Much of what makes investing confusing is that we use different terms to talk about the same thing. This is so frustrating for beginners. This week, we tackle jargon head-on. Not only do we tell you which terms are used interchangeably, but also what they mean. Here are the terms we discussed: 

• Stocks, equities, shares.
• Stock market vs stock exchange
• Coupons and interest.
• Debt instruments, preference shares and bonds.
• Index-tracking products, index funds, ETFs and UTs, collective investment schemes, hedge funds
• Real return, future value.
• Retirement, financial independence.
• Brokers, investment platforms.
• Property, fixed property, REITs
• Tax-free savings, TFSA, tax-free investments.
• Tax on income, tax on interest.
• Listed, on the stock market
• MDD, fact sheet

And then some stuff that’s used interchangeably (sometimes by us) that’s not.

• Marginal tax vs effective tax
• Pension, provident, RA, retirement fund

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André 

My initial plan was to have more off-shore equity, of which I put mostly into a global equity ETF. I chose the Satrix MSCI world ETF purely due to its lower cost. 

I was wondering why you chose the Ashburton 1200 global ETF for this purpose. However, now that I got my first dividends from my property ETFs, I noticed the meaning of distributions was dividends, and then realized that the Ashburton ETF pays dividends and the Satrix ETF doesn't. 

In my mind, I'm thinking that if the dividends of the Ashburton cover the difference in costs between the 2 ETFs, then the Ashburton ETF will outperform Satrix MSCI world in total returns  to me. Is this due to a difference in the type of ETF (feeder ETFs) that the one pays dividends or not, or is that simply a choice of the ETF creator to pass on dividends or not?

My question is if you could elaborate a bit in your thoughts comparing the Satrix MSCI world ETF vs the Ashburton 1200 global ETF regarding the dividends.

Win of the week: Leonora

I have it that Reg 28 doesn’t apply to Living Annuities. I have mine with Momentum in Coreshares S&P500 and a small percentage in their money market. 

(After asking, my EAC is now down to 0.77%.  Still too bloody much.  I take a minimum 2.5% drawdown. The fee was +/- R2000 per month, now R1700!  For what?)

Zanele

I wanted to open a tax free savings account but a friend told me that after 15 years I or my Son who is 5 years old will not be able to contribute because a person is only given 15 years to utilise the tax free account. I have researched this and I got no information  on the time limit, please assist if this is true or not.

I am currently investing anything from R200 to R500 a month which is what I can afford.

When you’ve gotten your debt and spending under control, it can be comforting to hold on to your free cash for a while. Taking the leap from that safe pile of money to the Big Bad Market is not easy.

However, as we’ve discussed before, cash is not a risk-free investment. The longer you sit on a lump sum of cash, the more risky it becomes. This is because of inflation. The effects of inflation are difficult to internalise because the rand value of your money stays the same.

Let’s say you put R100,000 in a low interest cash account today. The interest you earn is enough to cover the annual cost of the account, but nothing more. At an inflation rate of 5.5%, in 10 years you’d only be able to buy what R58,543 can buy you today. The rand amount is still R100,000 so it seems like you haven’t lost anything, but you can afford half of what R100,000 can buy you today. In 20 years your bank statement would still reflect R100,000, but you’d be able to buy what R34,272 can buy today. As you can see, the inflation risk increases every year.

This week we help three listeners figure out how to put their cash lump sums to use. The checklist we managed to come up with for a cash lump sum is as follows:

• Fund your tax-free investment vehicle:
  • Commonly referred to as tax-free savings accounts or TFSAs, these products should be every South African’s first investment. As an investor you are liable for dividend withholding tax, tax on interest and capital gains tax outside of a tax-free account. As we discuss in this week’s episode, these accounts are not meant for cash savings.
• Don’t speculate unless you can afford to lose the money:
  • While cash makes it easier to capitalise on investment opportunities as they present themselves, cash can also make it easier to hop on a bandwagon that’s not suitable. Don’t invest your cash into a speculative investment (think alternative asset classes, sub-indices or individual companies) unless you can afford to lose that money.
• Lump sum vs average:
  • While the math shows us investing an entire lump sum in one go makes more financial sense in terms of potential future earnings, going into the market one small investment at a time is a legitimate option if you’re scared. If this is your first investment, think of it as a teaching tool initially. Once you feel more confident, you can add the rest.
• Work out the future value:
  • If cash is giving you a feeling of safety, find an online calculator to work out the future value of your lump sum using a 5.5% inflation rate. Now play around with higher or lower inflation rates. Hopefully seeing the value of your investment deplete will be the motivation you need to get going.
• Diversify:
  • If you’re holding on to a large amount of cash, you are not diversified. Make sure to put your money to work.

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Win of the week: Matt:

If I earn a salary from a foreign company and then decide to do the nomad thing and travel around low cost of living countries for, say, a year but remain a tax resident in SA. My understanding is the first R1m earned will be tax exempt- is that the case?

“Tax residents in South Africa will be taxed on their worldwide income. But that is dependent that they’re still SA tax residents. Offshore salary earned is taken into account. R1.25m ito the latest tax amendments will be exempt from tax in SA.”

Harry

This was mainly due to the fact that I did not know what the best option was, and my new employer only offered a provident fund.. I've been maximizing my tax benefit with my new employer provident fund. I'm also sitting on cash in a savings vehicle with my bank, currently returning around 3-3.5% interest.

I'm living rather small (renting only, no debt of any sort) and have quite a bit of money to invest/save every month.

What would you advise I do with my portfolio? The preservation fund? Should I keep maximising my provident fund contribution? What about my cash savings account? Should I consider taking money out of the country? Investing offshore?

Joe

I know we may have missed the boat both with gold and Tesla, would you suggest we go for an ETF with some gold in them? We don’t mind going moderately aggressive.

Steven

I currently have free cash in my TFSA with ABSA Stockbrokers. Besides the fact that its not earning that much in the way of interest, they also charge a 1% service fee annually, which I believe is based on the value of the funds in the account?

I’m reluctant to invest in the market right now as I feel there’s no value and would prefer to wait for a correction, when it eventually comes?

Although I have no previous experience investing in bonds I am thinking this could be a suitable option at this time.

Looking specifically at the Stanlib Global Government Bond (ETFGGB), it seems to be doing very well so far but is this mainly due to the Rand’s weakness over the past few years as opposed to any other factors?

Considering that this is a reasonably low risk product, is it currently a better option than investing in a regular cash instrument which is offering such low yields at the moment?

According to the fact sheet the time frame for this ETF is 3 years so assuming my investment period was 1 year or less, would you say that this is not going to be suitable?

Santosh

Based on FIRE (my FIRE btw is Fuck It, Retire Early) the rule is to have around 250 - 300x monthly income. So Kris, I know your FIRE number is R7M as you've stated this.

so assume you have the R7M already and are still work and assume is sort of split into Cash, Bonds, Stocks and Property.

If this portfolio yields you a modest 6% PA it amounts to your investments paying you R420,000 PA - Gross.

Now this is gonna have a major impact on the tax you'll pay as there's no way that you can "hide" this from SARS and there's no way your PAYE accounts for this.

You're gonna have to pay SARS either way. I know one of the solutions is to dump it all into an RA but then you are not liquid and you'll pay the tax in the future anyway.

I'm sure the other FIRE guys like Patrick, Stealthy face this.

What's the solution ?

Does on just lap it up & pay the tax comforted in the knowledge that they're paying tax cause they've made money

This tax liability is quite substantial as if you're an average earner, it pushes you 2-3 tax brackets higher and if you're a HNWI, even an increase of 0.2% of your taxable income can add R20000-R50000 to your tax bill for that year.

Leon

For the inflation linked option, the capital balance would increase by the cpi calculated rate at payment dates and interest is fixed at 5% of capital.

The website mentions an index ratio calculated by cpi divided by base ratio or value, do you know where this base value(divisor) is obtained from? It only mentions that the cpi (numerator) is obtained from Stats SA.

The fixed rate on the inflation linked 10 year bond is at an all-time high of 5%? Is this an opportunity to lock in a great rate or are the fixed rate bonds still the better option?

It seems like there is more upside potential on the inflation linked bonds as it is unlikely cpi will remain at current lows over the 10 year period. I may be incorrect but it seems both options offer the roll over or restart option so you could capture any improvement on the fixed rates either way.

Ross

There is an awesome book by Andrew Hallam - "Millionaire expat" that details expat investing (He details options for people all around the world) He also has a blog. Another is Bogle heads investing advice and info based on Singaporean expat investing.

Often the fear of making a mistake keeps us from starting our investment journey. It feels like everything is on the line when we make our first investment, but missteps can be corrected fairly easily. Even the mistake of waiting too long and starting too late can be corrected. This week we think through some of the mistakes new investors fear most and how they can be corrected. Hopefully this episode will give you the courage you need to take the plunge.

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Win of the week: Rory

I started learning about the investing world about two months ago and stumbled upon your website within the first week. 

Most of the things you discussed in your podcast just flew over my head, but it did direct me to the things I had to go read up about. Two months later I realized I am able to follow your podcasts without any problems. I want to thank you both for that. If I didn't stumble upon your website it would have taken me much longer to actually understand the investing world.

I have a friend, he is 25 and about to get married. His plan is to move to New Zealand in the next ten years. I told him he should look at starting to put money away in his TFSA, then the question came up about what happens to that money when he emigrates?

I see EasyEquities opened a properties platform, where you can buy shares in buildings and earn your share of the rent. What are your opinions on this? Do you think it would be a good idea to invest some money there and what would the tax implications be?

Travis

I recently made my first attempt to begin investing using my TFSA. I have been listening to the Fat Wallet show whenever I can. 

I decided to invest in the Satrix NASDAQ 100 and the Satrix S&P 500 hoping to acquire some international exposure. I did not realise the NASDAQ has some S&P 500 companies. Now I am wondering whether I have begun on the wrong note, making a mistake and overinvesting or spreading myself too thin in some of these companies in the indices.

Is there any way that way that I can correct this "imbalance" in my TFSA or should I even bother? Have I made a blunder in choosing both the NASDAQ and S&P 500? 

Ash

Like many of my colleagues, I was hopeless with my finances for most of my working life. I had 2 RAs with my insurance broker that were fee- and penalty-laced products that underperformed my cash savings account. Four years ago, I started a tax-free and a discretionary investment with my bank which were both heavy on fees (2-3%) and did not perform as expected (annualized return of <2%).

A year later, I took a two-year private scholarship, which meant leaving my government job after 10 years and my pension fund (GEPF) paying out. The scholarship only paid about 60% of my usual salary & I would have had a hard time keeping up with my bond repayments, instead of moving the pension payout into a preservation fund or my RA, I used it to settle most of my bond and reduce my monthly payments. Needless to say, this 2 year gap left a big dent in my finances overall as I had no other source of income & relied heavily on my savings.

Earlier this year, when I was looking at investment options for my toddler’s education, I started reading up on personal finance & investing, discovered your blog and podcast, and realized all my missteps along the way.

This set off a series of changes in rapid succession:

I switched banks to a bank with a single, lower fee, and better cash investment options. This meant closing my access bond. With my biggest debts paid off, I cut down aggressively on unnecessary expenses, brought my expense:income ratio to about 40% and focused on saving and investing the balance. I started 2 new money market accounts with the new bank - 1 immediate access for my emergency fund (now have 3x monthly expenses covered), and a 90-day notice account with a higher interest rate (between 6.5-7%).

I transferred both my insurance-based RAs (despite the protests and threats of penalties from my broker) to a low-fee new generation RA (10X) and started a new one with Sygnia (Skeleton Balanced 70). I increased my contributions from 5% to 10% of my income, and plan to increase further to 15%.

I repurchased the poorly performing discretionary investment with my bank and reinvested this in an Allan Gray unit trust (High Equity Fund) - lower fees but still in the range of 1.6%. This was just at the start of the current crash so it has nosedived, but I am planning to hold rather than sell low.

I began investing in a range of ETFs in quick succession: 

a) Satrix (50%): initially Top 40 (12.5%) and MSCI World (12.5%) - later added Emerging Markets (6.25%), NASDAQ 100 (6.25%) and most recently, the new SA Bond ETF (12.5%).

b) Sygnia (25%): 4th Global IR ETF (12.5%) and S&P500 (12.5%) (initially also had MSCI USA but stopped the recurring contributions when I realized the huge overlap with the S&P)

c) CoreShares (25%): S&P Global Property (12.5%) & SA Property Income (12.5%).

I switched my tax-free investment from the ‘multi-managed growth fund of funds’ with my bank to the NewFunds MAPPS Growth ETF (using the same platform), and split my maximum contribution between this ETF (50%) & the Sygnia Skeleton International Equity FoFs (50%) (*factsheets attached).

