About a year ago, Simon and I had lunch. I was about to go on holiday and there may have been some wine. During the course of the conversation Simon mentioned something about Sygnia and the price-earnings ratio. I didn’t really have any idea what he was talking about, so I made a note to turn it into a Fat Wallet episode. Since that lovely encounter, we’ve had so many Fat Wallet questions that just always seemed more pressing.
I regret not getting to this sooner, because it turned out to be super interesting. The price-earnings ratio is a way to work out how many years it will take to make your money back when you buy a share. That, along with a company’s net asset value (NAV) and cash flow can help you work out whether a share is cheap or expensive.
This is one of those episodes where you can practically hear the gears grinding. Hopefully you got the “A-ha!” moment too.
My biggest frustration in learning about the financial world is the expectation that I should understand concepts that nobody ever explained to me. A part of the reason why I got into so much debt is because I didn’t fully understand how interest applied to my financial situation. The other part of the reason is stupidity.
The Fat Wallet Show is my attempt to level the playing field. Not only am I declaring, out and proud, that I don’t know everything. I’m also taking back the most important weapon against ignorance - the humble question.
Because this show started out as my personal attempt to find answers, we started with concepts that I didn’t understand. In the process, we never covered things that I did understand. A lot of the questions I have about the financial world these days don’t have much to do with my personal finances. The interbank lending rate, for example, is not something that has an impact on my ability to make choices about my finances. Interest, on the other hand, is a core concept that informs almost all of my financial choices.
There are, in my opinion, only five concepts you need to fully understand to take control of your money. In this podcast, Simon and I discuss those concepts and how they affect your finances.
If we didn’t explain some of the concepts in a way that is easy for you to understand, find someone who can. These concepts might be the catalyst that launches a journey of financial curiosity. If not, they are enough to get you to retirement in one piece.
Many have caught on to the idea that you don’t have to spend your life in servitude. Instead of lifestyle creep and keeping up with the Joneses, you can live modestly and put away the rest of your income. Once you have enough invested, you draw down just enough of your investments to maintain your already modest lifestyle and spend your free time doing what makes you happy. Early retirement: the Holy Grail of investment.
Mr Money Moustache in the US and South African Stealthy Wealth have embraced the idea of early retirement. In both excellent blogs, they explain the maths and share the types of financial maneuvering and lifestyle choices that would make early retirement possible.
Like most investment-related planning, though, both have had to make certain assumptions about what their investment returns would be over a period. No matter how much you save, cash won’t get you to early retirement. Enough money compounded over a decade or two, on the other hand, might just do the trick.
As aspiring retiree Ashleigh McLaren recently pointed out, however, the market doesn’t really care about our life plans. Over the past three years the local market has done very little, while Statistics SA recently reported a dependable and steady uptick in inflation. If I had to plan my retirement on my experience in the market, I’ll be better off buying survival packs so I can sustain myself on crackers and ammunition when I’m inevitably poor.
You might only be young once, but you'll be old for a long time and probably won't like cat food. https://t.co/71Mxdzm3w2
— Kristia van Heerden (@kristiavh) April 13, 2017
Are these calculations based on past market performance are realistic in the current market environment? We attempt to untangle that question in this episode.
P.S. We record the stinger at the beginning of the episode. I had every intention of talking about inflation-proof portfolios, but conversations tend to take on a life of their own if you let them.
Kris
For most of us, a retirement annuity is the biggest investment we’ll ever make. More than any other investment decision, your RA should be scrutinised and prodded at every opportunity. This week Alexis Whitehead wanted to know how to choose a provider. We often mention 10X, although Sygnia claims to be cheaper. etfSA.co.za, home of our bestie Nerina Visser, also offers index-tracking RAs. Which is the right choice?
