Many of you come to us fresh as daisies. You start listening in anticipation of your first pay cheque. A clean slate means you can set your financial situation up in a way that makes sense to you at the outset.
Those of us who aren’t so lucky have to turn our financial patchwork into a structure of some integrity. This episode is about that. Inspired by 39-year-old Dunga, we help you figure out what might be missing from the financial setup you already have. We cover everything from debt as a risk to protecting your assets to how to analyse your ETF portfolio.
Amazingly, we don’t touch on fees. Since that’s most of what we talk about most of the time, why we miss it in this episode I can’t say. We do, however, cover the amount at which you should consider moving your retirement annuity to OUTvest, who is our preferred partner in all things retirement. (Because we’re cheap and they’re cheap.)
Cheers!
Dunga
My biggest fear isn’t the markets or that my portfolio isn’t balanced enough, but that I may be stuck in the habit of withdrawing my investments every 3-5 years.
The temptation is to withdraw my investments and use them for short-term needs. I've never had or received twenty, thirty or forty thousand rand. The longer my investment grows, the bigger my temptation becomes. What I feel I really need are ways to avoid this temptation because I think it will only become bigger as my investments grow.
He has disability cover, a hospital plan and he’s taking out critical illness cover in July. He has 8 ETFs and 1 ETN, an RA with iTransact which is made up of 8 different ETFs. He holds Satrix Indi, CSSP500 and 1nvest SP infotech in both.
He also has three long-term savings products with Old Mutual. One is to save for a house deposit, one is to save for his kids’ education and one is to save for a wedding.
My motivation for still buying Old Mutual is that it gives me the discipline to save because of the penalties for early withdrawals. The etfs are a welcome distraction so I end up forgetting about the old mutual products.
In August he wants to start a new portfolio with an additional 10 ETF products, which includes gold, palladium, rhodium, Africa and Global property, the Nasdaq 100 and world government bonds. If he implements this strategy, he will hold 27 different ETFs.
My reasoning for buying so many ETFs is first diversification and secondly to see for myself those which will perform better than others. in 3-5 years I may weed those which I feel are not doing good.
Win of the week: Zola
I was listening to the latest podcast episode and I was shocked to hear Javid wanting to invest in defence stocks, because of the war that could have taken place between the US and Iran. I know that by listening to this podcast we are all capitalists trying to make money but goodness, surely, we shouldn’t be trying to make money off people being bombed.
Which brings me to my question: how does one try to invest in ETFs that are in line with one’s beliefs? Is there a way of finding a collection of stocks for example that invest in renewables or even companies owned by women? Something like Shariah-compliant funds?
Gregg
So I have an RA with 10x. Recently Outvest have released an interesting product in the RA space.
Can you possibly do the number crunching for me, by virtue of an example, and tell me at what minimum value should my RA with 10x be before I switch it over to Outvest?
What I’m implying is that up until a certain value, my RA will do better with 10x. But then when it surpasses that value, it will do better with OUTvest.
Rudolph
I bought a property last week. I’ll have to put down a big deposit within the next 2 months. In order to pay my deposit I will have to sell my ETFs and unit trusts. Because of the Market crash I lost a big chunk of my Investment that is needed for my deposit.
Would you recommend I sell my investments ASAP because markets might get worse or do I wait it out for another month and a half with the hopes that the market might kick back?
Robert
My sister has fallen on hard times. She attempted to emigrate but things didn't work out. She quit her job and rented out her two properties, which still have substantial debt outstanding.
Because of the long period of unemployment with costs in foreign currency her emergency fund has run out. She now has a shortfall every month. Her rental income doesn’t cover all the costs of owning the properties. She has no other savings or retirement funds to draw from and is unemployed.
I suggested that she sell at least one of her properties and reduce her debt exposure, but she is adamant that with no pension plan, owning these properties is her retirement plan. We don’t think she will be able to clear all her debt with the sale, however, the outstanding amount will be much smaller (and less scary).
She says that her unemployment situation is temporary and when she does get a job she will easily be able to cover off the shortfall. She has been job hunting for a year unsuccessfully. In the meantime she is living cost free with friends and family. She plays cat and mouse with the banks every month and is currently negotiating to either pause her installments for some time or get the period extended so she pays less every month.
My question is, therefore, is it better to live cash positive today with zero debt (sell the properties) or is it better to go through the pain today with huge debt, in the hope that one day in the future everything will work out? I’m so passionate about getting out of debt myself, but I do wonder if my sister’s short term pain view has any merit at all.
Financial planning isn’t just for people who earn money. In single-income households, it’s the responsibility of everyone in the household to work towards financial goals. It’s also everyone’s responsibility to protect those not earning an income.