I would like to know your take on my financial moves and if there was anything I could have done better?

My concerns are:

1. Was it a mistake to close my old bank account just to save on fees, since this was my oldest and most diversified line of credit (home loan + first ever credit card)? Will this damage my credit score, especially when I apply for a new home loan?
2. Am I overexposed to global (especially US) markets in my choice of ETFs & is there too much overlap in the holdings of the global ETFs (MSCI World, S&P500, NASDAQ 100 and the Sygnia International Equity FoFs, not to mention the 30% international equity in my RA’s)?
3. My discretionary investments currently outweigh my RA contributions by about 40% & both RAs still only represent 10% of my income. I wanted to gain more equity and global exposure than a Reg28 product would allow (and have access to the funds if needed before age 55), but is this short-sighted and should I rather aim to maximize my tax deductions? 
4. The listed property ETFs are the worst performing products so far & I understand this reflects the poor performance of property markets in general - would reducing my exposure to this sector be wise at this stage since recovery is very likely to be sluggish given the current crisis? 
5. How do you feel about holding the NewFunds MAPPS Growth ETF in a tax-free investment? This is 70% local equity (SWIX) and also holds a significant proportion in SA bonds or cash (30%). Is this kind of ‘balanced’ ETF not ideal for a tax-free investment (TFI) since we are looking at long-term growth and equity-only would give higher returns? After listening to your podcasts, I understand the Ashburton 1200 to be one of the best choices for a diversified equity-only ETF. I am thinking of transferring my TFI to the ASHGEQ via Easy Equities, however this overlaps quite a bit with the Sygnia Skeleton International Equity FoFs (*fund breakdown attached), including emerging market exposure. Would I be better off consolidating my TFI into one ‘global’ ETF or is there any benefit to splitting between the ASHGEQ and the Sygnia International Equity FoFs (*not sure if this is really a ‘passive’ fund since it seeks to ‘outperform’ the MSCI ACWI)? Should I rather split the TFI between the ASHGEQ and a local equity ETF like the CoreShares Top50 since the SA market is not represented in the ASHGEQ?

How do you and Simon feel about the Ashburton World Government Bond ETF (TER 0.51%), particularly as a part of ‘balanced’ ETF portfolio? I see from their factsheet that their returns have exceeded even the ASHGEQ (>20%), but I understand that this may change with interest rates over time, and may not reflect future performance.

Would the combination below in a TFSA wrapper be the best long-term bet?

1. Ashburton Global 1200 Equity ETF (1/3)
2. Ashburton World Government Bond ETF (1/3)
3. CoreShares S&P SA Top 50 ETF (1/3)
4. I have been looking at the RAs offered by EtfSA & their Wealth Enhancer RA seems quite attractive - it includes more commodities (gold in particular), local mid-cap and Africa ex-SA exposure than my current RA holdings. The fees though stand at 1%, similar to 10X. What are your thoughts on this RA & would you recommend adding this to diversify my RA portfolio? 

Matt 

With many companies transitioning to remote work and deciding to stay that way, it's becoming easier to find a location independent job for a foreign company.

If I earn a salary from a foreign company and then decide to do the nomad thing and travel around low cost of living countries for, say, a year but remain a tax resident in SA.

My understanding is the first R1m earned will be tax exempt- is that the cae? Am I missing anything and does this seem like a feasible thing to pull off?

Access the ETF comparison tool Edwin shared here: https://www.etfrc.com/funds/overlap.php

Anne

My employer pays into a Liberty Provident Fund on my behalf. For the first time this month I requested my Provident Fund statement. 

I saw, with disbelief, that Liberty is taking 12% of my contribution each month in fees! Given what I have learned about fees from your website and podcasts I am dumbfounded. 

I queried this with Liberty and they said it’s because their fees are based on 0.02% of ‘payroll’ i.e my salary, rather than my contribution. I checked with our company CFO and she said these fees are in keeping with what is charged by other companies and I can’t go to another provider.   

• What do other reputable SA companies charge to administer Provident Funds?
• Why is it so hard (for me, anyway) to find this out?
• Do you know if my company can compel me to stick with Liberty under SA law? Why can’t I leave the company provident fund to go to another provident fund or RA of my choosing? If not, Liberty can just make up a number (as they seem to have done) and charge me what they like and there is nothing I can do about it except leave my job. 

I’ve been avoiding talking about endowment policies, because what even are they? I haven’t come across one in my own investment life. This week, a question from Sandile sent me down the endowment road. I had fun with it. I got the Tax Elves involved. They had fun with it. Fun was had by all.

Endowments are the love child of insurance and investments. They have a five-year lock-in period, a tax rate of 30%, a life assured and a beneficiary. If you are in a higher tax bracket and looking for a long-term investment vehicle, endowments are worth investigating. They can also play a role in estate planning. It pays out directly to the beneficiary, which is great if you are leaving someone behind who is financially dependent on you. As De Wet de Villiers pointed out, the fact that they pay out tax-free doesn’t mean they’re not taxed in the estate. It simply means the estate is liable for the tax, not the beneficiary. 

In addition to teaching me a thing or two about endowments, Sandile’s question could serve as a template if you’re hoping to add new holdings to your portfolio. His clear reasoning and systematic approach to adding this investment is worthy of emulation.

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Win of the week: Pru

I’ve tried to break up with my advisor for the last year, but it has been difficult! Everytime I say to him, we need to talk and I want to move my investments, he takes me out on a nice date, listens to me and then goes on to scare me into staying with him.

He tells me EasyEquities is not the right platform for me and I should be careful of companies like 10X. It does not help that he also butters me up and tells me how great I am, while also telling me about his life, so I end up feeling I can’t leave him because he confides in me. My people-pleasing self feels bad for wanting to break up with him. It's the perfect emotionally manipulative relationship and I JUST CAN'T LEAVE! 

How does one amicably break up with their financial advisor? More importantly, how do you leave them when you have a fear of managing your money independently? 

I have listened to your podcast, and some episodes more than once. I read Sam Beckbessinger's book and Vicki Robin's book called Your Money or Your Life. I aspire to be a Patrick Mckay and I have a financial strategy to reach FIRE, but my greatest hurdle is letting my financial advisor go and trusting myself that I can manage my investments myself. 

When he is not around I feel as though I can manage my money independently and I do not need him, but after meeting with him, I leave with a great sense of fear about moving my TFSA from Sanlam to Easy and moving my RA from Discovery to TenEx or Outvest.

All the financial aspects that do not involve him I have managed relatively well, like my emergency fund. I know I can manage my money, I just fear that if I move my investments to the "big bad world of ETFs" (which is how he makes it sound), I will lose everything! I know he may be playing Jedi mind tricks on me, but how do I stop myself from being tricked! Also, he is not a bad person, he is a very nice guy, but I think this is part of my problem, I am making this whole relationship too personal! I feel defeated! 

Sandile

I stumbled on this product by Sygnia where you can get direct exposure to Berkshire Hathaway.  

Here is why I’m looking into buying into this fund:

• I believe that Berkshire is going to have ample opportunity to buy really decent businesses at decent prices as Covid continues to decimate some much needed industries. 
• I believe Berkshire is one of those great businesses that one can buy at a decent price, thanks to Covid;
• I bought a few units in late Jan through EasyEquities and the costs to transfer funds and transact in USD was rather hefty, so I think I’ll leave that to a local fund to handle that;
• I have looked at the S&P500 (which I hold) and in my view, the Berkshire allocation there is rather small and I’d like more exposure;

Sygnia offers this fund for “discretionary savings into a 5-year endowment, a retirement annuity or a living annuity”. I would like to avoid setting up an RA with yet another service provider at the moment and I have no need for a living annuity, which leaves me with the endowment fund option.

From the little that I could read up on endowment funds:

• I am fairly comfortable with the idea of leaving the cash invested for at least five years (if not more);
• My marginal income tax rate exceeds 41% so at 30% tax, the fund is saving me some element of tax;
• I have set up an emergency fund (around 6 months’ salary) so I think the risk of cancelling the endowment before 5 years is low;
• TFSA has been maxed for 2021 year of assessment. I contribute far less than the allowed 27.5% into my RA (I am busy assessing contributing into an RA vs increasing my employer-pension fund contributions);
• I am just uncertain if I’m opening myself up to more unknown risks/complications/costs by using this structure.

Kimberley 

I am a shareholder for a company who has moved operations to Mauritius.

If our company is lucky enough to declare dividends, this will now be paid in USD. 

How does this affect my tax?  

Is there a way I can get it in ZAR without losing so much to tax or is it better I keep it offshore ? 

I like the idea of keeping it offshore for emergencies or as a “life insurance” for me when I pass away to leave to my daughter. Is this possible with only holding a SA passport?  

Perhaps I could open an offshore trust and list her as the beneficiary and the dividends get paid into that? 

Could I open a USD trading account on EE and get the dividends paid directly to that? 

Is what I’m wanting to do by not bringing it into SA even legal?    

I feel there are not enough bubbles, chuckles, coffee and chai tea to get me through the questions I have and the changes I need to implement to get my financial ducks in a row.  Right now these ducks have ADHD and when they seem to be in a row, they decide to go off on a fucking tangent.  

Anton 

I inherited a farm in 1994 and sold it in 2019. I have the value of it when I got it and when I sold it. I did not get a valuation in 2001 when CGT started. I would like to know how to work out the CGT on this transaction. 

Download the calculator here.

Moore

I am 27 and have a pension/provident plan with my employer. I would like to have an RA for a top up.

I would also like to invest in shares. I don't know how to go about doing any of those.

I have an EasyEquities account but I don't really know which shares to target, and for which amount every month. I have a R1000 that I can divide for those two financial goals. With that amount of money and my age, I am not even sure if that will be enough to contribute. I’ve only been exposed recently to this saving and investing movement. I was so ignorant. 

Thanks to the Fat wallet Community on Facebook I have managed to put some savings for Emergencies with Tyme bank.

Catherine

I’ve tried the Interactive Brokers demo account and find it a little intimidating. I don't know what options or margins are, and I don't want to enact them by mistake by clicking the wrong button. I also imagine their customer service is not catered for noobs like me. Having said that, the platform is becoming less intimidating the more I play with the demo account.

Another option is to buy the shares through a Standard Bank Webtrader account, which has broker fees of 0.345% and annual account fees of 0.26%, and then transfer the amount across to my EasyEquities USD account to avoid paying ongoing annual fees.

Do you have any thoughts on each of these options, considering that my goal is to pay the lowest fees possible over the next 20 years, but also have a relatively user-friendly experience. 

I don’t have a credit card. The only time this has ever been a problem is when a hotel or car rental company requires a credit card for a booking or deposit. It is pretty frustrating being at an airport and unable to rent a car. And are there any ways to get around this booking/deposit problem without having a credit card? And do you know of any reasons to have a credit card aside from this (assuming I don't need the credit)? Are credit cards generally better than debit cards for general spending while travelling?

Melisha

I have two kids in grade 4 and grade 0. I usually save up the school fee money to pay once off and get a 5% discount in December of the previous year.

I anticipate a 10% increase in school fees. So essentially I need to save R20k a month for both kids' school fees for the 2021 school year.

We usually put the money into a savings account but now the interest rates are so low. At the moment the money is in a Tyme bank account goal save but i was wondering if there was something better out there? Something with low risk, short term and potentially to beat money market type accounts. 

Our friend Walter made a site called Rate Compare https://www.ratecompare.co.za/. 

Tristan

Lately I have been seeing ads on YouTube for a financial service app called Franc.

It has 4 stars on the Google Play Store but I was wondering if you had heard of it, seen it or tried it? Lastly, can we trust Franc?

Ken 

What is all the hype over Mexem Africa about? I have gone to their website but, quite frankly, it looks like a scamsters website (although I thought the same about Easy Equities' website too, before I started using it). 

I don't see any info on tax free accounts, and they mention all sorts of foreign currencies but not much about how you convert your rands to Dollars/Euros/etc... 

The little section on fees is as clear as mud.  As an ETF investor (tax free and discretionary) should I be looking into it in a bit more detail? Would really appreciate a chat between you and Simon on this.

Brian

I've been with etfSA since 2012. I am busy updating my etf portfolio and want to know if I should shift some funds or all to Easy Equities. I've already bought MSCI China through my Easy Equities account that I registered a few weeks ago. What is your suggestion? 

Most of us kick our 20-year-old selves for spending all our money making poor decisions in Melville instead of taking full advantage of compounding. The financial independence, retire early (FIRE) movement has given us valuable tools to reach our financial goals despite those late nights in Melville. I discussed that with FIRE-man Patrick McKay here.