Equipping yourself with the right tools to make financial decisions, I believe, is the best way to healthy finances in the long run. I believe I should have the right financial building blocks in place if I hope to be successful financially. To recap, those are:
- No debt
- An emergency fund to cover my expenses for at least three months
- Medical aid
- Dread disease and disability insurance
- Retirement savings
I also try to develop mental models that would make financial choices easier. Those include:
- Calculating cost per use: In an ideal world, I want the cost per use for everything I own to be somewhere between R1 and R10. I like to think about it in terms of renting the same object. If something costs R2800 and I use it 280 times, would I be willing to pay R10 to use it every time? What price would I be willing to pay to rent something once?
- Opportunity cost and future value: If I compound the price of an item, will the object of my desire be worth giving up that amount in the future? I lose the opportunity to invest that money when I spend the money on other things.
- Cost compound: Fees compound in the same way earnings do. If the fees apply to assets under management, I also try to remember that the assets grow constantly. 1% of R10 000 is easier to stomach than 1% of R10m.
In the end, your money should make sense to you. Who you choose isn’t as important as why you choose them. Having a plan is half the battle won.
kris
Due to Simon’s travels we recorded this episode a few short hours before news of the S&P ratings downgrade reached us. I was depressed about the state of affairs even then. I don’t know if I would have been able to get out of bed for a recording after the downgrade.
Weirdly we had a question about the downgrade on ice for this episode, so we delve into what it means. I also found this interview with our bestie Nerina Visser very helpful. So much was said and written about it in the 24 hours after it happened, I don’t think I can contribute anything meaningful to the discourse. However, I did write this blog about it when it was all just a terrible possibility. I also made a list of downgrade-proof ETFs here. Simon's JSE Direct podcast also provides helpful information on what this all means.
I’ve been thinking about the impact of currency movements on my portfolio for a while. You may remember so far my investments haven’t really been making much money. I get very excited when there’s currency movement, because my entire tax-free investment account is made up of DBXWD and CSP500. When the rand weakens, these dollar-based investments momentarily shoot my portfolio into profit. It’s a happy time until the rand strengthens again. This time around I’ve devised a plan to capitalise on it. I ask Simon to sense check me in this episode, then I did it. So far, I have no regrets.
Kris
Long-time listeners of The Fat Wallet Show might not be surprised that I find questions around credit records distressing. My dubious credit history makes me wary of debt billed as anything but an expensive and stressful parting from my money.
That said, some larger purchases are only within most of our reach through credit. A bad credit record could be the only thing standing between you and the house you shouldn’t buy. A question from a 24-year-old listener trying to prop up his credit record had me do some digging. I was happy to find there are ways to get a good credit record without exposing yourself to the trappings of the bad stuff.
I also received one of my favourite emails of all time from Shaun McQueen this week. Thanks for writing, Shaun. You did my soul good.
I'd like to give you some feedback on Just One Lap and your Fat Wallet Show.
End of last year I've came to the conclusion that I hate my job. I've been pondering on this for quite a while ..what the hell, it might also just be a midlife crisis.
Anyway, so I decided to focus on the one thing that doctors know nothing about - finances. Become a trader or something...After all, finance 101 in med school is easy. If you need more money - work more hours! Worst business model ever. This is how I stumbled across your show via the JSE podcast.
After 3 months of reading books, listening podcasts etc. I'm obviously not my own trader or investor - yet. But, I've noticed a big difference in my thinking. I suddenly realize that I don't need the expensive car, or all the gadgets etc. It's easy to think " I deserve this and that, because I work so hard". What bullsh*t. I now know that I do not hate my job, I actually love it. It is the fact that I need to work all the hours to pay for all the stuff that I do not really need, that makes me unhappy in my work.
So, today I've made a massive poster and stuck it onto my home office wall for me to see every day. I've noted down the stuff to get rid off, my step by step financial plan and my road to less working hours!( happiness). It won't happen overnight, but it is a start.
Thanks for waking me up. I'll continue down this journey of financial education. And maybe in 3 - 5 years from now I'll work because I want to, and trade because I can.
Regards
Shaun
PS Not only engineers listening to your show...
A letter from Carel Nel reminded me how utterly irrational I used to be about money. My irrationality manifested in two ways: avoidance and minimising.
