a DIY investor and Simon did cover this topic in an article of Fin24 where he recommends that DIY investors stay away from bonds due to the tax implications.

My understanding is that bonds can complicate your tax return as the interest (or coupons) are added to your income for the year and taxed at your marginal tax rate. This occurs even if the ETF reinvest the funds.[6] Then when you sell the ETF, you realize a capital gain and pay tax on that [6]. This means you can pay tax twice.

So as a DIY investor who is no where near retirement, what should I do with regards to bonds? Possible ideas are:

Substitute bonds requirement with cash in a bank savings account.

Find bonds that do not incur this tax problem. (I do not believe there are ETFs in SA that can do that.)

Take bonds and manage the tax implications. (any advice?)

Leonora

Momentum replied to say that Nedgroup are reviewing fees and I should get an answer (I asked for lower fees) in the next 2-6 weeks. 

My LA is with Momentum. They were the only provider we could find four years ago that would allow our own choice of funds. 

If I transfer to Sygnia admin is 0.4% if I leave it in Coreshares, 0.2% if I have it moved to Sygnia’s own S&P 500 ETF.  

I am planning for the next 30 years (if I die sooner, so be it). From all accounts it seems the route to take. Anything I have missed in this 2-step process? 

(I have contacted Momentum to ask for reduction in fees, waiting for an answer. Their person did not sound hopeful. For interest: I take minimal withdrawal of 2.5%. Admin monthly is equivalent to 12% of what I receive after PAYE!  And this for the next 30 years!!!!)

Wesley

I was under the impression that if there was a written agreement in place, it can be structured so that the interest on the loan when not paid, is deemed interest. That deemed interest can be attributed to your annual donation allowance, and the balance of the allowance can be written off against the capital amount of the loan.

It’s going to take more than a good plan and discipline to cope with the financial impact of this lockdown. Some of us are lucky to retain all or some of our income, but for many of us this period is a financial catastrophe. There is no good news, no upside, no silver lining. We are in crisis mode and the goal is survival. 

In this week’s episode we think through some lesser-of-two-evils scenarios. Should you take a loan repayment holiday? Should you sell an investment or take on debt? Should you borrow money from the bank or your family?

I wish we could offer some hope or some solutions, but for the moment all we can offer is how to make the best of a bad situation.

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Pieter

I have all my cash in my access bond, with the exclusion of about a week's worth of expenses. I realized with ABSA, every time there is a rate adjustment they recalculate the payment to the same term. That’s the outstanding balance, including the money you stored in your access bond. 

I’ve been calculating what I should have been paying all along. I pay that over to an investment account. The idea is once that’s enough to clear the bond, we’ll do that. In the meantime we’ll see when that happens if we'll do it or continue to grow the investment.

• When a debt collection agency purchases all your debt from the original company at a few cents to the rand. And at that stage you sometimes can get up to 90% off your debt depending on the type and how close it is to prescription.
• From your first default, your interest and costs may not be more than the amount at default. If you defaulted at R2,000, the max debt may be R4,000. If you pay back say R500 they are still not allowed to add additional cost and interest. 

Celma

I have a little flat that I rent out.  I declare that and I claim a portion of my electricity, services etc and give SARS what is due to SARS.  

I also have a few investments and pay fees on the administration thereof.  This is a substantial amount of money. Just as me paying for electricity, water, providing wi-fi enables me to make the money on the little flat,  paying the admin fees on the investment enables me to grow my savings. I want to deduct the fees as a taxable expense and I am hitting a concrete wall.  I really don't see the difference in the expenses as it both has the same result.

Will really appreciate it if you could assist by explaining this to me or tell me who I need to contact to try and rectify what I view as double standards.

Henk

My parents (64 & 72) have been advised that they shouldn't open a TFSA because they are too old and it won't help them. Is this correct? 

Combined they have a portfolio of property, share portfolios with various finance houses and trusts which they obviously don't want to donate to the tax man. 

1. Could they each contribute to a TFSA for the next 15 years, and when they are no longer with us, will that investment become part of their estate and therefore be liable for estate duties or will the accounts just cede to whoever they decide to leave them to, and continue being TFSAs? We kinda want to know before the end of Feb so we can open one this year. 
2. How best can they distribute their wealth before they die so that their estate doesn't take forever to be wound up and pay a huge amount in estate duties?