Since regret over lost investment time is something so many investors grapple with, we wondered whether we could quantify exactly how much we missed out on in order to make it up. It’s a simple question, but the solution is hella complicated. I tried to do this for my own situation like this:

1. First I worked out how much money I would have needed today so I could stop contributing to my savings and still reach financial independence in 10 years. I never considered this before, but it’s basically the baby version of financial independence.
   
   To do this, I multiplied my current expenses by 300 to get to my FIRE number. (I always do this, even though I know that number by heart.) Then, using an average growth rate of 8%, I worked out what that amount would be in today’s money. 8% is slightly below the 9.4% annual return the JSE ALSI achieved over the last 10 years. (You can use a future value calculator online to do this.) 
2. Next, I subtracted what I managed to save so far. 
3. I divided the difference by 120 months—10 years—to get to the monthly rand amount.

The bad news is it’s a lot of money. To add that to my current investments to reach my FIRE-goal, I’d have to take on another job. The good news is, I don’t have to stop investing now. Remember, that’s the amount of money I would have needed to stop contributing to my investments today.

I wanted to arrive at a simple rule of thumb to help us think about making up for lost time. It turned out to be far more complicated than that, but hopefully this discussion gives you something to chew over. I’m excited to hear your thoughts.

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Win of the week: Stippled 

I recently listened to your perfect money month podcast. 

I for the last 20, and my wife and I for the last 10  years, have followed a very simple "perfect money month" template. We are both 43 now and have recently become financially independent based upon the 4% rule (we are actually aiming for the 3% rule which will probably take another 3 years to achieve).

The monthly template has been as follows:

• Give 10% of after tax income.
• Save 15% into a Pension, Provident or RA.
• Budget discretionary spend at the beginning of each month. [We use 22seven]
• Initially pay down debt, then Invest, the extra money [after we became debt free 7 years ago redirected to global broad based ETF . .  no individual shares].
• One great dinner out each month . . .  but only one :-)

General rules

• No debt except for housing [This means we still driving "student" cars]
• Automate as much as we possibly can
• Review insurance, cell phone and medical aid annually [In November for us]
• Review wills annually [In June for us]
• Balance investments evenly between each other to maximise tax benefits later on.
• Married out of community of property with accrual

This has really been an unsexy and boring process to follow month in and month out.  However the results have astounded us.  

They are:

• My wife was able to resign from her job when our first child was born seven years ago to be at home with our kids (we now have 2) which was always a dream of hers.
• We are now financially independent and we have made more money from our investments over the last three years than from my full time employment!
• We are able to afford to send our kids to any school of our choice which was always an important goal for us [Not that we automatically chose the most expensive, we just never wanted money to dictate the choice].
• We are able to support friends and family financially if and when the need arises [Never a loan, always a gift]

We also recognise how luck and privilege have played a very large part in our journey.  We both have tertiary education and have never been unemployed unwillingly.  But we have not wasted that good fortune and rather used it to create stability and choices for us and our family.

Just in case I give the impression of all work and no fun . . .  I took a year off work in my mid to late twenties and spent it backpacking from Cape Town to Addis Ababa and climbing mountains in South America.  We take regular holidays locally to the beach and have taken 4 great international holidays in the last 10 years [We were even able to take my mom inlaw to Venice - It was her first trip out of SA].

We can honestly not recommend more strongly the boring "Perfect money month" idea.  It has benefits far in excess of what you can imagine when you start.  Approximately 240 months in, and we can say that without any hesitation. 

Mike 

The TERs of our global index trackers are extremely high compared with for example Vanguard. Is it not better to purchase them directly through the USD Account rather than purchasing a global tracker from one of our local providers at more than 6 times the fees? Eg. Vanguard VOO is 0.03% and the cheapest S&P500 tracker in SA is I think Sygnia @ 0.2%.

I wonder why our RA providers use global trackers from local providers if the fees so much are higher? Maybe it is just easier for them cause they don’t have to move any money offshore but surely it would be worth their while to do it?

Edwin

I have been wondering if you or Simon have some tips or observations regarding the income side. I have been a salaried employee for most of my 15 year career and have spent a total of 6 weeks in my working life unemployed. I am currently employed. 

My question, therefore, is what else can you advise me to do in the area of increasing income, besides simply starting a side gig. I have tried a few side gig ventures before. Some are still going, but could never replace my income. It's a lot of work and I’m wondering if it’s worth giving up on this and just focus on being indispensable to my employer. Should I be job hopping multiple times maybe? Is increasing your income supposed to be this hard? Is it a worthy goal to actively chase?

Hans

If Jared is doing contract work in Kuwait and spends some of the year in SA, he might owe SARS tax on his foreign earnings over R1m. This is a change in the tax code as of March this year.

Satrix has an ALSI Unit trust. Given that Satrix and Easy Equities (same platform) already treat ETFs as Unit trusts, i.e. aggregate buys and execute them in bulk, how would this be any different?

Terence 

Many companies will be taking on that strategy in the future instead of paying bonusses etc. In fact retainer shares, bonus shares & even shares relating to ROCE (return on capital employed), BEE scorecard achievements etc are included in share awards these days.

We are probably going to get to a position in SA where inflationary  increases will be negligible (like Europe as an eg) and there will have to be creative ways to retain good staff. 

If your friend is working for a good company and believes that the potential can be achieved during his tenure, why should he not participate in a share scheme? Many employees are in the pound seats when the company lists on the JSE as they potentially make buckets of cash at vesting. Agree, many don't as well, but you should rather encourage that thorough homework prior to participating and or limiting the amount you purchase. Normally they discounted shares anyway and Management knows the upside on vesting or buyout occurs.

Marielle 

My grandmother was drawing her dividends from Ecsponent on a monthly basis to sustain herself.

She does not have a lot of money. I believe she has around 300k. She is 68 years old and in good health.

What would be the best way forward? Any ideas on where to invest so that she can draw an income and have funds available for a rainy day.

Nico decided to move his RA from Momentum, where he pays 3.2% per year, to OUTvest because he qualifies for the R4,500 fixed fee. Momentum want to charge 15% of this lump sum to move his RA. It’s double the growth he achieved over the past 10 years.

I know you went through this process recently and I really need help.

There’s more guesswork involved in retirement planning than we’d like to admit. If you’ve ever gone through the retirement planning process with a financial advisor, you know what I mean. To calculate how much money you’ll need for retirement, you need to factor in the expected inflation rate as well as the expected growth rate of your investments. If you had the ability to know those things with any degree of certainty, you wouldn’t need to do any retirement planning because you’d be psychic. 

One of the most crucial guesses you have to make is how much money you’ll need in retirement. It’s hard for us to imagine our lives a week from now, much less decades into the future. How do we tackle this dilemma?

The Financial Independence, Retire Early (FIRE) movement offers a useful rule of thumb to help here. To ensure you have enough money to retire and never run out of money, you need 300 times your monthly expenses. This is an excellent shorthand, because it forces you to put as much effort as possible towards controlling what leaves your account every month.

However, using your current expenses would be to over-prepare. Some of your current expenses go towards preparing for your retirement. Your long-term savings and your long-term insurance products exist solely for this purpose. Once you reach financial independence, you go from having to look to others for an income to paying yourself. 

That means your cost of living will automatically reduce by the amount of money you put towards retirement the minute you reach financial independence. Once you’ve accumulated enough assets, self-insurance becomes a reality. Stealthy Wealth does an excellent job of explaining how that works in this post. That’s another expense you can take off the list.

But what about the hobbies you plan to take up once you have more time? How should you plan on paying for those? What if you wanted to take a holiday?

In this week’s episode, we talk through how you can think about your expenses in retirement when you’re working out your financial independence number. 

We are once again so grateful to OUTvest for funding this week’s episode. If you’re looking for a place to save towards your retirement goals, have a look at their excellent product here.

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Win of the week: Joy

I think another example of upside risk is in studying. It is possible to work so hard at school and university to get top grades which give you a suite of distinctions and awards, but at what cost to friendships, hobbies, physical and mental health? 

I know many adults who because of the sacrifices they made to achieve those things have always had that as a huge part of their identity. I’m sure you know, for example, middle aged men who are still called by their nickname from school or are part of the old boys club. Really? 

Your qualifications are only important so far as you can actually make practical use of them. Who cares if you qualified as a doctor cum laude from Cambridge university if you are unprofessional, unkind and thoughtless? Or if you can’t even balance your personal finances 😂 

My dad's idol was to retire early. He achieved that well. He never thought much about what he would do after that and as a result has really had (to my thinking) a pretty poor quality of life wandering aimlessly through this supposedly amazing thing called “early retirement”. When the idol shows itself as gold plated outside but hollow and empty on the inside 😢

Rafi 

The number you get when you multiply your expenses by 300 does it include your Pension/RA, paid off house?

Lyzelle

I have Old Mutual Unit trusts. I would like to get out of there.

I suppose I already know the reply for this one, since you have said numerous times that you cannot time the market, but here goes... do you think now is an exceptionally bad time to move money from the Unit trusts elsewhere? 

Melanie

I don't understand half these fees. Are these fees normal or should i run for the hills and move my RA.

1.Yearly marketing and administration charge % of fund value 

First R500 000 4.20%

Next R500 000 3.75%

Excess above R1 000 000 3.50%

2. Guarantee charge (Yearly guarantee charge % of fund value=1%)
3. Deductions made by the asset managers:

Sanlam Escalating - Coronation Balanced Plus Fund P (TIC 1.15%)

SATRIX Dynamic Balanced Fund B Fixed (TIC 0.30%).

Herman 

I moved to Belgium recently (for how long I don't know). I thought I'd share some interesting personal finance observations from here. Not really applicable to SA, although it did help me to rethink some assumptions about "the way things just are" in SA:

First I have to say that I pay a hell of a lot of tax on everything else - like 50% on any income above €37000, plus a lot of VAT, plus municipal taxes. So this is not to say that SA is bad and Belgium is good, but:

- My bank account is free. I also get a Mastercard debit card with it. All transactions, withdrawals (internationally as well) are free. Also 0% interest, so in that sense you pay for it. But still cheaper than in SA (perhaps the newer banks are better).

- Savings accounts: interest rates of 0.1% p.a. are standard. That is lower than inflation here, just as interest rates on savings accounts in SA. You can do better in special accounts, but you really want to go for ETFs for saving.

- The only capital gains tax here is attracted if you flip a house within 5 years of buying it. No CGT on sales of shares...

- No dividends withholding tax if you reinvest the dividends.

- DeGiro is a Dutch broker where you can open a free account and make 1 free purchase per month of an ETF. Like, zero deposit and withdrawal fees, zero monthly fees. etc.

- ETFs domiciled in Ireland attract no taxes in Ireland. Many ETFs are domiciled there for that reason.

- Hence, investing through DeGiro in some ETFs in Ireland attracts zero taxes - CGT or DWT, and zero fees. It is like a TFSA in SA, but with no cap!

- They also have things like RAs here. They suck as much here (if not more) and for the same reasons as in SA. High fees, prescribed asset percentages leading to low growth, exit taxes (only 8%), etc. Also smaller tax breaks initially.

I think the SA financial services sector is more advanced and competitive in their offerings than the Belgian sector, although Europe is much more focussed on ethics etc, which I really appreciate. Nevertheless, I find it amazing that in SA a TFSA is this special thing, but here it assumed in the FIRE etc. communities.

Neville wanted us to look at this ETF holdings. Catch Nerina Visser's presentation on how to think through your holdings.

Mary 

I received my IRP5 as a non-provisional taxpayer. Currently I contribute 23.5% of my base salary to two annuities.

I realized that this percentage is calculated on my basic salary, but on the IRP5 there's an income code portraying gross income received and this amount is much higher than the base salary. 

Could this higher amount be used to calculate higher contributions without it rolling over to the next year  so long as it's still under R350k as capped by the government? Or is it better to stick to base salary limits?

Molekoa

I've been working for 26 years and decided to resign as a civil servant. What is the best option for investment. 

What is diversification? Should you care about it? If you do care about it, how do you do it? In this week’s episode of The Fat Wallet Show, we spend some time at the intersection between risk and diversification. We help you think through the role of cash in a portfolio and once again reject the idea that your portfolio should start de-risking in your fifties. Coronavirus or no, modern humans live for a long time. Very few people can afford a multi-decade low-growth portfolio.

We spend a little more time than usual on inflation risk. Inflation is the silent wealth killer. It’s so stealthy, those risk-tolerance questionnaires financial companies make you fill out don’t even ask about it. Just like shares held in the short-term introduces a lot of risk, cash held for a long time introduces risk to your portfolio. We play with the idea of diversifying into other currencies as an inflation hedge.

