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

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

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

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Pieter

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

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

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

Celma

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

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

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

Henk

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

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

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

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

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

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

Win of the week: Nomusa

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

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

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

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

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

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

I have these reward programs

-Ucount

-Freshstop

-Clicks

-PnP smart shopper

-My School days

-ThankU

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

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

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

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

Guillym 

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

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

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

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

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

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

Joy

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

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

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

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

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

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

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

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

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

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Win of the week: Jennifer

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

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

Lady Kabelo

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

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

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

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

Miles

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

What happens to the dividends?

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

Hendrik

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

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

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

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

Michael

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

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

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

Christian

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

The transaction breakdown is as follows:

• SYGWD Foreign Dividend 
• Foreign Dividend Tax

And then the weird one:

• SYGWD - Port Costs

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

Bradley

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

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

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

It’s a nutty time to be alive, isn’t it? A market crash is bad enough. Adding a national lockdown to the mix is bound to provoke some anxiety. Our strategy in this time is not dissimilar from our usual strategy: focus on what you can control. 

To that end, our podcast this week is the first of three money challenges. We are starting with wills and estates and then moving on to short-term and long-term insurance. We all know what a drag it is to wade through the fine print of these documents when there are more exciting things to do. Unluckily for the insurance industry, we are all now confined to our homes with nothing but time on our hands. We might as well save some money in the process. 

We also think this is a fine time to speak to your family members about your will and segue to money in general. If you’ve been wondering how to broach the topic, the madness in the world has solved this problem for you. 

We’ll be doing some live video interviews with members of the Just One Lap community over the next three weeks to get you through the lockdown. These will be broadcast live on our Fat Wallet Community Group. If you’re not a member yet, now’s the time.

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Win of the week: Cyril Ramaphosa for being epic at his job.

Today we’re only going to deal with your estate and your insurance. 

Will and Estate

• Review your will and make sure it’s still relevant to your life.
• Make a spreadsheet of documents and passwords your family need to have if something happens to you. 
• When you die, normally everything goes to your spouse. There’s no taxes payable if that happens. 
• If you don’t have a spouse, estate duty is 20%, and you have to pay and executor’s fee. Sometimes, to pay this, they have to liquidate some of your assets. If you don’t want this to happen, you can look at a baby life insurance policy that pays out to your estate to cover these fees and the cost of your funeral. Think about whether you want to do that.

Insurance:

• Short-term
  • Start a spreadsheet of all the insurance policies you have, including what is covered, your excesses, as well as when the policy was taken out. You can use this as a starting point every year when you renegotiate your insurance.
  • Check what is covered and ensure that you have proof of ownership for specified items. Make a list of things you no longer have or can self-insure. 
  • Create a spreadsheet of previous claims, including dates and settlement amounts. When you lodge a claim or take out new cover, you have to disclose this as it affects your premiums. If you claim and they find out there’s something you haven’t declared, they can reject your claim on that basis. This is going to save you a lot of time in the future. 
• Long-term
  • Look at the terms of your dread disease and disability cover. You can decide if you want to reduce cover because your asset base can take care of you if something should happen, or increase cover if your family situation has changed.
  • Make a spreadsheet of the terms of your cover in terms that you can understand. You don’t want to be wading through an insurance document if you should need this.
  • See if you’re covered if you can’t work because you contracted corona.
  • Make sure that you are covered for your own occupation, not own or similar.
  • If you have life insurance, make sure you still need it. Be careful of hanging on to these policies just because you contributed a lot to them over the years.
  • Similarly, if you don’t have life insurance but you have dependents, make sure they are covered if you pass away. Life insurance pays out directly to the beneficiaries in cash. These policies don’t form part of the estate and aren’t taxed. To know how much you need, look at what your dependents would need to survive for about a year until your estate wraps up and cover any shortfall you might have in your current circumstances.

Mike has decided to go for five regional ETFs instead of one world-wide ETF in his portfolio.

He buys Sygnia S&P 500, Sygnia FTSE100, Sygnia Eurostoxx 50, Sygnia Japan, Satrix Emerging Markets. 

He’s comparing his 5 ETF strategy to the single, global ETF strategy across seven areas: Currency spread, dividends, emerging market access, regional exposure, sector exposure, rebalancing and TER.

Currency spread: 

Regional Amounts other than USD are first converted to USD for the underlying index and then converted again to ZAR for the Tracking index.Do we lose twice on currency spread every time we buy, sell or receive distributions?

Dividends

Sygnia MSCI World Gross Dividend

Yield = 1.11%

Ashburton 12 Gross Dividend yield =

1.51%

JP + US + UK + EU Average Gross

Dividend Yield = 1.81%

(I didn't include Emerging Markets  (Satrix automatically re-invest)

Emerging market access

Since he’s buying the EM ETF, he can control how much exposure he has.

Regional exposure

+-60% of the global index is exposed to US (which also has the highest foreign

dividend witholding tax of 30% compared to Japan/Britain 20%, Europe 26%). 

Sector exposure

World: Heavily exposed to IT 

Japan's no.1 exposure is to Industrials. FTSE, EUROSTOXX and Emerging Markets no 1 Exposure is Financials. Energy is also no.2 on the FTSE but is only no.7 on the MSCI World.

Rebalancing

World: Done every +-3 months. When you top up account you are topping up both the winners and the losers of all regions

Done every +-3 months though you have the opportunity to top up only the regions doing the worst

TER

Low TER of 0.35% (Satrix MSCI)

Low TER of 0.45% (Ashburton 1200)

Average TER is high at 0.63%.

It’s looking rather scary considering EU & Uk’s big drop! Portfolio is 16.83% down.  

I can still contribute R27k for this year (R36k limit) so was thinking of doing +-R6k per month until limit is used up and sticking to strategy as I don’t know if it has already or when it will bottom out.

I do like the idea of Dividend paying ETFs within a TFSA. Once I have reached my lifetime limit I can still use the dividends to purchase new shares without having to sell my current shares. I’m sure better/cheaper ETFs will come out in the future. I also then won’t be forced to sell shares (and pay more fees) should I wish to take a small drawdown in retirement. I can just withdraw the dividends.

Many of us are witnessing a stock market crash for the first time. Like most of you, I’m experiencing a heady mix of excitement and terror. I’m so glad watching my portfolio no longer feels like watching paint dry. Instead, it feels like being dropped off a very high building. It’s not great, but at least it’s not boring.

This week we address nothing but crash questions. Drawing on some of the concerns of The Fat Wallet Community Group, we provide some guidance to get you through this process with your net worth protected. 

If you’ve been wondering what you should be doing right now, you’ve come to the right place.

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Bronwyn

I know that TFSA are supposed to be long term investments but I cant wonder if it's not right at the time.

I started one with FNB 2 months ago, last year one was with Allan Grey and it did badly so wanted to test a different one plus it helped with the ebucks.

Anyway I lost close to R500 in 2 months.

My children have cash TFSA and it's growing steadily.

What do I do?

I cannot afford to lose R500 in 2 months? Can one pause it?

I know the markets are volatile but I assume they will be getting worse still.

Danielle:

What are great and safe buys while markets are cheap? I’ve been watching  the prices hoping to buy low. Any suggestions?

Jacques:

Any views on buying government bonds?

Enesh:

FNB has just taken R3000 out of my share investor account. No record of it in transactions. They state this is a precaution given the volatility of the market. Is this legal? There absolutely not record of the transaction besides the email sent to me. I don’t this is kosher. Any advice?

Sizwe:

Hi everyone, seeing some opportunities for buying. Am seriously considering 75% of my emergency fund to buy more etfs. Note sure of the risk though. What are your thoughts?

Minnaar:

I would love to “buy the dip” now, but the rand weakening has me worried. Those of you who are buying now, what ETFs are you going for?

K: 

I just want to enquire on the market share or stock marketing shares...

How do you buy shares of a certain public company

And where do i start?

Shaun:

I have my full TFSA allocation for the year ready to invest. Do I spend it all on ETFs now as they are on discount or does the math say rand cost average it out because the market may go lower?

Sarit: 

If we buy our favorite global ETF at a dip, R42 and 16.6 ZAR/USD.

Then the ETF goes up but at the same time the ZAR usually strengthens...

Is it the opposite movement nullifying each other at exactly the same rate?

It seems that the crash always comes with a weaker ZAR, if we are buying at a dip are we really making money when markets go up but ZAR strengthen?

Runyararo

In a crisis like we have there is no well diversified portfolio because systematic risk cannot be diversified away.

The Shamases

The money still sits with us because something has now occurred to us that we hadn't considered before.

We were going to just open a brokerage account and let time do its magic. But what if we make a poor selection when putting together a basket of ETFs? If we get a retirement annuity or a managed tax free fund, that concern is removed from us. However it would come with the expense of fees, which eat into growth.