Isn’t it fascinating how quickly we adapt? When the market first started its epic nose dive, we were all ready to jump with it. However, over the past month or so we’ve become so accustomed to a crisis environment that we can almost forget about our investment accounts.

The last lockdown challenge was initially scheduled for the last week of lockdown. The lockdown extension happened after I recorded the podcast. To be honest, I don’t have the emotional energy to engage with the extension at the moment. As a result, we’re looking at our investments this week.

Like our previous two challenges, we are using this time to go through our investments with a fine-tooth comb. Aside from padding your emergency fund, this challenge is not about taking action. It’s about reviewing the choices you made now that you can compare your portfolio before the crash to your portfolio after the crash. You’ve really earned your stripes this month. How did you do?

Win of the week: Nomusa

I bought a car in 2014 without a deposit. I never read the fine print or informed myself about the process. Never again! The car almost got repossessed when I was living hand to mouth. I am back on track now.

In process to get back my peace, I opted for a debt review. I soon discovered this was a rip off 3 months into the trap. There was no agreement with my creditor as they had agreed to do. She ended up cancelling this. We talk about debt review in our Debt series, which you can find at justonelap.com/debt

I have applied the snowball method to pay off debt and its working, I should be off the hook in December 2020. You pay the smallest amount first, add that to the second-smallest. Also find our article on the DIY debt repayment plan.

I opened a Tyme Bank account for an emergency fund. I want this amount to not just sit but grow —even if it’s just by 1%.

I looove rewards programmes., I know I need to heal from the financial trauma I suffered back in the years. I used to get R200 worth of UCount when it started, which I would be getting because I was using my credit card a lot, and I would then buy lunch and food from fresh stop and KFC when I ran out of money mid-month.

I have since stopped using the credit card (because I was handed over really, for non-payment). I am not planning to carry on with standard bank because their fees are ridiculous—R105 cheque card and let alone debits and all extras. I have since opened a Capitec account which is reasonable (R30-35) as I have moved some debits orders to them for insurance, funeral, tracker and the likes.

I have these reward programs

-Ucount

-Freshstop

-Clicks

-PnP smart shopper

-My School days

-ThankU

-All garage outlets reward trust me and use associated stores for others as I travel a lot. 

I have noted all further useful hints on credit cards like having a virgin money one because of fewer fees, but  my ucount rewards make me wanna go back and this time, use my credit to my benefit, deposit to spend in it, etc,

I know rewards are just there to keep us loyal and I am the culprit. Are they really worth it, do you and Chuckles even care about them? I also love the affiliation things and referring people on stash, easy equities and all?

Will this really buy me bubbles later? Sorry for the long email am just excited. 

Guillym 

With regards to people saving for their kids, time in the market is the best, right? So why put money into the market for your kids if you are going to take it out?

Rather save more for yourself now, and lower your saving rate when the kid comes to needing money age. 

As an example, my wife and I have disposable income that all goes into paying off the bond. When that is done in about 5 years, it will go into something else for us. 

When any monthly expense comes along (for Sadie) we can save less, rather than draw from savings, to cover school fees or whatnot.

If Sadie becomes more expsensive, we can give ourselves a raise.

We are super lucky to be able to put away more than 40%. We certainly don't take this for granted. This won't work for everyone, but I feel it's a better option than saving for children just to take it out of the market later.

Joy

I listened to your podcast about first investments. You recommended Ashburton 1200. Because this is a foreign product investing in foreign stocks, surely it is not tax free in the real sense of the word? 

I will still be paying taxes and fees into that product? Considering the 40+ years that I hope this account will be running the small 0.1% fees/taxes here and there do need to be considered in light of compounding. 

Is it not best to do TSFA into SA products and then discretionary into foreign like the Ashburton 1200? I hope to use my annual tax free donations allowance of R100,000 split between my two children so I would do R33,000 TFSA each and R17,000 discretionary each.

Last week we challenged you to take a closer look at your insurance cover. The challenge was an eye-opener for me. I wrote an article about it here.

This week it’s time to look at your medical aid. Since many of our incomes are affected by the lockdown, you might be looking at a cheaper medical aid plan. You might be wondering if the one you have is any good. Perhaps a global health crisis finally scared you into getting medical aid if you don’t already have one. 