We even have a little section for those who want to build their wealth with blueberries. For alternative investments, ask yourself:

• Who is the price maker?
• How liquid is the investment?
• How likely is it to beat inflation?

We hope this episode gives you some tools to think through some of these issues in your own portfolio.

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Win of the week: Nokuthula

After discovering the podcast, I went through a phase of being giddy and hysterical for two weeks catching up on all the episodes.

I started my savings journey late. I am not paying extra into my home loan and rather choosing to invest,

I still have upcoming university fees for my niece and nephew who I’m partially supporting and will continue to support until they are independent. I can only do that from my salary as I am not putting any money away for them for future expenses. It is not a watertight plan, but I had to be realistic.

There are many holes to plug but I had to be decisive. Being able to fund my own retirement is paramount. I am continuously working to change things for the better and nothing is off the table, including selling the house and working beyond age 55, but this is where I am now.

Most of my money is saved in Reg. 28 accounts. I only started my TFSA in 2018 and I have been contributing the maximum allowed. I will only start contributing to my USD account in July so it is at zero right now. The breakdown as a percentage of my total monthly contributions is:

• Pension fund: 43%
• RA: 32%
• TFSA: 13%
• EE USD: 13%.
• Provident preservation: 0%

Considering that the TFSA is the last to spend I think the preservation fund will be first, the current legislation allows that I can withdraw the full amount at retirement, but it will only last me a few years. That means my Reg. 28 accounts will have a bit of time to grow outside of the Reg. 28 restrictions. Then I guess it will be EE USD next.

In a South African context, what should one think about in terms of a retirement drawdown strategy? What accounts should one have set up whether it is for FIRE or just FI? Should one also consider a South African discretionary account? I am also wondering if an endowment plan can also be part of the retirement mix. The ones I have seen are being marketed as being good for tax planning for people with a marginal tax rate of 30% or more. I would only go for one that is passively managed with low fees and if such does not exist then I will pass.

What is diversification? Should you care about it? If you do care about it, how do you do it? In this week’s episode of The Fat Wallet Show, we spend some time at the intersection between risk and diversification. We help you think through the role of cash in a portfolio and once again reject the idea that your portfolio should start de-risking in your fifties. Coronavirus or no, modern humans live for a long time. Very few people can afford a multi-decade low-growth portfolio.

We spend a little more time than usual on inflation risk. Inflation is the silent wealth killer. It’s so stealthy, those risk-tolerance questionnaires financial companies make you fill out don’t even ask about it. Just like shares held in the short-term introduces a lot of risk, cash held for a long time introduces risk to your portfolio. We play with the idea of diversifying into other currencies as an inflation hedge.

We even have a little section for those who want to build their wealth with blueberries. For alternative investments, ask yourself:

• Who is the price maker?
• How liquid is the investment?
• How likely is it to beat inflation?

We hope this episode gives you some tools to think through some of these issues in your own portfolio.

• Subscribe to our RSS feed here.
• Subscribe or rate us in iTunes.

Win of the week: Nokuthula

After discovering the podcast, I went through a phase of being giddy and hysterical for two weeks catching up on all the episodes.

I started my savings journey late. I am not paying extra into my home loan and rather choosing to invest,

I still have upcoming university fees for my niece and nephew who I’m partially supporting and will continue to support until they are independent. I can only do that from my salary as I am not putting any money away for them for future expenses. It is not a watertight plan, but I had to be realistic.

There are many holes to plug but I had to be decisive. Being able to fund my own retirement is paramount. I am continuously working to change things for the better and nothing is off the table, including selling the house and working beyond age 55, but this is where I am now.

Most of my money is saved in Reg. 28 accounts. I only started my TFSA in 2018 and I have been contributing the maximum allowed. I will only start contributing to my USD account in July so it is at zero right now. The breakdown as a percentage of my total monthly contributions is:

• Pension fund: 43%
• RA: 32%
• TFSA: 13%
• EE USD: 13%.
• Provident preservation: 0%

Considering that the TFSA is the last to spend I think the preservation fund will be first, the current legislation allows that I can withdraw the full amount at retirement, but it will only last me a few years. That means my Reg. 28 accounts will have a bit of time to grow outside of the Reg. 28 restrictions. Then I guess it will be EE USD next.

In a South African context, what should one think about in terms of a retirement drawdown strategy? What accounts should one have set up whether it is for FIRE or just FI? Should one also consider a South African discretionary account? I am also wondering if an endowment plan can also be part of the retirement mix. The ones I have seen are being marketed as being good for tax planning for people with a marginal tax rate of 30% or more. I would only go for one that is passively managed with low fees and if such does not exist then I will pass.

Not all investment products are created equal. This week, listener JP was struggling to understand why his RA was performing so poorly while his tax-free account was making money. The answer is important for everyone who holds more than one investment product. 

This week we help you (and JP) work out what exactly you should be looking at to ensure you’re comparing apples with apples. We discuss the role of Regulation 28 in the performance of retirement products, how different asset classes behave, the role of active managers and what the rand/dollar exchange rate has to do with it all.

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JP 

I need some clarity on how an RA can perform so poorly when an ETF does so well. 

Firstly rate of returns: Investec is -17.58 where my Satrix is +6.4 percent over this troubling period. That's a difference of almost 24% in the same market. 

The one with Investec is with a financial advisor who charges 2.8% fees (that includes Investec platform, admin, etc) and is supposed to be a Inflation + 6% growth portfolio.

My Satrix platform charges less than 1% fees.

He holds the following Satrix ETFs: Divi, property, 40, World and S&P 500.

How is it that financial institutions and professionally trained people can't get investment right but an index investor does?

Win of the week: Alida

When are dividend distributions assigned?

I've noticed that most ETFs will only distribute the dividends for a financial quarter a few weeks after the end of the quarter and it has me wondering:

If I own some ASH 1200 at the end of the quarter, but then sell that before the dividends are distributed, do I still get the dividends for that quarter or not? Do I have to hold the shares until the dividends are distributed a month or so after the end of the quarter?

Similarly, let's say I buy after the end of the 1st quarter, but before the distributions, would I then get the dividends for the 1st quarter?

Pascal 

I've spent time reading as much as I can find about all three of our global property ETFs to make a decision on which one to hold. Even though it will form a small part of my overall portfolio, this will be one of only 3 ETFs I ever hold, and plan to hold it forever, so it's important for me to make the right choice now. 

The 1nvest product seems like the clear winner and I'm buying it currently. They simply chuck your funds directly into the iShares Global Property REIT ETF in the US, which seems like one of the best and most widely used ETFs in its class. It tracks the FTSE EPRA/NAREIT Global REIT Index. The index is used by a ton of other ETFs around the world.

The CoreShares and Sygnia products track some other arbitrary thing: The S&P Global Property 40, which sounds super official until you google it and the rest of the world is like.. "nah dude, that's not a real thing" It seems that these are the only two products on the globe that I can find that actually track this 'global index'. 

If you look into ASHGEQ's S&P1200, you get charts, factsheets, methodology documents, everything. But there's almost no information online on this one. It's basically a ghost index. Something about this just makes me feel uneasy, but maybe I'm being too pedantic? What are your thoughts? 

Also, and this was the final kicker for me, they pay dividends bi-annually instead of quarterly like the 1nvest product or any other self-respecting, well-to-do fund. 

If the 1nvest product is basically just rolling up my funds and passing it to the US iShares ETF, is that hefty US withholding tax already baked into all my dividends before they come full circle into my account? 

If that's the case:

Am I being a dumbass holding this thing in my TFSA instead of one of the fully locally-crafted products like the Sygnia? Now, I understand that any global ETF has a certain amount of baked-in withholding tax from other countries, but if the 1nvest fund is basically a middle-man for a totally foreign ETF, am I needlessly adding an entire second layer of unavoidable withholding tax into my supposedly tax-free portfolio? Or perhaps is this all pretty negligible in the grand scheme of things? It's okay (in fact preferable) to tell me that all of this is literally a non-issue and it's just my lock-down brain overthinking literally everything.

You guys mention the CoreShares one a lot, but... its more than twice as expensive as the Sygnia (in terms of TER). Why would I go for something that does the same thing for more than double the price? What am I missing here?

Bea

I have only recently started earning a relatively large amount of money abroad. At 61 I have to make sound investment decisions - there is very little margin for error at this stage! 

The kind folks over at the Fat Wallet FB group have assisted, but I still feel the need of some more practical pointers to guide me. My situation is as follows:

* I have around R38k monthly to invest

* My Emergency Fund is available and will most likely use Tyme Bank.

* I am going to choose Brightrock for disability and dread disease cover - heard about them on the Fat Wallet FB group. Are there other providers which you could suggest I try for the cover mentioned? 

* I have no debt...however:

* ...I pay R2 500.00 monthly for storage of my things in South Africa and shuddered when I heard Kristia's definition of an asset. It's a nightmare cost and really don't know what else to do with beloved items of furniture.

* I plan to open TFSA and have R36k available for tax year 2020/21 deposit as soon as I can. I have no idea what to invest in. ETFs sound good since in this case I will hopefully have no need to touch this money, hopefully not for a  long time.

* I have around R300k ready to invest at present - the foundation for the house savings.  I have opened a Sygnia Money Market Fund to invest this. However, I am concerned that I could do better in terms of interest elsewhere! Would I be keeping abreast of inflation etc? 

* I would like to buy house in around 4 years in SA, hopefully cash - with the money I hope to have saved from now until this point. In this case,  I wil need to work until age 70 to save in order to cover my living expenses ( age 65 - 70). This is the reason I have been advised to use a money market vehicle - safety and availability, but could I not do better elsewhere?

Do you think that this is the best course of action in my case? There is a need to both grow and protect my funds. However, I have heard Kristia talk about Index Funds and wondered if these applied in my case. They sound wonderful. Someone mentioned that I should be careful of my asset allocation - specifically stocks because of the time factor?

* I have heard Simon mention that he has an RA. Should I have one? 

* What are your thoughts on a living annuity in my case and how does this product work?

* I have been advise to rather place the salary I earn in the Gulf country into a USD account and not bring it into ZAR. I haven't a clue on how to do this and wonder how safe this is? Interactive Brokers and Degiro not applicable - the former's fees are too expensive and I don't feel confident about Degiro. I get paid in a Gulf currency and most likely have the option to transfer funds to another account  in any of the major currencies.

John

Are European joint accounts included in your estate upon death? Also are they subject to SITUS tax from foreign jurisdictions?

Santosh 

Do we invest as much as possible and never enjoy it? Presumably most people want to leave a fortune to their heirs, thus amassing a stash and never actually drawing down for purchases - yes like a car, holiday or some other significant purchase. 

At what point does one reach a "number" and after this anything more, whether you actively add or it grows via its own momentum, do you start just taking out ?

I suppose this is really relevant for those without dependents and singles where there really is no one to leave it to.

Those of us slowly building a portfolio every month accept our investments will be determined by our overall strategy. This strategy would include our ultimate financial goal, plans around asset allocation, diversification, tax planning and future drawdown management. We understand we have to consider these variables throughout our portfolio, including our retirement products. New money coming in goes towards old strategies. It’s boring, but effective.

Those who just came into a large amount of money are subjected to a terror to which the rest of us are immune. Where is this money supposed to go? The bigger the amount of money, the more flimsy former investment strategies seem. Oddly, new investors with only tiny amounts of money to invest seem to experience a lot of the same anxieties. At the extremes these decisions feel very large indeed.

The one difference between making a choice about your first investment and the biggest investment lies in tax planning. Your first challenge is to hang on to as much of that money as possible. From there we’re sad to say it all comes down to your strategy. What do you want this money to achieve? Which products are most likely to get you there?

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Jacques 

I sold shares in a small private company.  I now have to decide what to do with it and to invest it wisely for the future. I am 50 years old and married with two 8 year old twin daughters (having waited for kids for 20 years!). 

I have current income streams and do not have to use any of the capital to supplement income.  We are renting and own a plot hat has been paid for in full.  I need to decide to build a house now on the plot or invest the share money in a diversified portfolio for strong capital growth in the 15 years to come before retirement at say 65. I have an RA currently invested in a portfolio of shares. 

I looked at Simon’s portfolio. I like his allocation of shares to “Death do us Part”, Second Tier, ETF and Tax Free groupings.  I read about the “Ashburton Global 1200 ETF” (ASHGEQ) fund that Simon proposes and the low fees of Outvest.  

I need to decide how to structure the capital as the current levels of some share prices may present a once in life-time opportunity for me to buy low PEs (e.g Firstrand, etc.). I am willing to move the RA from Sanlam Private Wealth to Outvest.  I need to get Tax Free Investment accounts for the kids, my wife (perhaps all 4 of us) and also invest more into my wife’s RA (very small and also willing to move that to Outvest).