How do we select between managed and unmanaged? And how do we select a good basket?

While the rest of the world is getting in supermarket fights over toilet paper, life at Just One Lap carries on. Lesego, who is only 24, is ready to start their investment journey. This week we hold their hand through their first tax-free purchase. We explain what tax-free accounts are, what ETFs are and why we like to go for a diverse, global investment. 

If the investment world is new to you, you don’t want to miss this episode. The video below is a deep-dive into tax-free investments, presented by Chuckles himself. 

If you’re buying ETFs at the moment, enjoy the sale.

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Win of the week: Lesego

I am completely clueless regarding tax free savings accounts.

I went onto the easy equities app but I have no idea which ETF so even select or how everything actually works because I would like to invest before the end of the financial year.

I listened to the podcast and they mentioned it won’t be enough having just a tax free account so I would like to open a retirement annuity fund as well but have no cooking clue how to even delete a company for that.

Jaco 

Let's assume you are 35, earning R240,000 and have R33,000 pa to contribute to a TFSA or RA.

Assuming fees and growth are the same, there’s no difference between the two, since both funds grow tax-free until withdrawal. 

If you reinvest the tax saving from the RA back into the RA, the RA value will naturally be higher at the end of the term due to the additional contributions. The higher amount will give you a bigger savings pot to draw an income from. 

Is the higher savings amount available at retirement offset by the income tax payable in retirement on income?

You need to look at the tax saving on the contributions and the tax payable on the income.

Tax saving on contributions:

A 35-year-old earning R240 000 pa will have a marginal tax rate of 26%. The tax saving/deduction on the R33 000 contribution is R8 580 (tax saving = contribution*marginal tax rate). The tax saving is 26%, which is equal to the marginal tax rate of 26%. So on contributions, your return on the saving of R33 000 is R8 580 (26%)

 Income tax payable:

At retirement age 60, if you keep your income at R240 000, your marginal tax rate will still be 26%. But the tax you pay on your retirement income will be taxed at your effective tax rate. A marginal tax rate of 26% is equal to an effective tax rate of 13.55% (the rate at which you pay tax). The effective tax rate is lower than the marginal tax rate due to the rebates and sliding tax scales. So the "cost" on your retirement income of R240 000 is R32 512 or 13.55% (R32 512/R240000).

Based on the above, the tax saving on RA contributions is 26% or R41 580 (R33000+R8 580), and the tax payable on retirement income is 13.55% or R32 512. Because the tax saving is > the tax payable, contributing to an RA is net-net positive.

I recommend if your marginal tax rate is above the tax-free threshold, and you are happy with Regulation 28 to first contribute to an RA. 

The higher your marginal tax rate, the bigger the tax-saving, the bigger the benefit of contributing to an RA. If you have liquidity problems, earning an income below the tax-free threshold or want to increase your offshore/equity exposure, the TFSA is the better option.

Joshua 

What is the practical difference in taking money offshore using Interactive Brokers vs using EasyEquities USD Platform? 

Do you suggest opening an offshore bank account and is this possible? The issue with the local banks offerings, for example FNB’s linked Global account, is that interest is only earned at around 0.5%.

Ollie

In episode #178 you considered the options for a listener who was planning to move to the Netherlands. One of the options canvassed was the potential of leaving money in a TFSA in the event of a market decline prior to emigration. 

One element of this approach not considered, is that the overseas jurisdiction may consider the account taxable, meaning that the tax-free benefit of saving through a TFSA will be negated from the moment that the person migrates to the new jurisdiction. This varies on a country by country basis but should probably be considered by anyone before planning on leaving money in a South African investment vehicle whilst living abroad. 

Innes 

Since I am a little risk averse given how high developed markets are - I decided to buy some of this NFGovi ETF in my TFSA (about 25%) to give it some more diversification and less risk (and to hopefully receive a better return than cash/interest due to it being linked to bonds).

However, looking at the price graph over the last 6 months - the return has been the flattest thing I’ve ever seen. And the 5 year historical return looked so promising and consistent when I was deciding to invest! I thought that bonds (and bond ETFs) were supposed to be “more certain/safer” than equities and have a better return than cash.

Why do you think the return for the govi has been so flat of late? Do you think this would continue to be flat if SA is downgraded to junk status?

I know you referred to the Ashburton 1200 as one of your favourite ETFs - would there be a certain bond or bond etf you would recommend and why? Are bonds or bond ETFs maybe a waste of time given their low (and not so certain) returns? Maybe I should be buying bonds and not bond ETFs? What platform would you recommend using to buy bonds? (If you would recommend them at all).

Hugo 

I love the innovation behind the product, one which will hopefully create a revolution in the investment domain.

I am a bit underwhelmed though with the fee structure of the product during the initial build-up phase of the portfolio.

There are current providers who can offer RAs with fees less than 1.5%, (10X and Sygnia come to mind) from the first rand invested.

Sygnia does there Skeleton 70 product for example at 0.55% all in.

Why not invest with a cheaper provider until you reach an amount where Outvest become cheaper, then make the switch?

For example:

R1 – R 818 000 at Sygnia = 0.55% / annum

R818 000 @ 0.55% = R4500 (Outvest cap)

R 818 000 to infinity at Outvest = 0.55% (decreasing to 0.2%)

We have to assume that the funds invested in are of course all the same – and I think we can argue that Reg28 investments, whether aggressive or moderate or low risk, will all more or less perform the same.

Am I missing something?

Eleanore 

I would like to transfer my RA from Allan Gray to Sygnia. Both Ag & Sygnia's forms ask about a unit transfer. I'm not sure what to select. Assuming a unit transfer is possible in this case (for a transfer from AG Balanced Fund to Sygnia Skeleton Balanced 70 Fund), should I select this? Which is best, a cash or unit transfer? I don't want to make a mistake and diminish my Retirement savings at this point due to a transfer mishap.

Robin

I received an Insurance payout which I have placed in an Investec Fixed deposit, drawing a compound interest of around 7.5%. 

We’ve bought two apartments off-plan in Cape Town, which will only be ready for handover towards the end of 2022. I’ve made upfront payments of 25% and 50% respectively on the apartments. These funds are sitting in the Conveyancers Trust Account drawing a 7.8% compounded interest per year. I am unable to touch this. 

Would it be better to move the money that is sitting in my Investec account into one ETF or a group of ETFs for three years. Or should I hold these funds where they are at the moment? 

My feeling was to keep it in a secure environment so I will be in a position to pay off the properties completely, and then draw rental income. 

However, the income derived from the Investec investment will be taxable, which will be lumped together with my other SA rental based income. Together the total income will be around R320K for the year. 

Should I put the R320K into my RA? When the time comes to settle the payment on the apartments at the end of 2022 I’ll draw from my Unit Trust Investment to settle the difference, or repatriate funds from my overseas investment. If I keep it in the Investec fixed deposit I will end up paying around R63,853.00 in tax.

One of your listeners from China (Podcast #169) was inquiring about where he can invest using Euros or USD. As an expat I use Internaxx - based in Luxembourg - https://en.internaxx.com  where I buy my international ETFs and stocks. I trust this will help your listener (sorry I don't recall his name I was listening while walking).

Steven noticed we prefer ETFs to unit trusts and wants to know why. 

Eugene is keen on opening a TFSA for his spouse. He’s not keen on using EE, so he wants to know who else we can recommend. 

We’re not prone to panic, but at this point staying calm requires a level of stoicism we haven’t quite mastered. You may have forgotten this in the diseased fog of the Coronavirus, but a mere two months ago it seemed as though the US was going to war with Iran. 

Part of what makes it so hard to keep calm is that the rest of the world is in a flat panic. When even the Federal Reserve starts behaving erratically, you may be forgiven for wanting to turn your ETFs into Kruger Rands*. 

In this week’s episode, Simon and I discuss some of the fallouts we’re seeing in world markets and in our portfolios. We try to understand some of the more alarming news headlines, explain why the US rate cut is by no means a good sign and talk through some of what we can expect as local investors. 

If you take one thing from this episode, I hope it’s this: wash your hands!

*Don’t do that.

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Win of the week: Ursula 

Transferring my Liberty RA to Sygnia, I stumbled across the 'Sygnia Life Berkshire Hathaway Fund' on their website. What are your thoughts on this product? It is touted as a 'linked Life Endowment Policy' that invests 100% in BRK shares. While not being targeted at 'major offshore players who are already set up to trade independently and can easily buy BRK’s Class A or B shares. Rather, the SLBF has been designed to offer a hassle-free option to invest offshore with Buffett without the complexity'. I phoned Sygnia in the hopes of getting some more information with regards to the TIC etc. but was informed that because the fund is so new, this information is not yet available. 

I am at the point where I would like to start investing in addition to the funds currently directed my TFSA and my RA and was curious about this. Why would one opt for an investment like this as opposed to directly investing in Berkshire Hathaway and what benefits, if any, does a Life Endowment have?