The trouble with making choices about medical aid is the medical aid industry. If you’ve ever tried to compare two medical schemes or even two plans within the same medical scheme, you know what we mean.

This week, we hope to help you make sense of this mess. Here’s a summary of the big things you need to pay attention to:

• The percentage rate cover.
• Exclusions and sub-limits.
• Whether your particular chronic condition is covered.
• Cover for non-prescribed minimum benefits, like oncology, dialysis and HIV. 

Let us know if you have any mind-bending insights of your own, and remember to catch our live interviews with our community members on the Fat Wallet community group.

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Win of the week: Jennifer

I just want to let you know that Sunday night is the highlight of my weekend because that's when I receive the phone notification that the latest Fat Wallet episode is available. Thank you for continuing to provide a calm perspective and practical advice during these chaotic times.

I hope you and your families are staying safe and healthy. My wife and I are fine, but we have family, friends, and coworkers who are very sick. We have not left our tiny Manhattan apartment since March 13. Fortunately, many restaurants and grocery stores are making deliveries. I count ourselves lucky that we have the option to get food without leaving the safety of our apartment. I have a fear that the next time we go outside, perhaps months from now, the blocks around me will be unrecognizable because so many shops and restaurants will have closed. At night, I look out my windows and see other pondering New Yorkers in high-rises staring out of their windows trying to figure this all out. Sometimes I feel like we make eye contact, but we're so far away that I can't be sure.

Lady Kabelo

Whenever you and Simon talk about medical aid I feel like it's a high-level overview.  But the really difficult thing is the nitty gritty - when looking at plethora of options how do you make sense of it?

Can you and Simon talk about which cover you have and, more importantly, how you landed on that? What did you take into consideration?

At this point, I'm thinking Discovery purely because the brand is familiar. I also have my life insurance with them. And then I'm guessing the more expensive the plan, the more benefits it gives you so pick the most expensive one I can afford. I haven't pulled the trigger yet on this plan because it seems like a very bad way to make the decision.

Save me Kristia - recommend a company and their best plan and put me out of my misery.

Miles

Satrix MSCI and other offshore ETFs and unit trusts are "non accumulating" or "roll-up" funds, so don't pay dividends.

What happens to the dividends?

Am I actually saving on foreign divi tax, but paying more CGT at sale time with these foreign investments? Also, in a TFSA, one pays foreign divi withholding tax.

Hendrik

You caution against ETFs and Investment products with high fees. You mentioned there are living annuity products on the market where the TERs are 0.5% or lower?  

Would you care to elaborate on these please,.., which ones they are? 10X for example indicates a fee of 0.86% and OutVest has got those RA’s for 0.40%,.. but no Living Annuity as yet. 

10X’s 0.86% TER had been the lowest I could locate thus far…

I am going on Retirement in May of this year at the age of 60. It is crucial to me that I make the right choice of Living Annuity with the best combination of the highest possible return, lowest risk and lowest fees.

Michael

I get offered almost 3x my salary as straight credit on my FNB credit card (which I personally think is nutzzzz!).

I was wondering if I could transfer that full amount to a Tyme bank account and earn 6-9% interest on it for the month and then transfer it back to FNB before the 55 days interest free period is up?

It can't be that simple right? otherwise everyone would be doing it?

Christian

My question is related to a deduction from my SYGWD dividend. 

The transaction breakdown is as follows:

• SYGWD Foreign Dividend 
• Foreign Dividend Tax

And then the weird one:

• SYGWD - Port Costs

I had a look on the internet but cannot find any reference to this cost, would you be able to shed some light on this? Don't know if it matters, but this was in my Share Builder account with FNB.

Bradley

I have a retirement savings product (that I hate) via my employer. I have investment property (rentals): I’m a property guy (long term debt; short term income; expropriation without compensation risk; what could go wrongJ). I have no TFSA yet.

I want to create a R200k fund for high risk, high return investments projects through share trading: “SASOL” to be specific).

1.       What do you think of putting funds aside to just invest in riskier things that have a much higher pay out?
2.       What is the best way to go about buying and selling shares? Will I pay CGT or personal income tax on proceeds?