In an attempt to feel more in control of my chaotic financial life, I organised all my bills into folders by month. Sometimes I would spend whole days easing my anxiety over my debt by this ritual of organisation. I didn’t read the statements, but doing the paperwork made me feel like I was dealing with my debt.
I also became the queen of debt comedy. When forced to confront my financial situation, I’d joke about the crushing weight of it. “I’m so screwed. Har! Har!” It’s a stupid defense mechanism that I still use.
These days I’m irrational about other aspects of money. For example, the crushing feeling of anxiety when I invest my emergency fund or the inability to buy something I like, want and can afford.
In this episode of The Fat Wallet Show Simon and I try to put together a rationality checklist for making financial decisions. Here’s a cheat sheet:
- Work out the true cost, especially if you’re not paying cash. The true cost is the sticker price plus account fees, interest rates, delivery charges and any other rates that may apply.
- Work out the cost per use. Every time you use something, it becomes cheaper. Work out how often you’ll realistically use the item, divide the price by your answer to get to the cost per use. If you had to pay that amount to rent the item when you needed it, would you think it’s cheap or expensive?
- Work out the opportunity cost. If you had to invest that cash amount at 7% growth after inflation for 30 years, how much money would you have? Is the utility of the object or the joy it will bring your worth sacrificing that amount in your future?
- Are you trying to buy your way into a new skill? You want to acquire a new skill. You convince yourself the first step to acquiring the skill is to buy an expensive tool used by those who already have the skill. You find yourself unskilled with an expensive tool. Get the skill. Reward yourself with the tool.
- If you like it, can afford it, want it, buy it. This one is for me.
I think the first step to making more rational choices is acknowledging that we can be irrational. Awareness is often a powerful antidote to stupidity.
I like the concept of dividends: companies that do well share the love and the profit with their investors. Because my investment portfolio is small, however, the dividends I receive are often an inconvenience. While I’d never turn down free money, a R300 dividend payment isn’t exactly changing my life. That’s why I find the concept of income-generating assets confusing. If I had to rely on dividends in my portfolio, my retirement would consist entirely of cat food.
In this episode, I make it my business to learn what I can about dividends. Dividends might be cut and dry for ordinary share investors, but how do ETF issuers handle dividends? Shouldn’t companies be turning their profit into growth instead of paying it out to investors? How do I even know which companies are paying dividends and whether they’re good companies or not? Until my portfolio is larger and earning more dividends, what should I do with my tiny dividend payments? Right at the end I show off what I know about dividends and CFDs, only to be out-shone by Simon. I almost had it.
This is our 40th episode, by the way. As far as milestones go, it’s not a major one, but I want to acknowledge that I did something fun 40 times.
Last week Simon and I discussed how much I save. We also marvelled at Conrad Loots, who manages to save 69% of his salary. Over the weekend I thought about our conversation and how far I’ve come financially. Six years ago I had ten times more debt than income. Back then I would have taken last week’s episode as further proof that a better financial situation simply wasn’t for people like me.
I would love to be able to save 69% of my salary like Conrad does, but I would have to give up things that I love. I don’t want to do that. My current lifestyle is worth more to me than the ability to save more. If I happen to receive a windfall (which is definitely not in the pipeline) I’ll invest it. Until then, what I save is what I save.
Whatever your current financial situation, you can improve it if you want to. You don’t need to be saving 69% of your salary. You don’t even have to save 6%. Start where you are and make improvements where you can. Eventually it will become easier. You’ll see.
This week we also received two questions (and stole one) about the S&P500. Simon and I discuss the different ways to invest in the S&P500. We discuss how it affects tax, the impact of currency conversion and whether or not you should be investing in dollars.
Kris
I’ve been so excited about my tax-free investments. I was going to transfer my tax-free allocation on the 28th, then got paranoid that Capitec would transfer my money on the same day and cost me 40% in tax. I decided to wait until 1 March. The wait frustrated me, but I’m an adult. I know how to delay gratification.