Barry

I was sent a video that basically states that the US is bankrupt and has two options.

1. The US government stops influencing the market and allows the business model to play out, the effect of which they compared to a 1930’s type depression. Take the pain in one big hit.
2. The US government allows massive inflation, bypasses the banking system (which provides loans), and provides an MMT style (I had to google that) of providing “helicopter” money to consumers and maintaining debt demand, resulting in rising inflation or hyperinflation as more money chases limited goods and services.

 It certainly seems logical that this could happen from a layman’s perspective. If you spend more than you earn for long enough, you end up in a world of trouble.

Is this just some more scaremongering or possibly some realism in there?

Secondly, if either of the above scenarios were to play out and one was invested in a ‘buy-for-life’ Total World ETF like the Vanguard VWRD or even the Ashburton 1200 or MSCI World, what would the effect of either of these scenarios playing out be on the ETF?

Currently the US market cap is weighted at about 55% of the ETF, if the this scenario were to play out and the US market-cap dropped as they rebalanced, would the ETF over a period of time rebalance accordingly too, chuck out the US holdings and increase those from other geographical regions as the non-US regions capitalized on the market-cap that the US had lost? So, a (relatively, a few years) short-term drop-in ETF unit price followed by a gradual recovery again? Similar to how Steinhoff is/ has been worked out of the Top 40 by the ETF?

What would the effect be on the value of the USD?

Javid

I have recently come across your gem of a podcast and have been trawling through as many of your previous podcasts as possible.

My question is:

• With tensions amongst the US and Iran at an all time high it seems imminent that it may escalate into another protracted war that could even turn nuclear. With this in mind what preparations should South African investors embark on to protect/rebalance our financial assets in the interim as this plays out. Some of my thoughts:

- If you’re holding onto ZAR cash should this be rather converted to USD or Gold which could be seen as a safe haven (bearing in mind the US could enter hyperinflation as they print more USD to fund another war).

- I suspect Oil in the region would surge, holding an oil index in the interim?

- Are there any stocks to consider - perhaps in the defence industry?

- I guess one could also have a list of fundamentally sound stocks on a watchlist and purchase them when they are a deep discount?

Boy, did AJ open a can of worms this week! We fall down a preservation fund rabbit hole that’s perhaps long overdue. Here are some of the key things you should know. 

When you leave a company’s pension or provident fund because you leave the company, you have three options when transferring those funds:

1. You can move it to your new company’s pension or provident fund.
2. You can buy a retirement annuity (RA) in your private capacity.
3. You can put that money into a pension preservation or provident preservation fund.

Both pension and provident funds are Regulation 28-compliant products offered by employers. They differ in one important way: with a provident fund, you can withdraw the full amount in cash at retirement. If you hold a pension fund at retirement, you can only withdraw one-third in cash. The rest has to be reinvested in a living or life annuity. 

A pension preservation or provident preservation fund is designed to hold on to the money you saved when you were employed with your company. It’s also a Regulation 28-compliant product, but once you move your retirement money into a preservation fund, you can no longer contribute to that fund. 

If you have a pension preservation fund and your new company has a pension fund, you can move that preservation fund to your new company’s pension fund. If you have a provident preservation fund and your new company has a provident fund, you can move your preservation fund to your new company. 

All this complicated moving around of money makes one wonder why you wouldn’t just transfer your money into a retirement annuity (RA), right? 

It turns out, by law you can make one full or partial withdrawal from your preservation fund before retirement. The first R25,000 is tax-free. After that you are taxed according to the table below. 

At this point you might be wondering why AJ is under the impression that his first R500,000 would be tax-free when he is retrenched.

In this idea he is right and wrong. If he got a new job, contributed to his new employer’s pension or provident fund and got retrenched, he would be able to retire out of the new fund upon retrenchment using the R500,000 tax-free withdrawal he would have received upon retirement. 

He can only withdraw from the fund to which he was contributing with his new employer, so if he didn’t transfer his preservation fund to his new employer, he’d be taxed on that withdrawal. The other snag is that it affects the tax-free amount he can take upon retirement. If he withdrew R100,000 tax-free upon retrenchment, he’d only have R400,000 tax-free money left when he retired.

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Win of the week: Alexis

When you financially emigrate SARS makes you pay CGT on all your investments worldwide as if you had sold them on that day. Ok, fine, but I haven't actually sold them, and one day, when living in my new country I will want to sell them. 

But then the new country is going to want tax on the profits, presumably calculated from the actual base cost. I'm not sure how to avoid paying tax twice in this situation. Unless I actually sell the investment when financially emigrating, and buy it again at a new base cost after this process is done, which seems like a waste because of fees, spread and spending some time out of the market.

We asked our Head Elf De Wet about this. He has good news.

Typically the country to which you are emigrating has legislation (if their tax system is advanced enough as is the case with South Africa) that will deem the base cost in the new country to be the re-acquired base cost (not the original) and it should therefore not result in double taxation. It can in very few circumstances result in double taxation, but the chances are very slim.

AJ 

After I resigned from my previous employer, I moved my Provident Fund money to a Sygnia Preservation Fund.

I chose this option to follow the ‘’Tax rules’’. I no longer save additional money, as I have moved abroad. I’ve gone quite aggressive with my allocation on Sygnia (Top40, Property, Offshore, Rhodium & Palladium and no cash, no bonds) minimum fees 0.62%.

On my return to SA and if I find employment where there is an umbrella fund available, I can transfer my preservation fund to their Fund. This means I start at my new company with a lump sum available from day one. 

I’m not a big RA, regulation 28 type of guy. My main benefit would be if I am retrenched and my retirement value is close to R500,000 at retrenchment I could benefit and effectively take this tax free. 

Secondly, I could take this money with a huge tax implication if I am in some sort of emergency where I need cash all before the age of 55. 

I am putting myself in the position that at worst case, if a retrenchment happens I at least benefit in some way. The maximum benefit would be around R500,000 in retirement money. 

This tax free withdrawal can only be done once per person. If you have used your R25,000 tax-free portion, the max benefit you would be able to take is R500,000 less R25,000 (R475,000). 

Francois

I am 28 and recently started to take control of my financial life.

So far:

- I started a budget via 22Seven

- Paid off my car loan

- Maxed my TFSA (100% Satrix global MSCI- Single ETF lowest cost- great article by Stealthy Wealthy comparing global ETF's. Single ETF strategy for the win) 

- In the process of moving my RA from "Unnamed Life insurance company" (My EAC was 6.61%) to Sygnia skeleton balanced 70 fund 

I am currently stuck.

I am looking to increase my global portfolio. 

I currently earn in USD and receive this money in a USD call account. Would it be better investing in USD directly in an ETF (example Vanguard S&P 500) or use ZAR to invest in a global ETF (example Satrix MSCI global/Ashburton 1200)? 

I will only be earning USD for the next two years and will then have to convert rand to USD to continue my dollar cost averaging amount monthly if I have a USD-based account. What is the benefit of having a USD account vs investing in Rands via a global ETFs.

Yakoob 

Can a South African citizen buy shares in Aramco? It’s  a Saudi Arabian oil company that listed in November on their local stock exchange.

Mbasa

When buying property the bank will show how much interest you would pay over 20 or 30 year home loan period.

When you rent the property out the deficit will be reduced and eventually become a surplus that can be used to quickly pay off the loan.

Example:

A R 850k mortgage will amount to R 2 000 000 in total instalments over 20 years

(R8369 * 240 months). 

Baring in mind that this is paid for by the bank and the tenant. Is it advisable to then save (ETF, shares, unit trust ) to reach that R 2m goal or borrow from the bank and rent out.

I did a quick calc and about R2.5k per month at 10% pa over 20 years reaches the R 2m goal.

Sam

I am 34, I have a 9 month old daughter and would like to save for her education.

Time horizon is 13-14 years. We hope to cover primary school from salaries or a separate investment.

I don't want to do a TFSA in her name as we will withdraw it all and then "rob" her of some or all of her Tax Free lifetime allocation.

Would TFSAs split between my wife and I be a good idea considering we would draw down on a large chunk of our lifetime allocation long before retirement?

If not then what would you suggest?

(Regardless of the vehicle, ETFs will likely be the underlying investment, thanks to you guys)

Boitumelo

In 2019 I tightened my budget a bit, moved my Pension Preservation to a low-cost provider and fully funded my emergency fund for 6-8 months. Because of my work in Botswana I do not pay tax and can thus not get the tax benefit from the RA. I am now channelling those contributions and excess into my discretionary investments after maxing the TFSA.

I receive my salary in USD into a dollar account in Botswana. 

I transfer some cash for basic living expenses here and some to my expenses in SA (i.e. bond, donations, investments etc..). 

