In this second instalment of my Holiday Show Load, we are not nearly so clever. We tried to push through as many questions as we could, but you know how chatty we get!

This is the Double Jenny episode, which delights me no end. We discussed some of the things Jenny the First can do to choose the right ETF for her. If you find yourself in a similar position, you can find some more tips on making this choice by reading the below articles: 

Comparing ETFs: Costs

Comparing ETFs: Asset classes

Comparing ETFs: Methodology

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Maryanne

If I check on the ETFSA site the TER for my Sygnia ETF is .6 &.8 % pa.

When I look at my statement I pay TER & management which is more like 1% . When I asked why so much for a passive fund I was told  DBX charged the same. 

Margaret

SARS want to know your net gain/loss as well as your capital gain/loss. Could you explain the difference between these?

I have a TFSA with Sygnia and Allan Gray. The Syngia IT3 gives me interest, dividends and capital gain/loss. The Allan Gray. Gives me net return, interest, dividends and capital gain/loss. 

Allan Gray had this explanatory note that they owned the underlying investments, so the tax implications accrue to Allan Gray. Given the whole point of TFSA is that you don't have tax implications. Can you explain what's going on here? 

Jenny

I recently opened a brokerage account and bought a couple of ETFs.  I’m a newbie and need a little advice on my portfolio.

I bought: 

• Satrix MSCI world
• The Satrix S&P 500
• The Satrix Nasdaq 100
• Ahsburton Global 1200
• Sygnia msci US
• Sygnia 4th industrial rev 

I am invested in property in South Africa and am looking for global exposure.

I was just wondering if it’s wise to put money into all these different ETFs of which some are very similar.

Would it be better to cut down and rather put more money into one? 

What should I do going forward with the ones I have? 

I invested in tax-free savings account. I’d like to open a normal investment account soon, but I’m not sure how many ETFs to choose?

Jenny

I will be receiving some inheritance in the near future - R3m.

I feel a responsibility to look after it and make it grow and not blow it on a bad investment. 

I am 44 and I have a bond on my home of R1.5m. 

I don’t necessarily have to pay my bond off with my inheritance as I rent it out, so I can deduct the interest from my rental income for tax savings. 

I am invested in property in SA so would like international exposure. Do you think I can invest it all in two or three ETFs like the Satrix s+p 500 and msci world. Would this be a good idea or do you have any other ideas on what I could do?

Santosh

From my experience, this can be accomplished via direct dividend paying shares, or buying a Dividend ETF like the Satrix DIVI.

The other is to buy mutual funds that pay income on a bi-annual or quarterly basis. These will pay different amounts depending on what's invested and hopefully will cover all expenses during the course of a year.

At a 5.5% typical bond fund yield, around R4.4M is needed in capital and if we assume 20% goes in tax, we'd need R5.45M to be comfortable. 

I'm not accounting for inflation as I'm assuming the capital will never be touched, so it will move "up" hopefully with the underlying unit price. I'm further assuming that the "Cents per unit" paid will increase with time and thus account somewhat for inflation (I know this is a risky bet!)

Do you agree ?

What would be your suggestions for the best funds to use for this purpose, excluding property.

If RSA goes to junk, the yields will increase, which will mean a good regular return if bonds are used as an investment and as the prices will fall, one can buy more bonds for an even larger "income".

IF this is true, why invest in anything else but bonds?  Am I correct in the above thinking, or am I being too simplistic.

We discuss income ETFs here.

Mona

Since listening to your show my wife and I have seriously been looking at some financial options. My wife currently has R1.8m in a 32 day call account earning R10 000 interest per month. 

We know this is not the best option, but our financial advisor from Standard Bank has told us to give notice and he will invest it offshore rather. Is there a better option? What would you say is a conservative fund to do this with for a period of 10 + years?

Katie from summertownpictures.com

I have heard your cries about fees, and decided to act. I have a TFSA with FNB. I decided to call them up and ask for my EAC for my Tax Free Shares Account. 

The consultant was unaware of what the EAC was and sent me a tax certificate. Sensing some disgruntlement, she got hold of someone higher up in the food chain and he told me my account costs R20 a month and gave a vague brokerage fee.

This took roughly an hour over the phone. 

And this is not the EAC expressed as a percentage as per ASISA standard requirements. Am I right? After explaining this to him, he told me he could manually work the EAC out for me.

My complaint was escalated, and this is the response: "I have gone back and requested some information from our Product manager regarding EAC on Tax Free Share accounts. He has advised me that this would apply to the Tax Free Unit trust accounts and not the Tax Free Share accounts as EAC is specific for providers that are ASISA members like unit trust providers. FNB Share Investing is not an ASISA member and therefore not required to provide clients with a EAC of their product."

Does that sound right to you guys? Based on this I shall be moving my TFSA to Sygnia PRONTO. See ya later FNB.

Franko

I started working at the age of 21 and started investing into an RA through some crap that was sold to me. 

After a few years I stopped contributing to it and left it. I have since changed jobs twice and have been working for a wonderful company for nine years now. 

This company contributes to a provident fund on my behalf and has been doing ok. About two years ago I started to really think about my retirement. 

I tracked down my old RA and moved to a new rip off scheme and started to contribute to it again. After reading some books I realised the fees are mad and moved it again to Sygnia and got rid of my “advisor”. I only contribute R600.00 to the RA as my main focus is my TFSA.

 After the move and my new lower fees I started doing some more research. I had no idea how TFSAs worked.  

I thought it was like a savings account at the bank that you can save money at a low interest rate and pay no tax on it. I dug deeper and found out I was so wrong. 

I opened an account with Satrix and started investing into the S&P500 and trying really hard to contribute the max amount each year. Listening to your podcast I think I need to diversify even more. 

I want to invest in either the Ashburton 1200 or the MSCI world index fund. But what do I do with my S&P500 investment? I know selling it will reduce my overall tax saving years from now and the amount already contributed cannot be contributed again in another fund. Do I leave it and stop the contributions to open the new TFSA or do I sell and move on?

My S&P500 investment has been doing really well and if I am correct, the S&P500 is at an all-time high or close to it. If I do continue investing in it, do I buy now at this high or do I wait a while to see what it does?

Jamie

• I have an emergency fund (6 months expenses) - In an account earning 7.2%
• I contribute to an RA through my Financial Advisor with Stanlib and am quite happy with the asset allocation. My contribution is currently only 5% of my gross salary.
• I currently have a very small equities portfolio which is currently doing terribly :(
• I have a Unit Trust with Investec (Equity Fund Class R) - I do not contribute to monthly. 
• I have a TFSA which I have maxed out for the last 2 years in the following ETFs:
  • Sygnia MSCI World - 35%
  • CoreShares SciBeta M-FI - 35%
  • CoreShares PropTrax Ten - 20%
  • Ashburton Global 1200 - 10%

I am currently sitting on R1m cash (after CGT) due to the sale of shares in a company I was involved in. This money is sitting in my bank account earning 7.2% until I decide where to invest it.

• How do you feel about my weighting and choices for the TFSA? Should I be contributing more to the Global 1200 - I hear you speaking about this a lot?
• Should I be contributing more to my RA?
• Where should my R1m be invested considering all of the above? I would like to have some cash available for the odd splurge if needed ;). 
• Would it be wise to keep some money in cash to then use to max out my TFSA at the beginning of each year without having to contribute from my salary?

In honour of my long-awaited holiday, we spent two shows doing nothing but answering questions. This is the first. 

Don’t forget we’ll be at the JSE in Cape Town for a live recording of The Fat Wallet Show on 31 October. 

Win of the week: Jonathan

The fees are a little confusing, because the quote has three different fee tables, all represented in a slightly different way. Depending on who you are, this is either super transparent, or designed to confuse - or both. 

I learned three things. 

One, Sygnia allows investors a lot of flexibility, so you can really build your own portfolio. You can build your RA portfolio to align exactly with your investment strategy (reg 28 compliant, of course).

Two, Sygnia is really cheap, and fees are fucking confusing. Sygnia quote an annual fee as low as 0.36 inclusive (!!) but then show an effective annual fee of 0.52% year one, 0.46% year two in the same document (still good but wtf). The EAC seems to be the "what you're actually charged" amount.

The 0.52% EAC is basically the lowest I could get with the available Sygnia products. The main "downside" is that international equity is all SP500 and not true global spread - because the SP500 ETF is almost 0.5% cheaper that the MSCI world!

The biggest issue for me is because of market movement, there is really no way of realistically 'checking' what you are being charged, so you really just have to trust the provider, which I hate, because the quoted fees are always so absurdly vague (all providers!).

Third, RAs don't have to provide less returns that the rest of your portfolio! 

My question is whether the last option is a good shout, or whether such a large component of global property is not a good idea for some reason. Which would you do? Which would Simon do?

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The bleeped version is here.

Stephen

REIT dividends: There are still those quite insistent that REIT dividends qualify for the interest exemption. They do not. I'm not in the biz of arguing, but for clarity this is the situation as per the tax legislation.

Ria

I can finally call it mine, 3 years after I signed the OTP, and 2 years later than it should have been transferred to my name. 

During this time all my savings went into a MM account with the idea to put a big lump sum towards the repayment. After the monthly bond repayment, levies, rates & everything else, I still make about R900 p/m off it (I rent it out) which I set aside for maintenance etc.

I save about R8000 p/m, and my outstanding loan is about R1m. Do I:

1)      Put everything towards repaying my bond ASAP? (Apart from my 33k p/a for TFSA)

2)      Invest everything in ETFs and let the rental income continue to pay off the bond?

3)      Go halfsies – 4k p/m into the bond and 4k p/m into ETFs

Dave

I have been amazed by the consistency of your message. I think the only two things that have changed are DBX World is now the Ashburton 1200 and your attitude to tax changed from pay tax, to try only pay tax once.

After all 162 podcasts, I have the following points/questions lingering:

• Why haven't you two moved to Durban?
• A lot of people are worried when they die that their dependents will be left stranded while the estate is sorted. First thing is that some life insurances pay an advance (maybe 10%) and another option is to set up regular payments to another account in their name to cover key expenses. Set it up now. Be ahead, for when accounts are frozen.
• With the TFSA for children - it is not binary. Try give 1-2 full years, ask friends and family rather to pay towards that than buy another toy for the toy box. This gives them 18 years to internalise the compound effect, something that took me 15 years after I understood the maths. It also gives a real discussion point about money. It still leaves 90% of the allowance (which could change) for the child.
• Last point is that how people think of risk bother me. They say something is risky (or aggressive), but risk has time and context factors - for example, cash is riskier than investments over time.

Anyway, thanks for being awesome and helping me catch-up on the SA Financial Scene.

Dr Dan

I am, at times, a government employee and they, when I can't choose not to, contribute to a GEPF (Government Employee Pension Fund) on my behalf. 

I’m in the process of getting hold of my current pension statement. I assume that the maximum 27.5% contribution is the combined total that goes into my GEPF as well as the amount that I contribute to my own RA?

ps: Why is it called 'Just one lap' I'm sure you get asked frequently but I haven't heard the answer yet

Jens

Just a reminder, to COMPLETELY read any updates of your Insurance contract.

I started with a new company in 2017.  I only read the 2018 update superficially, and then got a surprise when I read the 2019 update.

My father in law’s car, which was insured on my policy, had the name of the owner changed from his mane to my name (without any communication by the Insurance Company - in 2018 or  2019). When this was queried with the Insurer, they stated that only vehicles that I owned could be insured and was informed that my father in law’s car was therefore not insured in the two-year period (luckily there were no claims!).  Still trying to get this issue fully resolved by the insurer after two months.

Errol

We now are avid ETF investors which are awesome for my wife and our future. We are 45 years old so have a 20-year investment plan in place in terms of ETF investing. On top of our existing RAs and pension funds

We have bout R10,000 worth of ETFs in Ashburton and Satrix 40 etc through EasyEquities.

What if the website shuts down or the company goes under. What happens to the money I invested in and how would I get access to it should something like that ever happen?

I don't want to ask them directly for fear of a biased answer.

Dave

0) get professional advice. Use the following as a prompt to unpack some of the issues. I’m a professional, but not in tax or finance. I have spent several years living & working in the USA on a work permit/ visa and submitting tax returns in both countries.

1) to answer Simon - it is possible to have dual- SA citizenship

I think there might be a requirement to inform / request permission SA Dept Home Affairs when applying for citizenship of another country.

2) when Dirk got his USA green card, he went fully onto the US tax books. The IRS taxes US citizens on global income. 

Any TFSA held in his name in SA, while not taxed in SA would probably be assessed for tax in the USA. There is a double-taxation agreement between SA & USA but I can’t see any tax advantage to a person who has tax residency elsewhere (health warning: I’m an engineer, not a tax specialist).

3) there are a number of SARS criteria for triggering tax residency in South Africa based on the period of time spent in SA. 

To keep it simple - Dirk should limit time in country to 90 days or less per tax year to avoid being tax resident in SA.

If he does become tax resident in SA, then SARS will want a share of US income & he will have to rely on the double-taxation agreement to limit total tax. 

FYI While US tax rates on income tax are lower than in SA, but US tax payers also pay social security tax and might also pay state taxes.

4) the 180 days that Simon refers to is for SA tax residents who meet several requirements to be exempt from paying SA income tax on income earned offshore. This will be capped at R1m in the next tax year FY2020 & makes working in low / no tax regimes (like the Middle East) less attractive to SA tax residents working overseas. It will no doubt prompt some of them to do a financial emigration from SA.

FYI: The issue of tax residency is in tax law one of intent and does not require financial emigration. Financial emigration is a SARB exchange control process that also results in the person ceasing to be tax resident in SA. 

Brendon

My wife and I max out our tax free savings account every year and currently invest roughly 50% of our monthly income into a range of bonds, dividend ETFs, property ETFs and international ETFs.

We are both 38 years old and have had the idea of emigration on our minds for several years. Although we haven't yet taken the leap and don't immediately plan to do so, it is nevertheless something we would consider.

My wife has an RA which she contributes minimally to in comparison to the rest of our joint investments. I don't have an RA. The reason neither of us are very focused on RA's is because if I’m not mistaken, we would be heavily penalised for closing the accounts early to emigrate.

So I have two questions:

What kind of penalties would we be looking at for closing an RA early and withdrawing the funds if we were to one day emigrate?

Would it be worthwhile (even considering any penalties) for me to open an RA since my wife already has one and for us to both start contributing 27.5% to each of them. Alternatively we would continue with the ETFs which we can withdraw any time.

In the end, emigration is not a definite plan but rather something that we are open to and have therefore not focused on RA's up to this point.

John

The cost of MWeb unthrottled, uncapped Fibre has now dropped to R399 down from R899 last month for a 10meg line.

The catch however, is they dont drop the price unless you specifically phone in an request the new package.

If you’re a regular listener, you already know your emergency fund is the most important thing in your financial life. It’s boring, yes, but crucial. You should protect the assets you have with insurance. For as long as you’re earning an income, you are your most important asset, so dread disease and disability cover is a big deal. 

Once those two elements are in place, where you go next becomes more complicated. We think everyone should have tax-free investment account. If you’re a salary-earning tax-payer, taking advantage of the tax breaks offered in retirement products is a good idea. 

In this episode, we get five versions of the same question: which investment option is better in the long run?

We come up with the following check-list of questions to help you decide:

• Where can the money stay invested the longest? 
  • Time is a powerful ally in investing. The longer you can leave your money to compound, the better.
• Is the money guaranteed?
  • This ties in to how long you can afford to stay invested. If you need the money in the short term, you want to put it where the outcome is guaranteed.
• Is there a limit to the up-side?
  • Once again, this comes down to time. The market can go up forever, whereas a fixed rate or guaranteed product can only deliver what was promised, nothing more.
• Is it the most tax-efficient route?
  • When you’re talking investments and time, your risks are inflation and tax - both of which will affect you whether you are aware of it or not. The sole purpose of investing is to counteract the effects of inflation. That just leaves tax.
• What is the opportunity cost?
  • The very act of putting your money into one vehicle means choosing against all the other vehicles. What is that choice costing you?
• Are you considering all the moving parts?
  • When it comes to offshore investing, are you thinking of the currency move and the market move? When it comes to asset allocation, are you accounting for your retirement savings allocations too?
• Are you taking your money out of the country at a high rate?
  • We tend to move money offshore when the rand crashes, which means we’re taking money out at a high rate. Money should be taken offshore when the rand is strong. 

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Win of the week: Candice

My “work husband” recommended the show. This was roughly around the time I found out I was pregnant. I mostly started listening out of fear, but since then we’ve paid our debt and started an emergency fund.

Is it advisable to max out our daughter’s TFSA annually and just deposit bits and pieces to our TFSA?  Or should we spread our contribution equally across all three?   