Naturally the first thing I did on 1 March was transfer my allocation to Easy Equities, but then I had to wait another whole day for it to clear. Of course, the first thing I did on 2 March was log into my tax-free account to finally go shopping. When I got there, however, the money wasn’t there. Many scenarios played out in my head at this point. The last thing I thought of, because in my own head I’m incapable of silly mistakes, is that I may have transferred the money into my ordinary brokerage account. Investigation confirmed I had transferred the money into my ordinary brokerage account.
Instead of going shopping, I had to withdraw the money from my taxable brokerage account, transfer it back to my bank account and start over. The world of investments is full of frustrations and I am one of them. I hope your attempts were more successful.
It seems the new tax year has many curious about the opportunities, possibilities and loopholes. In this episode of The Fat Wallet Show, we answer all the tax questions we got this week.
Kris
I recently attended an Investec event where they introduced a structured product that piqued my interest. Simon and I have discussed structured products before, so I was expecting a hugely complicated bullshit product with massive fees. I was wrong (again).
I realised in that briefing that I have a great advantage. I know what questions to ask when someone tries to sell me a financial product. I don’t get intimidated by the concept of gearing and I have a somewhat tenuous grip on the idea of hedging. I know what high fees are, because I have low fees to compare it to. I understand what the S&P 500 means in the context of a financial product.
I know all of these things because of my job. My obsessive question asking is what led to this podcast in the first place. It’s a great position to be in, but I’m fairly sure I’m one of very few people who get to be in this position.
This week is a great example of how Simon helps me understand these products. I ask the same questions until I’m satisfied that I understand the answer. You’ll note that we are talking derivatives again. Although we’ve discussed it before, I always come back to it. Even though I understand the basic premise, I struggle to wrap my head around these products. I get the feeling I’ll only ever truly understand them if I start trading them myself.
This week we do an on-the-fly checklist of things you need to ask when someone tries to sell you a financial product. We start, as always with fees. The underlying product, counter party risk, whether the product is listed and how the provider makes money are all on the list.
Kris
In general, people don’t know how to talk about money. Add feelings and relationships to the mix and you have a lot of room for awkwardness. Your future financial security will be heavily influenced by the financial behaviour of your partner. You owe it to yourself to ensure that you know exactly what you’re in for.
When I was younger I got heavily indebted. This was bad. I did, however, learn a number of important life lessons from that experience. One unexpected upside is that debt forced me to talk about money to my partner. Our openness about money is something we’ve come to take for granted.
As I’ve become more open about my own finances, my friends have been talking to me about theirs. I’m often surprised that couples who are so comfortable sharing every other aspect of their lives struggle to have basic financial conversations.
In this episode, Simon and I try to figure out the best way to start talking about money with your partner. It doesn’t take us very long to become tangled up in the complexities of love and money. It’s hard, you guys.
If you have any tips, please send them to ask@justonelap.com.
Whenever I think I have a handle on tax and investments, some fresh hell reveals itself. Our friend Ros Brodie had a fascinating question about share events and capital gains tax (CGT) this week. I was hugely impressed that she managed to sell a share she never bought. It’s exactly the kind of voodoo I can get behind. Ros had two CGT questions. Firstly, how does tax work if you take shares in lieu of dividends? Secondly, what about shares she got as a result of the unbundling of a different share?
Carel Nel wrinkled my brain in this episode. It turns out residual payments on home loans are a thing. I did not know this. What Carel found out, to his dismay and mine, is that you still pay interest on the residual amount. His email is below. Once again I’ve shortened it somewhat, but the good bits are there.
I've been trying to figure out how residual payments on a loan work, but it doesn’t make sense to me.
The way I understand that it is if you take a residual of whatever amount, this amount is payable at the end of the term, whether you pay it in a lump sum or refinance it. What makes sense to me is then that this residual should not be part of the loan calculation at all.
Let's say you take a loan of R100 000, you pay a deposit of 10% and you elect to take a residual of 25%. This means that effectively you need a loan of R65 000. So, the monthly installments should be calculated with R65 000 as the total, the term and interest rate indicated. Right?*
The interest paid each month is calculated on the total amount outstanding which includes the balloon amount. After every month's payment, the total outstanding goes down less due to the lower installment meaning you pay more interest.