I then leave some USD inside this account at 0% interest. Should I perhaps build up some USD in my account here transfer every few thousand dollars to  a USD Account to buy some Vanguard US Total Stock? Would that be a good idea and better use of the USDs instead of keeping it in this normal cheque account? 

In my TFSA I buy the Satrix World and the CS Prop. In my discretionary account, I buy the Ashburton 1200 and The Satrix Top 40. Given that I am already buying the 'World' in both accounts, will buying the US Total Stock in USD mean I will be too US concentrated and therefore at risk? I am just looking for better value and better use of the USDs while I am able to. 

Lusani 

In 2014 I bought a house, paid extra monthly and when I was left with 13% to go I opted for a second property as an investment. The worst move I made was applying for a re-advance on my residential bond and then paying for the rental property cash. The whole transaction incurred transfer and bond registration fees. 

Things were looking rosey until tax time. My tax consultant told me I could not deduct the bond interest since the property address on the bond statement does not correspond with the address of the rented apartment. 

I missed out on that deduction and as a result my income is higher. My worry is that when we get our annual increase (6%) in April, this rental income will to push me to the next bracket.

I have decided to register a bond on the investment property. Based on my calculations, I will not pay any tax from the rent for at least 3-4 years. I will be deducting a whole chunk of interest, levies and rates, still taking in consideration the yearly increase of at least 5%. I want to retain my tenant and not scare them away with 10%.

Must the bond be on that property? Some people say it is possible to deduct the bond interest even if property B is not bonded, but as long as you can prove where the money comes from.

If I use this money towards buying stocks on EE, I will still pay tax. Registering my bond now seems dumb or was it a clever move?

I only joined recently. Must I move it elsewhere, or cancel it? The thought of paying those fees kills me. Until my RA issues fees issues are sorted out I will not increase my contribution to the allowable 27.5% using this money.

Tafadzwa

What are the risks of trading in ETFs in an illiquid market to a retail investor?

Also, how can one use small and mid cap ETFs to enhance returns? 

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

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

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

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Win of the week: Janesh 

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

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

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

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

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

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

Pascal 

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

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

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

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

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

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

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

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

Vivesh

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

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

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

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

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

Guillym 

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

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

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

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

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

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

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

Marius

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

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

Candice

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

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

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

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

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

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

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

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

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

The argument for STXWDM is lower fees.

DOES STXWDM + STXEMG GIVE THE BEST OF BOTH?

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

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

STXWDM has a TER of 0.35%

STXEMG has a TER of 0.40%

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

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

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

ASHGEQ has a TER of 0.6%

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

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

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

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

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

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

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

Mariette 

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

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

Mariana 

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

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

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

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

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

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

Column two:

EAC if you are considering replacing your investment

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

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

Minnaar

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

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

Essentially - do ETFs actually benefit from these occurrences?

Javier

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

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

Chris

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

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

Olyn

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

Louwrens

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

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

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

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

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

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

8.5% in REIT

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

                                                                        RA                     51.1%

                                                                        Industrial fund     31.5%

                                                                        REIT                  8.7%

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

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

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

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

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

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

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

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

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

Gerhard 

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

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

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

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

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

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

Maryn

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

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

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

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

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

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

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

Good luck!

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Keith

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

As far as I can tell, that is illegal.

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

Gregg

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

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

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

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

Dario

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

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

Mariette

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

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

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

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

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

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

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

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

Paul

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

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

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

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

Stephen

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

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

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

My reasons were:

• Strategy visibility
• Everything under a single solution

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

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

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

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

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

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

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

Eric

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

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

The financial world is filled with dreadful products. Avoiding them all is a tempting strategy, but not feasible for most people. In our first full episode of the year, Simon and I dedicate some time to help you spot a bad product.

Below is a checklist of red flags you should watch out for before investing in these products/

Debt

• Interest
• Balloon payments
• Revolving loans
• Fees

Savings

• TFSA in cash
• Disclosure - 13% compound vs simple
• Fees
• Products that are tied to other products

Insurance and medical aid

• Requirements
• Complexity

Investments

• Promises of above-market reruns
• Non-diversified/concentration risk
• Fees
• Lock-ins
• Is it tied to an insurance product
• Derivative products

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Win of the week: Tafadzwa

I stay in Namibia. Last month I discovered your show. I’ve been teaching myself FI by reading various blogs for 3 to 4 years. I recently turned 41 and your podcast was just the kick up the behind I needed to DO something about my finances.

I am restructuring my life from top to bottom (or vice versa). I reduced my bank charges from 450 to 213 just because I went and raised hell. Guess what, there was a bundled package which suited me to a t. Thanks guys for the proverbial butt kick. 

I am working on reducing my debt. Bye-bye to my clothing account in 5 months. Good riddance.

My car loan is much more difficult. The prime rate was reduced from 10.75% +1 to 10.25%+1 in April this year. My installment was not reduced appropriately as was implied in the contract with the bank. I have 18 months left to clear the loan. Is the debt set in stone or can it be reduced through setting early? I need a hack please. 

I decided to start investing in ETFs on the NSX. Satrix listed the MSCI World, Nasdaq, Emerging Markets, S&P 500 on the NSX in April 2019. Previously, only commodity ETFs where listed. 

There seems to be little awareness about ETFs and possibly very little liquidity in that sector. I am aware that these are global ETFs. Will the lack of liquidity affect me in any way? Easy Equities implied that I can open a USD account. Is it a good option? 

I am learning financial literacy with my wife and kids via YouTube and this podcast etc. Am working on my emergency fund (been start - stop) for years. 

How viable is it for a contract worker to invest long term for retirement if there is no access to pension, RAs, tax breaks etc.

Jon-Luke

Many moons ago I bought some Choppies shares and some time later I sold with a bit of profit. But I did not sell everything a decided to hold a few thousand shares (they were dirt cheap) on the off chance that the company might turn around.

Now with the company having been suspended for over a year I’m wondering what will happen if it gets delisted. What will the process be? If they delist do they have to pay share holders a nominal amount or do the shares “disappear” and does the value disappear too

I saw a SENS for Choppies saying that they were possibly accepting a sale of all the South African operations... What does this mean for shareholders? Wouldn’t the shareholders usually be asked to vote on a decision like this even if the shares are suspended? (They are not delisted yet). Or is that perhaps the next step in the process?

Stephnie

What if the very nice family member gave the very lucky family member R500K immediately as an interest free loan (payable in full at the end of - say - 5 years, with no monthly payment required), and then every year for the next 5 years reduced the outstanding loan amount by the R100K tax-free 'gift/donation' threshold. This would allow for the immediate transfer of R500K with no tax implication for either party. The risk of course is if the very nice family member passes away in the next five years, the outstanding loan amount would be owed to the deceased estate.

Tax Elf De Wet responds: 

SARS would view this as a simulated loan (i.e. actual donation) on the day the loan is made and would levy donations tax on the remaining R400,000.

The world changed for the better this week. You may have missed it, but OUTvest launched a retirement annuity (RA) product whose fees will hopefully change the way we think about fees forever.

With Simon recovering from a vicious flu, this week’s episode sees OUTvest head Grant Locke explain his revolutionary new product.

We return to our regular programming next week, unless Simon succumbs.

Most of the time I hate it when people say “the exception to prove the rule”. It doesn’t make any sense. Except sometimes it does. When it comes to tax-free investing, you want to be in equity. It’s because you save tax in three places: dividends, capital gains and income. However, not everybody should be in equity. People who will need the money in less than five years should really be in cash. People who are already living from their savings would also probably not benefit from an equity investment. 

This week, Lorian’s 80-year-old dad is our case study in when tax-free investments can be cash. 

Lorian

Dad made good investments, but has a fair bit of cash in a high interest earning account.

He pays high tax due to this interest.

To 'dilute' the pot a bit we are thinking of opening a tax-free bank account and making use of the annual R33k allowed.

If he lives for another say 10 years then that is R330k he keeps out of the taxable pot.

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If it’s parenting advice you’re after, you’ve come to the wrong place. The reason why we have quiet places to record is precisely because we don’t have kids. However, we know a thing or two about the financial system. This week we help soon-to-be dad Daniel to figure out where he can save for his future baby. 

Daniel

We’re expecting our first in June 2020. I want to, as you so many times suggested on the show, take out a TFSA for the boss baby.

Thing is, I don’t trust the kid to not blow it all on his/her 18th birthday. What will the world look like 18 years anyway. Kids are not becoming more sensible, unless I’m missing something.

You’ve probably covered this one before, but do you have any  tips on trying to prevent this from happening? Or is it just down to ‘good’ parenting, mild manipulation and hoping for the best?

I think I recall Simon mentioning some years back that he pays for his nephews, but can’t remember if it is TFSA or RA?

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Timing is everything in investing. If you could get the timing right on every single investment, you’d be rich before anyone else. What we want, in theory, is to put the money in when it costs the least and take it out when it costs the most. That’s it, really. 