We will only draw from her TFSA in 20 years, if we need to for studies. If not, we’ll hand it over to her for her 21st.

I have a company ra with the green company, but we’re going to start contributing to a 10X RA as well.   

We don’t want to be financial burdens on our daughter when we’re older. We want her to have enough money available to not have to take student loans etc and get a helping hand at starting life. I just want to know we are on the right track. 

Herman wrote an algorithm. The results are in an article called “The ideal pre-retirement allocation mix” on justonelap.com.

Nico-Ben

It seems the market is currently going down. At the moment my Satrix 40 is at a loss.  This does not bother me as this is a long term investment. In one of your podcasts, you said this should be seen as the JSE is having a sale, just like a retail store might have a sale. This  makes perfect sense. 

I was planning to put the rental income into the bond, and top up my TFSA balance in February.  Looking at the prices dropping, it also seems like I should consistently buy the Satrix 40 in the TFIA. 

Which course of action would you suggest?  I get it that we cannot predict the market from now to February, and that is too short term to really expect any real profit.

Guido

After maxing out my tax free savings I'm not sure whether I should carry on saving in a global vanilla etf like Ashburton 1200 or something like the 10x high equity fund.

Should I invest in both or am I overexposed as the 10x fund invests in the satrix msci world as well. I am 40 years old and looking for long-term growth. I prefer a global etf at the moment as S.A equity is not doing much. The 10x high equity fund has 50% local equity but otherwise is nicely diversified. Which one should theoretically give the better return in the long run?

Gerhard

I currently maintain a 50/50 split between international and local investments. Every month I use the new money to try and keep it in balance. Hopefully it's 20+ years before I need to touch any of this money. 

Recently I stumbled across Galileo Capital's YouTube channel. One thing Warren Ingram keeps mentioning is the "fair value" of the USD to Rand. He feels it's at about  R13.90 to the dollar. One should only move money offshore when we are below this level. This includes buying the international ETFs on our local market.

Should I just ignore the USD/Rand and keep buying international every month?

Or, does one keep the money earmarked for international in cash, and wait for the Rand to strengthen back to those levels?

Andy

I now own three properties in Cape Town. 

I live in one (paid off, but lets ignore this lifestyle asset) and 2 investment properties. 

Paid R800k for the first flat and I’m renting it out for R7800, which covered the bond repayments and the levies and rates.

I ended up settling the bond with a lump sum. I used the bond to pay "cash" for the 3rd flat.
I now have bond debt of about R600k (on the first investment property) which I’m smashing with my monthly salary savings and rental income from my 1st investment property. 

The third flat hasn't got a tenant yet as I bought it off plan.

I do have market exposure and the necessities covered. Example:

• I currently have that Liberty evolve product that tracks the top 40, which I will move into simple Satrix top 40 shortly.
• I also have some individual stocks which are taking a hammering. Mainly speculations on my part. I’m slowly moving away from individual stocks but they are so ridiculously cheap now that I refuse to sell them..
• TFSA is maxed (missed one year becasue im an idiot)
• Emergency fund is adequate.

Do I start filling up my Standard Bank OST account with my favourite ETFs or do I smash the bond and then fill up on ETFs?

Albert

I stumbled across your podcast while trying to find out why the yield of the Satrix MSCI World Equity Feeder Fund Unit Trust was less (by a few hundred rands) than the yield of the Satrix MSCI World Equity Feeder ETF in my TFSA over a period of two years. 

On a simple TER basis the Unit Trust version of the same product was 0.63 more expensive. At first this didn’t seem too bad, until I started running the mathematics with a few assumptions and looking at the lost return over time. Naturally this infuriated me beyond belief.

Since then, I’ve been working my way through your library while going through all of my expenses, investment activity, insurance and pension funding. 

Being in my early 30’s, I have some investment groans about poor investment choices in my 20’s like:

• buying a new car in my first year of permanent employment
• transferring my previous company’s provident fund savings to a preservation fund which has a TER of 3.2%, 
• investing into equities via Unit Trusts without an emergency fund and occasionally dipping into the capital to fund emergencies. 

That said, I currently don’t have debt, have always contributed as much as possible to my employer’s retirement fund and am grateful to have some savings and enjoyed some treasured memories of overseas vacations.

You have both inspired the following change in my personal life:

1.       I have penned a life plan and investment strategy;
2.       I have set up an emergency fund which will increase over time (thanks Tyme);
3.       I have reconsidered my luxurious expenditure (mostly eating out far too often as I live in JHB), and increased my monthly savings rate from 30% to 35%;
4.       Launched a crusade against fees in my personal life:
   1.       Short & Long-Term Insurance premiums,
   2.       Moving from an Asset Manager platform to a Stockbroker (Goodbye expensive Unit Trusts),
   3.       My RA’s and preservation fund (this move is still ongoing),
5.       Drafted a will, and
6.       Placed a mandatory review of my finances firmly in my 2020 calendar.

The Question:

Given the amount of money I ought to have saved this year thanks to your sage advise (far better than any financial advisor I’ve met), I would like to send through a bottle of Veuve Clicquot. Then I took a look at the price of those particular bubbles, and surmised that it is beyond what I am prepared to pay for quite a while. Would it be possible for you to set up a Patreon or something? I wouldn’t mind kicking a few rands your way on a monthly basis to keep the show running.

Alexander

From listening to your podcast and speaking with friends and family, I would like to avoid credit. But I am also cognisant of the fact that I’d most likely have to incur at least some debt for a house one day. 

The Standard Bank consultants informed me that building up a credit score starting now would make applying for future loans easier and that I’d possibly get lower interest rates.

• Would building a positive credit history (by using credit, instead of my normal cash, and paying it off in 30 days with that exact cash that I would have used) actually allow me to negotiate for better loans in the future?
• How important is having a credit score in reality?
• Does your asset base (i.e. my investments) influence your credit score? Surely having built up an asset base would count for more than having a positive credit history, or am I wrong?

Do you have any general tips/advice for how I can start planning/structuring my life to minimise my future debt and living costs? At this stage in my life I’m very flexible regarding where I decide to work, buy a house and so on.

Chris

On the Sygnia website they claim to charge an admin feed of 0.2% on Sygnia ETFs and 0.4% on other ETFs.

Since my ETFs are all from other service providers, the 0.4% admin fee would apply + the TER of the ETF itself. (e.g. Satrix World = 0.4% admin + 0.35% TER = 0.75%).

However, on the Sygnia RA platform, there is a tool for calculating EAC fees which gives a slightly different output. It states my current EAC fees are 0.89%.

On my quarterly statement, it gives a table of each ETF, with the respective TER and management fee applied. The management fee ranges from 0.1% to 0.3%, which is quite reasonable. However this does not tie up with the EAC quoted on the online platform.

I'm a bit stumped. 

The way I see it, worst case I am paying 0.89%, which is in range of the 10x fee of 0.9% so this is acceptable. The fee appears to go down to 0.61% over time which would then make it

cheaper than 10x.

I should also mention that you do occasionally have to rebalance the portfolio to remain Reg 28 compliant. Sygnia charges a 0.1% brokerage fee for these transactions

Ross

I have my money back home in a brokerage and savings account. I would like to invest my overseas earnings into something without converting back to Rands. Preferably into USD, EU or GBP. What options would you suggest? Are there any multi currency account banks that accept sign up without residency? 

This week, Ben inspires us to delve into how ETF units are priced. A recent presentation of our favourite five concepts made me realise how far removed share prices are from the companies whose shares we buy. After the initial public offering (IPO), what happens to the share price can be entirely unrelated to the business. 

When we talk about how ETF units are priced, we refer to the net asset value (NAV) or the “fair price” of the ETF. However, NAV in ETFs have nothing to do with the NAV of the companies represented in the ETF. This is confusing, no?

In this episode, we use our price-weighted index as an example to illustrate how ETF units are priced. We talk about how much of the pricing model is science, how much is whimsy and where ETF issuers actually make their money.

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Ben

When is it a good time to sell an ETF? On EE it seems that you can only use a market order and sell at the particular unit price at that point in time. They have no option for a limit order. Would you say this is a major issue, in that you are forced to take the price right then.  

Is it better to wait and buy at an opportune time each month as opposed to a monthly debit order that will buy at a unit-price that may be suboptimal?

How often is an ETF re-priced? Is this only done once a day at a particular time?

Win of the week: Richard

I upgraded the service plan to a maintenance plan so I was covered, which cost R10k for 5 years. Worth it.

I noticed that during services they didn’t seem to do much. Oil change here and there, maybe a spark plug. I got the feeling it was built to cost them nothing to service for five years.

Then the service plan expired. To extend it for a year was R15k. So five years for R10k and 1 year for R15k? That seems weird.

I didn’t extend and paid for my next service. A couple months ago I noticed it was using a lot of oil. Like 1 to 4 pints per refuel. Asked them to check a few things out.

That’s on a car with 73000km on it. They added almost a rand per km.  If I saved R1,000 per month it would take me five years to pay it off. That’s more than the fuel bill over the same period. That’s a great addition to my child’s school fees. Or a nice holiday. Or a nice anything that will leave me with something better than what I had a year ago.

Earlier this week we introduced ourselves to the education department at the financial sector conduct authority (FSCA). They recommended we spend some time on what you can do when you feel like you’ve been wronged financially. In this episode we discuss what rights you have on your financial journey. We also offer some ideas of where to go if you need to report shenanigans. 

We help you find the answer throughout your financial journey:

• Debt 
  • If you didn’t take on the debt
  • If you feel like you have been treated unfairly
  • If you’ve been handed over
  • If you can’t take on any more debt
• Savings
  • If your money got stolen
  • If you’re not getting what you were promised
• Insurance
  • If your insurance company isn’t paying out for things you feel you should be covered for
• Investments
  • Fraudulent investments
  • Bad market conditions
  • Losing money
  • Bad returns
  • Pyramid schemes
• Advice
  • If you received the wrong advice

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The bleeped version is here.

Win of the week: Hilois

I have just finished the latest episode highlighting rookie mistakes, and I have made a BIIIG one.

Earlier this year I moved from my company providing a provident fund with Momentum, to a company that does not include a retirement option. I decided to get an RA. Conveniently I received a call from a 3rd party consultant for Discovery (where I have my medical aid). I was in a rush (and obviously hadn't started listening to The Fat Wallet Show) and signed up for an RA with 3.5% fees, not including the consulting fees (EEEEEEEEEK!).

Luckily this only started in May, and before I completely fund someone's Merc I would like to make a move, but I now feel completely overwhelmed with where to look and not to be ripped off.

Do you have any recommendations for where to open an RA, and look for life / dread disease and disability cover?

Enesh 

I am a Surgeon and have been offered shares in Cure Day Clinic in Midstream. The shares are unlisted, but I can buy in at R250k for 2.5%.

Megan

Are there any tax benefits I can claim or get with a retrenchment package? How would you suggest I go about it? 

Is there any way I could get more of the money in my pocket, even if it is at a later stage? I'm not sure if I would get the money in a lump sum or installments. Not too sure how it works. 

My plan is to settle all debt, mostly my car. I can then fund my emergency fund and my flip-a-table fund.

I have a TFSA that I haven't put money into this financial year.

That's about what I have in place. I want to put money away for both my parents to say thank you to them for standing by me. My mom is in her 60s and my stepdad in his 70s. I get the feeling I am their retirement plan. So this needs to be part of whatever I'm planning with the money. 

In the meantime, I'm doing online Teaching from my apartment. That's $10 an hour. I'm busy finishing the TEFL course which will increase my rate by $5. So that's an income for me. I know I can claim back a bunch of things with working from home and sorting out my own tax. Although it's a priority, it's not high up on my list. The big thing is to sort out the retrenchment package benefits, get my parents sorted, cancel debt and have my six months flip a table fund.

If you have any suggestions, even if where to read up, that would be great. 

The downside to doing my job is that I don’t get many opportunities to talk about my own financial insecurities. As with most things, there’s a distance between theory and implementation. I have my bad habits and anxieties around money as much as the next person.

Billy’s question around minimalism and frugality gave me an opportunity to talk about some of the things with which I struggle. An ever-present challenge is finding a balance between spending and saving. I’m always too far in either camp. You can accuse me of many things, but lacking the courage of my convictions is not one.

Far be it from me to tell you what to take from these episodes, but I do hope our conversation sheds some light on the importance of the process. It’s a lifelong journey, full of surprises and challenges and new joys. That’s what makes it fun.

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Win of the week: Billy

I saw Simon in Woolies the other day (I was like a silent groupie lurking in the shadows). Next time, I'll buy you guys a bottle of bubbles to say thanks for the awesome work!

I'm a 30 year old engineer (another one for Kristia's collection!), and in great part thanks to you guys, I recently moved to a smaller place, got rid of a bunch of useless kak, and also scaled down on my car. This also extended to my finances, where I scrutinized all my financial products, cut unnecessary costs, negotiated better insurance premiums, and started to actively put money away in cheaper investment vehicles (such as Easy Equities).

I know that both of you have decided to actively keep your living costs low, and I recently read an article where Simon mentioned that he decided to scale down a lot and move to a smaller apartment with his wife. The idea of having very few possessions to tie me down, whilst having plenty of money put away appeals to me quite a lot. I've realised more and more that having lots of things means having lots more to worry about. Physical clutter, financial clutter and emotional clutter are different sides of the same die. As much as we like to think finances are separate from other aspects of our lives, everything feeds into our overall well-being, freedom and contentedness. 

So, thanks to you guys, I've developed a bit of an aversion to unnecessary "kakkies" - specifically financial and insurance products laden with complex "kakkies" that only serve to obfuscate real costs and returns. I like Kristia's idea of investing in one ETF (or at most very few), and not over-complicating my portfolio, as more products could mean more blind spots.

To get to my question: Being minimalist seems like a full-time struggle - an active raging against the beast of financial dependence. What are the principles you both follow to keep your living costs low? What did you cut down on that made the biggest difference? Also, how do you prevent the activity of keeping costs low from becoming a cumbersome penny pinching exercise that ends up defeating the purpose? 

Donal 

While all this was going on, I was also busy researching possible brokers that I could use to purchase Vanguard All World (taking Patrick McKay's advice!). 

I ended up with a company called Degiro. While their fees are low, they are nothing like the "easy" I'm used to with Easy Equities. Their registration process is a bit of a pain in the ass and their online trading platform is not as user friendly. 

I jumped through all the hoops and signed up for a Basic Account. I made my first lodgement and did my first Vanguard purchase. I did a small amount first to test the water. All went well and I was ready to plunge all my funds in. 

At this point I got a little nervous and did a bit of triple-checking online just to make certain that there were no negative comments out there about Degiro. 

Apparently, when you hold a Basic Account, they have the right to lend out your shares to other investors who use them for the purpose of short selling. I guess it's their way of making some cash on the side using my shares. If you don't want to allow this, you need to open a Custody Account, which means that they cannot lend out your shares. The catch is that they charge 3% on all dividend payouts for a Custody Account - compared to 0% for a Basic Account.

Is this type of lending out of shares by a broker commonplace? Do you know if EasyEquities do it? If they do, then I would feel a lot more reassured to carry on with my Basic Account. But if you guys think it's unusual for a broker to do this and it carries a high risk, then I’d rather close my Basic Account and sign up for a Custody Account and take the 3% hit on dividends.

Captain Pants

I plan to pay off my bond within the next six months, which will be 10 years early. A scenario I hope many Walleteers will experience in the future. 

While looking forward to redirecting my repayments towards ETFs, I'm wondering what are the best practices when paying your bond off early?

As far as I know there are two options:

1. Almost pay it off and then adjust the bond repayments to a negligible amount.

A benefit of this would be that the bond stays open as easily accessible cheap debt. However there would be a fee of at least R69 per month for the next 10 years (~R8,280).

I would not be the owner of the property - the bank would still be. So I would be unable to mortgage it (correct?), but can dip into the flexi-bond if need be.

What monthly amount should I aim for? Would the bank allow me to pay off R1 per month + fees for the next 10 years?

2. Pay off the bond in full, close it and become the owner.

I understand there may be a fine attached to this. If it is less than fees I would pay over the next 10 years it may be worth it?

What are the benefits of truly owning a property? 

Also, is it possible to overpay your bond? ie. have a positive balance in it? Would that earn interest?

Is there anything I haven't considered?

Will wait by the wireless for your response.

Karabo

I have rental properties. I've been saving my emergency fund in their bond accounts. The challenge is that this emergency fund reduces interest paid on the properties in effect increasing my tax liability on income earned over the year. Income earned on rental property is taxed as income.