What I would have hoped for was if the interest is not calculated to included this balloon amount.
*Turns out this is not right. As Simon points out in the episode, when you take the loan amount, the bank gives you the full amount, even though you are paying back a smaller principal amount.
If you listened last week you would have heard us mention the new US Treasury Bond ETF by RMB. I was piqued, so I found out more. If you are equally piqued, read it here.
Lastly, Simon did his super cool tax-free investment talk for 2017 last Thursday. It's always chockers full of information. View it here. In addition to the great presentation, I met someone who has started an investment education club, which excites me more than anything investment-related should ever excite anyone. If you don't ordinarily come to the JSE Power Hours, you're missing out.
Good news! This episode is a respectable just-over-30-minutes long. We recorded earlier than usual, which means there’s quite a bit of feedback we didn’t get to. We will get to all of that next week.
Two weeks ago I featured the NewFunds TRACI ETF and came across this sentence, “The TRACI index measures the mark to market value of the income earned from rolling a 3-month money market deposit on a monthly basis.” I don’t know about you, but there’s very little of that makes sense to me. This week I try to get to grips with the whole money market concept. Turns out I had some serious misconceptions.
The NewFunds TRACI is one of the ETFs in our portfolios. Go check them out here.
Finally, I got this email from Jo Thies. It’s too long to feature in an episode, but I really enjoyed it and thought I’d share. I’ve shortened it, but you’ll get the gist.
“I’m pretty sure saving for retirement is really bad. First let me qualify this unpopular notion with a paragraph. Possibly more than one depending on how worked up I get.
First off having cash, investments etc when you choose to retire is really nice. But so is a cup of tea. And having more cash when you retire is obviously better than having less cash. But if you really want to retire and sit around… and… while away your time before your foamy, gurgling death in hospice… you need a metric fuck tonne of cash when you die. Like literally.
Actually, wait… you want to retire? Basically this means you’ve fucked up your whole life. For realzies. They sold you the kool-aid. And you drank deep. You’re on step eight of your ten step life. Next stop… smelling like an old person and death. Some people like to imagine step nine is travel and boat cruises… but it’s not. It’s a weird musty smell and having suspicious-looking growths zapped off your wrinkly, sun damaged skin and pencilling funerals into your diary every weekend as your friends and family kick off.
Fuck me I can’t wait.
So, I have to save and invest FOR MY WHOLE ENTIRE LIFE in anticipation of this. So some motherfucker (and I don’t use this term lightly) who sold me an RA (when I was a total financial noob) gets commission for their rest of their lives. Whereafter they will hopefully burn for eternity. Let’s be honest, if somebody is going to burn I’d rather it be them….
Anyways. I don’t like to name names. I like to be Stealthy that way. But imagine someone who wants to retire when he’s 45. We have to start somewhere. So let’s start with science. Because science is awesome. And finance is just okay. We’re using out-dated models and concepts that were struck in the fifties. Expected life span. You see we all have just one lap. Let’s say it’s 400m, only halfway through the race someone has changed it to 800m.
My expected death is age 78, statistically speaking. I’ve just turned 38. It feels ancient. Some days I wonder how people who are 48 get out of bed in the morning without painkillers? Simon? Any tips?
Only, my life expectancy is probably not 78. It’s probably closer to 100. Mind you for the proletariat its still 78. But being a 1%’er I’ll probably be in a position to afford the miracles of science that are coming. The nano-machines. The new organs (with modifications). The rejuvenation clinics. The implants that tell me three days in advance that I’m going to have a heart attack (just enough time to pop down to Sandton clinic and have flawless robotic surgery and a flat white). My 10 month old daughter will likely live to be 120… maybe longer. And for her children death maybe something that only happens to the poor or unlucky people.
Imagine at 45 you’re gonna have live like… 60 years off your retirement funds. I’m making an assumption that you’re healthy. And don’t get shot in the face, which is an annoying possibility living in South Africa. Or get annihilated driving your scooter - if ever there was a life reducing way to spend your time.