Unfortunately it’s impossible to know for sure when that is. We guess, we try. Sometimes we get lucky, but most of the time we aim for the ballpark. In this episode, we help Nicole work out when is a good time to take her money out of the country. 

What we come up with is really simple: don’t do it when people are panicking. 

Nicole

I’m on board with Patrick's thinking. I’d like to move the majority of my discretionary money offshore. 

I've been waiting until I'd saved my first million so that I can use interactive brokers without large fees. 

I'm finally there, but I'm concerned about the exchange rate. I don't want to end up like the person Simon mentioned who waited 13 years for it to get back to the amount at which they took it offshore. If we assume South Africa will be downgraded in April, do you think the currency will recover at all before then? Is it just a generally bad idea to take it offshore between now and then?

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Why is it so hard to talk to family about money? Shouldn’t the people who love and care about us most be most open to what we have to say? At our live event in Cape Town, someone wanted to know how they can convince their family members to think like them about money. We said it’s impossible, but Ivan disagrees. If this is a problem you’ve been longing to solve, you don’t want to miss this episode.

Ivan

I listen to the Dave Ramsey Show podcast.  

On one of the shows someone asked the exact question on how to get his wife on the same page financially.  

The response was to talk to him/her about their “WHY”  He recommended talking to your loved one about what they want to achieve in life and showing them how saving now and sacrificing in the short term can help him/her achieve that dream. 

I thought long and hard about this. With the financial info I had from my father’s affairs made a spreadsheet and powerpoint presentations. I started walking him through the baby steps with a whole comprehensive list of “why’s” he can achieve once he has reached the baby step 7.

I pitched the idea to my father. It gave him hope to change his behaviour since there was a reason and a plan to change his behaviour. It is still early days and it takes effort to remind my father why he is not spending on a credit card anymore, but there has been changed behaviour from his side. This has impacted his finances and his sanity since he has a plan for the future and his life.

Talking about WHY he does things now has changed a lot of elements in his life.   I understand that it might not work for everyone but maybe it can work for other people as well.

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If you know you'll be leaving the country for good in the next few years, should you invest your money or keep everything in cash? In the first of five mini Fat Wallet episodes, we help Karlien think through some options.

Karlien

Your show gets me excited to invest, but I'm at a weird place right now. 

I'm getting married next year and then we want to immigrate to the Netherlands because I'm a Dutch citizen. We aren't very likely to return to SA permanently. I have no debt and I'm currently saving for the wedding and our big move. 

Considering our imminent departure in the next year or two, should I be investing in something like a TFSA or ETFs now, or should I wait until I'm on the other side? If now, how do I make sure I invest smartly considering our move.

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The end of the year is a good time to take stock of how things went financially. At the beginning of 2018, Simon and I discussed our money resolutions for the year. At the end of last year, we revisited some of our financial assumptions. 

To wrap up our 2019 Fat Wallet year, we once again discuss our personal finances and which assumptions we’ve come to challenge throughout the year. For me, learning to relax is always a challenge. I spent a lot of money on a holiday and it took me a while to realise that my financial journey is only for me. I don’t need to justify my choices to anyone and if I want to spend a fortune on a holiday, I damn well will. 

I’m also starting to be a bit more sceptical of smart beta ETF strategies. After three years of writing the ETF blog, I’ve looked under many hoods and heard many explanations of why a particular investment strategy is simply perfect—on paper. With a market trending sideways for an absurd number of years, these strategies should have come into their own, so why haven’t they? Colour me weary. 

We will record a few, short episodes to ensure that you get your Fat Wallet fix throughout the holidays, but this is the last full one for the year. With that, we’d like to thank you so much for your support and participation for another full year. This show is community-driven in every way and wouldn’t exist without you. We appreciate every single download, email, tweet and visit.

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Bleeped version is here.

Win of the week: Anna

I finally decided to start investing after listening to your show. 

I am starting by maxing out my R33 000 tax free for this year. 

While researching tax free accounts I came across an article on Stealthy Wealth "what these 9 experts hold on their TFSAs"

Simon holds Satrix prop 31.8%, Ashburton Global 1200 36.6% and sygnia itrix MSCI world ETF 29.5%.

I then decided to research the fund fact sheets of each one and noticed that the Ashburton 1200 and Sygnia itrix MSCI basically invest in the same companies just at different percentages. 

I'm totally new to this so what am I missing? Isn't that then just investing in basically the same product if their holdings are basically the same? What would the reasons be in investing in both these options?

Colin

My parents are reaching retirement age. They mostly worked government jobs and have decent government pensions. 

They have a portfolio of properties which is supposed to be their retirement income along with the pensions.

They’ve kept the bonds maxed and used the allowable tax deductions through the years really well.

Getting closer to retirement age, larger chunks of the bonds are getting paid up, as they are going to need to start drawing an income from it within the next five years. They are finding it more and more difficult to find enough deductions on the property alone to cover the profit.

Should they take the money out of the access bonds and put it into a fixed savings? At Tyme bank they’ll get 9.75% for 100k and the remainder with African bank where you get 9.2% on a two-year fixed deposit. (5 year fixed at 10.75%, but wouldn’t want their money tied up for that long this close to retirement). 

By doing this they’ll minimising the profit made on the properties as the interest paid will be much higher with the bonds still being maxed. 

To wipe out the remaining profit made, calculate what’s needed in RA contributions to have enough deductions to get as close to making a loss as possible annually.

If they're moving R2m out of the bonds/mortgages they're going to be paying tax on the interest earned in any case. So they could then just take 200k odd out each into fixed savings, 30k each into TFSA, they left with R1.5m sitting in bonds/mortgages. Come retirement they could just take the money out of the TFSA and fixed accounts to pay off the bond. Should they put a lump sum into a RA to offset the profit made? What would be the best way to mitigate the tax payable?

Emmanuel 

My wife and I have maxed out our TFSAs (ASHEQ and Satrix MSCI) and we are looking for the next best thing to do with the extra income.

1. What is your ideal framework for extra income investment after TFSA? 

Normal/discretionary long term investments (ideally for withdrawal between 40-55, if it is favourable) and RA

2. Did you ever find the answer to the tax efficient way to invest in RAs? Is the 27.5% the best option assuming emergency fund and other needs are in place.

He’s currently building his DIY RA on Sygnia. Here’s what he has:

Kyle

We systematically worked through our expenses and 30 minutes later, viola!!! A revised budget, with greens all around. The next step was putting the plan into action and one month later, most of the plan have been executed... which included amongst other things:

• Cutting back on food budget (we don’t eat less, just buying more efficiently – Yes, 50% off Checkers meals is our thing now)
• Changing bank account to Capitec – Full time (changing debit orders wasn’t as cumbersome as I thought)
• Reducing airtime allocation
• Reducing internet speeds
• Paying up and cancelling ALL retails accounts
• Changing to a cheaper gym
• Driving less, reducing fuel allocation
• Consolidating and changing insurance
• Retirement savings remained the same (RA and TFSA for both of us)
• Short term savings reduced by 80% (but we are still trying to save as much as we can, even with one income)

While the process is ongoing and it hasn't been easy, what I’m most grateful for is that bloody complex-as-all-hell budget spreadsheet.  

If you lectured Budgeting 101 to the masses, how would that lecture go down? What do your budgets look like? How is it structured? Excel? Paper? What are the must have categories or line items and do you do your allocations down to the R1 like I do or is it a little more of an estimate. Would love to hear your take on this one.

For the longest time I thought a progressive tax system referred to how we spend our tax money. Poor, naive me. It turns out that a progressive tax system means there’s not one tax rate. How much tax you pay depends on how much money you make. Your tax rate gets progressively higher as you earn more income. In a way, you pay less tax on the money you make first. 

The table below shows how your income is taxed. Unless you’re in the lowest tax bracket, you’ll notice a rand amount before the percentage you pay on your salary. When you multiply the highest amount in the tax bracket above by the corresponding tax bracket, you get to that rand amount. In other words, all the money you earned before you got to your current bracket is taxed at a lower rate. 

A good way to think about this is by allocating a lower rate to the money you earn first. Let’s say you earn R423,000 per year. This puts you at the upper end of the 31% tax bracket. However, since tax is progressive, you actually only pay 31% on everything above R305,850. In other words, you only pay a rate of 31% on R117,150, not on the full R423,000. 

If you earn R423,000 per year, you earn R1,185 for every day of the year. Your first R195,850 is taxed at 18%. For the first 165 days of the year, your tax rate is therefore 18%. We got there by dividing the upper end of the first bracket by your daily income. For the next 92 days, your tax rate is 26%. The last 96 days of the year brings your tax rate is 31%.

At this point you might notice there are 12 missing days in your year. Those are the 12 days the government gives you for free. Neat, eh?