Where else can I invest my emergency fund to reduce my tax liability on these rental properties. Should I still keep the emergency fund in the bond accounts or save it in a different account.

Stephnie

When each of my nieces (who are now 2 and 4) were born, I invested a once-off lump sum into SATRIX Top40 ETF for each of them. 

I opened an account on the SatrixNOW platform for this purpose, and currently both lump sums are invested in a single account. 

The account is in my name. My plan is that the investment will be my gift to each of my nieces on their 21st Birthdays, and they can then decide whether they want to cash in the investment, or keep the ETFs.

At the time that I opened the investment, I just stuck the money into SATRIX and didn't think too much beyond that. But now I am starting to think about how to ensure that this investment will be as tax efficient as possible and as fee efficient as possible.

If my understanding is correct, if my nieces decide to cash in the investment when they turn 21, I would be liable for the capital gains tax since the account is in my name. Is that correct? Is there any way that I can avoid or lessen the capital gains tax burden on my nieces' investment? 

If my nieces want to keep the ETFs when they turn 21, will I be able to transfer the ETFs to them? (i.e. is it possible to transfer ETFs to a stockbroking account in their name?). Are there are taxes or fees I should be aware of, aside from the usual charges incurred when transferring an investment from one platform to another?

Would there be any benefit in opening investment accounts in my nieces' names now, and transferring the ETFs to them now? 

If you have any other thoughts on how I could structure and handle my nieces' investments to be as optimal as possible - I'd love to hear it.

Maureen

I've inherited some Kruger coins and would like to get a fair value for them. Is there a website that will give me a fair price on any given day? Also, I've heard you say not to sell them to a Scoin shop. Where can I sell them for the best price?

Justin

I am in the process of paying a student loan and an unfortunate car loan. I have a little money left that I would like to make use of and not just lie in my account adding temptation. 

I am lucky enough that my parents still help me out and I have medical and a Providence fund with the company I work for, so I can't really see the desperate need for an emergency fund. 

Should I put the little money left into a TFSA or should I start an emergency fund anyway? If I should start one, what is the best way to go about it rather than hiding my money under my pillow were all it does is finance the dreams of buying bubbles?

Ben

My parents stay in France (not near Champagne unfortunately) and they are UK citizens. They have a unit in a complex in SA that they are going to sell. They would like to gift/loan us the money to help us buy a house with a granny flat where they can then stay when they visit.

My understanding is that the tax on gifts are 20% for everything above R100k, so we thought of doing something like a low-interest loan in order to circumnavigate that tax. Do you perhaps know who can advise us on this to ensure we do this right?

Our first ever paid episode of The Fat Wallet Show is courtesy of the Index and Structured Solutions team at Absa CIB. If you see one of them, show them some love. 

In honour of this newfound wealth and the cool products that made them possible, we decided to dedicate this episode to financial risks that aren’t market-related. In November we’ll follow this up with market-related risks and explain how those freaky new ETFs hope to bypass market risk.

We spend some time in this episode on the most sinister of all non-market risks - inflation. We’re all subject to it, yet we so easily forget to account for it. We also cover the risk of losing your income, fraud, counter-party risk, tax, divorce, death, income disparity in households and over-insurance. We offer some ideas to help you prepare for these risks.

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E&H

My partner is in his early thirties and I am in my late twenties and we have some questions about offshore investing. 

- we like investing passively in the stock market, ie index funds

- we try to save aggressively and are inspired by the FIRE movement

- we assume that the rand will likely continue to lose value in our lifetime

- we plan to emigrate within the next 5-10 years, partly for lifestyle factors, and partly for the purposes of studying and gaining new skills. We might be keen to return to SA later on. 

- we are hesitant to invest if the investment pays out in rands, and essentially want to start contributing to an offshore fund that we can access in the foreign denominated currency once we've emigrated. 

1. what is the cheapest way to get money offshore?
2. what are the currencies/offshore accounts that you could recommend?
3. what is the best way to invest our money to achieve our goals?

Jon-Luke

I’d love to know what you guys think of this offering from Investec:

Guaranteed 40% over 42 months - Effectively 11.43% P/A (not compounding?) - meaning if you invest R10,000 you will make R4,000 profit.

If you were to put the R10000 into African Bank at 9.20% (Compounding) you would make R4 428,16 profit.

So I guess the Investec offering has the possiblity of making quite a bit more - but how is this worked out exactly… And what are the chances of the S&P 500 going up by that much...

If you’re reading this, you are one of the few survivors of last week’s internet dumpster fire. This week, Simon and I spend time putting together a model to help you make sense of the news. We focus specifically on when a news report should move you to action and when you should just walk away. 

Here’s the formula we came up with:

1. Figure out what the claim is.
2. Find evidence that supports the claim.
3. Find evidence that disproves the claim. 
4. Ask yourself whether the claim has any bearing on your investment strategy. 
5. Act accordingly. 

My thought in choosing this topic was that we’d spend a few minutes discussing some mental models to help us interpret the news and the rest of the episode answering questions. 50 minutes into the discussion, I felt like we had barely scratched the surface. For that reason we didn’t get to a single question this week.

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Win of the week: Adam

I disagree with the consensus on pet insurance. In all honesty this goes against your rules that you cannot abscond on something like this. If you are a serious pet owner (and not just getting a goldfish because meh) then do it the right way. It's the same argument that instead of having health insurance "you save funds into an index tracker" etc. etc.

You are healthy when young, so the likelihood of a serious health issue is small, but you still have health insurance.

Just don't have a pet if you place a financial cost on it like that.

My dog has had two surgeries, but over and above that throw emergency visits to the vet here and there and insurance has us covered (well mostly - they don't cover dog biscuits).

The biggest challenge in supplementing a parent’s retirement income is whether to save in their name or your own. This week, we help Kim and her sister think through their options to help their mother in retirement. 

Kim

I cannot describe to you how empowering The Fat Wallet Show has been in my life. You have made such a profound impact I can't thank you enough. I grew up in a home with ZERO financial education. Throughout my engineering degree there were no lectures or exposure to the topic of personal financial management. 

As a result of your show, I now have a financial strategy for myself, I feel I am in control and I sleep well at night! I can find and read an MDD and understand it, without feeling overwhelmed and confused. A few months ago I struggled to distinguish between financial products, all these names I didn't know - TFSA, RA, ETF etc. Now I can eat them for breakfast :) You have helped me bring a real sense of peace and security into my life and I will always appreciate it. I recommend your podcast to anyone whom I think would find it beneficial.  

Her mom is turning 60. She started her discretionary investments late, because she was in a marriage where she didn’t have an eye on her finances. When she finally did, she realized she owed SARS a lot of money, which she has paid back. 

She has a company pension fund and started saving some money in a tax-free account, but at a very high fee over over 3%. 

Kim is concerned that her mother will fall short in her investments based on the rule of 300, by about half.

My sister and I want to both invest on behalf of my mother, to improve her circumstances going forward. 

I know you have both said go into safe investments as you near retirement, but my mother needs good growth.

We can collectively invest a lump sum of R80,000 and then a further monthly sum of R10,000/ month.

Invest heavily into local equity. 

If the SA market dips / crashes in the next  5 - 10 years, we're screwed. However, if we assume that mom keeps this for a full 10 - 15 years and only withdraws it when she is 70 - 75 yrs old, perhaps it will provide a nice boost for her later. 

Invest heavily into foreign equity to avoid a local crash.

Is an offshore ETF that invests in international equity still based on the JSE? In the case of an SA Stock Market crash, will this ETF still hold its' selling value ? OR if we want foreign, is it better to invest in USD? We are worried about currency conversion & fees the EE USD option.

Invest 50% in equity and 50 % in bonds.

If the stock market crashes / SA politics goes south, is there be a risk of the government not being able to repay its' retail bonds?

Don't do so much investing on her behalf

If both my sister and I focus on building our portfolios, we can reach a point in five yrs where our dividends/ growth can be withdrawn and given to mom. This is of course not the best idea i.t.o. compound interest so more practically we will stop contributing to our investments and pay mom out of our salaries. 

My mom has no other assets. Even though it will be a huge drain, my sister and I are considering buying her flat to give her security and reduce her expenses.

In a TFSA, if you keep reinvesting your dividends, in addition to your annual contribution, won't you end up exceeding your maximum contribution? If you're in funds that don't pay dividends, your growth will also push above the threshold. I am assuming the limit is on your contribution and not the value of your account?

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Christoff

When you invest offshore directly, you only pay CGT on the investment's gain, not on the currency devaluation.  If you on the other hand invest indirectly like with an offshore ETF, you WILL pay CGT on both the investment growth AND the currency devaluation.

Lethabo

I have an RA and TFSA with the same broker. I have noticed that some of my ETFs in my TFSA had dividend payments (yay!!) but the same ETFs in my RA did not. I am not sure if I am missing something but it just seems kinda strange. How do dividends work with RAs?

Brent

I have my TFSA ETFs amounts and allocations bedded down. I am now reviewing my provident fund. Is one able to cash out a provident fund and put it into an ETF? Will there be tax implications for the early cash out? 

Would it be better to decrease the % contribution and start my own ETF investments on the side. My employer does not contribute towards the provident fund. I don’t have an RA.

Nicky 

In an attempt to diversify my portfolio fully, I thought I would buy some bonds.

The fixed rate bond (5 years) is currently at 8.25 % according to treasury website, which is very similar to interest rate offered by Capitec for I think > 100K for 49 month term.

Any advantage of the one over the other?

How are bonds handled in your estate?

How are bonds treated in terms of tax?

If no gov retail bonds have no tax advantage, why would people choose them over fixed deposit?

I am worried I am missing something as surely the government would tempt people into lending them money by making bonds in some way more attractive than fixed deposit.

Keegan

Do you guys suggest using an IG account and buying foreign shares listed on other stock markets? or Should I open an online account as a citizen of an EU Country? 

What are the tax implications? 

I have some extra cash I’d like to invest. The ROI on my investments have been greatest in my business although it is somewhat high risk. Do I reinvest in the business and buy more equipment and try expand or do I look for ways to build up a stronger financial portfolio while I am still young?

Rahzia

I plucked up the courage to stop two debit orders for an RA that I held at Sygnia and a unit trust at Coronation (which charges -1.74% fees). I wanted to contribute to my tax-free account only. I do contribute to a pension fund with the organisation that I work for (8% employee and 15% employer).

My husband and I want to get out of our car and home loan debt within the next six years. We bought the house this year. 

The extra money after the debit orders are cancelled will go towards the debt repayments. We do have about 2-3 months worth of expenses as an emergency fund.

Is it better to put all money into getting rid of debt and then focus on saving/investing as much as possible thereafter?

If we were to do this, it would mean no ETF investing for six years. However, all extra money after the debt has been repaid will go into saving and investing as much as possible. What about the time aspect?

If we don’t put all the extra money we have into paying debt, we won’t meet such an aggressive target of six years to eliminate the debt.

Candice

My husband and I have historically had a terrible relationship with cash and anything finance-related.

We have recently had a baby.

My one requirement for having this baby was that we do it debt-free. We are in our last month of paying off debt and then we are free. We don’t own our cars (corporate cars) and we currently rent our home.

Do I use a broker to start off with or do I try to go at investing on my own and figure it as I go? We both currently have RAs (with the big green company you despise) and medical aid. We have a savings account with 24 hours access for emergencies and a 32-day call. 

I would like to get a tax free savings open for our baby now and then stop contributing to the above savings and rather invest the cash elsewhere, but have no idea where to start?

How do I know where to invest, what to invest and how to trade? Is it not better to use a broker who can advise better?

Anne

I managed to save R100,000 in a savings account. Finally got brave enough to transfer the money to my brokerage account. The plan was to buy Satrix Msci World and Satrix 40. Now I’m just staring at the money. What’s the best plan? Invest all the money on one day? R5000 per month or per week in each fund?

Second question is FNB or Capitec? I earn a salary, have a few debit orders, card transactions draw money once or twice a month and have an emergency fund.

Theresa

I opened an ETFSA investment account six years ago and have a monthly debit order of R500.   The account is in my seven-year-old grandson’s name, but I pay the debit order and his mother is listed as his parent/legal guardian and she has to sign any transaction forms.  

I know it would make more sense to contribute to a TFSA, but I don’t know what to do with the existing account. Should I sell off R33000 worth this tax year and the rest next year to close the account? My daughter has never declared the ETFSA account to SARS.

I’m told I can’t contribute directly into a tax-free account unless it’s in my name.  I wanted to have a little nest egg for him for later but now I’m thinking there must be a better way to invest for him. 

Should I open a TFSA in my name and leave it to him in my will (which would require a trust if he is still a minor when I die) or should his mother open an account for him and pay into it every month from money I give her.  

I already assist with his expensive therapy costs every month as she doesn’t earn much and I am aware there is a limit of R100,000 allowed before tax is payable on donations.

Not many of us are well-equipped to manage a large sum of money. Our monkey brains spent so much time learning how to run away from predators and exactly zero time learning about financial decision-making. We don’t blame it, of course. Compounding is lost on the dead. 

All this monkey business makes retirement a nightmare. Most of us learn to cope with money one pay cheque at a time, and even then we often do a bad job of it. Over time a monthly income starts to feel manageable. 

Once the corporate machine spits us out, often in our 60s, we are suddenly expected to understand drawdown rates and how a living annuity differs from a guaranteed annuity. We have to make sense of the tax code - a seemingly impossible task. The behavioural aspects of financial management we avoided thus far suddenly become the key to our survival. All this while we profoundly change our daily routine and often our living arrangements. 

Since managing our money in retirement or financial independence (whichever comes first) will involve the most important financial decisions of our lives, we should be preparing for those choices from the day we start saving.

This episode of The Fat Wallet Show is dedicated to that enormous amount of money we have to manage in independence. We talk drawdown rates, what happens when you become too old or too sick to make good choices, what to do when you only have a few years left to prepare and how to think about annuity options.

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Johan

I’m nearing 65, which means need to retire now and are clueless as to where to from here.

I mostly saved and invested in single stocks. Lately, as you advocate every day, in ETFs.

But how does one do it from here? I’m comfortable with the 4% rule and relatively sure with a 5% inflation increase per year that my money will last into my 100s.

I am, however, not sure how to actually do it. I think one will sell enough equities at retirement for maybe two years’ income and stuff it in a savings account and draw monthly from there and replenish it thereafter on a yearly basis.

My concern is that at this age one tends to be out of action every now and then (e.g. in hospital with pipes and wires coming from all parts of your body) for a few weeks and then you are incapable to do or think at all. 

Technology also starts to run away from you, you are not that quick anymore to master a new mobile phone/windows/ trading platform/ etc. and you cannot hear the call centre operator at SARS/bank/etc. anymore. You get the picture?

On the other hand I have been milked by many a financial advisor in my younger days and do not trust them and wish to steer clear of them. 

Any idea how one can continue to bypass financial advisors but cater for ones diminishing abilities in this regards?

Syd

My wife and I will be getting at least 90% of our post-retirement income from a guaranteed annuity and plan to supplement this with income from investing in Income Funds. 

We bought the Income Funds with the tax-free lump sums both me and the wife could take from our retirement funds as well as excess contributions to retirement funding. Those will be invested in my wife's name. 

Income form the Income funds are mostly interest income, which will not be enough to make her tax liable. Part of the income proceeds on a monthly basis will then be used to continue contributing to our TFSAs until they are maxed (about 80 years of age). 

In this way I am channelling money whose investment returns would have been potentially taxable into investments in our TFSA's with zero tax implications! 

AJ and SM

I'm the unemployed female partner (61-year-old couple) with ZERO retirement savings. Hubby works in the Middle East. We've managed to save all the SHOCKING parent visa fees needed for a move to Aus, with no guarantee they'll grant the visa. (Our daughter and grandkids are there ... that's the pull.)

Hubby is more or less assured of another 12 months on contract. We now have US$ X amount monthly we can do something with. What is best to do? What is the index? Where does one find a 'fee-friendly' broker for investing in Ireland, for example? 

Also, we have no assets, no policies, but I have just discovered that I have a retirement policy that I had forgotten about. It's paid up and has +-R20,000 lying in a Sanlam acc till I'm 65. How I can I best utilise that money?

We have an adult autistic child that lives with us. A nightmare scenario for the day hubby doesn't have a job anymore. We need to save intelligently for the next 12 months and we are ignorant on money matters. Totally ignorant!

Win of the week: Carl

I finally paid off my student loan!

I now have an "extra" R10 000 per month that I can either use for my vehicle debt or put into my savings.  

I already max out my TFSA and contribute to an RA.  My company provides me with a vehicle allowance each month which covers more than the monthly installment as well as insurance.  