I can afford to be aggressive and have no debts. I am however scared of my own emotions whilst trading so I want to follow a long-term passive strategy and not trade for the short term (speculate).  I have opened a brokerage account, but have not purchased any shares or instruments yet.

Win of the week: Albert

In podcast episode number 169, I had asked whether you would set up a Patreon. The rationale given for not having one seemed sensible at the time. Nonetheless, since August last year, following your sound advice regarding financial planning and cost management in general, I have saved quite a bit more than I would have otherwise. 

For the most part, this means I do contribute more to my savings and investments, but I have also been growing a side savings account, for your benefit. Attached to this email is a Takealot Voucher, spend however you wish. I would recommend allocating it towards chuckles and bubbles, because I enjoy the somewhat more chaotic tipsy episodes, but you know it’s a free world, I know there may well be more pressing matters at hand.

I am glad to have an emergency fund, and am currently parking my Covid-19 shut in lifestyle savings into a Tyme bank account. I currently have just over 8 months’ worth of expenses in cash, but perhaps it would be prudent to be in a similar situation to Simon, by having the maximum allowable tax-free amount on the balance sheet.

Ordinarily I would like to carry on contributing to Tyme, but their savings limit per customer sits at R100 000, a number I will reach shortly if WFH continues. It seems that the ultra-competitive bank savings account offerings from last year have all but shriveled up. The most competitive 32-day account is African Bank’s with a 5.85% per annum. This bothered me, as I know that the New Funds Traci ETF yields about 7.4%. 

I would like to know what the cost implications would be for the ETF, as it would sit in my discretionary brokerage account. I know I would be paying Brokerage commission, the Investor Protection Levy and VAT on costs every time I increase my savings or cash out, but what are the tax implications?

As this is a total return ETF, I would not get paid the interest into my account as this would be re-invested into the ETF. Presumably I would have to sit down and spreadsheet the actual interest earned for that tax year. 

Should an emergency arise, and I need to sell some units, would I be required to pay SARS capital gains tax on the interest earned as well? Your 2019 article about it on J1L also pondered the same question, so I wondered whether you had already received a response from one of the magical tax elves.

Old Mutual offers the ability to save in one of its money market unit trusts which also tracks the STeFI, it comes linked to a transactional bank account. It is a unit trust, so it has a higher TER, but if it eliminates capital gains tax, the other exchange costs and the added admin around tax year end by giving me an account statement for the unit trust, I would be willing to give up 0.1% of the yield difference between it and the Traci.

I would like to travel overseas after I get jabbed with a Covid vaccine. I have put money aside in a separate goal save. I get quite queasy when looking at ZAR exchange rates and what they may do between now and when I wish to travel, so I looked into SA based dollar/euro denominated accounts. Their interest rates on these are about as exciting as a finding a fly in one's soup. Would it be better to save for travel expenditure in dollars/euros in a hedge against a rand drop, or is it better to save in rands and suck up the volatility for the next 12 - 18 months for this purpose? I’m thinking of splitting the difference 50/50.

Marco

So question on Market Value Adjusters: Are they bullshit? I suspect that they are. My wife is moving her RA from the big mean green machine to Sygnia. She received a notification that an MVA has been applied to her RA to transfer and that it will reduce the amount that she is expecting by 5%. Is this just a way to keep people from transferring, or another penalty that's added on top?

I sort of understand what an MVA is: save from the good years to prop up the bad--but why add this extra "bonus" to a financial asset? To me it sounds like a turd wrapped in a sparkly bonus wrapper that just hides how bad active managers treat customers.

Mark

I have 20% of my Tax free investment and ETF portfolios dedicated to CSPROP and STXPRO, but every month when I buy these, I feel I might be throwing my money down the drain. Should I keep buying property ETFs as part of my TFIA and ETF portfolios or am I better to just hold what I have for a few years and not buy more every month? Should I drop my 20% allocation to 10% or less?

Alexander 

Having just opened a Tax Free account, I’m ready to jump in with my entire 36k. 

I know Simon’s advocated in the past for putting it all in at once, but has the current situation changed that approach at all?

With my RA pretty much maxed out for last tax year, and this year looking to do the same, should I still be weighting my TF more to international markets? Or is it the case that since the rand is very weak against these markets that I’ll be doing myself a disservice in buying now? 

I am 25 so as an investment I plan to leave (probably till retirement) it may not be do or die, either way I would like to make an informed decision. Is perhaps this year the year to focus locally with my investment and then return to my international focus with my TFSA at a later stage? Uncertain of how to proceed during this shaky and tumultuous moment.

What do you recommend one does with an emergency lump sum of around 250k? I was surprised to see my Depositor Plus account with Absa having lowered interest rates as of April 2020. I was wondering whether you can recommend a few accounts or platforms to look at during this time now that interest rates are fluctuating?

How would one start investing in the UK/&/Europe if one has a bank account in the UK, but no national insurance number? I occasionally get paid into that account by European clients and was thinking of using that channel to invest offshore, paying any applicable tax through my local accounts. Let me know if you have service providers you would recommend for something like this as well please.

Shailesh

I listened to "Five concepts that will make you rich". Simon mentioned in passing if you committed to your R33k annually (at that time) one could have as much as R25 million in 25 year's time. 

How is this possible? My understanding is that your earnings are calculated on the amount it was initially bought and hence it is not really compounded except for the dividends that will be reinvested.  Should one sell their ETFs and re-buy them annually to compound it?

This is a question about how shares make money. We wrote an article about that here. 

The financial services industry has done nobody any favours. Not only were many of our parents sold retirement products with exorbitant fees, they are also offered the same awful choices now they’ve reached retirement age. They have learned the hard way you can spend your life doing everything right and still lose because of bad products with high fees.

This week we received five different questions from listeners who are trying to help their parents navigate the terrifying world of retirement money. For many of us, this is the biggest financial decision we would ever have to make. If you’ve been told you aren’t qualified or equipped to make these decisions your whole life, odds are you’re not going to start trying at 65. 

Our parents need our help navigating this terrain. Hopefully this episode also helps us help each other.

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Win of the week: Emma

I am a proudly SA opera singer with a penchant to be a financially stable artist. I started my finance journey properly from last year, and was educated about Just One Lap by my mother, who was your winner of the week a while back.

I wrote a blog post this month, hoping to encourage a culture of saving and financial savviness amongst my followers, and thought perhaps you might want to feature it in your podcast.

Kenya

My mom has recently left her job to take a few months off. Her pension fund (currently held with Old Mutual) needs to be transferred to a preservation fund until she retires in two years. A financial advisor offered her a once-off fee of 1.7% to give advice on which preservation fund to choose (and to help her complete the forms- which according to her are actually very simple). Initially it didn't sound like much, but I was shocked when I calculated the rand value of this fee. The fund he’s recommending still falls within the Old Mutual stable and has these costs:  

Total investment charge: 0.63% p.a 

Fund access: 0.18% p.a 

Admin fee: 0.31% p.a 

Totalling: 1.12% p.a 

Alternatively, he has suggested a fund with Coronation with fees not dissimilar to the above. 

Is this a fair offer? Are either of you aware of a better lower- cost preservation fund that she can choose? Bearing in mind she has two years before she will be required to access it and it is required to go to a preservation fund. 

Jenna

I started listening to your show this year and have become completely addicted. I went back to your old podcasts and have listened to about 50 hours already.

My mother has never been great with money. However, she has somehow managed to pull through.

She will run out of money soon and may need to go into debt. I'd like to help in any way I can, so I've helped her reduce her costs and get a better overview of her finances.

She is 63 years old. She has no retirement fund or any savings aside from R100k in cash in a money market account. She has a brand new car, so her expenses shouldn't be too high for a few years. 

She has a home loan that she can access at any time.

She has a house valued at about R2.5 - R3m, paid off. 

The house has a back section that, if she renovated it, she could possibly rent out, however this would be expensive. 

Asset-wise she seems to be in a ok position, but her expenses are more than her income and she'd like to retire soon. I don't think that she would be able to manage a large amount of money (if she were to sell her house.) 

How can she continue generating income for the rest of her life while losing money each month? What's the best strategy for this situation?

Brendt

I recently had a look at my parents' financial situation. They already have a RA that has been converted to a living annuity. 

When I inquired as to the fees that are charged on the living annuity, I almost fell off my chair.

This got me thinking: we are so focussed on getting a low fee RA going that we totally forget that the RA forces you into a living annuity. When choosing to invest in a RA one must also consider the fees that will eventually be charged on the living annuity.

The current high fees on living annuities (the cheapest I could find was Sygnia at 0.86%) makes RAs less palatable.

Nicole

My mom's money is currently with old mutual but she's retiring at the end of July. The living annuity they suggest will cost 2.2% per year and encompasses funds like Allan gray, coronation, ninety one etc. 

I'm tempted to recommend that she rather go with 10x/etfsa or sygnia /the new retirement solution platform by Nedgroup (brand new so not a lot of info there but more choice than the other 2). With one of the first pair she just needs to choose a path and thereafter it's very little input from her side which makes her more at ease but I'm not sure there's enough diversification and control. With the others there might be too many options and the wrong funds chosen.

Is it sufficient to take the same approach as I would in my regular investments but lean slightly towards the conservative side? Like a world etf and then one that has more cash and bonds?

Ross 

I am 35. My dad has a farm and a will that is so out of date it's frightening. He's unfortunately really bad with his own finances and paperwork. I'm trying to find out what the best options are to safeguard against all the legal fees, estate duty etc etc in the event of his death and not to have to sell off pieces of the farm in order to cover all the fees and taxes involved. 

I am looking at life insurance policies but at my dad's age (70) they are not cheap. I suppose it’s better than trying to find that liquidity out of your own pocket or selling off assets to pay all the legal fees and bullshit when the time comes.

There's a company called Capital Legacy that my insurer put me in touch with that deal with all the above mentioned woes. They draft the will, have a legal team, executors etc and cover all the legal fees and taxes in your monthly premium. It sounds all well and good I just wanted to find out if you guys know the company at all, and how legit they are? And if you have any better suggestions? I have listened to the "what happens when I die" podcast, but living in the Corona era maybe things have changed since then?   

Richard

Now that we've entered unprecedented times, including the exponential use of the word 'unprecedented' how much of the old rules are still completely relevant.

• Is renting still better than buying, considering interest rate cuts? 
• Is a broad ETF still the best option? Or should we focus on post-COVID winners in tech?
• How big should our emergency fund be, when the entire country is in a state of emergency?

Marco

I am looking to move my R.A to Outvest. 

According to my latest investment summary: My value on 1st of January 2019 was R228 797.72 and 16 months later on 1st of May 2020 is R297 692.17. In that period my administration and advice fees were R6510.21.

With my current R.A invested in the Coronation Balanced Plus A fund from June 2005 , are the fees of the fund (which is 1.25% excl VAT) included in that admin and advice fees? Or am I paying that 1.25% excl VAT on top of the R6510.21? Are there any other fees I am paying that I am missing?

The Coronation Balanced Fund appears to have done well, I think? Not really sure how to read the performance well, taking everything into account. Ie fees etc

Would you recommend I pull my chute with the above mentioned R.A? Also , Outvest have four funds that are available for their R.A

They are:

• Coreshares OUTcautious Index Fund
• Coreshares OUTstable Index Fund
• Coreshares OUTmoderate Index Fund
• Granate Money Market Fund

Can you shed any light on these? Which would you recommend? 

You may not be very happy with your workplace pension fund. In this week’s episode, we think through some of the things you can do to remedy that situation. Pension funds, like all other retirement products, have to be Regulation 28-compliant. That means you don’t have much control over what’s inside. However, you can control your contributions and the fee you’re willing to pay. You can also insert yourself into how your workplace pension is managed by becoming a pension fund trustee. 

You can find Gerrie’s article on maintenance we mention at the top of the show here.

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Kyle 

I’ve been curious about forced pension fund contributions in the workplace. Is there any way we can direct portions and where this gets invested? 

When stocks are discounted, would I not be able to take a more aggressive approach and direct this more towards equities? Alexander Forbes deals with my pension fund.

Win of the week: Steve 

Jason 

You said it is "illegal to record someone without telling them".

This is sort of true but in the context described it's not. This is actually covered in the RICA act.

It is illegal to record someone without prior consent. However, the Act sets out the following exceptions to the rule:

• you are a party to the conversation
• you have the prior written consent of at least one of the parties to the conversation; or
• the conversation relates to, or occurs in the course of, the carrying on of your business

Since you are an active participant in the phone call that means you are "party to the conversation" and not eavesdropping and thus can record regardless. It is still considered polite to tell people they are being recorded, but even if they say decline it's not illegal. If you think the person is going to lie then maybe you shouldn't ask. I'm not a lawyer but this advice was given to me by one of my company's lawyers after I recorded a conversation we had with a client who was blatantly lying to us over the phone and I needed proof.