Naturally, dread disease and disability cover and life insurance are critical in these situations. A question from Denzil had us considering the benefits of taking out a retirement annuity in the name of the non-working partner. It means the growth of the investment is tax-free, even though there’s no short-term tax benefit. It also means drawdown in retirement will be taxed at a lower rate, as Denzil predicted. As an added benefit, a retirement product protects the assets from creditors and contributes to the financial security of the non-working partner in retirement. As our friends at OUTvest pointed out, it’s an employment benefit to partners not earning an income.
Financial independence is certainly within the reach of those in single-income partnerships. It might require more time and careful planning, but it can be done.
Denzil
My wife is a Home Executive and therefore has no income. Are we able to open an RA for her that I can contribute to even though she has no income?
Would it be better for me to contribute the MAX to my RA and get the tax benefit now? Is there any way come retirement age we are able to split my RA funds, be it a Guaranteed Annuity, or Living Annuity etc between my wife and myself to limit the tax implications?
Would we be able to pay no tax to SARS on RA withdrawals up to the threshold (based on new 2021 Tables) of R128,650 for the wife once over 65 or R83,100 between 55 and 65?
This would drastically lower the Tax Implications, especially if we add in the R23,800 for interest income. This equates to over R12k per month after 65 and almost R9k per month between 55 & 65 that would be Tax free...This will drastically lower the Tax Implication and therefore amount required to reach financial independence.
We are nowhere near Retirement / FI yet, but i'm just thinking about this now and what Tax implications there will be later on when we do eventually hit the age for retirement or the amount to be FI.
Win of the week: Reno
I just wanted to share with you how you saved me R162 000.
A few months ago I was looking to trade in my old car as it had some mechanical issues. After looking at some cars online I felt that I “deserved” a nice car with a touchscreen and reverse camera with all the nice features, as I had driven a not so lekker car for a while.
I finally settled on a car that I would have financed over 72 months at a cost of R4500 p/m. Then I was scrolling on YouTube and stumbled upon an interview you did with Tim Modise some years ago. In the interview you were speaking about your money journey and how you got into and out of debt. That video shook something inside of me.
I decided I do not want to pay a car off over 6 years. When I went to the car dealer I saw the nice car I initially wanted, walked past it and asked if I could have a cheaper car which I financed over 36 months at a cost of R4500 p/m.
After the first few months of driving this car I am very satisfied with it and glad that I did not finance the other car over 6 years. So I have saved R4500 p/m over three years equating to R162 000.
Even though I have financed this cheaper car over 36 months I am paying extra onto it every month to pay it off even sooner. All this came from an interview you did years ago in which you shared your money journey. Thank you for speaking about a topic which no one in my family speaks about. You have changed my perspective on money and debt.
Leonora
Babies, due to high growth hormones, easily double their weight and increase the number of teeth in no time. Everyone is delighted, but growth slows down eventually.
If a mature person (company) doubles in weight, it could potentially be very bad for its health. Better to only pick up weight by working out, flexing those same muscles to make it stronger and more efficient.
Radhini
I was hoping that you would be able to share some information on the transfers of TFSA accounts.
I am trying to transfer my account from FNB to Easy Equities. From my understanding, I can transfer my account with the shares between service providers, or is my understanding incorrect? According to FNB, I first have to sell the shares in my account before I can transfer my account, is this correct?
Rudolph
I am currently 27 years old
I am looking for an ETF that will be suitable for us, maybe high equity and more aggressive since we are young and are looking to invest for the Long term.
Is there any ETF that you guys like that matches my profile?
JJ
I’ve been investing in my TFSA for the last 2 years. I've been buying ETFs in big chunks, mostly the MSCI World ETF.
I wanted to add another R10k onto my current 30k and thought if I buy again now I'll be moving up my average price quite significantly.
When do you stop adding on?
If I'm planning on investing in the same ETF for 25 years, does it make sense to keep adding monthly (or however) for 25 years? Surely at some point you have to stop and think that adding monthly will always carry on increasing my average buy price and is slowing down growth. At what point do I just stop and let it grow?
If it was normal trading I would be piling on shares when I think it's right and offloading accordingly, but for a long term investment that doesn’t make sense to me.
Santosh
Thanks to Coronavirus, global markets tanked on a daily basis and are still sinking - which is similar to the global sell-off in Q418 and just shy of 2008 GFC.
This was not only in South Africa - but internationally (Local stocks, local stocks that track the USD and hard currency stocks). I'm in all !
On paper, I'm about $40,000 or R600,000 poorer ! Even currency diversification didn't help.
The takeout for me, in a financial crisis, I'd rather weather the storm "at home".
Wim
I have received dividends into the tax-free account since it does not get re-invested automatically. My question is if I now re-invest the odd R800 in the holding account, my contribution will be an additional R800. I will not be taxed because I exceeded the R2750 a month contribution.
Nic
The way I understand total return ETFs, the dividends are reinvested back into the ETF, saving on brokerage but the dividend withholding tax still gets deducted.