For the age old question:  is it better to put this "extra" money into the vehicle to pay it off as soon as possible?  Or is it a better idea to put that money away? Does the fact that I get a vehicle allowance make any difference?

Deborah

I want to invest in my first TFSA ETF. I am 40 and am playing a bit of a catch-up game so I would like it to be aggressive. Please can you recommend an ETF and who to buy it through? I also see you have One Lap ETF - is that an option?

Sabata

It helps to negotiate and / or fight with your insurer.  

Dialdirect tried to increase my car & household insurance premium from R 1163 to R 1458 per month; a 25% increase.  

I thought this was rather excessive and shared this view with my insurer.  My premium will now be REDUCED to R 1099. I feel rather smug.

John-Ross

Are there any compounding benefits to having one ETF, as opposed to 2/3 ETFs?

Gregg

You mentioned your friend that managed to feed herself and two children on R1,000 a month. I am all for cost cutting, and would like you to please ask your friend firstly, how old are her two kids, and secondly, what type of meal plan does she implement at such a low grocery bill? 

I would love to know how I can economise on food because prices keep on going up.

What are your reasons for using Easy Equities as a broker for your TFSA?  

I am also researching where to place my TFSA. I know you have also mentioned ETFSA before who also appear to have low fees. 

Can you give me some pointers here because I know you are a great one for not wanting to give any of your hard-earned cash away, especially on fees.

Rudolph

How does investing in gold, "fail" to produce "income"?

Adri

Patrick mentioned the Vanguard FTSE All-World ETF. He said that he is buying through his brokerage account. 

Is there a South African platform with US account through which you could buy this ETF?

I see that Easy equities only has the Vanguard FTSE emerging markets available. Can you suggest a platform through which one can buy the Vanguard FTSE All world that is not too expensive?

Interactivebrokers.com 

degiro.ie

Christina

I paid off the last of my debt in 2014, increased my monthly debit order to my savings account and wandered off to pay attention to things I find more interesting. 

After about four years, I realised that my "emergency fund" was getting rather bloated and I should probably start investing some of the money. I went about this in exactly the wrong way. I invested about R 400 000 through Sanlam, set up a monthly debit order and called it done.

All of this was around June of 2018. Then I started listening to your show in April this year and I realized that I had been lazy and I that I was probably paying for it. I went through all my statements. 

Not only was all the funds in my investment actively managed, I was also paying about 1.6% in fees on top of the fees for each fund. I have shut down the account and gotten my money out (minus about R9,000, which is probably a reasonable stupidity/laziness tax).

I have set up an account with a broker and invested about R50,000 of the money I got out from Sanlam (and another R150,000 from the still slightly bloated emergency fund). 

However, it looks like we might be at the top of the market and that investing the rest of the lump sum right now would be a bad idea. Part of me is saying: just put the money in the market, set up a monthly debit order and call it done. 

But I can't help but feel I am being lazy again. Is it a better idea to actually pay attention to the market for a few months and wait for prices to drop a bit before investing (given that the S&P 500 is at record highs and everyone appears to be piling in) or is it actually okay to just buy more of my chosen ETFs and assume that things will work out more or less equal in the long run? 

Catherine

I am selling my property with the intent to rent instead

I own my property outright, which means I will be getting a huge lump sum (of about R1.6m), probably at the end of this year. 

I guess I would like to spread across my ZAR and USD accounts in global equity ETFs like MSCI World and Vanguard World. 

This is the majority of my net worth, and I’m unlikely to ever again deal with such a lump sum. What if the market crashes the day after I invest it?? 

Isn't there generally a global crash approximately every 10 years, and wasn't the last one 11 years ago? 

Please can Simon look in his crystal ball and tell me when the next crash will be. 

Tshedza

I have just noticed that since I decided to track my expenses, I analyse too much what I spend on and what value I get in return.

For example; the R3.50 cost of a plastic bag at Evergreen in Tshwane Market (I now request an empty box or just put everything back in the shopping trolley and pack them nicely in the car boot).

In June R600 bought me 329 kwh of prepaid electricity and this month the same amount got me 255.50 kwh. This change was brought by the start of the new financial year for municipalities and this appears to be what R600 will buy me going forward. Plus my bank charges me R1.50 to buy electricity on their app. 

All these are things I would have easily ignored during my autopilot days, but not anymore. Am I just being too analytical or am on the right track?

Bonds are wonderful, magical things, but they can be tricky. Pool them all together into an ETF, and it gets even more complex. First of all, the tax on a bond ETF is tough to figure out. Coupons are taxed at your marginal rate, after an exemption. 

When your coupons are reinvested, as in the case with our total return bond ETFs, do you also pay capital gains? The answer is surely no, but when SARS comes knocking for an audit, would you be able to strip out the coupons reinvested for the period? 

What about inflation-linked bonds, where your capital amount increases by inflation with a coupon on top? You’d pay capital gains on the inflation-adjustment and income tax on the coupon. Will you be able to show which is which for the period?

I love thinking about bonds and bond ETFs. On the one hand, they’re incredibly simple, but once you start thinking about the tax implications, the simplicity leaves the building. 

This week, we approach bond ETFs from two angles. As a short-term investment vehicle, bonds make a lot of sense. However, once you start delving into the tax aspect, a bond ETF seems less appealing than an ordinary government retail bond.

The role of bonds in a retirement portfolio automatically limits you to bond ETFs, but why are the inflation-linked bond ETFs underperforming the all-bond index?

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Victor

I am required to travel to Mozambique and Zambia for work. 

I require a car that would be able to get me there and back reliably. I currently drive a 1992 Nissan Sentra which breaks down about once every few months. 

Luckily my father lives nearby and he can frequently provide me with assistance (this would not be the case when travelling for work).

I was looking at a second-hand Honda Jazz as they seem to be reliable and provide a good fuel efficiency. The current cost of this car is about R150k. Ideally I would like to buy this car cash in about three years.

I have received an offer of 13k for my car. I think it would be best to sell this car and invest the money, then use my partner's slightly more reliable 2004 Ford Fiesta in the interim (she lives close to work and does not use her car very often - also she is aware of this arrangement, i.e. I won't be stealing her car). 

Considering my budget and still contributing to my TFSA, I estimate that I would be able to contribute about 3.5k per month to savings for the car (increased annually by 15-20%). Taking into account inflation of an assumed 5% p.a., and low average market return of 1% above inflation, I should be able to achieve my goal within the specified time frame.

My question however pertains to the best investment vehicle for short-term investments. I have looked at cash/cash-equivalent, income investments, money-market, and bonds. 

Firstly, understanding the difference between the first three is fucking difficult. Bonds I kind of get and I agree with you, they are cool to think about. Should I invest all of my money (13k lump sum + monthly contributions in the same investment vehicle? Or should the lumpsum be in a different place, say fixed deposit or a notice account or one of these weird products which banks offer? While the monthly contributions go elsewhere like a bond ETF or into the NewFunds TRACI or perhaps even a combination of the two?)

Furthermore, I consulted your guide to bond ETFs. I prefer the bond ETFs which reinvest your money, so I would have to choose between NFILBI and STXILB. Satrix have a lower TER and most of their bonds are long term thus providing better rates. Therefore, I believe STXILB is the better product? In terms of cash investments I like products which I can access through my broker (such as TRACI) rather than my bank.

Please assist me as I am very confused about which investment strategy would provide me with the best returns. Does my investment horizon allow me to look into bonds? Or should I only be looking at cash/income/money-market things?

Win of the week: Cindy

What have you done to me? I have turned into that obnoxious person telling people to keep their cost of living low and to invest in ETFs. And I blame the Fat Wallet. :)

I wrote to you a little while ago with plans of tackling my debt like a rugby player after some much needed Fat-Wallet-encouragement. Since then, I have paid off my debt but got back into debt thanks to a shitty emergency fund. Now, I am hella close to paying it off again with the backing of a pretty sexy emergency fund.

Fat Wallet and Just One Lap have been educational, motivational and just damn inspiring. I am so ridiculously into personal finance that I am on a serious mission to change my work environment to the financial sector. As a graphic designer I want my job to fit my values - to design in order to educate people about their finances and not to design to make people buy more crap.

Chris

I'm currently doing an ETF based retirement annuity on the Sygnia platform using the following split:

Local Equity - Coreshares Top50 - 45%

International Equity - Satrix MSCI World - 25%

Local Property - Satrix Property - 15%

Bonds - Satrix ILBI - 15%

Cash - 0%

I'm unsure if I have chosen the correct bond ETF to complete my Reg 28 compliance.

Initially I thought an inflation linked bond would return inflation + 2%, however looking at the historical performance, inflation linked bonds seem to have underperformed inflation over the last 5 years (ILBI index returned 4.37% from 2014-2019). In contrast, the GOVI index has  returned 8.18% over the same period.

How can there be such a huge discrepancy between the two indices, particularly as one of them is linked to inflation and should therefore be returning greater than inflation? 

I still have 20 years to retirement so my goal is to set my RA up as aggressively as possible - I.E. I don't mind short term fluctuations. Do you think the GOVI or the ILBI is the more aggressive fund (hopefully returning better long term returns)?

Willem

My basic fee sits at 1%, but then they add a performance fee clause which is pretty unclear.

I’ve looked at the other options. The only passive investment which I can select is the Satrix Enhanced Balanced tracker with a flat fee of 0.36%, which sounds much better. Do you have any comments on this ETF? 

I’d like to make this change, but I just feel that I don’t really have much of a choice with regards to passive funds.

Ashley

I am looking for the lowest cost provider to put together a bespoke share portfolio (chosen by me) in a retirement wrapper, for part of my retirement investments. PSG offer the service but it requires that you appoint a PSG advisor at an additional cost of 1,15% per annum. You’ve made me allergic to fees that don’t add the required value. I’m quite happy to pay handsomely for the professional services rendered but am battling to rationalise a fee based on a % of assets under management – especially given the size of the underlying portfolio.

I don’t drive a particularly fancy car, but the fee I will end up paying to the advisor would allow me to pay off two more similar cars. I’m looking to invest – without having to buy the investment manager two cars that could be mine.

 I understand that you may be reticent to recommend a particular provider – but could you guide me in my search by suggesting a couple of places where to start.

Brenda

I have just turned 60 and have unfortunately made many disastrous money decisions in the past.   

I have only been permanently employed, and contributing to a pension fund, for the past five years.  

Needless to say, the thought of retirement (age 65) fills me dread and until now I have just stuck my head in the sand and tried not to think about it.   

I have two properties (both currently with big bonds) but on retirement the proceeds from selling one will pay off the bond on the other, so I will have a paid up house and a roof over my head. 

With only a few years to go, what is the best way of investing if one doesn’t have the benefit of time in the market?   RA? or TFSA?

I am contributing a total of 20.5% of my current salary into my pension fund (company contribution and mine together).

Matthew 

My parents have asked me if it is a good idea to put a some portion of their investment portfolio in the DCX10 index. They are not computer literate so I recommended they just stick to ETFs as crypto currency is more complicated to trade, hold, and a great way to lose your investment if you do not know what you are doing. 

Having access to crypto though this index takes out the complications above. So is it an option or is it too good to be true?

Can I view this index as an ETF? By that I imply,

Self healing and removing bad performing currencies.

Gives diversification and a weighting based on some predetermined method[1].

Tokens are generated or issued like ETFs.

Are you protected in some way? (e.g. Trade insurance, compliance as an a financial service provider, etc.) Can DCX10 be trusted to some degree?

Taking past experience into account, will the token still be around even if the crypto market retraces? Remember that the previous BTC retrace in 2018 was over 80%from all time high and subsequently majority of altcoins retraced over 90% from all time high. Can DCX10 cancel the token due to bad performance?

Chris

I have a share portfolio of R1m . I also have a Unit trust portfolio of R1.5m from which I live.

I am considering investing in a foreign ETF.   Will probably start off with R1,000.

Any suggestions?

For two years we’ve had to live with the shame of the Listener Love Index. The wisdom of the crowd is not quite so wise when it comes to stock selection. Let that be a lesson next time a friend offers a hot stock tip.

This week we finally replace that horror show with our new index - the Fat Wallet Price-Weighted Index (FWPWI). The methodology is one step dumber than that of indices weighted by market capitalisation. Market-cap indices multiply the number of shares in issue by the share price. We ignore the shares in issue and focus on nothing but the price. You’ll find JSE-listed companies within the R80 to R250 price range at the start date. 

I’m curious about how this index will fare against our benchmark, the Satrix 40. In essence we’ve stripped the outliers - at the top we’re talking Naspers and a bunch of commodity stocks. At the bottom, property. 

We end up with a fairly defensive index. You’ll find a number of consumer staples and retailers - those businesses we can’t do without during tough times. The index is heavy banks, which could turn out to be disastrous if that dreaded downgrade finally comes. Here’s hoping Dario is right about that.

Here is a video of how we put together the index. In the podcast we discuss why understanding this matters to beginner investors (and everybody else). The coolest part about this index is that you can easily replicate it for your portfolio. You simply add the average price you paid for your holdings and divide by your number of holdings. That will give you a DIY bird’s eye view of your overall wealth.

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Steyn

I’ve started to realise that property might not be a very good investment. As I understand it, there are two factors that make a property a poor investment:

• On average it only grows at around 7% - just a fraction above inflation
• CGT doesn’t care about inflation

I ran the numbers and it became clear that the CGT you will pay after 20 years almost strips your growth entirely. 

If you buy a property for R1m and it grows at 7% per year, it will be worth R3.95m after 20 years. 

In today’s money it would be worth R1.23m. So in real terms, your property only grew by R230,000.

If you want to sell it, CGT will be calculated on the total growth of the property and not the inflation adjusted value. CGT will therefore amount to R210 000. After 20 years you only made R20,000 profit. This is sad.

This has not been the case with our two properties. We’ve been very fortunate with both of them:

We bought a rental property in a new development three years ago.

They only finished and transferred last year October. 

Over the past three years, the property has grown tremendously and in the meanwhile new phases were added which made the development quite sought-after. 

The developer kept some units in our block and is now selling them for R1.5m. If I can sell it now I will make a nice profit, but I can’t since there’s a clause that restricts me from selling before five years unless I’m willing to pay a penalty. This is to keep speculators from tanking the prices.

We also bought another house which is our primary residence at about R400,000 under market value. 

• Is my rationale correct that by cashing in on this equity and putting it into ETFs or an RA, would be better over the long run? 
• I’m considering putting the two bonds in a structured facility at FNB. This might give us a better interest rate (currently 9.5 and 9.6% respectively). Do you know anything about structured facilities and is there anything I need to look out for?

Lastly, I’d like to share a property hack:

I have a 55 day interest free period on my credit card. So each month I put my whole salary minus debit orders in our bond.

For the next 55 days we live off the credit card’s interest free period. We clear the credit card after this period and restart this cycle. If we continue to do this over the next 20 years, we will save about R260 000 in interest and take 18 months off the term without using any of our own money. 

Dario

SP has kept our credit rating below investment grade....for now.

I can't say I agree with Ramaphosa in all things, but I do recognise that he has the potential to steer this country into a better direction.

I am a firm believer that he will at least get SP & Fitch to upgrade us up to investment grade.

I think we have some time to prepare for this. I don't think 2019 is the turning point just yet. How do we best position ourselves and how much upside is there?

I currently hold some STX40 in my TFSA but I think investment grade affects bonds the most considering our JSE is largely offshore? 

Gregg

You have my school-going son investing R300 a month of his pocket money into a Global ETF – how’s that for awesomeness! I’d much rather he do that than blow his money on what typical teenagers get up to now a days. Well done guys! 

If I buy a house worth R1.5m, but I take out an access bond for R2m, it means I have automatically created an emergency fund of R500K. I don’t pay interest on what I don’t utilise, so I would only be paying interest on what I spent, in this case the R1.5m. 

I totally get it that this is not the same, nor as good as buying a house for R1.5m,  then putting R500,000 into the bond thus reducing it to R1m, but still being able to access that R500,000, all the while it is “saving” me interest. This is ideal. 

But in the first instance, if one does not have a big enough emergency fund, is this not a good way to kick-start one?

Rudolph wants to know if raising taxes does the same thing to the market as raising interest rates does in terms of inflation, economic growth, investments, corporate profits, government revenues, etc?

Ben wants to know if it’s dumb to sell his old EW40s for ASHEQs in a TFSA.

Making mistakes is a great way to learn. Someone can explain diversification a hundred times without ever having the same impact as one share dragging down your entire portfolio. At Just One Lap, we like mistakes almost as much as we like questions. We know - mostly from experience - each mistake gets you closer to that ideal portfolio. 