Dhiraj 

One can hold cash in an interest bearing bank account or invest in a money market with a fund manager at a small fee.

Is it safer to hold cash with a fund manager even if one has to pay the small fee?

Specifically is one more likely to retrieve the money from an asset manager than a bank if both were declared insolvent?

Eugene wants to know why one would choose a preservation fund instead of an RA.

Meryl 

How can you find the interest rates of the bond ETF? Obviously this depends on the price but where do you access the return?

On my Standard Bank investment account I have quite a few Sygnia ETFs. In my statements it shows a deduction for ETF fee whenever there is a dividend or interest payment. Have you any idea what this is?

Eric

For a relatively new retail investor like myself the information on your site is priceless, thanks again.  

I just listened to your podcast on Covid bonds and the 11.5% interest sounds very appealing, my concern is SA Inc. In your opinion what is the chances of a default…thinking Greece and Argentina where a haircut was imposed on sovereign bonds.

Nolomo

1. Besides buying shares, what other assets can one accumulate with a budget of less than R2000p/m. 
2. My dream is owning a house where I can live and raise my family. Is it possible to afford a bond with a salary of R10000p/m with monthly expenses of R4500 over a 20year period? I have a R30,000 lump sump
3. Is a bond the only way to own a physical house with a salary of R10000p/m and R4500p/m expenses?

Nadine

I was just listening to an episode when I heard you say you paid $16 for a kindle book! Kindle automatically makes the US store your default store but you can change that to the U.K. store (www.amazon.co.uk). I did this myself and I usually only pay £3-5 for a book on kindle now. The U.K. store is just SO MUCH CHEAPER! 

Google how to do it - I can’t remember the exact steps, it’s somewhere in settings on the kindle. You need to open a U.K. account and connect your card etc. but it’s worth it. 

Ndida wants to know if there are any benefits to using offshore investment platforms over local platforms offering offshore exposure.

John

I hear SASOL may be forced in doing a Rights Issue in the future.. I have SASOL shares that I picked up at the lows in march and now am thinking of offloading them before the Right Issue occurs. 

There seems to be a battle for dominance raging between medical professionals and engineers on this show. This week we happened to receive emails from four healthcare professionals. Considering what’s happening in our hospitals at the moment, we decided to dedicate this week’s show to these heroes.

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Win of the week: Busi

I am a doctor who has worked in both the public and private sectors.

I have a stockbroking account and always wondered what these random amounts of money popping up in my account were. Nonetheless would use the surprise money to buy more etfs and go on with life. Now that that I listen to you guys, I realise that these are dividends. I felt so stupid when I came to this realisation but thrilled at these little rewards.

I also had a chat with an older colleague of mine nearing retirement age. He advised me that the biggest hindrance to one's retirement plans are kids. His advice to me was not to have any. Fortunately for me, unfortunately for my retirement plans, I already have a rugrat and I'm not planning on sending her back!!! 

I thought I'd help the lady who had a question about medical aids in episode 186.

There are medical aid 'brokers', the company Optivest comes to mind. They don't deal with all medical companies however, so like insurance brokers, they have their pool of companies they deal with and so any quotations you get are based on that handful of companies. 

My advice is that since she already gets a subsidy from work on Discovery, to rather remain on there. Switching to another medical aid has implications as waiting periods may apply which is not idealnsince she has a chronic condition with expensive treatment. And much aa it pains me to say this, Discovery is one of the better medical aids. She should prescribe to the chronic programme, opt to collect her medication from a network pharmacy like clicks or Dischem or something, and can even look at switching options within discovery. The advantage of living in KZN is the coastal options work out somewhat cheaper. 

A listener had mentioned considering switching to medical insurance. A medical aid scheme and medical insurance are 2 different things, and though the insurance is cheaper, its best to go with a medical aid scheme if one can afford. 

P.S. What are Chuckles?

Kendra

I have a financial planner who advised me to go with Sanlam Echo Bonus as my RA. My current contributions are about 5% of my income.

I only recently started doubting what my financial adviser has recommended. I have seen the very high EAC of this RA. Is it true that the Echo Bonus is reliant on Sanlam's performance as a company and is not guaranteed at my retirement? I could be wasting money in an RA with high EACs without this buffer of the Echobonus. I understand I will forfeit a fee if I make changes to my RA now, but I would rather do it sooner than later if there are better long term investment options available. Please help! 

The information I shared in this episode was found on the Sanlam Echo Bonus page. Double-check me there.

Carlo 

I am a young doctor. I just started working with one of the big cruise ship companies before the covid 19 apocalypse hit. Currently I am drifting in the pacific on a mission to repatriate some Asian crew members with no idea when I myself will be getting home.

Having some extra time on my hands (to say the least) I stumbled upon your podcast and proceeded to binge it religiously. My mind has truly been blown by your wit, charm, judicious use of swearing, and of course financial wisdom. Somehow you guys have had a calming effect during these difficult times, please keep up the good work.

I have just completed 2 years of internship and 1 year of community service in the pandemonium which we like to call the South African Public Health Service, and promptly decided to head out for the high seas.

I almost fell off my chair when I saw what the rand had done just before my new paycheck on the cruise ship (getting paid in USD) - Despite being trapped in a floating prison I feel quite happy about it.

I opened an easy equities account and decided to split my savings between the USD account and ZAR account, buying similar ETFs. 

Does it make sense for me to buy S&P 500 in ZAR and USD? Should I try to time my contributions by buying ZAR ETFs when the rand is weak and USD ones when the rand is strong (for example if we head back down to R15 to a dollar?) 

If the rand does strengthen again I feel like I will get hit double because my salary will decrease and the ZAR ETFs that have offshore exposure will surely also take a knock. How can I protect myself against this?

Is it stupid if my TFSA and my discretionary investments mirror each other? Should I be throwing specific types of ETFs into my TFSA?

I see that some sectoral ETFs like the Satrix FINI have been "klapped" - do you think any of these have room for growth (which sector should I buy with my "F you" money?) 

On the offshore side of things, are there any interesting USD ETFs which could offer interesting types of exposure that we can't necessarily get access to from rand based products? I see there is an iShares HealthCare ETF and an INDIA ETF for example.

I am wishing everyone back home the best of luck and I can't wait for Cyril to open the airports so I can come home and help with the fight.

Mary 

I work in healthcare. Believe it or not, our job and salary are precarious right about now. I was fortunate to receive a bonus now and my question is :

Do I pay off my credit card of R12,500 or save the money to prepare for the unknown. 

Can you talk a bit more in depth about rebalancing the portfolio. If one uses the Satrix platform and EasyEquities to invest, do we still need to rebalance and how?

Thank you for all you do. I look forward to listening to all your shows. You are appreciated.

Skhumbuzo

What effect does junk status have on RSA retail bonds? Does the interest rate get better or worse?

Here’s a link to my friend’s drive-in. https://www.facebook.com/DineInDriveIn/

If you went into formal employment straight out of university or school, odds are you have some sort of pension fund or retirement annuity. You may since have realised the idea of working until you’re 65 is entirely optional. If you’ve already allocated a large part of your income towards your retirement, you need to find a way to incorporate that money into your early retirement strategy. 

Our friend Kris has been giving some thought to this process. Your challenge lies in balancing two investments. Your discretionary investments should see you through to the age where you can access your retirement fund. The longer your discretionary investments can support you, the longer you can wait before accessing your retirement product.

Once you start tapping into your retirement fund, you need to manage your draw-down rate carefully, so you don’t run out of money before you run out of body.

In this week’s show, Simon and I discuss the merits and pitfalls of this strategy. In general we find it to be Very Good.

Kris

I have some questions I thought to send to you guys about a two-stage FIRE - which is very relevant to SA since we cannot access Retirement Funding (Pensions, RA's) until a certain age. The USA (where more FIRE content comes from) is different since they have some hacks where you can "convert" retirement funding to income before you hit that age. I am surprised its not a bigger topic in the SA FIRE community. 

I had the idea for the two-stage path to FIRE and developed an approach - which basically means accumulating a large enough discretionary investment (DI) pot to last until your retirement funding (RF) income kicks in (say at age 65). This means the DI can be drawn down at a rate higher than 4%, since it need not be as large as 25x annual expenses - it just needs to last until formal retirement age. 

In the background however - your RF needs to grow from the day you stop working to a level that will satisfy the 4% rule at retirement age.

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Win of the week: Ricardo

And Martyn. Check out his business here.

I'm new to the investing world, and it's pretty exciting. I'm also an active investor in the Netherlands via DeGiro. I’ve been lucky enough to join two online investor groups. These online groups are hosted on a site called Discord Chat. It’s pretty awesome, because everyone can interact and there's a whole lot of Q & A involved. 

I've learnt SO much in the 3 weeks I've been in these groups and I think it could be so beneficial for young South-Africans to share their experiences with each other. The chat allows for different categories (i.e medical aid, insurance, passive investing, personal finance, active investing) and categories like "idea's" where people can share topics on which they want more info on. 

Hope you think this is pretty cool too - and that we can start an awesome online community of people passionate about personal finance. 

Peter

I have excess cash in my savings account and want to invest in an ETF. Is it the right time now?

I have been looking at the Allan Gray Balanced Fund which has a nice diversification and 51% SA equities and 29% foreign and is at an all-time low but the 10 year prediction looks good.

I am also looking at the Satrix capped INDI ETF which is equities-heavy and also at an all-time low but the 10 year prediction also looks very promising.

I'd rather invest now than having my money sit in the bank. In these uncertain times, what do you suggest I do?

Darth

To curb my wife's over-reliance on me for income (for her stokvels and cosmetics), we constructed backrooms and for the majority of the Tax Year, they were bringing in R2 200 per month and that has since increased in January 2020 to R4 500.

All this money goes to my wife's account and the intention is to have it declared as her only income for the Tax Year.

My question is whether SARS would rather have us splitting the rental income as it is coming from our joint property or it is okay for me to file mine as I've always done?

Talking about declaring rental income, I am realising that we don't have lease agreements in place and am wondering what would SARS require as source documents for the income. What sort of documents do we need to have in place before filing?

Javier

What are SENS announcements? when are they used? are they mandatory? where can we find them? is it important to know about them to average investors? Any tips or useful info about them?

Elaine

I took it out in 1999 and not really sure if it's performing like it should. I don’t even know where to start. They want to put it (by this she means her contributions) up to R18 000 per month which I think is just crazy. I know I will be penalised for cancelling but I just feel like it's been a waste of  time and investment .

Would you be able to advise on what to do in this situation ?

Mari

I've got an FNB Share Saver account, which invests into the Ashburton Top40 and Ashburton Midcap for you.

I figured if you invested R1000 they’d send about R500 toward each ETF. But I see they work out how to divide the money so that they buy the same amount of units from each. It struck me as weird 'cause the Top40 costs about R46.16 and the Midcap R5.65 at the time I'm writing this. So R1000 gets me 18 units from each, which means the Rand value of my investment in each ETF is very different.

What's more important here? Why do they do it this way?

Wiehan

We are currently stuck on site with no prospect of leave seeing as all the borders are closed and our charter flight can't take us to Uganda. There are no flights leaving from Uganda to SA. We’re here for the foreseeable future, producing gold at full capacity. It’s not the worst place to be, earning in Dollars with the current ZAR/USD exchange rate. More money for ETF's :)

My financial journey started around two years ago - thanks to the book "Manage your money like a fucking grownup". 

It completely changed the way I think about and manage my money. Before reading the book, I had humongous study loan debt, an awful RA and TSFA sold to me by a greedy Sanlam advisor and no idea on how or where to invest my money. 

I paid off all my debt, fired my advisor and I am in the process of moving my RA to Sygnia (will move to Outvest once I reach R400k) and my TFSA to Easy Equities. I was also able to build up a solid emergency fund. 

I started to listen to your podcast just as the markets crashed - and realised I needed ETFs. Luckily, I had a lot of cash sitting in Money Market funds, and could buy when stuff was dirt cheap. I have chosen an asset allocation of 40% local equities (Satrix 40), 50% offshore (Satrix MSCI World + Emerging Markets and a bit of Sygnia Japan just because it tickled my fancy) and then bits and bobs in bonds, cash, property and a small bit of gold (just to support my industry ;)). 

I will look at the Ashburton 1200 in the near future - hopefully it can rule all of my other offshore ETFs. 

How do you feel about EasyEquities? Is it safe to use as my only investment platform, or should I diversify and use another platform for my TFSA? Do you have any other suggestions for nice/cheap platforms I can check out?