It’s good to know the upper limits of your income tax rate, because income from interest or rental income gets added to all your other income and taxed accordingly. This affects your investment choices. If you notice that income from your investments might push you into a higher tax bracket, you can start making choices that might be more tax-efficient in the long run.

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Win of the week: Chris

Please tell fellow SA’ns traveling abroad, that the Revolut App is amazing. 

You can transfer money into a wallet for 1.6% flat rate and from then on you pay zero fees. 

You can also order a card for around R80 , but if you have Apple Pay it’s not necessary as you can just link it. 

You pay zero fees per transaction and get really decent conversion rates. It’s much cheaper than any SA bank I’ve ever used.  

Martina

I have resigned from my job and October was my last month. I have been offered a scholarship to study overseas in Italy for six months. I have a small side hustle but will not be earning a stable income whilst I am abroad. I have no guaranteed job to come back to. However, I don’t plan on going back to a corporate environment again.

My work will pay out my pension fund which is through Momentum Funds At Work (which has not performed well in the last 2 years). Is it best to put my pension in a preservation fund or an RA? 

My understanding is that preservation umbrella funds should carry lower costs / fees than preservation funds and retirement annuities available to individuals, but  the Momentum preservation fund fees are 0.76%. and Sygnia Skeleton Retirement Annuity fees are only 0.65%.

I’m not sure if there are hidden fees and what the advantages are of putting it in a preservation fund vs a RA, besides being able to draw from a preservation fund before 55 as opposed to after 55 for an RA.

Charmaine

I heard that you can transfer your annuity from one provider to another for a fee of R650 or something. 

I don’t know if this is for living annuities only. If one has a RA with those money grabbers, there are high penalty fees.

What are the options? Shall one turn it into a living annuity and then transfer it?. Shall one draw 17.5% just to get the money out. I think if the value is less than R247,000 you can take all the cash, with obvious tax implications

What are one’s options if you are stuck in an expensive retirement annuity?

Frank 

I too have been looking for an offshore investment broker and was looking at Degiro as well. I just wanted to share that unfortunately there have been recent changes in regulations in the EU which resulted in Degiro now requiring its clients to have both an EU bank account and be resident in the EU. That said all existing non-resident clients can remain clients. So it looks like the door on EU based brokers is solidly closed and I'll have to start looking at US investment brokers instead.

Marco

We're currently putting at least R10 000 extra into our bond access facility. This is also essentially our emergency fund. At current projections, we should get the house paid off by late 2023.

My plan is to essentially arbitrage the interest on my house debt (8.9%) to fund a Tyme bank account that earns up to 10% interest. 

The plan would essentially be to stop paying R10 000 extra into the bond, but put it into 10 day notice Tyme bank account. If we started with what we have currently saved up, and put in 10K a month from now, we should reach 220K around early-mid 2021 with monthly compounding, and then it should start paying ~23K a year in interest.

Once this is achieved, resume paying the 10K into the bond as before, except now we have 23K a year extra to put into the bond, or an emergency fund that pays for 2/3rds of a TFSA every year (hopefully they increase this amount). If we put the 23K extra a year into the bond, we'll pay off the house by mid 2025(July 2025 ish), around 18 months after if we had just put the 10K a month into the bond. 

The argument could be made that we can pay the bond off earlier (end of 2023), but then we're left with no emergency fund at the end of 2023, and have to essentially build it up. The 10K plus the extra money freed up by not having bond payments would build it up faster, and assuming Tyme has the same 10% account, to build up the emergency fund to 220K(probably higher with 6 years of inflation to add to living costs) would take around 12 months.

Also, since my partner and I are married, double interest exemption can be gained per year eventually for the emergency fund. Although we really only would need around 220K for a 12 month emergency fund, so not enough to attract interest and dividends tax--we have no other interest earning amounts.

I know the adage, "time in the market is better than timing the market" holds true, and this plan would limit our RA contributions and TFSA allocations for a year or two, but the payout would be a chunky enough emergency fund that pays 10% p/a and would contribute 2/3rds of one of our TFSAs--not bad for an emergency fund.

Pieter 

Do I need exposure to local equity?

Assuming a 100% equity ETF portfolio, are there benefits to holding South African stocks in addition to global index ETFs? I know that the JSE has historically outperformed world indexes, but there is no guarantee this will always be the case.

I am not pessimistic about SA, but I want to be optimally diversified. I am already invested in SA by virtue of the fact that I earn and save Rands. Is there a reason to put those Rands into South African stocks, other than to bet that the JSE will outperform the rest of the world?

Marvin

I am a bit stumped and need some guidance.

My dad has finally reached retirement age 65, however, does not have sufficient funds to sustain my mom and himself through their life. He does do the odd job by this is not regular and cannot plan based on this income.

I’ve assisted them in paying off their flat (Current Value R 750,000) so all they need to cover is lights, water, rates and levies (R2,500.00). We have gotten their total living expenses down to R8,000 pm.

My dad’s RA is worth R 175,000.

His pension is worth around R600,000. When my dad lost his job 8 years ago, we stopped contributing to it as the odd private jobs he did went to living expenses and I felt it would be better they pay off their flat.

My dad is expecting an inheritance of ±R100,000.

They are both currently receiving a pension grant from the government.

Thankfully they are both still healthy and as kids, we have them on a very basic medical aid.

 I really need guidance as to what I should do now without putting their pot at financial risk.

My plan is as follows: 

•         The flat is a large part of their retirement source and needs work done to the place. If we were to sell it in the future or rent it out, we would need upgrades. The plan is to use half the inheritance to upgrade and invest the balance. (At this point, I have no intention of selling the place, as they still need to live somewhere).
•         Regarding the RA and pensions, my dad is keen to take the 3rd, but will this still be tax effective or even worthwhile?
•         If we take the 3rd, we would then take a living annuity out for the balance, and invest the 3rd and balance of the inheritance (50k) in The SATRIX World ETF and only use this when the living annuity runs out. Else I saw Africa Bank is offering 10.75% on a R100k deposit for 6 years. This works out to an effective interest rate of 13.33% due to compounding. 
•         Do I invest the 3rd and inheritance in a TFSA?

Tim

I have a query based on being penalized 40% by Sars for transferring equities and money from SGB to easy equities within the TSFA ring fence environment.

I was under the impression account transfers were tax free (we didn't withdraw the money and re-deposit)

Has anyone else suffered this injustice?

We have disputed it with SARS and have asked easy for help in the interim. 

Would be nice to know if we are a first or if the community has had similar issues. 

Lungi

I started listening to the podcasts two weeks ago and I pretty much listen to you guys all day, every day: at work, at home and while I'm jogging :)

One thing you have brought to my attention that wasn't even on my radar was the fees issue on my investment products. And boy did I get the shock of my life!

I'm currently contributing to an RA with Liberty and I have one with Old Mutual which I don't contribute to anymore. 

I also have a Pension Fund Preserver Policy with Liberty (which is currently invested over 4 investment products each with its own management fee). 

This afternoon I decided to look through my statements and found that I was being ripped off in fees for the current RA that I am contributing to.

I currently contribute R535 premium and according to my calculations for September 2019, after the monthly fees of R321.20 (over 2 investment products), only R213.80 actually goes into the RA. So basically, 60% of my premium goes to paying management fees. This is a very poor investment. 

1. Will I be able to consolidate all my RAs and Pension Fund Preserver into one product so I can pay one management fee. Or is it better to diversify?
2. I can only currently contribute R500 to an RA - looking at the fees charged by the companies, am I better off putting that money elsewhere till I can afford to contribute more? like in my Easy Equities Investment Account? Will other RA companies be able to get me a better deal than the one I currently have?

Whenever I hear from someone about to make their first investment (or take their first yoga class), I get a pang of nostalgia. I’ll never forget my first investment — the thrill, the terror, the sense of achievement, the self-rewarded grown-up badge. 

Fear was definitely the biggest part of it. True to form, I made it as hard as possible on myself by doing a single lump-sum investment. It was the biggest amount of money I’d ever had. Sending it into the unknown was nerve-wracking. When I finally made my first investment, an RMB Top 40 product via etfSA.co.za, my money disappeared for five days. Nobody had warned me this would happen. “Great,” I thought. “I lost all my money in the stock market.”

We dedicate this episode of The Fat Wallet Show to those about to take that leap for the first time. We hope to ease you through some of the scarier parts without robbing you of that first time feeling.

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Kabelo 

I am able to save R10k a month. I have no clue where to invest. Seeking any tips to help me invest?

Win of the week: Brendon

I am currently debt free after three years of a hell ride trying to free up all my debt.

I am now at a point in my life where my partner and I have a combined amount of 21k a month to invest.

I am thinking about an emergency fund before investing as well as going the ETF route in a TFSA.

Do you think this is enough fuel in my investing engine?