In this week’s episode, we use Ntombe’s question as a kick-off point for some of the common mistakes we all make when we start investing. We talk about the tendency to be too diversified when we start out. We discuss why starting your investment journey outside a tax-free savings account is really not a good idea. Here are some other common mistakes we discuss:

• Checking your investment account daily
• Taking on too much risk because you’re in a hurry
• Not taking on enough risk because you’re scared
• Not having a strategy
• Not paying attention to fees
• Waiting too long to begin
• Leaving your important choices to someone else
• Thinking you should earn more money before starting

If any of these apply to you, don’t miss this one.

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Win of the week: Ntombe

I opened a brokerage account last year. I didn't know much so my thinking was a "learn as you go". 

I bought shares that were very cheap, testing waters. 

Balwin Prop, Vukile, Delta, PnP, Old mutual and Satrix Top40. 

Out of all of them Satrix is doing well. The rest are always in the negative. So I'm thinking of selling even if I lose and just buy more on Satrix T40 and Prop and other ETFs maybe TFSA. What will you advise me to do and which one are good? I don't have much so I use my salary and currently able spend about R200 pm buying on my EE, which is a start for me. 

I was just shooting in the dark. Did not know what I was doing, it was a learning curve. I'm still learning but I'm getting there slowly. They were very cheap, also because I've seen these names and thought they kind of big companies.

Brecht 

I have a savings bank account in Germany with some Euros in. The interest rate on this account is less than 1%. Would it be worth my while to move this to a broker where I could invest this money into ETFs in Germany? How does the tax implication work on this?

Nadia

You mentioned that Robert Kiyosake's advice on buying gold isn't such a great idea. I'm not very clued up about gold and I was wondering if you have done a podcast I could maybe listen to about why you think buying gold isn't such a good idea? My mom knows a lady who also firmly believes that gold is the way to go and I'd love to hear your view. 

Wim

I invested in a cow about 9 months ago and paid R8,500. 

To my surprise last month I received mail saying my cow, Silly, was on its way to the slaughterhouse.

I was paid about R9,600 after all the deductions, feeding,  entertainment etc. 

It was about 8% return on investment in less than a year. I felt chuffed, but haven’t decided to repeat since cost increased considerably.

I have a bond with remaining debt of about R500,000. My wife and I contribute more than double the repayment required. We have RAs. Should we rather push our extra savings currently going into our tax-free saving, RA or into the bond or continue with R2,750 into the tax free/RA?

I would also like to know if it is possible to choose a south African stock at the end of your show or once a month that prove a good investment opportunity. I do realize ETFs remain the primary equity vehicle for investment.

Waldi

What do you guys think is the best type of investment for him seeing as he is close to retirement age? Should he just put the money into a savings account and let the interest run on that amount? Is there still time for investing in ETFs? Or should he look at other things like Property (Maybe to rent out as an AIRbnb) or offshore accounts? 

Joyfully Prosperous

I've inherited some RDF (Redefine Properties Ltd) shares and noticed that the analyst consensus on Sharenet is to sell them at the current price levels. These levels are in line with the lowest in the last 5 year period. So, what am I missing? Why do 86% of the analysts agree that they should be sold. Can these analyst opinions be trusted in general?

We can all assume the chief economist at Stanlib knows a thing or two about the world. Imagine my alarm when I read he thinks we need to fall out of love with equities. Thankfully the headline was just clickbait and Kevin Lings said nothing about Bitcoin. If you let yourself read beyond the headline (lesson learned, I assure you), you’ll find a thoughtful explanation of why the South African equity market is where it is today.

In this week’s Fat Wallet Show, Simon and I discuss what our alternatives are if we don’t love equity. We get to talk about bonds, which makes me so happy. We also delve into stacking your home loan and the right amount of emerging market exposure for equities.

Roberto

What's a general recommendation percentage-wise in ones portfolio allocated to emerging markets? I have been buying Satrix World and Emerging Markets ETFs in my tax-free savings, split 70% and 30% respectively. Is that perhaps too aggressive on Emerging Markets? I have seen online 20% max is usually recommended, at least for investors in Europe.

@layoutordie

Stocks give a 13% return, but (tfsa aside) you pay tax now or later. Paying off home loan gives a 10.5% (or greater) return, tax free.

Am I missing something, or is a tax free return of 10.5% better than equity?

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Win of the week: Shane

We recently adopted a rescue cat named Myshka.

She's 18 months old, has all of her vaccinations and has been spayed.

I've been listening closely to your views on funeral cover and thought that the same philosophy could be translated into pet insurance.

We spoke to a veterinarian friend of ours who indicated that Myshka is unlikely to have any health issues during the first 5 to 7 years. She has a life expectancy of at least 15 years. Diet apparently plays a large part in their health, so she's only getting Science Diet (There go our bubbles...) With this information, the plan is as follows:

Step 1: Obtain quotes for the "Rolls Royce" of pet insurance for an 18 month old female cat with no medical history (Let's let the actuaries assess her risk and do the hard work for us for free).

Step 2: Select the most expensive quote (the theory is that we are selecting the most risk averse actuary out of the lot). This quote came to R410 per month.

Step 3: Round up to R500 per month to build in an extra margin of error for risk and invest this amount into an equity ETF and watch our Money Bunnies grow (thanks Stealthy!).

We worked on the following figures and assumptions:

- R500 per month contributions adjusted annually by inflation (assuming 5%)
- Assuming an annual growth of 12% over the 5-7 year period
- Adjusting the 12% growth down by our assumed 5% inflation figure to 7%

We are assuming we are in a relatively safe space regarding kitty health in the first five years After 5 years we enter the "danger zone" but we have almost R30,000 in today's money to pay for vet bills.

Assuming the pet insurance premiums don't increase (which they will), this means that we would be spending in excess of R24,600 in insurance premiums during the first five years of Myshka's life.

This is the same period of time that she is at low risk. This investment is not as liquid as we might want it to be for an insurance, but that's why we have our six-month emergency fund to draw on in case of kitty emergency. We can then slowly replenish the emergency fund or cash out some or all of our investment to replenish the emergency fund when the market allows for it.

By the time Myshka reaches the end of her lifetime at a conservative 15 years and assuming she hasn't had any major health events, we will have a tidy little sum of R215,000, which can be put towards a royal kitty funeral with loads of bubbles or a golden plaque in memoriam of our beloved Myshka (Don't worry, I'm just kidding, I'd never invest in Gold... Bubbles it is!)

Brecht

A few years ago I worked for MTN and they had a share incentive scheme in which the employee received shares after a certain number of years of employment.

I’ve watched these shares climb very nicely and have watched them drop very nicely.

I am way over invested in one share and was wondering how best to start selling and getting diversified whether in ETFs or other shares. My thinking is to start selling R40,000 a year to not incur CPT and that would be a great start to funding my TFSA and buy some other ETFs with the extra? Your thoughts?

Currently my MTN shares are with ABSA stockbrokers and they charge a +-R80 admin fee every month. Would it be worth moving?

Sexy Bear

Two years ago, I found myself desperate and in a deep, dark hole to the tune of almost R3m.

That was made up of a house, vehicle debt and over R600,000 in unsecured loans and credit card debt. We overspent my income by at least R20,000 per month!

From the outside looking in, I was probably ‘living the dream’. The reality was vastly different! I was unhappy and in debt that I couldn’t even afford to go away for a weekend.

I realised it was absolutely absurd that despite earning a decent salary I was literally broke.

I put the house and my wife’s car on the market, I started frantically paying back debt a little bit at a time, lump sums when I had them.

The legal fees for the divorce set me back a bit in my journey but they were SO worth it, I was divorced within six weeks. I also had an ANC which was helpful…

Today and I am in a much healthier (and happier) financial position!

I only have a few more rehabilitative payments due to my ex-wife.
I am debt free.
I have an emergency fund
I have a credit card with a R 1,000 limit.

The bank initially wouldn’t reduce my R 350,000. I had to threaten to close my account.
I have closed my Allan Gray Equity account.
I have consolidated my RAs into one.
I have fully funded TFSAs for my kids and myself
I am in the process of changing my medical aid from Discovery to Genesis for a R1,500 per month saving.
I have threatened the bank that if they don’t waive my R475 pm account fees, I am changing to Capitec… They have asked for a meeting to discuss…?!?
DSTV is on its way out…
I have life insurance for my kids… and a will…

I max out my RA annually.

This is with 10X now, at 75% local exposure? (Reg. 28) I don’t want any more developing market (or RSA) exposure.

Because I don’t want further rand exposure than already in my RA, I believe the STXWDM is right for the TFSAs. Am I correct in saying that I already have enough emerging market exposure in the RA?

I have a further R500,000 pa that I want to invest in dollars. I prescribe to Patrick McKay’s take on buying the market, so I am interested in the Vanguard world from either Ireland or the US.

Should I use my EasyEquities USD account to buy VT ETFs or try and set up an Interactive Brokers account and buy the VWRD? I am aware of the death duty on the VT, but you can’t control everything (or anything at times!), so it wouldn’t cause me sleepless nights that if I were to croak suddenly there would be a tax liability. If I were to croak slowly I could always sell or move prior to my last croak…

I would need an international will with the VWRD through IB, would I require an international will for the EasyEquities VT?

Is the EasyEquities USD account truly offshore?

If I reach my goal of financial freedom, become an international jet setter and say moved to Croatia, would I be able to access these EasyEquities USDs from there, assuming I have a Croatia bank account?

Do you see any gaping holes in my financial restructuring above?

At this point I will have all my investments in three places: 10X RA, TFSA STXWDM and EasyEquities USD VT, although I feel OK with this do you feel that it is sensible?

Tax-free savings accounts have an annual limit of R33,000 per year and a lifetime limit of R500,000. It will take 15 years’ full contribution to reach that limit. The money in a tax-free savings account is not liable to any tax, except VAT on brokerage. For as long as you hold the account, you pay no dividend withholding tax, income tax or tax on capital gains. While you can’t make up the contributions you missed, you can continue contributing to the account until you reach your lifetime limit - however long that may take. 

The tax savings on these accounts is what makes them so indispensable to a long-term portfolio, but that by no means implies that these accounts are only for those with a long-term investment horizon. The tax savings start from your first dividend payment, which means they are for everyone who prefers not to give 20% of their dividend to the government. If you listen to this podcast, we’re assuming that’s you. 

Can you be too old for a tax-free account? In this episode, we argue these accounts are not age-dependent. We also spend some time discussing appropriate asset classes as you get older. As Patrick Mckay likes to point out, the tax-free allocation is the last money you ever want to use. If you’re in your 70s, that probably gives you an investment horizon of 10 years or longer.

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Joyfully Prosperous is wondering how to handle his mom’s TFSA account.

My mum is 78 years old. Does it make sense to open a TFSA account in her name? If so, would the Satrix 40 ETF be a better option than the Satrix Property (SA) ETF considering that the tax-free benefit will fall away eventually when we inherit shares from the estate.

Win of the week: Jennifer from New York.

I want to express my deep appreciation to you and the Fat Wallet crew for such a thoughtful and informative podcast.

I am 42 and live in New York City. I came across your podcast in a blog post last year while searching for English-language personal finance podcasts from around the world.  I'm painfully aware that my knowledge and cultural biases around finance have been molded by media sources that function as if the United States is the only country in the world that matters.

Through the Fat Wallet Show, I have learned about topics specific to South Africa, and have found connections between those topics and issues we deal with here in the U.S.  In a recent episode, you discussed the fact that some banks to intentionally mislead customers by stating misleading interest rates. Simon pointed out that in the UK, institutions are required to disclose the APR (Annual Percentage Rate). Here in the U.S., banks must also disclose the APR, a fact that I have taken for granted until I heard to this episode. I did a little googling and discovered that in the U.S., this mandatory disclosure only became law in 1968.  This is consumer protection I'm certain most everyone my age here takes for granted.

In addition, I am humbled by your resolve to continue steadily investing through a years-long economic downturn, a situation which we very well may face here at some point. My work colleagues are quick to stop contributing to their retirement accounts as soon as there is any slight downturn in the S&P 500, such as what happened at the end of last year. And of course, they only resume investing when the markets are back up. When the U.S. does enter a real recession, I plan to continue dollar cost averaging into my index funds. I understand that is easier said than done, but I hope I am able to be as steadfast as you are.

As a side note, I've realized that my current top three financial podcasts seem to have a common theme - they are all hosted by women with journalism backgrounds!

1. The Fat Wallet Show
2. Afford Anything (hosted by Paula Pant)
3. This Is Uncomfortable (hosted by Reema Khrais)

Keep up the excellent work, and again, thank you from the bottom of my heart.  If you or Simon ever find yourself in New York City, I'd be happy to take you out for coffee (good coffee, of course).  :)

P.S. Please tell Simon that we here in New York also cannot stand the Orange Man. I must constantly remind myself, although it is a small comfort, that he did not win the popular vote. :(

Kea 

What do you think of a trust for shares?

I am getting married in September. It is difficult for me to convince her family to marry out of community of property.

I want to open a trust to put my ETFs in it. My partner and I have different views about money, I am a saver and she is a spender. I intend paying University and school fees for our children with this investment and am scared she might have different views about the use of this ETFs.

What are the disadvantages and advantages of having ETFs in a trust?

Hong Kong Hans

I'm a new listener and new to researching. I live abroad, so can't deal directly with South African products, but I've learned so much general knowledge from your show and enjoy it tremendously.

You've mentioned several times that buying shares in a company entitles you to a share in the profit. How are we to understand companies that don't pay dividends despite turning a profit? For example, facebook has pretty decent profits, yet have never paid dividends at all.

Fried

So thanks to you guys, I moved my (and my wife's) RA to 10x. Was quick and painless and didn't cost too much. The IT3(a) I received from Sanlam assigned the SARS code 3920 - RETIREMENT FUND LUMP SUM WITHDRAWAL BENEFIT. There's another spot where the code is 3699 but I can't find a description of it on SARS' website. 

I didn't withdraw that money, it was transferred directly to 10x, it didn’t touch my account.

I'm really concerned about this and hope that you would be able to answer 2 questions, and hopefully set my mind at ease.

1. According to the IT3(a), the lump sum is taxable. Do I now have to pay tax on that money? On money that moved from one provider to another? 
2. Will this lump sum withdrawal affect my tax-free withdrawal limit when I eventually retire in 44 years, 17 months and 24 days?

Victor

Would the following scenario then make sense as a retirement strategy? My partner retires two years before me.

I continue to work and we cover our living expenses using my salary during this time. 

When I retire two years later, we draw down from her retirement savings (which should then be taxed at a lower rate) to cover our living expenses. Then when I have been retired for two years without earning a salary we start drawing down from my retirement savings as well.

Rudolph

What criteria is used to regard one market as "developed" and another as "emerging"? Does gross domestic product or gross national product per capita play a role, what is the cut-off point?

Are EMs more susceptible to global market volatility, in comparison to DMs? If so, what causes such? Could it be that, their markets, assets, and level-caps, are smaller, therefore less resistant to shocks and volatility?

What type of stocks or asset classes are more profitable in EMs as opposed to DMs? 

In what instance would you rather hold debt and equity in EMs? If the yield is higher in EMs, what determines such yield? How is such yield influenced by political, interest rate, and exchange rate risk?

Rob

As a result I now have about 80% saved in cash and the rest in various ETFs.  I have made the decision to transfer the entire 80% that is in cash into my EasyEquities account and have submitted the relevant forms to EE and FNB already.

Once the cash has been transferred to my EE trading account, should I purchase one or more ETFs immediately or should I buy smaller numbers of shares at a time in order to phase in my investment?

One of my concerns with phasing in is that any cash I have not used to buy shares will attract a cash management fee from EE of 1.75% and only accrue interest of prime minus 3.5%.

At age 37, Patrick Mckay had amassed enough assets to sustain his lifestyle without ever having to earn an income again. In the biz, this is what we call financial independence. 

The Financial Independence, Retire Early (FIRE) movement has enabled many younger people to think differently about their expenses and assets. Even if you love your job, understanding basic FIRE concepts like the 4% rule is a great framework for making better financial choices.

But what about people who are further along their journey? Is it possible to apply these principles in your fifties? In this show, Patrick and I discuss how older people with insufficient retirement savings can use FIRE to ensure a financially secure retirement. 

Here are some of the tools we discussed in the show. 

https://www.investorchallenge.co.za/com_calc_fire.php

https://investorchallenge.co.za/the-only-way-to-get-rich/

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Compiling a financial plan before you earn an income or when you have very little is ideal. You can’t afford any bad financial habits yet and your cost of living is probably as low as you can get it. As it happens, those are the two most important ingredients to rocking your finances.