When I am back in SA again, I would love to meet you guys at one of the meet-ups and have little chat. You guys are awesome, and you make the time here on site much easier to bear. Lastly, send me an address and bubbles of choice so that I can courier a bottle or two to you as a thank you. It is the least I could do for the wonderful advice and laughs you have provided to me.

Santosh wants to know whether he should review his portfolio in rands or dollars?

If you listened to this episode on a single ETF strategy, you know my investment philosophy. This simple approach to investing saves me a lot of drama. When a new product comes to the market, I ask myself if it fits with my original philosophy. If it doesn’t, I can satisfy my curiosity about the product without touching my investments. This is a good way to live. 

The new China ETF from Satrix disturbed my Zen approach. If my philosophy is to invest in all the companies in the world according to their market capitalisation, China should have much larger representation in my portfolio. I never thought about it before, since we had no direct way of investing in that economy. This new ETF changes that and gives me a lot to think about.

In this episode of The Fat Wallet Show, Simon Chuckles Brown and I think about how to factor in the corporate governance risk that comes from investing in China. How do we get the right amount of Chinese exposure without betting the farm?

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Lady Kabelo:

I just got an email about the Satrix MSCI China ETF IPO. 

My interest is piqued because China's growth has been all the rage for years - pre-COVID anyway. I'm sure it will be again. But I have a TFSA strategy that includes the Top40, SA Property Income, and the Global 1200 so I have emerging market exposure. Also, I'm not really an early adopter. I'd probably watch what goes on with this for a while before buying.

What would be a good reason to buy this China-specific ETF? I'm pretty sure I know you and Simon well enough to guess that you would stick with your global 1200. But might there be any merit in buying this?

I broadly understand what an IPO is, mainly from the news on interesting IPO drama like Uber and WeWork. What is the virtue of buying at the IPO stage? For example, is there a discount there that might be worth deviating from your strategy to get good value at a bargain price? I would be afraid of buying this at IPO at an inflated price only for it to sink. Is that a real risk? If so, why do people do it? What is the appeal of this offer supposed to be? Looks to me like the only upside is being first to get it, which seems a weak benefit. 

Win of the week: Herman

In this week’s podcast ‘Spend money to save money’, Andrew mentioned how, whilst poor, he had to be the King of cheap, and paid the price. You made a comment about the poor being pigeon holed into buying cheap, and it costing them. And I agree.

How often has it not been shown that the poor suffer the brunt of recessions, tax hikes, interest rate changes, and inefficient governments much more than the middle class or the rich.

THIS got me thinking: One of the reasons we should take charge of our finances, is to prevent being at the mercy of others. Be it to a horrible boss, or service providers/retailers with nasty products. One of the many ‘luxuries’ afforded to the rich or middle class, is to have a choice in our spending.

Thanks for making me think of this, and playing a role in helping me take charge of my financial situation.

Anet

I own both Naspers and Prosus. Would it not be better to sell and be in cash right now? I know that there is an Income Tax implication, but am more worried about the bigger picture right now. 

Similarly, my gold ETF (NewGold) is doing well due to markets crashing and ZAR weakness but this could all reverse in the next 6 months. 

Alistair

I've been getting all my financial advice from a podcast called howtomoney, which is in American. I wanted a South African perspective and I love your show. I've been binge listening for three days now during Lockdown.

How do you guys feel about the EasyProperties platform?

You can find the Satrix webinar we mention at the top of the show here.

Isn’t it odd how few money conversations centre around mundane financial choices? Surely our net worth is a reflection of the small financial decisions we make every day. A rather typical experience with a contractor has me questioning my decision-making this week. Do I need to think differently about the intersection between price and quality? I asked your help and got some really excellent ideas. Simon and I think through many of them in this week’s episode of The Fat Wallet Show. 

I loved all the feedback we got. Unfortunately my favourite new way of thinking came in after we recorded the show, but here it is:

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Your feedback:

Figure out the average price and look 10-20% above that and compare features/requirements. I usually end up with something on the upper end of mid range, with the reliability of the higher end, but none of the "its the best" tax. Cost per use is the other dominant factor.

— z3llin (@z3llin) June 25, 2020

Oscar: If the price difference is marginal, I'd go for convenience, or for good service, or both. If the price difference is sizable, there is bound to be third party published material where this difference is explained [in detail].

Tamara: Depends on the thing. Some things are worth paying more for because they yield a better experience or last longer than cheap alternatives (e.g. decent tools, leather boots). Other things, I take the best price I can get (e.g. refill on my gas bottle, cat scratching block)...

There's also an element of risk that gets factored in to value equations on some stuff. I'm not going to go hunting for cut-rate medical specialists or the cheapest backyard mechanic. I'll willingly pay more if I believe it translates to better care.

Duke of Prunes: Generally the cheapest thing with the most favourable reviews possible.

Manus: My problem is to figure out if I really do need the thing, if I do need the thing I have to figure out how important the quality is. If quality is important I will overpay if need be.

Overpaying because it is pretty isn’t reason enough to overpay.

Daniel: How much I will be using it will also determine how much Im willing to spend. The more I will use something the more Im willing to pay for better quality versions.

Rudi: If it separates you from the ground, go for quality (shoes, bed, tyres)

Facebook:

Sheila: Depends .. may buy cheapest item, find it is inefficient, and revert to an expensive product. For instance - dishwashing tablets.

Wilhelm: Some brands offer amazing quality products but also at a increased price. If I know the product will last a lifetime, I don’t mind paying extra (Stanley Flasks, LED lenser headlamps).

Greg: I generally go for quality, my big exception is cell phones, in my mind they do the same job, so I just buy the cheaper Chinese brands for cash; I just can't justify shelling out 15k plus for a cellphone.

Wynand: Here I actually differ. I feel I interact with this device for HOURS everyday so I soend money to make that experience a pleasant one.

Shane: in the kitchen i can tell the difference between a R1000 pan and R90 pan. the latter is so wobbly it barely touches the stove. no more skimping on kitchenware for me , no matter what the cost 😉 i skimp on phones (R200 nokia), cars (none)

Andrew: Cost per Use is my go to metric to guide those decisions

When I was poor was the king of cheap for a long time and it didn't work.

But then I started looking at the Cost per use.

Now I am well off- by no means ready to retire. But comfortable- now I try to look for high quality stuff but usually second hand - like GPS watches, Baby stuff - prams, cots etc.

Sometimes on certain products I buy new. 

Down jackets for winter - super expensive when I got them (I have two). But I wear them just about everyday in winter for the last 6 years and they are going to last at least another 6 years or so. My wife will be sick of them - but much better investments than the R300 fleeces and jackets I was buying before almost every year or so.

So a R900 down jacket (price 7 or 8 years ago) over 10 years works out to about R1 a use (90 days a year). If I had bought my regular jackets I would have spent R4000 over the same time period (with inflation) and not been as warm.

Same goes with a good cast iron pan. Knives, I buy good quality and I sharpen them regularly and have a magnetic knife rack.

My grandkids will probably use my knives and cast iron pan.

Max: Certain important items I spend on especially if I know it will last based on experience ie. shoes, tyres, laptop. Other things I'll buy the cheapest I can get. I hate buying the same thing twice 🙈

Win of the week: Jaco and Hester

Been bingeing the Fat Wallet Show for over a year, and it's been a major force in how I think about my money. 

I've even started doing a tiny bit of financial education myself - just around my own sphere of influence :-) Something which struck me hard when starting to take control of my money is exactly this concept: nobody is coming to save me. 

For example, I used to play the lotto and dream fantastical dreams of what I will do with the money. But your podcast and Sam's book (where she makes you add up all your future paychecks) made me realize I'm in this by myself. 

What I can't achieve on my salary alone can not be achieved. And it's made a massive difference to how I spend (or don't spend) my money. I did a small money workshop with my friends last year, and I had to confront them with this concept early on, and see how something shattered behind their eyes - something they didn't even know was there: the deeply rooted belief that "one day I'm gonna be rich - by some magic". I also saw what you've been espousing for a while: when someone is not ready to hear it, nothing I say matters.

Anyway, thanks for a great show, and a great job you guys are doing. You've got a Fattie in me!

A while back my smart and handsome co-host Simon Brown did a presentation about the perfect trade. Even though I don’t trade myself, I found the presentation inspiring. As we often advocate, when it comes to this money business it’s best to focus only on what you can control.

A conversation with Cash Club writer Njabulo Nsibande made me realise we can apply the idea of a perfect trade to our investments too. As Simon and I flesh out that idea in this podcast, we realise you can aim for a perfect month in your own finances, regardless of what you’re currently focusing on. 

Here’s the template for the perfect money month we came up with:

1. The first money that leaves your account after every pay cheque goes towards your future.
2. Look at your money: A broad overview of your whole portfolio, as well as your individual expenses every month. 
3. Don’t use the money you set aside.

Every month you do all three of these things is a perfect month. Your challenge is to see how many months you can get in a row. Who’s game?

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Win of the week: Linka

I found "Just one lap podcasts" via Stealthy's blog where I ended up after not agreeing with a financial adviser about an investment strategy and deciding if other people can understand this stuff, I can too. 

Vigorous amounts of googling and reading showed that as I guessed, none of this stuff is rocket science, its just the way that the information is presented that precludes the general public from accessing it. Thanks for all you and Simon's contribution to unraveling the unnecessary verbose complexity the industry uses. In short, just want to say, I really enjoy the podcasts. Have started to listen to the JSE direct one as well and surprisingly, I can understand most of it!

I recently started working for myself and registered a company. Mainly to enable future tax deductions and to keep company and personal equity separate. 

I opened a business account with FNB. At the time it made sense to me since I was already with them. I wanted a 7 days fixed deposit account to stash the incoming payments to keep this money from being lazy money.

However - After looking at the bank fees for the gold account (personal) + business account I am starting to dislike the numbers. Also the extra charges I missed somewhere in the fine print is really starting to annoy me.

If I don’t need to have a business account, I can open two accounts at Capitec, which would probably be much cheaper. If this is not contrary to SARS' requirements - Capitec does not do business accounts yet.

While being employed I was able to cover my bank charges with Ebucks, but with an irregular income, I doubt whether I will be able to maintain that level.

Brendon

My wife and I purchase the Ashburton World Government Bond ETF.

The initial thinking was simply to get exposure to bonds. But I've been trying to figure out if we should rather purchase SA retail bonds instead of a bond ETF.

Could you go through some differences and pros and cons of SA retail bonds versus bond ETFs.

I understand that retail bonds provide you with a fixed interest rate (coupon), but I'm interested to know in what situations you would purchase one over the other.

Marina

We recently had a baby and decided to start saving for her immediately. The purpose of saving is mainly for her tertiary education. 

We decided to go 50/50 into Discretionary and her TFSA. She can choose where to draw the money from when she starts University. It will be a good learning opportunity for her. 

For the discretionary investment we want to do cash. FNB has a “my first savings” product at 5.75% interest and no monthly or transactional fees. However, our broker also pays interest on money not invested at a rate of around 6%, but Simons says it is illegal to do this. Why is it illegal?

Can I invest the money into a cash ETF with similar returns? The main concern is whether she will be paying tax (in any form) as a minor. If the money was invested into a money market she would only need to pay tax on interest received when she starts earning and declaring an income. Would she be paying tax on interest received as a minor inside a cash ETF without a means to claim it back? And if she sells off the ETF would she be paying capital gains (even if it is a cash ETF)?

Gregg 

When you draw up your will, include a clause that if your children or spouse are to receive your inheritance, it cannot be taken by their respective spouses (in your children’s case) and your wife’s new spouse should she remarry. 

You spoke of a separate will to manage your offshore assets. I have a US Equities Portfolio through EasyEquities. Would this qualify as offshore assets and require a separate will?

You spoke of a life policy paid directly to my estate and/or directly to my beneficiaries. And that one should have a policy that takes care of the debt, duties, taxes and executor/legal fees in your estate.

If I owe 500 000 on my house when I die, and my wife (not the estate) receives a life policy for 700 000. Is the estate going to sell/liquidate my assets in order to pay the 500 000 on the bond, or can my wife pay the 500 000 into the estate to settle the bond? 

I’m trying to figure out if I need a separate life policy made out to the estate as beneficiary to cater for the debt in the estate? I don’t want the estate to sell the assets to pay off the estate debt if I have left my wife sufficient funds to settle any debts.

If I don’t pay estate duties etc. on an estate less than R3M, does it mean if my estate is worth R3,1M, will I pay estate duty on the full R3,1M or only on the portion over and above the R3M limit, in this example 100k?