That’s a long time. And investments are super fickle. I’m not even contemplating a post Trumpian dystopian future where we trade cigarettes and blowjobs for potatoes and spam.
My issue is about how we look at our lives. We get this corporate bullshit pumped down our throats as soon as we’re born. This is your life. Go to school. Get a degree. Get a job. Work 9 to 5. Buy a house you can’t afford. Buy a car you don’t need. Breed. Retire. Die. The more we educate ourselves, the more we learn, the more we realise there are other ways. (Which is why I love your show) Markets may crash. You may lose everything. But no-one can take away what's it your mind.)
Instead of retirement shouldn’t we be punting a concept of designing our lives better? At the moment the way we use our money doesn’t make sense. We kill ourself to hoard our money away for a period in our lives where we can’t really make full use of it anymore. It’s a terrible sliding scale. We can work harder, skimp more, save more, retire earlier. Or draw it out. Work longer into our lives… but then decreasing the time we have available to enjoy life.
Money (and by association our investments) should be the scaffolding we use to build our lives, not some weird fucked up end game.
To complain without offering a solution is to whine. I don’t want to whine. I’m not saying mine is the only solution. Or even a solution. But I’d love to have the conversation.
I don’t want to retire. Neither do I want work a 9 to 5 job for the rest of my life. But why are those our only two options? Fuck you social norms. Fuck owning a house. Fuck owning an expensive car (Sorry, Kristia… An Alpha? When you break it down, that’s just vanity. An Atos is totally functional.)*
Anyways. I’m trying to practice what I preach. I want income streams that can potentially last forever, and since I’ve procreated, potentially create legacy. Ideally I’d like a dividend income, a rental income and being an entrepreneur some sort of company income that doesn’t require my permanent presence, so I can do other stuff. Carpe diem. Or any other carp, really.
*Yes, Jo, but aren’t I entitled to my little pleasures?
Kris
Sometimes a lot of deliberation about money ends in an either, or situation. This week is all about those dilemmas. Firstly, we think about monetising our podcast. It seems only logical that a podcast about money should make some money. Do we find a sponsor for the podcast or rely on our listeners for donations?
Our listeners have dilemmas about who to trust with their money, whether to buy the Preftrax ETF, how much should be invested offshore and how to handle different investment horizons. We manage to get around to all of this and to pontificate a bit, which is why this is another very long episode. It might be the new normal.
Lastly we are thrilled to find a happy retiree with an awesome name. Our stomach-dropping moment comes courtesy of John Morrison. He points out buying a living annuity is a decision worth millions. Why is nobody talking about this?
Please let us know if you have any strong feelings about podcast sponsorships. Also write in if you're happily retired. Remember, The Fat Wallet Show is a show about questions. Send all of this, and all your other random thoughts to ask@justonelap.com.
Kristia
Assuming your life went well and you made good decisions, you are now ready to retire. In addition to old-fashioned retirement products, you have a personal investment portfolio, a tax-free account filled to the brim with ETFs you love and some cash. Now what?
Selling shares for income can’t be a pleasant experience - especially when earning an income is no longer an option. You are eating into wealth accumulated over a lifetime. It’s easy to forget that this is what all that wealth accumulation was all about.
In this episode of The Fat Wallet Show, Simon and I discuss the 4% rule, so beautifully explained by our friend Stealthy Wealth here. Then we try to work out how you should go about deciding which assets to chop to make up the 4% you are allowed to take every year. We deal with the somewhat more philosophical problem of dying with your entire fortune intact and wonder if anybody actually knows a successful, happy, active retiree.
This episode is slightly longer than usual, because we also try to work out how to spot a scam and how to choose between different listed companies in the same industry. Somewhere in there I confess something that I’ve successfully kept under wraps for many years.
If you know of or are a successful retiree, please tell us your story. If you have a question, even if you think it’s stupid, ask us. You can do both of those things at ask@justonelap.com.
We are, as always, grateful for your time and attention.