Generally, our umbrella financial plan, the one-size-fits-all beginning to financial life, goes as follows:

• Pay off your debts
  Set up an emergency fund of between three and six months’ living expenses
  Protect your assets with dread and disability cover and insurance
  Invest in ETFs using tax-free savings accounts
  Have a retirement annuity

In this episode we use this framework in the context of unemployment or low income. This one’s for you if you’ve never worked, if you worked and then lost your employment and if you have less than R500 per month to invest.

P.S. Remember to mail us if you want to help us sell Just One Lap.

Win of the week: Margharita

Since discovering Just One Lap three months ago, my finances have undergone a HUGE spring cleaning. I'm saving 50% of my earnings; am maxing out my RA; have opened a TFSA; started investing in the stock market through EasyEquities; changed banks (to Capitec); reviewed all my policies and got rid of those that overlapped; started using 22Seven to track my spending and last but not least, did the homework on (and then eliminated) costly financial advisor fees. Thanks for providing a great resource, as well as the encouragement to manage my finances "like a grown up!"

My questions:
1. You both love the Ashburton 1200 ETF. Why do you prefer this to the Satrix MSCI World ETF, when the TER on the latter is slightly lower?
2. If I invest in the Ashburton 1200 ETF, is it best to do this within my TFSA, or in my general investment account? Or both?

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Santosh

Capital Legacy stated that if someone dies in a hospital, the hospital reports it using the person’s ID and an online system and immediately the bank accounts freeze.

No time to "go to the ATM" as the death will be reported even before the family knows

Desmond

My mum has been waiting five months to receive her pension. We've been to the GEPF and have only been shunted from pillar to post and promises. There has been no assistance from them whatsoever.

Aman

I've just completed a cash out of my EE USD account to my FNB Global account. I'm assuming this would work the same to the similar global-type accounts offered by the other SA banks.

There was no charge on the EE side for the withdrawal. The only fee was the cost of the receiving bank (mine being R55 for the amount of $33/R465).

This gives me peace of mind as EE isn't clear on the cash out process in their FAQ section.

Anton

In the offshore investing with Candice Paine, investors are cautioned to have a will(s) in place that properly deals with any offshore assets.

If memory serves me correctly, in another podcast Kristia mentioned a company well versed in preparing offshore wills. However, for the life of me I cannot find this podcast and it would be quite a challenge to trawl through all the likely podcasts (I have attempted some but without success!).

Do you perhaps recall the relevant podcast and the name of the company?

ZAQfin

Kieran

I have grown to be an advocate for low-cost, index-tracking long-term investing. I have begun to advise my younger sister financially in this regard, as she has recently started earning. Personally, my investments are simply split between:

- S&P500 (Sygnia), MSCI World and Emerging Markets (both Satrix) ETFs in TFSA (27% of total);
- 10X High Equity RA (41% - aiming for lower but contributed a big lump-sum a few years ago);
- Cash balance in Capitec account (32%).

I’ve advised my sister to first and foremost use her full TFSA allocation and buy S&P and MSCI World. Thereafter, to purchase the same ETFs in her standard non-TFSA brokerage account. In addition, an emergency fund of somewhere between 5 and 10 months of expenses, obviously in a savings account with high interest (Capitec/Tyme).

Assuming she still has additional funds to invest, is an RA the right way to go? I like 10X because it maximises Reg28 allocations and mirrors the low-cost, index-fund strategy of just buying ETFs, the major benefit of course being the tax-deductible contributions.

But the money is 'locked away' for much longer, and potentially shielded from the full returns of its underlying indices (S&P, MSCI World, etc), because of the Reg28 limitations. Would love to hear your thoughts on when and why one might or might not begin contributing to an RA

I grew up with the idea that you can lose “all your money” in the stock market. I’m sure many people did. Movies about the stock market don’t do much to put us at ease - if it doesn’t end with someone losing their last penny, it’s not very entertaining.

This week, Nadia got us thinking about what it really means for your portfolio when there’s a stock market crash. Her anxiety was provoked by Rich Dad, Poor Dad author Robert Kiyosaki, who stated in a recent interview that all money is fake and we should all buy gold and silver. Fat Wallet veterans can guess how we take this news.

We talk about what we actually mean by a stock market crash and the different ways that could affect your portfolio. We also share some gems from our Twitter community.

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Nadia 

I was wondering if you guys could help ease my mind a little. 

I've been wanting to do a lump sum deposit into my TFSA and split it between the Satrix top 40 and the Satrix MSCI world. I have most of my TFSA in the Coreshares equally weighted but I think I've given up hope for that ETF and I'd like to cut it out once it's back in the green (if that happens). 

When I was about to do my lump sum, I came across this article "Rich Dad Poor Dad' author warns South Africans of 'biggest financial bubble' ahead".

This made me a little nervous and got me thinking about a market crash. I don't know if I understand exactly what happens to all your investments when the market crashes. What will happen to my TFSA investments, my RA, Unit trust etc if the day comes where the markets crash. 

What do you do in that situation? Do you just wait a few years for it to restore itself? Should you buy while the price is low and hope for it to climb up the ladder again? For example, if I had 50k in a Top 40 ETF, does this mean I could potentially lose that 50k if all those top 40 companies fall flat? Could this happen in a market crash or would it only be a few companies who take the plunge? 

I think having a better grasp on what situations could unfold in the future would help me feel more confident about where I'd like to put my money and it'd help me understand what to do or how to handle things if shit hits the fan.

Thanks again for the amazing work you guys do. Honestly, I'd be completely lost without you.

From Twitter

@SammyJoeD

Lol I don't know but I'd like to think it's a closed system (don't ask me to elaborate, it makes sense to me that way), the money goes into someone else's pocket, say someone who has placed a bet on the option that the market will crash. 🤷

@andrevdwal

It hits the vehicle's windshield!

@Gerda04288858

Peeps panic and jump out of windows. Some unlock the safe and use their gun. Bad stuff. 

@adelinerodd

Nothing

@tshidadoz1

When the market crashes, u loose all your investment... then other  non- finance people laugh at you for wasting money by investing so it would have been better to chow it🤷🏽‍♀️

@adriaan222

Is the money invested in shares, or in cash form? I think it stops being money when in share form.. 

@OneAfrica12

It immediately stops growing. Waits for market recovery and grows very very slowly while investor recovers his losses.

Win of the week: Brett

My short journey started in 2017 when I became a financial advisor/broker (not an IFA) with Liberty. I’ve always wanted to be someone who made a positive difference in people’s lives and I thought that this was the perfect opportunity. I drove to all my clients, so this gave me loads of time to listen to podcasts. Then I started listening to your podcast.

This is when I started to understand what was actually going on. I looked deeper into the investments I was recommending, and the fees charged for them. I always knew there were fees involved, but I did not fully understand the impact they can have on your investments over time.

After asking my Regional Manager why the fees were so high I was told:  “There are loads of costs from our side and you need to earn an income too.” This made me mad, but I did have to earn an income as I was earning on a commission-only basis (another huge problem with the industry). 

When you start out, all you want is to be as successful as you can. But that success often comes at a cost to someone else, someone else can only afford to put R400 away per month for their retirement but would have to pay a fee of 4.2% per annum. 

Most of the time they were not even aware of this. As Simon says, ”It should be illegal”. I also found out that 90% of active fund managers underperform the index, so I was basically being paid for poor returns since I could only provide active funds to clients. 

It got tougher and tougher with each passing week and I felt the main reason I had started the job had been compromised. I could not carry on so I quit and hoped for the best.

Since then, I have learnt more and more about investing and saving, and even got a job at one of my favourite companies (10X Investments) as a consultant. I am paid like a normal person (basic salary) and don’t take any fees. 

I believe the problem is not with the advisors/brokers/wealth managers. The problem is with the companies that do not educate or train them properly, especially when it comes to passive investing and low fees. It’s just sad to see that the people who need the most financial help are the ones being screwed over the most by the big companies.

I have never been happier since I left ’the dark side’ and believe that I have helped more people now than I ever would have previously. So I just wanted to say thank you to you and others, like Sam Beckbessinger, for shining the light.

Smith 

I have a few thousand to invest over 10 to 15 years. Are the current open Barloworld KhulaSizwe shares are attractive in large volumes - in my situation between 1,000 and 10,000 shares.

Should I buy 1,000 shares only and invest in other investment vehicles. What would be suitable ETF to buy with the remaining money with relatively good returns in the next 10 to 15 years.

Robyn

In the five concepts podcast, you mentioned that dividends were paid out to you and you got R500 odd for doing nothing.  I recently bought my first shares and ETFs through the Standard Bank Online Trading platform and want to know HOW the dividends are paid out?  Does the money go into my trading account or into a personal account? Also, when are dividends usually paid? Is there a specific time of year or is it different for all companies?

Andy 

I have a significant amount of money invested in the Liberty Evolve Capped Tracker, which is a Top 40 Tracker.

I’m not 100% sure the costs involved but the Financial advisor who sold it to me said that there are no costs but the returns are capped at 8% for the first three years (any returns in excess of 8% is shared with Liberty) and thereafter returns are uncapped.

The Effective Annual Cost (EAC) is at 0.6%. 

The investment to date has grown by 3.1% pa (lost all first quarter gains in May unfortunately)

Should I exit as soon as I can (August 2019) and move it into the Satrix 40 on my STD BNK OST account? I will have to pay CGT on this,  but I don't understand the product and not sure what costs are hidden. 

Would you also suggest putting a portion of it into STXWD? The amount in question makes up about 40% of my net worth. I have the other 30% of my net worth in a residential flat in Cape town (Access bond completely paid off) earning a nice yield (11%pa) and the other 30% is made up of individual shares (more speculative smaller caps) on OST, an Allan Grey RA and a small amount in STXWDM.

Jonathan

My financial advisor friend says the better funds in SA have a proven track record of 10  years beating the index

Because 10x reports before fees while all other funds report after fees, 10x is obscuring a true comparison.

10x released a video today showing their performance comparison after fees, against "average fund managers", which isn't pretty for fund managers. However, he argues that calculating the average with a 10x hat on will include all the worst funds to push down the performance.

Could you comment on these figures from 10x, allan gray and investec opp:

10 year performance:

10x: 10.2 before fees

Allan gray: 12%

Inv opp: 11.3%T

Gerhard

“Most active managers have a hard time beating the index. Why do they have a hard time beating the index? The index owns the haystack. In the haystack are several needles. The index doesn’t need to go hunting to find the needles. They just bought the entire haystack and all those needles came with it. The S&P500, Apple, Microsoft, Google, Facebook comes with it - all kinds of businesses that have incredible economics and tailwinds are just part of that haystack. An active manager goes and tries to find the needles in the haystack. What ends up happening is they also end up owning haystacks, but those haystacks have no needles in them. The index is too dumb to know it owns Amazon. The active manager is too smart to pay up for Amazon.”

Adam M sent a link that explains the debt snowball method we’ve discussed before. 

Find the Just One Lap DIY debt repayment plan here.

If you are earning money, you probably know you should have an idea of where your money should go and why. Most of us avoid drawing up a financial plan because we think we don’t know enough to make good decisions. For some reason, the head-in-the-sand approach is the only comfortable thing about money when we start out.

In this episode we argue even a terrible financial plan is better than no plan at all. Without a financial plan, it’s so easy to fall prey to noise. Sometimes the events that inform our financial decisions have nothing to do with money. In these moments we make emotional decisions that could very well destroy our wealth over time.

You are welcome to copy my financial plan until you come up with your own. Here it is.

1. Get assets

An asset is something that can earn more money in the future. Since I’m only at the start of my journey, my brain is my biggest asset, because that’s what I use to earn an income. Educating myself is a further investment in this asset.

The income that I earn is a consumable until I turn it into an asset. I do that by buying shares. Shares are assets that will bring in more money in the future by going up in value. They also pay dividends as long as I hold them.

I buy shares using my retirement annuity and through my EasyEquities account. In my EasyEquities account I’m buying the Ashburton 1200. You can find out why here.

2. Protect the assets

Accumulating assets is what wealth creation is all about. Once you manage to get your hands on an asset, you want to hold on to it so you can earn an income from it. Most of the time, you need to protect your assets from yourself.

I protect my hardest-working asset, my brain, by having a medical aid and dread and disability cover. Should something bad happen and I can no longer earn an income, I have insurance that can take care of me.

I protect my income by managing my tax burden. I do this through my retirement annuity allocation. Because I pay less tax, I have more money to turn into assets.

I protect my shares with my emergency fund. I want to sell my shares on my terms at a price that I find acceptable. If I need to sell my shares to take care of myself in an emergency, I have to accept whatever price I can get in the market, which means I might lose money. Selling shares can also trigger a tax event.

I further protect my shares by using a tax-free account. All the income and profit from selling shares at a higher price than I paid for them goes directly into my pocket, tax-free.

That’s my entire strategy. This strategy holds up, no matter what’s going on in the market or in politics.

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Win of the week: Gerrie

When I realised every R300 in my hand on the day I retire gives me R1 per month for the rest of my life! Screw the 300 rule. Don’t see it as a rule. Make it practical. Even better... Since I'm a good few years from retirement the number is even better. Every R200 I put away today will get me R1 per month from age 60 till I check out much much later. I now check all my non-critical expenses against that number. Servicing my car last week was necessary, but it stole R25 per month from my retirement. So my next car should be simpler and cheaper to service.

See the full conversation here.

Dirk

I recently became a US citizen, I have a 401(k) and a small equity portfolio with some single stocks that pay divvies, some ETFs and flyers I took on recent IPOs.

The rest of my family is still in SA and unfortunately my dad is sick so I’m thinking about coming back to the Republic at least semi-permanently or chasing the summer months between the Northern and Southern Hemisphere.

I have zero assets in SA, not even a bank account, but I’m fo’ sho jumping in on the TFSA. I’ll still be working for a US company remotely from SA, earning dollars.

Will SARS come after me for money I earn while living in SA for less than six months out of the year? Should I skip the advantage of a TFSA to remain “off the books” for SA tax purposes and just be liable to Uncle Sam? I suppose a tax pro will help but I’m trying to tap into the wisdom of the crowd here with your excellent podcast.

Adam

Quick one on one of your adages on working towards financial independence. Make sure you are well covered for medical expenses - at the very least have a hospital plan.

My son was recently admitted to hospital - he ended up in the NICU for almost a month. Throughout the process I continually checked with the clinic about our "tab" just to make sure things were fine. He was diagnosed with a very rare blood disease (1 in millions) and passed away after fighting for four weeks.

We were left with all the invoices to start making their way through and the bill ended up around R1.3 million. Thankfully Discovery (who have been very cool throughout everything) paid over 95% of that. Small blessing, especially when one of your frequent reminders of his fight are the bills that come afterwards.

Just wanted to put things into perspective for the larger crowd. These things DO happen.

There's an organisation called Rare Diseases which acts as a support group for parents with children diagnosed with a rare disease. But within that organisation is something called Rare Assist who support parents (for a small monthly fee) with the administration of dealing with medical aids. I kid you not we were getting around 10 daily notifications when my son was in hospital and eventually you just left it to white noise.

Anyway, this organisation helps ensure all the invoicing was done correctly, all in-hospital expenses are carried out accordingly and they even motivate for additional costs to be paid. Such as the 200% / 300% scenario where they motivate the gap to be paid. In our cases they recouped close to R15,000 for us. Not bad for a R270 monthly fee. Also, they can support even typical households - it needn't be rare disease.

You never knew such organisations exist unless you are caught up in that world. Call this part testimonial / advice for parents out there.

Lloyd

I’m not a first-time buyer. I’m selling a property that will give me R1m in my pocket to invest.

A crappy house costs R3m and entry point is closer to R4m. These same houses can be rented long-term for R15-20k per month, vs the R22k a bond would cost.

I’m trying to work out if it is better to invest the R1m or to put this down against a bond of R3.5m on one of these expensive houses.

If we rent for R15k and invest our cash elsewhere, we have flexibility and save a whack on maintenance and property taxes, which can be as high as R2k in these areas.

It seems like a no-brainer, except you eventually end up with a "valuable asset" at the end of the bond where I am not sure my R1m will grow as well?

Mbasa

I have a preservation fund that can wipe out my home loan.

Would it be wise to take a tax knock to pay off my home loan and use the free money to add to my TFSA account? I want to contribute the full R33k and max it out as quickly as possible.

Riaan

Until now I’ve been maxing out my TFSA in a savings account at Investec earning 8.62% per year. I didn’t know anything about ETFs,  but still wanted to save TFSA money.

I then discovered your podcast, stopped contributing monthly towards my Investec TFSA and started contributing to an EasyEquities TFSA (Satrix Rafi 40 and Satrix MSCI World).

Do I leave the money with Investec or transfer it over to EasyEquities to buy ETFs? Do I stick with the Rafi 40 and MSCI or do I diversify a bit more?