For a tax free account how does this work - there are not two versions of the total ETF, one for tax free and one for non tax free accounts?
In my mind it's not worth having total return ETFs in a tax free account - am I missing something.
Gregg
I currently put my full monthly TFSA allocation of 3000 into my bond. At the end of the tax year I draw out my full allocation of what was R33000 and is now R36000 and pay this lump sum into my TFSA. This way I save mega interest on my bond and the term also reduces.
But, my bond is at 9.25% interest (which means by putting extra money in, I am saving 9,25%), whereas I can get 10% interest from TYME bank. So it kinda seems that I save more in TYME, but psychologically I like seeing my bond interest and term come down.
Will I really be saving more by putting my R3,000 into TYME bank each month at 10% or is it still more beneficial to put it into my bond because of the compounding effect of the interest coming down?
As we mentioned at the top of the show, today’s episode was made possible by a new financial education initiative by Momentum-Metropolitan. You can play the FinEazy game here and register for the story-driven educational programme called FunDza here.
This is the 200th time Simon Chuckles Brown and I sit down to record a Fat Wallet Show (more or less). Every episode is a privilege because every episode is made possible by your engagement and contributions. We are eternally grateful for the support, encouragement and enthusiasm you have for this work.
As of 13 May 2020, you have contributed to 542,433 hours of listening time. 365 of you have emailed ask@justonelap.com. This excludes mails sent to us directly and questions submitted via social channels.
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The shows that have helped you the most are:
Based on the Fat Wallet Survey we conducted last year, you guys moved between R78m and R400m between providers as a result of the information you received in this show.
What I’ve learned in 200 episodes is that we help most by helping you think through your decisions.
Here’s to the next 200!
Garth Chad Sparkle
Is there a Cheat Sheet when working for a bank?
I don't think I've been fully exploiting all the benefits, if any, that I have working for an FSP.
The more I think about it the more I get excited at the fact that there is a way to game the system and set myself up financially whilst working here.
What did Simon do to take advantage of the benefits? How wise is it to buy a house and car whilst working here to take advantage of the staff rates?
Surely by using the benefits at my disposal as an employee and diligently managing my finances I should come out the better when all is said and done?
Taahir wants to invest in a Shariah-compliant RA.
Nihaad:
I’m a medical doctor working in an emergency centre during these pandemic times. These last few weeks, and all the uncertainty associated with the lockdown and our futures, have made me really think about getting my financial state in order.
I know very little about finances but I am trying to learn through your show. I am looking into investing, but as I am muslim, I would like more information on Shari’ah compliant ETFs available to South Africans as these are technically the only ETFs I am allowed to invest in due to my religion.
These ETFs do not include equities that are linked to banking, alcohol, or gambling, to name a few, and I am sure that affects the performance of these types of ETFs compared to its top 40 or global counterparts. Would you be able to chat a bit about these types of ETFs, which ones you’d recommend, how they perform in the market and how to maximize my returns on these types of investments? Thank you for your knowledge and help, I really look forward to your show every week!
Joy
I was listening to your #159 podcast.
Simon said you should never invest into a single asset or share beyond 5% of your portfolio. He said when one thing starts growing too much he sells down to below the 5%.
I understand that this is to minimize risk of being heavily invested in just one thing. I looked at my portfolio. I’ve got a house-sized question sitting right there. I do consider my home an investment and part of my portfolio.
It has gone up nicely in value following much elbow grease and fixing up... but... sadly... according to 5% portfolio risk rules... not only is a home 100% in the one asset class (property), it is also 100% in one property micro market (my suburb) and worse still 100% in only one property (my home).
Surely that means (unless your investment portfolio is cruising around R50 mill) buying your own property as an investment just blows all sensible, unbiased, risk management thinking out the window? What’s the alternative? A person has to live somewhere.
Pamela
There is a lot of pressure in buying a house and paying off the bond, but I am honestly not very sold on the idea. It sounds like it will be more expensive for me and is the housing market as lucrative as it was some 20 years back?
Do you have any advice on how I can reduce my expenses, or something I can incorporate to reduce my expenses even further?
Listen to our homeownership podcast and the follow-up.
Rudi
The premise of the product is for every transaction on your account they take "the change," rounding up to the nearest R10 and invest it in a Liberty Top 40 ETF, which I can find no MDD for anywhere, through a tax free savings account. They also have some gimmicky feature that deposits extra money if the weather is good, seemingly meaning that it is extra savings for a rainy-day fund. I do not think a tax free savings account should ever be considered a rainy day fund, considering the lifetime deposit limits and the major impact withdrawing can have on compounding.
Fees are mentioned twice on the website:
"Stash is absolutely FREE! You will see ‘Hello Stash’ transactions on your bank statement, but these are just transfers to and from your Stash" on the Help page
A zero TER, on the Past Performance page.