If I own a second property, can I specify in my will that said property is not to be part of my estate but is ceded directly to my beneficiaries? If I wanted it not to form part of my estate, what would I need to do?

When you buy a locally-listed ETF based in another currency, two transactions happen in the background. First, your rands are converted to the other currency. The new currency is then used to buy the ETF units. Buying an ETF based in a different currency is therefore an easy way to introduce currency diversification into your portfolio. 

In this episode we help you understand the impact of these two transactions on your portfolio when there’s currency movement. If, for example, you bought a dollar-based ETF and the rand weakens against the dollar, do you have more money or less money?

We explore hedging and why this strategy might be seen as a currency hedge. If you’re looking at offshore ETFs for your portfolio, you don’t want to miss this episode.

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Tony 

If you invest in an ETF like the SP500, does this give you protection against the value of the rand? Does the value of the ETF adjust along with the value of the rand?

If yes, how does this process work? Are there any dollar based ETFs in SA that can be used in a tax free account?

Win of the week: Boitomelo

Thank you so much for your good content that has allowed most of us to make life-changing financial decisions. I cannot thank you enough. 

Are you guys not able to have a Patreon account where those who wish to contribute to your content can do so? 

Carel 

I guess it goes without saying that any negative credit events would be tied to each of our names. If we get the bond in our own names, we (and not the business) would own the property.

If we try to have the business receive the rent as income on a property we own in our own names (if such a thing is in any way even possible), SARS could see this as some kind of attempt at tax evasion? As I mentioned before - only completely above-board practices would suffice. 

If we purchase the property in our own names, we could each be held fully liable for the full amount, then it would be up to the person held liable to take the other to court to recoup the balance.

Brendan

If I were to start now, with mayhem in the market, are ETFs cheaper / a great price right now, or is there anticipation of an even bigger dip, creating even better buying power?

I’m specifically looking at Satrix MSCI / Top 40, Asburton Global 1200 and Sygnia MSCI World.

To confuse the question even more, is there some kind of daily / weekly 'tracking number’ - to gauge if ETFs are getting more affordable?

Gerhard

I discovered dividends aren’t taxed at all when shares are held in a company. However, capital gains tax is 28% on 80% of your capital gains, which is quite high. 

I have a small company from which I pay myself a salary. From time to time I have a bit of extra money in this company.

I’ve been buying ETFs in the company: 40% local equity (Coreshares top 50), 40% world equity (MSCI World); 10% Global property and 10% local property.

This was before I knew about the free dividends. Now I’m thinking I should buy whatever pays the highest possible dividend - without undue capital risk and definitely not property because the distributions are taxed as income.

In my mind, I should probably be buying the: PREFTRAX

Do you think I should sell the above ETFs and move it all over to PrefTrax or whatever else might be better? 

Jarrett

I am 31 and based in Kuwait, which offers great earning and saving potential. 

How do I best use this money? My first investment was in property back in South Africa, which is paying for itself. I was looking to invest in a second property this year. However, some friends in the finance game suggested this was not such a great idea. They recommended I diversify investments and look into ETFs specifically.

1. Would you suggest trying to open up an account with an international broker, such as interactive brokers, or rather stay with a South African-based company? I have bank accounts in both SA and Kuwait, does that have any impact? 
2. I have a fair amount of money saved up, just sitting there (I know, not great). Honestly, I don't really have the knowledge to know what to do with it. Apart from ETFs, what other options should I be looking at? 

Ben

Like you, I’ve been investing in the Ashburton 1200. With the rand weakening quite a bit in the last while, and the S&P not really weakening that much, I was wondering if there might be other investment opportunities that are more opportunistic? 

If my thinking is correct, a stronger rand or weakening economy is good for buying (with potentially more growth), but it feels like buying 1200 now is a bit meh because the rand should strengthen and the 1200’s price will go up, which would leave me not really winning. 

Hans

The fund tracks the S&P South Africa Composite Property Capped index, which is described as tracking all funds in the S&P South Africa Composite index that are classed as property.  This means that if one REIT in this fund goes bust, there’s nothing replacing it.

What happens to the fund?  Does the NAV drop and the fund price drop accordingly?  Do the investors just eat the loss?

Jonathan

I have an under-performing unit trust which has only gained 3.7% after fees with momentum since 2012 before the crash. It's now -12%. It's not my RA, but it's invested into a lot of RA-like products ie. only 30% international equity.

Conversely, I have an EE account with SYG500. Before the crash it was returning 7-8%, including currency movement. Its maximum before the crash was 12% but it's currently -10%. (This was on 24 March. 23 March was the bottom for the SP500).

I'm currently 36 so I can deal with the volatility. I would like to increase my offshore exposure. I already have a fairly-sized RA to give me more than enough local or EM exposure.

During this downturn, should one consider accepting losses in loss-making accounts, sell and transfer them to another account that has future growth prospects far healthier? In other words, move from balanced funds to ETFs? From expensive 2.4% to cheaper 0.2%?

I’ll take a heavy hit at -12% on momentum, but the pros are that I buy SYG500 at -10% and pay less CGT on selling the momentum as well. Plus of course, I pay less ongoing fees (2.5% versus 0.9%).

Stiaan

I’ve been investing in a tax free savings account the past three years at Investec (managed by Anchor Capital). The growth was extremely low! After listening to your show I wanted to move that TFSA to ETFs. 

I made the move in January, but struggled a lot with moving the money. It transferred in the beginning of March just before the crash. I see this as a great opportunity to buy. I moved the money to the Satrix platform and I am curious what would be the best ETFs to buy at this time?

My other investments include:

* A retirement annuity with Alan Gray

* A property I rent out (financed with a home loan)

Jessica wants to know how Patrick managed to invest in the Vanguard World ETF.

Tafadzwa

I finally started investing in US ETFs on the 9th of March 2020, just as the bottom was falling out of global markets. I was tempted to wait for a further drop but later decided that it's a fool's game. 

Like you guys said, the moment when you place your first buy order was scary. Having a couple of demo accounts in the past few months helped a lot. 

I plan on investing in:

• Vanguard Dividend Appreciation ETF VIG 20%, 
• Vanguard Growth ETF VUG 30%, 
• Vanguard Information Technology ETF VGT 30%, 
• Prime Mobile Payments ETF IPAY 8%, 
• VanEck Vectors Semiconductors ETF SMH 8%, and 
• iShares MSCI Real Estate Index ETF FREL 4%. 

I started with VIG 20%, VUG 30%,VGT 40%, and IPAY 10%. 

I am aware of the overlap and concentration risk between some of the ETFs and can live with that. It's great investing with TD Ameritrade because ETF trades have zero commission!

I’ve been thinking about complexity vs simplicity vs chasing returns. Is this portfolio too complex? Is it still truly a passive strategy or am I making active decisions in a passive space? 

I have also been considering having this core of ETFs complemented by single stocks capped at 20% of total portfolio value. I have about 10 single stocks in my watch list which I really like but am hesitant to take the plunge. I have the stocks already in my ETFs in small percentages but would like more exposure to them. This would make my portfolio a strange mix of passive and active, which would require me to rewrite my initial financial plan. 

What do you guys think? Is investing in single stocks evil? I am considering breaking the rules and trying to beat the market, but from a foundation of ETFs. 

Under normal circumstances we would strongly caution against withdrawing from your pension fund. The reason is quite simple: the tax will make your eyes water. One decision can slash your hard-earned net worth by hundreds of thousands of rands. That’s not even factoring for opportunity cost.

However, since we’re currently living through the apocalypse, we might have to soften our stance on this. Some members of the financial services industry are lobbying for access to pension funds during this crisis. If you’re no longer able to earn an income, you might have to make a smart decision about this. 

In this week’s episode, we give you a sense of the different factors you have to consider before withdrawing from your pension fund. Naturally, we start with tax. We also consider the opportunity cost of the withdrawal, as well as the opportunity cost of taking on debt instead of withdrawing. 

We also spend some time making sense of the benefits of share incentive schemes.

At the beginning of the episode, we mention emergency loans. These are the conditions you have to meet to qualify, and these are credit providers registered with the National Credit Regulator.

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Clara

I am currently in my notice month. I’ve worked in local government for 13 years. I'm quite in a spin as to whether I should cash out my pension before 55, leave it or move to a provident fund. 

After long deliberation and getting some financial advice, I have decided to take the plunge and withdraw the cash, pay the tax, cut my losses and move on.  

Firstly I wanted to ensure that my pension will not be used to fund our government-owned companies, the possibility of junk status, the weakening rand after junk status and the management /administration fees that will be due to my portfolio manager for my provident fund if I choose to go that route. 

I wanted to "do the right thing" - to give my 30days notice as required by employment act, but this honorable decision has bitten me in the back and I have lost R200,000 in my pension fund in the last 30 days. 

I don't want to make hasty decisions in ‘’panic mode’’ and withdraw as quickly as possible. The withdrawal will only happen in 2 -3 weeks, so I’ll lose much more, pay taxes on the little I have left after our market dropped. 

At this stage I am thinking of not withdrawing the funds, moving it to a provident fund, letting it recover as much as it can for a year or so, monitor the Rand/CAD$ exchange rate and take it from there.

But I’m afraid all the current negative elements such as junk status etc will have a much more negative impact. 

If I pay my pension fund into a provident fund it will still be affected by the markets, but maybe it will recover a bit before withdrawing the funds.

I don’t need the funds and thought to put it in a pension fund in Canada.

Although I am aware that all markets are affected, growth will probably not be better in Canada.

Win of the week: Kerry

Also Serena

You can do a transfer of the units held in your Allan Gray fund to an Allan Gray fund held on the  Sygnia platform. Sygnia offers a number of Allan Gray Funds on their alchemy platform. 

I did a section 14 transfer in September 2019 of the units held in my Allan Gray Balanced fund. Allan Gray need to convert it from a Class A to a Class C first before transfer. 

I did this for two reasons . I held this balanced fund in Allan Gray for over 15 years and did not want to lock in lack of performance of the last five years. I was also concerned about the volatility of the market during the time of the transfer process.

Over the following 7 months, I’ve switched out of the Allan Gray Balanced fund on the Sygnia platform when the price was appropriate. I switched into a combination of ETFs and the Skeleton 70 fund, according to my Long term Asset allocation strategy. Now everything has gone to hell in a basket, but at least I am in the passive ETFs and a fund I want to be in for the next at least 10 years at a fraction of the cost .

With regard to interest earned on cash kept in overseas brokerage accounts: I have a Degiro brokerage account and they don't hold the cash themselves. Euros are held in a Morgan Stanley money market fund and the interest rate is -0.54%. 

Gary 

I'm in my early 40s. Until two years ago I was a financial newbie. I made all the classic big mistakes. High fees, head in the ground investing.

Between your podcast and Sam Beckbessinger's book I'm busy with a big turn-around. I moved everything to broad low fee ETFs, maxing RA and TFSA, I am aiming for a 50% save/investing rate.

My question is on a potential TFSA hack : Putting the full R500K lifetime limit into your TFSA in one go, and accepting the 40% tax hit from SARS.

I have a medical condition that will only allow me to work for another 10 years. I was thinking this would be a great way to max out my TFSA and give it the longest amount of time to grow. 

Jon

From 1966 for 25 years, the SP500 was ultimately flat. 

From 1954 for 28 years, the SP500 was also flat.

From 1969 for just over 10 years, the SP500 lost almost 2rds of its value.

From 1929, over about 20 years, the SP500 lost about 2/3rds of its value.

These are long enough periods that it brings into question how risky a long term equity investment actually is.

I am diversified across regions, but it would be really interesting to hear you guys really engage with this on the pod. The black and white rules about average gains over long periods aren't really bulletproof.

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!

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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.

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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:

1. #46: Five concepts that will make you rich
2. FIRE at any age (#156)
3. How to set portfolio up for financial freedom (#144)
4. #58: How to structure your pay cheque
5. Keeping your living expenses low (#166)

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!

 

 

 

 

 

 

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200 Fat Wallets! This is also the longest we’ve gone without seeing each other in five years. Today was a Good Day. #thefatwalletshow #justonelap #bubblesandchuckles

A post shared by Kristia Van Heerden (@fatwalletkris) on May 14, 2020 at 5:58am PDT

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?

1. Is buying a property worth it for me and paying off the bond?
2. Would it be better to invest money in funds that take advantage of compound interest?
3. What other investment vehicles can l use that will be beneficial in the long run? I am single and do not have any kids. l’d like to make great financial decisions now and set the foundation for when I have a family.
4. I have tried to really reduce my expenses and it’s still work in progress to get to only the basics. My car is probably my worst purchase, I did not need it and now I have to pay it off. Other than that I have refrained from making any other large purchases.

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.

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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.

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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.

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.