We don’t recommend jumping into your first investment before you have your financial house in order. The humble emergency fund is at the heart of any good financial strategy, followed by insurance.

At the beginning of your financial journey, you don’t have many assets. When you’re starting out, whether it’s getting a handle on debt or starting from zero, your ability to earn an income is your biggest asset. You need to protect that asset first. Your emergency fund covers your expenses while you find new work, should you lose your job. Your medical aid helps you take care of your body so you can show up for work. Your dread and disability cover replaces your income should an accident or illness render you unable to work.

Once those risk management strategies are in place, insurance to protect you from having to cash in your assets (once you start building those) become important. Car insurance and insurance on things that allow you to work, like your laptop and cellphone, are recommended.

The purpose of insurance is to protect your assets. Once you start investing, you want to remain invested for the long-term. If an emergency could put you in a position where you have to sell your investments to pay for the emergency,  you want to make sure insurance covers you for the emergency.

However, on your personal balance sheet, insurance remains an expense. It protects you from needing to destroy your assets, but it doesn’t build your asset base.

As you accumulate more assets, your wealth can pay for emergencies. This is called self-insurance and it’s wonderful. You can take care of yourself without destroying your asset base. Once you stop your insurance contributions, that money goes towards building your asset base even further.

This is a delicate dance. Over-insurance means your money goes towards an insurance company, not towards your asset base. Under-insurance puts you at risk of losing the assets you already accumulated. It’s worth keeping your finger on the pulse of this issue all the time.

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Sebastian

Once you reach financial freedom would you cancel your current life, income protector and disability policy? I do have 3 rugrats, hence the current need for the insurance.

John

I know you guys always say people without dependents don't need Life Insurance. My broker said that while this is true, I am still young and healthy with a low monthly premium ~R150 a month. He said that should my health status change in the next few years it would be way more expensive to get life insurance then. (I know he would be getting a kick back but that’s ok). I get returns into my PPS profit share account which is expected to have enough capital after 7 years to pay for the cover itself. What are your thoughts on this?

Paulo’s son qualified as a dentist last year.

He needs to 'insure his hands' for obvious reasons and he needs to insure himself against malpractice. What route or products would you guys suggest he use?

Hickley Hamman: MacRobert Inc Attorneys

"Insuring his hands" is maybe more specific than he needs to go. Most income protection/disability policies cover you for an inability to practice your chosen profession. If his chosen profession is dentistry, that should do it. An insurance broker would probably be better placed to advise him.

On the malpractice insurance front, again a broker is always a good idea. He can also contact the South African Dental Association at 011 484 5288, although I think they may be allied to a particular indemnifier. There are a number of good players in the market, the main ones are probably Dental Protection (UK based but big presence in SA), Natmed and EthiQal.

Professional Indemnity insurance is one of those things you think and hope you'll never need, but it happens. He should make sure that the cover he receives is for the costs of a legal team, damages (probably minimum R500k) and also covers matters before the HPCSA.

Some of the insurers will also offer benefits beyond all that and will provide advice on general ethical issues, and also cover for criminal proceedings (it happens). Generally speaking in an increasing litigious environment, I think it's a good idea to get broad cover.

Win of the week: Bongani

Today I had a conversation with mom about retirement. She doesn't have pension fund at work and her salary is not enough. I still look after her, she’s never had a proper job.  I had convinced her to save R150 a month and I will add R200 a month. I want to open easy equities account for her. She is 50 years old, which ETF I can pick for her? I know R350 being invested for 15 years it will make a huge difference, better than not putting money away.

Boitomelo

Suppose I have already contributed R66,000 into my TFSA account and I happen to receive a lump sum. Is it possible to "pay in" the R434,000 and thus max out the TFSA? Or is it a case of, once you start the annual thing, you must continue that way until you reach the limit?

Hugo

I belong to my company’s Retirement fund. It is by far the biggest contribution I make to my retirement, combined with a generous allocation from my employer.

The default Balanced fund I am in has a EAC of 0.75% (Not bad for one of the largest fund managers in the land?!) The Umbrella manager of the Retirement Fund gives us the choice of several funds, some the same cost, some more expensive, all Reg 28 compliant of course – just with different strategies.

Now I noticed they have a “Passive fund” – with a cost of just 0.35%.

They say:

Its asset allocation is directly comparable to the Specialist LifeStage Range (Which I currently invest in), but instead adopts a passive multi-manager investment approach where it selects skilled managers that can passively replicate the exposure to these asset classes.

Sounds like they use ETFs to replicate the more expensive actively managed funds. It almost sounds too good to be true. The benchmark asset allocation is very similar to my current fund. Based on fees alone, it seems like a no brainer. Wonder what you think?

Jonathan

I used to hold a handful of stocks, most performed crap, and I just bought ETFs. I'm holding on to Shoprite and Discovery. I back both companies in the long term, so I'm not worried about the awful performance (I'm down 15% and 20% respectively). I was wondering though if Simon and you could comment on the price movements.. Discovery swings wildly, while Shoprite has more of a constant movement (down).

Why does Discovery swing much more than Shoprite and why does the market hate them?

Next one - you made a comment that you're paying 11.5% on your house. Surely you can do a percent better somewhere else, given your in financial sector? Or are you impacted by the fact that you're "self employed"?

Santosh

I have a lump sum to invest and my options are cash or stocks.

With the performance of these classes over the past three years and instability in the global markets it appears that wherever an investment is made, it either all moves up or down.

No longer are bonds the hedge it once was - it also moves with stocks. Asset classes are no longer decoupled the way it was in the 1980s.

What I find particularly frustrating is that the efficient market has become very efficient in efficiently taking away in one week what it had given the previous week.

Last week I lost R130K overnight over three days and made R30K back by Friday, which saw me end off the week about R85K poorer, through no fault of my own!

I have noticed is that the Allan Gray Stable Fund does not suffer the wild swings given the performance of the JSE, MSCI World and X-Rate (ZAR/USD)

Does this not strengthen the case for a Stable Fund or portfolio structuring to mirror a typical stable fund by way of asset class allocation ?

Mbali

I have an RA and Investment for my son’s education with an additional life cover with Liberty. I’m pretty happy here.

I have a money market fixed deposit account with Investec. I got this 5 years ago. I feel like I should be looking into the interest I’m getting, but honestly I’ve been saving into this account for so long I’m not sure what I need to be looking out for. I don’t remember there being a tax free element.

I’m looking at opening a dollar account, can you share some insight on what the benefits and disadvantages of these are for saving? Noting that the dollar is pegged to the UAE Dirham. So this is very good for me.

I’m looking to get a tax-free account through Standard Bank to build a future emergency fund. I’m sure you’re asking what the hell is this? Well I figure that I might come home in the next 5-10 years. So I would like to come home to an emergency fund in case I really struggle to get myself back on the market and my business up and running.

Questions:

1. How do dollar accounts work, who provides the easiest and best dollar rate? What are the tax implications for me as an expect after the dreaded changes in 2020?
2. Should I be worried about having so much of my financial planning in South Africa (operating in Rands)? Dubai is not really an option for me to save as interest offered is so low (between 1%-2.5%).  I’m only comfortable with South African’s financial regulatory framework.
3. I won’t make the R1m a year mark for 2020 tax, but I’m wondering if I will be hit with any of the above financial instruments I do have and the ones I want to get?
4. I would like to dabble in the ETF market, reading a lot and listening to you guys a lot. Just a question for you guys:  Am I adding too much to my portfolio? I am willing to be aggressive with a small amount to start off. Where should I go?

Get Down Adam

Donate your relatives to science! Ka-ching!

My gran died and we gave her to Wits medical school to use as a cadaver. They collect the corpse and take it to Wits. The Med students do their thing and then at the end of it, they wrap the cadaver up in - I guess what you would call it is gauze. Anyway, long story short, a year and a half after the death Wits sends you an email to come and collect a little box of ashes from their anatomy department. Cue the triangle sandwiches! Wallet remains fat!

Before we begin, please take a moment to complete our survey. It would really help us out.

Investing is daunting because there are no clear answers to basic questions like, “How much money do I need?” or “Am I on track?”

To make matters worse, financial institutions like to exploit our limited knowledge on the subject by making promises that aren’t exactly false, but not exactly true.

If you’ve been investing or listening for a while, you know the market has been struggling for years. As a result, we are getting a growing number of emails from investors who are concerned that their lacklustre portfolio growth is the result of either the products in which they are invested or the institutions managing their money. Two weeks ago we talked about when poor performance is the result of bad management. Find that episode here.

This week we help you think about what your performance actually means. My tax-free account is up by 17%. However, I started investing in my tax-free account in 2015. Inflation for the period is 21%. I am 4% poorer, even though I have more money. My discretionary investment account paints an even bleaker picture. That account is 5.6% in the red. Since I started that investment in 2013, inflation has been 32.8%. My investments need to gain 38% for me to be back where I started. If I didn’t understand the impact of inflation, a 38% growth in my portfolio would seem like payday.

As it happens, our friend Stealthy wrote a blog about the effect of compounding, not only on your investments, but also on your costs. He made a compounding calculator that will bring a tear to your eye, which you can download here.

You might enjoy running your own numbers.

The discussion was inspired by a discussion on The Fat Wallet Community group. Join here.

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Win of the week: Carl

Perhaps you're just Starting Out on your Journey, a 21 Year Old with Too Much Bad Debt & a Small Investment Portfolio, receiving a Few Hundred Rand in Dividends every other Month, Thinking, 'this is gonna Take Forever & I'm Never gonna make REAL Money so why bother'.

Perhaps you're a Financial Genius and the rest of us are just a 'Cautionary Tale' to you.

Perhaps you're a Lowly BlueCollar just like I am... and the Only Time you get to See the Inside of the Boardroom is when you're Cleaning it... and Nobody Ever Asks about your Ideas or Opinions, in Fact, Most don't even know your Name even though it's Printed on your Uniform.

LIFT your Vision for your Salvation is at Hand - and who's Coming to Save you from yourself? YOU! Which is GREAT because that Means Complete Control is in YOUR Hands!

I Feel I have Absolutely NO Reason to Boast, because I only Managed to Start Investing at Age 38... after Making Sure I Squandered every single Opportunity Life threw at me..

For Most of my Life I Thought the Best Plan was to Spend my Last Cash on the Day I Receive my Next PayCheck…

As you Grow Older you'll Realise that Time isn't Important, it's EVERYTHING - because of the Compounding Effect.

So, are you Going Laduuuuma! - or are you Constantly Scoring Own Goals?

How about Setting Small, Incremental, Reasonable, Realistic, Attainable Investment Goals - BabySteps, because your Personal Investment Journey is Probably a Daunting Sight...

When I Started Investing ALL I Dreamed about was Receiving my First Dividend... and the Golden Egg was R130 Laid by Country Bird on 21/11/2011- Because everyone Likes Chicken, Right?

It was the ONLY Dividend I Received in 2011... but I was Ecstatic with Joy because I Reached my Initial Investment Goal - I Felt like a Millionaire, like I wanted to Buy Drinks for Everyone!

Then I Started to Dream about Receiving a Dividend EVERY Month... and 2015 was that Year.

Yet Again I Felt Immortal, because I had Reached my Goal.

Then I Started to Dream about how Cool it would be to Receive R10K in Dividends in a Single Month...Well, End July 2019 WILL be that Month - and yet another of my 'impossible' Dreams WILL be Realised! - and this Time I WILL be Buying Drinks for Everyone - because Everyone Loves Bubbles, Right?

Now I'm Starting to Dream about what I Need to DO in Order to Receive R10K in Dividends EVERY Month, of EVERY Year...

I'm Thinking about WHY it Took 9 Years to Reach this Goal.

I'm Thinking about HOW to make it Happen Again.

I'm Thinking about How to SHORTEN the Period - Perhaps Halve it to 4.5 Years...

If you're NOT Dreaming - START!

If you ARE Dreaming, NEVER Stop!

If you Give Up, the Outcome is Predictable & Guaranteed, so Start Climbing that Mountain Standing between You & F-I-R-E.

Don't Start Tomorrow, don't Start Today, START Right NOW - and ADD another Zero to the BottomLine!

Khwezi

I just turned 35 and came to the realisation that I don’t have money to retire on, let alone to leave for my wife and child, in 15 years (as I plan/ planned).

Would it be possible to structure my portfolio as follows:

3 Defenders (those that provide cushion/ prevent loses, giving +/- 15-20 year returns)

4 Midfielders (a champions league great mix of conservatives, and aggressors giving returns in about +/- 10-15 years)

3 Strikers giving returns in 5 - 10 years.

I recently joined the Just One Lap community and before your shows have been tip-toeing around in the dark with no clue whether I am going forward or sideways to a cliff.

S’fundo wants to know what homework he should do before investing. He’s 22.

I recently started my investing journey, and I am looking forward to investing for long term returns (15 - 20 years) so I can take full advantage of compound interest.

Which are the most effective due diligence processes to undergo when valuing a company or ETFs to determine if they are worth buying for the longer term? How can someone with no prior knowledge of the markets or finance world learn going through those processes effectively?

The sad thing about the work we do is that it has a 0% sexy rating. Once you understand the five financial concepts we keep harping on about, it becomes easy to figure out the rest. The things we invest in won’t make you rich overnight. If it did, we would be sipping champagne cocktails on a beach, not talking about the five financial concepts a hundred times a day.

However, the work we do here will hopefully help you identify poor financial choices before you make them. This week, Karabo shares the story of her grandmother’s funeral cover. All hell broke loose on Twitter after I posted about it. The feedback was either, “If her grandmother had died in the first month it would have been a great idea to get funeral cover.” Or, less kindly, “Funeral cover is a scam.”

This week, we offer ways to think about funeral cover. It’s an insurance product, and insurance plays an important role in financial management. However, like all other short-term insurance, there comes a time where you have to stop paying for it. The sunk cost fallacy makes that much harder in funeral cover.

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Karabo

My grandmother passed away recently. I found out from my mom that for the past 13 years she's been contributing R250 towards a funeral policy that paid out R10,000.

When I do my own calculations, if she had simply saved without any interest earned, she could have saved R39,000.

She's trying to convince me to get a funeral policy but I'm not buying the maths as a funeral policy would only work if a person dies in a few months.

Is there a way of saving money that can earn good interest as a death insurance for family members without taking out a funeral policy? How can I convince my mother to consider alternatives to funeral policies?

Andy

Was listening to your "What the Fee" episode (March 10th) and wanted to let you know that Ucount rewards can actually be redeemed as cash. (Nothing against Playstation VR, but I am an XBOX guy)

I racked up about R9,000 worth of Ucount over five years and received an expiration notification. I redeemed R8,000 and put it into my investment properties bond.

What you have to do is redeem the points into a pure save account (terrible savings account), from there you can transfer it where ever.

I see they also have options to put it directly into a TFSA etc. They can only be redeemed in R2,000 increments.

I currently contribute a total of 10% of my salary to my RA which is compulsory at my work. (my work pays 50% of my contribution, so 5% myself and 5% company).

My company has chosen to use Allan Gray and we have some Durban-based advisors.

The actual Annualised return since inception has been 1.72% and over 3 years 1.74%.

The admin fee, platform fee and advisor fees comes to 2.66%.

I would love to max out the contribution to 27.5% but I don't want to put it into that RA. What options do i have here? Do i have to negotiate this with my company or can I open a separate RA and contribute 17.5% to ETFs?

Lalitha is 59 and she has a nice lump sum to invest. She thinks she’ll probably retire at 65. She already has a tax-free account. Where should her money go?

Beyers

What is your opinion about keeping a portion of your emergency fund in Kruger Rands as a currency hedge?

How are Kruger rands taxed when you sell them?

Milan

On Sygnia's platform you are able to buy Sygnia ETFs in a RA wrapper. The net result is one of the cheapest RAs you can get at the moment. I have attached a breakdown of my fees. The EAC is just 0.41%

There is also a check to make sure you are Reg 28 compliant. You do not have to invest in bonds or cash to be Reg 28 compliant. Your portfolio can comprise of just Equities and Property. If your custom portfolio breaches Reg 28 allocation rules you have 12 months to fix it.

Anne

I am trying to teach my kids to save money and buy shares with their savings. My son insists on buying gold shares. Is there any etf with the word “gold” in that could be a good long-term investment?

Sometimes we say you should move your investments, sometimes we tell you to stay invested no matter what. This week, we receive two questions about moving investments. We use them as examples to discuss when it’s a good idea to cut your losses and move on and when you should hold tight and wait for the market to recover.

Sign up for our movie night here.

Tamryn

I have RAs two with Old Mutual.

I contribute R1,500 a month to one, increasing by 10% a year.