We were thrilled to discover that our podcast has been downloaded 18 000 times since we kicked off in May last year. Excuse me a minute while I do a spastic dance where nobody can see me…
Okay, back to business.
Kids, death and taxes - three things Simon and I try to avoid at all times. This week we answer two listener questions about investing for children. Nolan hopes to leave his kids properties, but wants to avoid estate duties. Is this even possible?
Chantelle opened an Investec tax-free account for her two-year-old, but was told she’s not allowed to invest that money until her child is seven. This didn’t make a whole lot of sense to me. Seven years is a lot of investment time to lose out on. Luckily Simon knows how to get around this seemingly arbitrary limitation.
I’ve decided that it’s time to share all of the mind-bending money hacks our listeners have been sharing this year. I’m going to interview people whose personal finances inspire me. You might not think that personal finances can be inspirational, but you’d be wrong. You’ll see. If you think your financial management techniques can help others get a handle on things, write us at ask@justonelap.com.
If you love us and want to show it, please review us on iTunes. We’d really appreciate it.
Kristia
Just when you thought Christmas couldn’t get any more festive, looky here! A bonus episode of your favourite money podcast! Neither of us could stand the idea of ending the year with 29 episodes. We hope you enjoy episode 30 with your favourite cool beverage and a beautiful view.
In this episode we discuss some outstanding feedback, talk about our investment plans for 2017 and share our favourite lessons from 2016.
We’re looking forward to becoming filthy rich in 2017. Hopefully we can take you along for the ride.
Who can resist a Christmas theme this time of year? While this episode of The Fat Wallet Show is technically about what happens to ETFs when there is a share event, Simon and I spend quite a bit of time trying to navigate the tricky landscape of gifting.
If you’re not very careful, Christmas can become be fraught with crushed expectations and financial ruin. In addition to the gifts for family, friends, colleagues and Christmas party gifting rituals, there is the dreaded Christmas lunch. The turkey stuffed with chicken stuffed with rabbit stuffed with a smaller rabbit is not going to pay for itself.
I’ve found myself emotionally exhausted and financially tapped out by the time the new year rolls around more than once. If a more meaningful life resulted from all that drama, it might have been worth it. Unfortunately, I am yet to come out of a holiday season a better human being.
I’ve realised that automatic opt-in events like Christmas can be murder on the finances. We tend to do what we think is expected and then struggle for months to regain financial equilibrium. This year, I am doing things differently. If the season ends in fraught relationships anyway, I might as well save money on the gifts. And I’m the nice one about this.
This is our last episode of the year. We’ve been surprised and humbled by your support over the past 29 weeks. Being able to admit my ignorance, learn, swear and crack terrible jokes with my friend and have other people be excited about it has been the true gift of 2016. Thank you. And thank you again.
P.S. If you want to give the gift that keeps on giving this year, please review us on iTunes (if you have something sweet to say).
At the beginning of the year I decided to buy Simon’s Momentum Portfolio. Veering from the ETF path, I bought 15 individual shares. Before this brave foray into the world of individual shares, I only held five Sasol shares that I bought on a whim once. Call me Investment Strategy Joe.
This decision has caused me some consternation. Firstly, the portfolio included gold shares, which I refuse to own for reasons discussed with perhaps a touch too much passion elsewhere. Secondly, you’re supposed to hold the shares in the portfolio for a year. Throughout the year at least half of them were in the red every time I checked the portfolio. Which ones were under water kept changing throughout the year, because we’re basically living in the end times. That makes it even more alarming. It’s like knowing someone is about to poke you with a sharp stick, but never knowing who has the stick.
Lastly, I’ve been receiving way too much communication about these shares. I’ve gotten mail. On paper. Delivered by a human being. To my house. I prefer to ignore my portfolio as much as possible. I overthink things, and overthinking is a terrible investment idea.
A few weeks ago I received a 16-page document that seemed to want me to do something. The trouble is, I couldn’t understand a word of it. I've attached it here, if you’ve never seen one. I hope it’s not illegal. Apparently renounceable claw-back offers are a thing. Who knew? Certainly not me.