Quinton

Should one rather invest in a low volatility ETF like the NewFunds Govi instead of a money market type portfolio with similar annual returns because of the tax implications. Are you investing in an asset which is subject to CGT instead of income tax? 

Robyn

I invested in six different ETFs in my tax-free account. I also mistakenly bought Woolies shares through my normal online trading account before I heard about the tax-free account.  

The brokerage cost more than doubled the cost of the three shares I bought. It was a rookie mistake but I know better now. 

Last week I received a tiny dividend on those three Woolies shares (a whole R2.69). I also own CSTOP50 ETFs, and Woolies is one of the shares within it. Should I not have received dividends on that?

Is it ok to use my online trading account as a savings account as it gives me 8%? I’ve been told that’s what I need to get on my investments to reach my financial freedom number.  

I’m not getting 8% on my ETFs, so I thought it better to put some cash into the online account instead of investing in flat lining ETFs.  What do you think?

Siphathisile

I was listening to  the "Keep your expenses low podcast" and I laughed because I know I'm a hoarder, I keep things because I always think "One day..." . 

I have this pair of jeans I bought with my first "hard earned money" when I worked over school holidays during my A Level holidays in 2005. Because I had been home for a while, I wore a size 34. A couple of months later I went to varsity and I have been size 30 to size 28 since. I kept my near-brand-new jeans because "one day...". Finally last Christmas I gave up and took them home to my mum to give away because clearly I was never going to be a size 34 in my life. 

Guess what, I'm a size 34 right now and am laughing at myself. But still, keeping that one pair of jeans would not have made much difference I guess.

Hazel

I have a dollar investment offshore in some sort of a Momentum insurance/endowment wrapper. I opened it years ago through 'financial advisers'. At that stage it was too daunting to do it myself. 

It has done nothing but lose money for the last five years and it has very high fees. I'm just trying to figure out how to move it to a low-cost tracker fund without incurring too many expenses. 

Needless to say they are not going to help me and I just want to be free of them. I'm getting pretty desperate! I do have a UK bank account, if that helps.

Terrance

If one has bought the same share every year for a number of years, does SARS use the average price to calculate your capital gains?

OR do you have to work it out in the bundles in which you bought them at that bundle price. This seems a messy and complicated way of doing it, especially if you have been buying the same share every month for the last 20 years. 

Hannes

I find the concept of buy-to-let properties is quite attractive. I recently had a discussion with a friend who wants to do exactly that in order to generate some basic passive income in about five years time. He’ll pay off his first small property, then buy a second one, supplementing it with the income from the first, etc. up to a point where the passive income is enough to cover basic living expenses (hopefully this makes sense).

What are good ways to generate passive monthly income from investments only. Right now buy-to-let properties still seems pretty good for this.

I'd like an apples vs. apples comparison between investments & buy-to-let properties for passive income generation.

David

I have attached an EAC calculation that I received from Discovery for a client. 

If Discovery's EAC over the term of the policy is - 0.10% (notice the negative sign, as per attached doc) shouldn't we all be investing with them as they are essentially paying us for the privilege of having our RA with them? 

I’ve been through the notes and it states that if a client sticks with their Life Cover premium and RA premium until retirement they will receive a bonus which basically reduces their fees to less than nothing! 

The problem is that Discovery have a stipulation that all RAs must increase the premium by a minimum of CPI+3% pa (under the age of 30) and this increases to CPI +4.5% above 30 years old. 

I take it that Discovery realise that most people won’t be able to afford this increase in the long term. If the client makes any changes to their life cover OR to their RA contributions they won’t receive this magical bonus. They also need to keep their life cover in retirement when they probably don’t need it anymore. 

When I come across smoke and mirrors like this it just makes me so frustrated. I would love to hear your comments and point out anything that I have overlooked. 

Javier 

My wife and I are opening an RA to contribute up to our 27.5% of our salary and TFSA which we intend to max out every year.

We are pretty set on investing in the TFSA and RAs with the low-fee operators in the market.

What are the risks of both of us using the same providers, not in terms of performance but of the companies going under, or doing a Steinhoff? 

Should we diversify suppliers to avoid these risks? If a provider defaults, what happens to the investment, ETFs, unit trust etc that might have been bought throughout the years?

Ramoloi

I currently stay with my parents, but have been property hunting for a while now. I’ve set myself a savings target for various things, including a comfy emergency fund, a fund for household items like furniture, as well as helping my mom with whatever I can. 

I have been disciplined enough to contribute to this target, I haven’t met it yet because the time I have set to achieve the target has not elapsed.

I recently found a property that appears to check a lot of the right boxes. I am yet to view the property itself, I have driven around the area once ( and plan on taking a few more drives around the area). I’ve done Google Maps Searches around it, as well as checking the kind of internet they have in the area (they have fiber, which is huuuuuge plus for me).

While I am willing and ready, I have not "gotten my money right". I know exactly when my money will be right but I worry the property might be gone by then. 

Is there a way I can buy the property now and start paying and move in at a later date of my choosing? 

I'm aware that buying a property is not an overnight thing (a friend told me that his purchase could take 3 months to finalize). What are the costs and possible penalties I could face from trying to do this sort of thing and is there any reason why this might be a bad idea?

This week’s show is the second of the risk-series, sponsored by the Index and Structured Solutions team at Absa CIB. In the first episode we spoke about financial risks that aren’t investment-specific. This time, we talk about risks specifically related to the stock market and your portfolio. 

When it comes to investing, we’re most concerned about losing money. In share investments, losing money generally means selling a share at a lower price than you paid for it. However, it’s also important to remember that an investment that goes neither up nor down over a long period of time is losing money through inflation — that dreadful, silent wealth killer. 

We go through risks related to specific investment products, starting with cash and bonds, all the way up to individual shares and actively managed portfolios. We talk about using ETFs to manage these risks and how holding too many ETFs can actually introduce risk.

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Wins of the week: Wilhelm

In the past three months two medical officers also working in Livingstone Hospital has asked me if I am the Wilhelm who has sent emails to The Fat Wallet Show.

Both of them are my seniors with whom I have never discussed personal finance!

So kudos to both of you for the great work you do to educate people about personal finance!

The knowledge is spread out as far as the Eastern Cape!

The value of what you do is immeasurable and it is such a privilege to have been a small part of what you do.

My personal finances are doing great! I’ve reached my annual limit for my TFSA and am already saving up for next year’s allocation (utilising the 9% p.a. you can get from TYME bank). I received a nice tax return from SARS of which half was immediately reinvested in my RA.

I’ve found mountain biking is generally quite bad for personal finance. But then again everything in life isn’t about FIRE!

Win of the week: Gerhard

* The easiest way to look at it, is that you get 25 days from the date of your statement to pay your credit card. 

* You must pay the full Closing Balance on that statement, before those 25 days are over to not pay interest. 

* If you don't pay the full statement amount, then you will be charged interest on a daily basis from there on in, and the whole interest free portion falls away - until you pay it all off and the cycle resets. 

* If you only the pay the minimum, you always pay interest  - there is no interest free period then. This is why it's always important to pay the full outstanding statement balance.

* Read your statements, there should be a pay by date on the statement (At least on FNB there is)

The whole up to 55 days thing comes from, if you buy something on the first day after your statement date, you won't get interest charged on that item for this statement month + the 25 days leeway you get to pay this months statement.

A credit card is a useful tool to have, but it's important that you budget your spend on it and do everything to pay that full amount every month.

Boitumelo 

Would you please tackle the grim matter of estate planning?

I am asking for myself so that I can prepare adequately. I am single with no children and I live by myself, but I also have family members who have no Wills. It would be a tragedy if one did all the work in living a financially responsible life as much as they could, but fail to put measures in place to adequately 'protect' it and those who are to benefit after one is gone. 

1)     What happens to all your money/accounts upon one's death? 

2)     Importance of a Will and its place during a death

3)     Implications of dying without a will

4)     What is an executor and how does one go about choosing/appointing one? 

5)    Other questions I may not have thought of yet related to the topic

Daniel

I am busy applying for finance for a car for R170,000.

I have R40,000 saved up in cash for a deposit. Trade-in for my current car is R25,000, so I have R65,000 in total.

The guy at the dealership said if I put down a bigger deposit they will give me a higher interest rate because they need to make the loan worth their while. He said I should put down a small deposit and then a month or two months later when I have locked in the interest rate I put down the rest of the money into the loan to lower my repayments. Do you guys think this is a viable strategy?

I thought bigger deposit = less risk = lower interest rate but dealership guy says otherwise. Not sure if he is incentivized in any way by the size of the loan amount.

Pascal

I've just begun earning an offshore, tax-exempted USD salary that is paid into a Standard Bank offshore account. Aside from maxing out my tax-free account every year, I'm opting to keep as much money in US Dollars as possible since I can see myself Immigrating in the next five years for work.