I transferred the RA from my previous job to the other one, so it was just one payment.

I tried to work out the growth using Stealthy's formula. If I did my calculations correctly, they are not doing well, unless I don't understand the results.

The lump sum one grew by 7.7% pa. The other one was even worse, over 177 months, only returned 3.9%.

Are they doing terribly? I know they would have been affected by the stock markets not growing a lot the last few years.  I have been thinking about moving, but there will be a huge penalty.

Follow-up:

I just received the EAC for my two policies, the once-off one is 4.1% p/a. The one I pay in monthly, the 1st year, the EAC was 17.5%! Year 2 was 7.9%, from now until I retire  its 4% pa.

I'm just waiting for them to let me know the penalty for moving.

I can't believe it! 17.5% and this was an advisor my gran used and trusted so my mom and I used him too.

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Zee

Recently I started taking control of my own investments. After being invested in unit trust at major brokers for years, the growth and dividends were not satisfying.

I now invested funds in smaller amounts in units trusts, more in a TFSA and the rest in ETF. After listening to a few of your podcasts and studying a few blogs, I have diversified accordingly.

Can you advise if my current portfolio of ETFs are the right choices or if I’m duplicating any:

- STX40

- STXWDM

- STXNDQ

- STX500

- PREFTX

- PTXTEN

- Standard Bank Rhodium ETF

- Standard Bank Palladium ETF

I also bought equity shares via EasyEquities in Discovery and Shoprite.

Lastly you spoke about Bond ETFs. Any recommendation to which one will be suitable with a portfolio like mine?

Lavinia

And if I haven't said it to you and the team recently, a HUGE big thank you for this blog. I have learnt so much since signing up.

Truthfully, for the first time in, like, FOREVER, I feel as if I am on top of my finances and finally working towards getting down debt and building wealth.

I read your blog whenever it comes out, I try attend the Power Hours when I can, they are gold to meet and hear the experts in person, and dare I say it, but the dream of financial freedom is attainable. Which is saying something, as I seriously inherited some bat shit crazy, nonsensical, hysterical money mythology from my poor parents.

So thank you for all the effort to host the Power Hours, the effort to write and research and to share all the info with me. Li'l old me is making sense of this money stuff, finally!

Rudolph

How are some defensive stocks, 'defensive', if they are also sensitive to interest rates, for example, banks, utilities, and real estate? And also possibly stock market volatility?

Cait has a relative who gets an irregular income from running a preschool. They’re trying to work out how to calculate the 27.5% they should put towards her RA. She pays the expenses of the school and uses what is left over for her expenses.

Antoine

1. I have no obligation to save for my kids’ retirement. As far as I am concerned, it is their life, which means it's theirs to mess up or succeed with.

I’d much rather give them the education they need to succeed and make sure they never have to look after my wife and I financially. If these priorities are ticked and I have some cash left, I'll pay for them and their spouses and children to go on family holidays with us. What's left when I drop dead, will go to my grandkids' education.

Give your children the best shield and sword and send them off to slay their own dragons. I think you take a big risk on future interest rates, to rely on a possible student loan while saving for their retirement. The only place I see use for a TFS account for kids, is for saving birthday money they get from uncles and aunts.

2. Say you borrow money at 10% per year, and you invest it and get a super 13% return. If your income tax is 30% you will be left with zero minus any costs involved including vat. What am I missing? Can you deduct the 10% interest on the mortgage loan from tax? I don't think SARS will fall for :" I use this mortgage loan to earn an income on the stock-market." This will only work if you are making money by renting out the bonded property.
3. If the people have R100 and government have R100 and the GDP increases, government prints more money. So if the inflation is 4% it means government will print R8, which is 4% of the total R200.

So the end result is government has R108 and the people have R100 but the R100 can buy 4% less than the year before.

This is why government bonds can always keep track with inflation.

Do I understand this correctly?

Ronald

I am a bit surprised that no mention has been made of the EURO STOXX 50 Index listed as the SYGNIA ITRIX EUROSTOXX50 here in South Africa. This index fund was recommended to me by a German stockbroker friend who has had 40-years experience at the Dusseldorf Stock Exchange. In his portfolio the Euro Stoxx 50 comprises of 85% of his portfolio the rest DAX and DOW JONES and cash.

Lorin wants to know if we can recommend a wealth mentor.

At what point did South Africans become so obsessed with having money offshore? For a while everyone was obsessed with gold, then something about Jacob Zuma and suddenly Magnus Heystek was a thing, like a bad dream.

Our friend Edwin has this ability to ask a question in a way that stretches my brain more than any answer ever could. This week, his question was simple, “What’s the point of taking money out of the country?” What, indeed!

P.S. If you wanted to catch a movie with us at the JSE, you can register here.

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Edwin

I have little money offshore from a previous company share scheme. It is in an account managed by the company scheme and doesn’t cost me anything or grow. It just sits there.

It’s in pounds, so every time the Rand drops I feel richer. I also like the thought of having an emergency stash offshore should I need it one day.

I have thought of repatriating this money and it raised a whole lot of other questions. What is the point of sending money to another country when you can

1) Buy global shares and ETFs with Rands from SA

2) Buy currency if you need it quite easily through a number of platforms e.g. Standard Bank Shyft, Easy Equities.

Unless someone is buying a villa off the south coast of France, or planning to spend time overseas why do people bother “sending money offshore” when you can just as easily buy the Rand hedge in Rand in a locally sold ETF or in currency itself?

What am I missing? Is there an advantage to having your physical currency in another country or should I bring my pounds back home and just buy a low cost ETF?

Pierre

I’ve been contributing fairly regular lump sums to an offshore USD denominated Allan Gray unit trust since about 2016. According to Allan Gray the costs of this investment are as follows:

1. Annual investment management fee = 1.16%
2. Annual platform administration fee = 0.56%
3. Annual financial advisor fee = 1.15%

I’m not sure if this total of 2.87% includes fees that the company who does to actual exchange from ZAR to USD charges every time I add to the investment.

Should I just stop contributing to this unit trust, hope for the best and continue contributing to my EasyEquities USD Vanguard S&P500 ETF? Should I try to close this investment, have the funds exchanged to ZAR and reinvest it into EasyEquities USD. I am not aware of a way to have the investment directly transferred from Allan Gray US to EasEquities USD, are you?

Mzwa

For all the noise that comes with it, BBBEE schemes in my opinion are not radical at all, and barely benefit the average black retail investor. Instead they largely benefit high net worth and these BBBEE connected folks and well-poised trusts and institutions.

I say this because mainly because of the complexity that it comes with. At times you don’t even get access to main shares. The company offering the BBBEE deal is basically just providing the loan, and and any dividends must first pay up the debt.

The discounted share price is countered by the debt that needs to be paid back, and missing out on dividends. Does not seem very worthwhile on paper for small time investors who likely do not have a tax free account, and are nowhere close to maxing their RA yet, and perhaps only trying to learn about the financial markets.

What’s different about the BarloWorld deal is that it’s a sale and lease back agreement, and with guaranteed cash flows, the debt might be paid up quicker and value realised perhaps around 5 to 10 years.

I just would like to hear you weigh-in, especially for people like me who could still put in money into Tax Free savings and/or RA. I am still young and not yet high earning, but I don’t have any debt. As much as my financial principles say first look at ETFs in Tax Free, the urge of not letting such an opportunity go is peeking my interest.

We reference Craig Gradidge's excellent BBBEE Power Hour in this discussion.

Moya

This will sound clichéd, but you guys have totally altered the way I view money and financial advisors (sneaky little shits).

I’m a medic, recently qualified specialist at age 33. With all this education I was schooled in finance by my junior/minion at work. With the hierarchy in the medical fraternity you can imagine how this felt.

He introduced me to ETFs,TFSAs and the Fat Wallet podcast.

My mom recently retired when I came across all this new info. She was a professional nurse and her retirement fund was the government “dinosaur” pension fund. Her fund has paid out the ⅓ (she still refuses to disclose how much it is regardless of how much I flaunt this new knowledge) and the remaining 2/3 into a living annuity that pays her monthly.

She wants to invest a big bulk of that ⅓. She anticipates being around for more than 20 years, my gran died at 102, so it’s understandable. What products would you suggest for that money?

Gregg

Base – Emergency Fund – 40%

Next tier – ETFs and Bonds – 35%

Top tier – Equities – 25%

Do I need to sell some of my equities to free up cash to do the rebalancing – I could take some profits from some equities and also sell some of the losers? What would you advise?

How do I invest directly into Inflation-linked Government Bonds where the maturity period of that bond is in line with when I want to retire - for example a Govt Bond that matures in 20 years time?

Is this a wise investment as part of diversification?

Is it better to invest into a bond ETF as opposed to directly into the bond – what is the difference?

Darren

I want to plan for certain savings goals, like yearly veterinary council fees, car maintenance, local holiday trips and overseas holidays.

Let’s say I would like to save R1000/month in total for all of the above savings goals together. Do I buy different ETFs for each different goals or do I take the R1000 and split it between different ETFs. I feel it is quite overwhelming choosing them?

Boitomelo

I will most likely continue with the Ashburton 1200 only or maybe add a local one as well and have only 2 ETFs. In my current EE normal account, I have the Ashburton 1200 and the Satrix Divi Plus. What do you guys think of that ETF? I have been wondering if I should swap it for the Satrix Top 40 or just leave the Ashburton and sell out the DIVI.

Pierre

Over the last year I’ve closed unnecessary bank accounts, halved my monthly contribution to a managed collective investment scheme, run by my financial advisor, and I am now investing it myself in an ETF portfolio via Easy Equities.

I’ve also moved my TFSA from my financial advisor’s product to Easy Equities. I manage my tax better and I have a hands-on approach when it comes to my personal and business affairs, instead of just leaving it to “the professionals”.

I’ve been thinking about moving my RA from Discovery to 10X to decrease fees. I raised the issue with my advisor and received a response that I couldn’t make head or tail of, except that I shouldn’t move. Armed with the knowledge from the Fat Wallet Show, I scrutinised my policy documents and came up with the following:

I actually have 2 RAs! (never knew that)

The first is called the Discovery Retirement Optimiser RA. I started contributing in March 2017 when I was 34 (please don’t freak out, I built up a sizeable GEPF pension while I was doing in-service training).

Discovery reports that the Internal rate of return with their built-in benefits since I started contributing has been 5.21%. Without their benefits has been 4.08%.

The TER on this investment is 1.92% and transaction costs are 0.18%, so total investment charge is 2.1%. I suspect my financial advisor must also take a fee, but he’s been beating around the bush to tell me.

The gimmicks: if I match my monthly RA contribution to my monthly Discovery Life insurance policy premium, then Discovery say they’ll pay me back an Accrued Life Plan Optimiser which is equal to my insurance premiums paid up to 65. This will be paid back in 10 annual payments over 10 years after retirement. So far, I stand to get just under R50 000 back over 10 years after 65 (if I purchase a Discovery Retirement Income Plan at retirement). Discovery reports that an early exit fee will be just under R15 000, and of course you lose the Accrued Life Plan Optimiser.

The second RA is called the Discovery Core RA. I invested a lump sum of R100,000 in Feb 2017. The policy is now worth just under R110,000. The Discovery reported internal rates of return with and without benefits are similar to the first RA, as are the fees.

The bells and whistles: Discovery “gives” you a Boost Accelerator of 20% of your investment to use to pay your administration fees. This Boost Accelerator diminishes by R2 for every R1 admin fees paid. When the policy reaches 10 years, Discovery will pay you what’s left. I have just over R14 000 at the moment left after 3 years of admin fees — by my reckoning Discovery and I will be “quits” in 10 years, so I won’t see a cent of the Boost Accelerator, but I would have scored on fees. Again, I’m sure my financial advisor is claiming some kind of fee, but I don’t know what.

Kristia will understand my feeling of "Is die kool die sous werd?" If I take the knock and move the Discovery Retirement Optimiser RA to 10X, I’ll be able to catch up the losses in fees before retirement and don’t have to worry about matching my life insurance premium, blah blah.

I’ll keep the Discovery Core RA, because I don’t pay fees, and threaten my financial advisor to take my business elsewhere if he doesn’t tell me exactly what his fee for this policy is. Would you agree?

Brecht

Would it maybe be better to make the policy paid up and just leave it and then open up a new one or is it still worth moving it?

"Shareholder fee is calculated as 10% of gross investment growth (before management fee and tax).

Although it is called a shareholder fee, these days we refer to it as a growth fee, calculated on the growth of the portfolio.

Below are the ongoing fees on the policy:

Policy Fee = R26.82 pm

Allocation charge = 10.25% of each premium"  

The world is changing so quickly that talking about the pace of change is starting to feel a bit clichéd. We measure optimisation and innovation by software updates, not generations. This allows us to customise our lives to a great degree.

From time to time we need to check whether rules of thumb of previous generations still apply to the world as it looks at the moment. Most of the time, large systems and institutions struggle to keep up with how quickly the world changes. One improvement often allows for improvements in other fields.

In this episode we continue to discuss how we can think differently about retirement. We talk about why it’s important to shift our focus from retirement age to financial independence. We also dream about different ways to think about tax.

If you’re new, this episode might feel a bit too hardcore for you. Feel free to start with one that’s more relatable. We just couldn’t help ourselves.

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Win of the week: Slade

Imagine SARS offered a scheme whereby a taxpayer could invest as much money as they wanted into the markets and enjoy all the profits and dividends tax free, but upon death all remaining assets would be left to SARS?    

Of course there would be finer details to work out like:

Does it all go to the remaining spouse until their death then to SARS?

Or 50% to SARS and 50% to remaining spouse?

For those without children or suitable heirs, it would be a great option to unlock the value in the assets that we inevitably can’t take with us.  

Stephen

I want to minimise the drawdown on equities during a recession. My question is, how best could this be tackled? Would I need two Living Annuities or are there products out there that would do this for me? I know I could opt for the ABSA Volatility ETFs but I want the pure offshore exposure.

John

When you invest in an RA, you are really buying a pension.

I know you can take up to one third in cash BUT with the other two thirds, you still have to buy a pension! At what point over the age of 55 do you take your pension.

I suggest when your payout equates to R195,850 p.a (before tax) or R16,320 per month (before tax). After tax is becomes R13,385 per month. One (under 65 years) can earn up to R75,750 and not pay tax, but above this amount one pays tax at the rate of 18% up to R195,750.

Above this amount the next tax bracket is 26% (way too high).

If you are under 55, monitor the tax tables to find the revised numbers for when you reach 55. If you own a pension you will pay tax so keep the tax as low as possible.

Have enough cash to give you R23,800 interest per year, because that's the amount of tax-free interest you can earn.

At this point you have a virtually certain monthly salary of R15,365 after tax. ( R13,385+R1,980)

If your dividend yield is 2.4% after tax you earn R2,000 per month for every R1m invested.

For CGT - If like Simon you are not going to leave anything behind, cash in R40,000 p.a or another R3,330 per month.  Hey! now if you need even more money your CGT is around 11%.

TFSA - the last place to fleece money and it's tax free.

It is as important to have a budget and know and control your spending as it is to invest. When amounts from points 1-5 exceed expenses, financial independence happens. ( If you are cautious add an extra 25%)

Lastly, when you reach FI you don't have to RE but you do have the choice on what to do.

Santosh

I finally scheduled a meeting with 10X, following your show's continual compliments on their products, fees and market approach.

I had expected a "hard sell", but was pleasantly surprised when the consensus was "stick with what you're doing, no need to move".

This shows true integrity from both the advisor and 10X. While we are not doing business currently, it has given me the confidence to keep 10X as one of my top two choices if ever the need to appoint a product and service provider in the future.

Bonolo

I live with my parents and I am a field worker. They live in the townships of Pretoria north and I work in Pretoria East, Centurion and Mpumalanga (once a month).

1. I had an original plan of saving up the money I have left and the incentives I get quarterly in a money market fund until I am 30 years old. I’ve estimated that I'll be able to buy a townhouse cash or at least have 70%-80% deposit. I work in a very high stress job and unstable in terms of employment, so that's why don't see myself paying for a house longer than five years.
2. I could rent but I am also a firm follower of retiring early so I MUST have a home when the time to retire (early) comes and renting doesn't satisfy that part of the plan.
3. I also wanna chuck the money I have left over in index funds and figure my shit out when I am 30, but I don't want to feel like I am watching paint dry. I know there will be a time I'll certainly break because it would feel like I am doing nothing with my life. Also, I don't think I want to live with my folks (they are really cool roomies) that long.

Do you think I can retire on just my provident and tfsa at age 45? Should I focus the money I have left over on getting shelter and invest the extra money after sorting out a fully paid shelter?