Besides only being able to have one product in your TFSA and having that TFSA handled by Liberty, I feel there must be some additional catch? How else could they offer a TER of zero?
Watch the presentation on fees, as mentioned in the show.
After two brutal years of obsessive debt repayments and a year of hard saving I finally made my first investment in March 2014. Six years of watching paint dry was followed, finally, by a stock market crash so brutal I’m still suffering a nosebleed. In my short investment career I’ve experienced every market condition but growth.
As a result of this less-than-illustrious track record, it’s probably not surprising that the growth I’m currently seeing in my portfolio is freaking me out completely. My CoreShares S&P500 ETF is 70% up and I don’t know what to do with myself. I want desperately to lock in this growth, which is what Simon’s trying to talk me out of in this week’s episode.
Watch the presentation Simon did last week. It's really good!
We’ve been blessed by the tech fairies since we started recording remotely on 19 March. However, the gremlins found us this week, cutting short our usual recording time. Forgive us, please! If we’re lucky we can record Episode 200 together. We hope you are excited too.
Win of the week: Philip.
Every Monday morning we send out a newsletter and every Monday morning Philip sends me an encouraging email or compliment about the newsletter. I’ve come to look forward to it every Monday, so I think Philip deserves to win for making me happy on a weekly basis.
We’ve all had a few weeks to come to terms with Reality: Version 2020. Those of us who had our sights set on financial independence have watched our independence day creep a few years further down the line.
The uncertainty we are currently facing has surely also made converts of those who didn’t know financial independence was something worth striving for. Imagine how differently you would have approached this crisis if you knew you could continue to support yourself if you lost your day job.
Life is happening to us in shouty capital letters at the moment, but a good financial plan is an adaptable financial plan precisely because life tends to happen to us all the time. If you had your sights set on a financial target that is no longer viable, now is the time to regroup and think of another plan.
In this week’s episode we help you think through some strategies to get back on track once the crisis is over. We help you with some of the maths, but also offer some guidance on how to be adaptable if maths alone won’t help.
P.S. We are very happy to announce that this week’s episode was made possible by our preferred partner, OUTvest. To read more about our preferred partner programme, click here.
Win of the week: Dee-dee
My parents’ investments aren't looking so lekker at this point.
They just got access to their RAs. They have no emergency fund. They own their own company, that is very volatile and heavily based on tourism.
I am finishing my honours. I have younger siblings who will remain dependent on them for at least another six years.
They are spending about R300,000 in bank fees, interest on credit card debt, bond and car payments to the bank per year. This is crazy!
My dad mentioned the idea of using some (all that they can take out with the 1/3 cash withdrawal option) of their RA, as well as using the contributions they would be making to their RAs to attack their debt.
The idea of taking money out of their RAs does not sit well with me at all, but if it means paying off the house quicker, they would have that as an investment property. The house is definitely worth more than they can get with their RA investments in 15 years. But this would be INCREDIBLE concentration risk!
What worries me the most is their debt. It keeps accumulating and only minimums are being paid.
The business is also not easily convertible, as it depends on my dad's skill. They still have about 10/15 years to go. There will be a bit of money from my grandparents going their way, but this is definitely a story of lifestyle creep and a few unfortunate business moves that may bite them hard if they don't look at this aggressively now.
Given the great big market drop and my plan to move their RA to Sygnia (OUTvest isn't the cheapest since they aren't in that bracket yet), I am now thinking that I probably should not move the money at the moment, because I'd be selling and then re-buying, which would mean I'd be selling low....on the other hand I'd also be buying lowish... But I'd imagine now is just not a great time to move, which is sad, since that RA with Investec is not doing them any favours!
Keegan
Please explain a practical example of how somebody can transfer their RA if they are unhappy with their fees. Some of the things that would guide me greatly:
- finding out if your RA is screwing you
- How to go about stopping and transferring the RA
- What are the penalties included
I have been contributing per month to my annuity for almost a year now and am 28, so feel young enough to make changes, but old enough to make bad mistakes and errors in this all.
Reeve
I would like to start investing with OUTvest, it will be my first retirement annuity.
I understand the fees are R4500 for the year if your investment is under 300k.
Does it make sense for me to start investing with them immediately, or would the fees be lower if I start investing with other retirement annuities initially, and then move over the OUTvest after I’ve reached 300K?
From what I understand, fees only start getting steep the greater the value of your investment. Since my investment value will be low initially, the R4500 fees applied every year by OUTvest is a bit much. For example: I want to contribute R2000 a month to OUTvest, by December I would have contributed R24 000, if we minus the R4500 fees from that, it’s quite a big chunk that’s going towards fees?
Jorge wants to know if it’s worth moving his RA from 10X to OUTvest or if he should wait and see if other providers also rise to challenge.