I've just opened a TD Ameritrade US brokerage account. It turns out any South African can do this and it seems to be much cheaper, fee-wise, than Standard Bank Web trader.

I plan to start investing in US low-cost broad-market index funds from there. My big question is.. Tax. How does foreign withholding tax work and how will it affect my returns? 

Is it 15% or 30% because I find conflicting information online. Am I taxed twice by both the IRS and SARS? Can I claim back tax in the event of being double taxed? Are there any other tax considerations that I'm missing that might significantly impact my investments or land me in hot water with SARS?

What happens to my South African TFSA if I choose to move to another country?

What are the implications of buying two ETFs that have similar holdings? Raesetsja is trying to figure out if they should add MSCI World to a portfolio of S&P500 holdings. In this week’s episode, we show you how to figure out what doubling up would mean for your portfolio using local Satrix ETFs as an example.

Remember, you can find the minimum disclosure documents (MDDs) on each issuer’s website, or find everything in one place on the etfSA.co.za website.

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Raesetja

I currently hold the Satrix S&P 500 ETF in a TFSA, into which I make R500 monthly contribution.

I have another R500 to invest monthly. Often you guys suggest the Satrix MSCI World ETF. 

I just had a glance at the MDD and the top 10 equity holdings in the S&P500 and the World are exactly the same.

Is it worth buying the World if my exposure (at least of the top 10) is the same as in the S&P 500? Should I rather invest R1000 a month into the S&P 500?

Win of the week: Javier

I discovered your Podcast and just listened to the last 40 of them — that’s 40hours of questions which have been awesome and fun. Though I’m extremely lucky and I have quite a few things already lined up, your podcast has made it clear how to make it even better.

Johann 

I have a few dollars in a local USD account. If the government loses its mind and confiscates part of people’s savings like the Greeks did a few years ago, will this money be safe?

Leonora

I am 59. Retired at 57. I have a living annuity with Momentum, invested in Deutsche Bank Coreshares S&P 500 at a 2.5% drawdown. I have other income for the time being and wanted to escape regulation 28.

I am looking for lower admin costs. 10X could not assist me in 2017 and on enquiry now, they still seem to be unable to do so. Any other suggestions?  Sygnia?

Ruben

I invest in the Satrix MCSI world ETF and the dividends are automatically reinvested. When the time comes and I one day reach FIRE can I change the way the dividends are paid out, or do I need to sell the ETF shares?

Jorge

I am currently investing in PTXTEN and have done so for the past three years or so. However, the PTXTEN seems to be going one way and that’s down.

Is it not time to move to another property ETF and if so, what are the options and if not, why should I continue with PTXTEN.

What is the largest liquor company listed on the JSE as SA Breweries is no longer listed?

I have found Distell (DGH) on the JSE but they only registered in 2018.

Mike

Given the short/medium and longer-term risks in the SA economy, what are your thoughts about the % of offshore exposure in a portfolio (medium to high risk)?

If I backtest a portfolio of 20% Fairtree income fund and 80% Satrix MSCI world index I get 6.5% above inflation for 5 years annualised (11.5% gross) and 6.2%  above inflation (11.6% gross) for 10 years. In ZAR.

That's well ahead of my long-range target of inflation plus 4%.

Dave

My plan is to live off the cash I have saved until I am 60 or older. At that time I’ll decide if I convert any of my annuities to a pension draw-down.

How do I invest my current cash savings, which I will use as income for the next couple of years? 

I will obviously be drawing from this on a monthly or quarterly basis, but would like to preserve as much as I can. My thoughts are to just transfer all the funds to a Coronation Money market account. 

What is the best vehicle to use from a tax perspective? I’m currently in the highest income tax bracket. 

Aubrey

I am building emergency fund for at least six months to a year. Which cash account or investment options I can use to grow my savings? I have a seven days notice saving account with one month salary for emergencies. I want to open another account where I can put my six months emergency account.

I was  thinking of money market account or should I open another Tax Free? Another question is safe to have all your TAX FREE with one organization?

Nico-Ben 

A few people have written you about student loans and the very low interest rates.

I had a student loan. The interest rate is low (8% in my case), but you start paying interest immediately.  By the time I finished studying, my loan capital was just short of R90,000. By that time I already paid R45,000 in interest without paying a single cent on capital.

I struggled for a while to get a stable job and was only able to pay the absolute minimum.  The loan period is so long that the cost multiple looks worse than a home loan.

It was only after four years of working that I finally managed to aggressively settle the loan.

On the upside, working through the loan, and listening to your podcasts made me learn about finances and looking at these costs. 

One expects a high salary with a degree, which I have seen in my field (engineering) is not the case.

The point is that the interest rate is not the only factor. Just as with any compounding a long-term loan is expensive, even if the interest is lower.

I had no alternative but to take a loan, but if you can avoid it I would strongly recommend it. The repayment period does put a hamper on you ability to fully utilize a TFIA and/or RA.

Jack

I started listening to your show a few months after I read the book Expat Millionaire — where cost of funds and fund damagers was highlighted. I don’t mind sitting in traffic anymore.

Since then my wife complains that I have become a little obsessed with personal finance and budgets.

If a very nice family member wants to give another family member a lump sum of between R500k and R1m to assist in paying of his home loan. What are the tax implications?

What is the best way of doing this?

This is our very first live recording in Cape Town, and what a pleasure it was. Our conversations with you change the way we think about our money. Also, seeing people laugh at your stupid jokes instead of hoping to goodness that someone finds you funny is a wonderful ego boost. 

This week we help Antony figure out if it’s time for his family to self-insure their medical aid. While the consensus seems to be that it’s not worth the risk, I enjoy playing Devil’s Advocate. There’s more than one way to skin a cat. I still maintain it can be done, albeit with a fair degree of footwork. 

From our live audience, we field questions about family and money, fear and optimism regarding the future of the country and fees. We also get to answer some listener questions.

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Antony

Over the last 30 years I have contributed R2m in today’s money to a medical insurance fund, but have only claimed R100k for the birth of three children.

I realise that insurance is a sunk cost, but I classify myself and family as above average healthy and medically low risk.  I retired this year at 50 and have a sizeable investment portfolio.

I have discussed with my three children if we should start our own "medical insurance”, and they are very keen. I plan on starting off the fund with a lump sum and having each child contribute per month to the fund.

Both my wife’s and my parents are deep into their 70s and are spending an annual amount of R40,000 but are contributing R60,000 to their medical aids.

At what stage of financial independence do I (or others) medically self-insure if I believe my family to be low risk?

Audience questions

• If we get downgraded to junk, is there an opportunity to be had if we’re young and can ride out the volatility ? Or should we just keep on with our current strategy ...
• What are your suggestions for saving for someone unable to work or manage their own money due to a mental illness?
• How do you talk about financial planning to a partner or a parent who doesn’t like thinking/talking about money ?
• When do you draw the line on moving for lower fees? I've moved once from old-school policy to 10X, but 1% is still a lot these days. Now tempted to move to Sygnia. But at some point a new player will offer even lower fees, or 10X will drop, or Magda will increase. Would be expensive to keep moving.

Richard

Is there any reason to invest locally?

The JSE offers very traditional sectors - finance, resources and retail. Is there any room for significant growth, particularly in a stagnant economy?

There's no tech (bar Naspers), no bio-tech, no AI, I would even settle for marijuana stocks at this point or any sector which could provide some sort of upward momentum.

If you are 20+ years away from retirement, wouldn't the fact that the Rand structurally weakens vs US$ over the long-term benefit your investment?

Mike

I have TFSAs for myself and my two kids, with four ETFs and one balanced fund in each of them.

As you know every quarter those generate dividends, which I re-invest.

My question is what is the best way to distribute the reinvestment?

1. Split the available cash evenly across the funds so the purchase values remain equal.
2. Distribute according to which fund generated which dividend.
3. Use cash to rebalance the funds so current values get closer to being equal.

Nick 

I’ve listened to your show for some time now, but I can’t make up my mind about how to handle my current situation. 

I have a big bond on my home as a result of a foolish impulse to keep up with the Joneses.

If I liquidated all my other investments I could settle half, maybe more, of the bond. If I included other long-term investments like pension and RAs, I can cover more than 100% of the bond. 

More than 50% of my equity investments are fully offshore.

More than 50% of my local equity investments are also invested in Rands in offshore ETFs and unit trusts, the rest in Sygnia and 10X RAs. 

I have a decent percentage of hard currency and local currency equity investments. But the interest on my bond alone is R22k/month. Should I reduce the amount of the bond to reduce interest payments to a more manageable level?

I can’t sell the house (unless I get divorced). I am trying to cut other expenses down to fund bigger bond payments but it’s been tough and our expenses are stretched. I can’t bear the thought of selling equities to repay debt and then watch the debt become nearly worthless anyway and the equities increase in value.