I dealt with this situation the way one is apparently supposed to deal with bears: roll into a ball and play dead. I realised a little while later that that’s old, stupid, indebted Kristia’s way of dealing of things. I am not that person anymore. I’m fearless about finances. So I asked Simon.
Remember that we have our final JSE Power Hour of the year on Thursday. I hope to put some faces to names on the day. Come say hi!
P.S. On the day we recorded this we got an email from Jane Matthews asking us to discuss renounceable claw-back offers, because she also got this godforsaken document. Jane, we were in sync there for a moment. I hope it means we get to be best friends.
Kris
I bought my Huyndai Atos at a time when I seriously couldn’t afford to buy a new car. Between 0km and about 50 000km I only serviced it once, because it was as young and invincible as I was at 24. I still find it miraculous that we both managed to survive that time of my life relatively unscathed.
It pains me to say that perhaps the end might be looming for my dear Atos. I can remove the key from the ignition while the car is running and nothing happens. I’m told this is not normal. Thankfully my Atos and I have matured together. I’m hoping to get three more years out of the old so and so before buying a new car. I want to spend that time saving for a new one.
If my portfolio performance over the past three years is anything to go by, the stock market isn’t the place to save for a new car. With a short investment horizon, what is the best way to save?
In this episode of The Fat Wallet Show, I masterfully manipulate Simon into telling me what I want to hear. It’s true. Listen for yourself.
Send your pressing money and investment questions to ask@justonelap.com. I’ll see if I can do it again.
Kris
I hate the legwork that goes into making decisions about insurance and medical aid. Imagine, then, my delight when Wesley Amos asked me to do a show on choosing a medical aid. I procrastinated for a while, but then my friend Amy added her voice to the chorus. Et tu, Amy?
@kristiavh please look at doing a show based on medial aids cause this is a huge cost for most people some spending more on this than on RA
— Wesley Amos (@wba1310) October 24, 2016
This week we forego some of the feedback and attempt to give Wesley and Amy a base to work from. There are actually a few local medical aid comparison sites that help you choose between different funds and options. I liked this one. However, they won’t be of much use if you don’t know what to look for.
A photo posted by Kristia Van Heerden (@k_r_isis) on Nov 17, 2016 at 2:33am PST
The strategy I came up with is simple: start with cover for whatever is most life-threatening and build from there until you run out of budget. I am a happy taxpayer, but watching my grandmother ail and finally die in a public hospital with minimal care has impressed upon me the importance of access to well-staffed, well-funded medical services. Nothing like actual, literal death to bring that little lesson home.
Because I abhor the idea of doing the paperwork to change medical schemes, I make sure that I make the most of the plan I have. For example, for some reason it’s perfectly acceptable for medical aids to make you pay for your medical care from your savings account and your pocket until you reach a certain amount before jumping in. It’s a fuckery I don’t understand, but I take it very seriously. Every medical transaction is a bullfight. Come at me, bro.
The worst part of the whole medical aid business is watching myself get slowly screwed over the years. I received the annual “benefit and contribution changes” email at the beginning of November. Not only will my contribution go up by 12.5% per month next year, my out of hospital benefit has been scrapped, my threshold level has been increased, reimbursement rates have halved, prescribed medication limits have decreased. The list goes on and on. It’s death by a thousand papercuts for which you can receive no medical attention because you can’t afford it.
This show is a reminder that world is a crazy, cruel place. If you’re looking for places to storm, start with your medical aid headquarters.
This week’s episode is a little like The Twilight Zone. By sheer fluke, we received three questions from two Chrises and a Christo. While the questions aren’t related to each other, by the end of the episode Simon and I realise that the entire episode is about one thing: having a plan.
With a new year comes new financial decisions. People are changing jobs, moving house and rethinking medical aid and retirement funds. I’m in two minds about my own portfolio. In March I bought Simon’s Momentum Portfolio, but I don’t love the mess of individual shares. ETF methodology makes more sense to me and I know ETFs take care of themselves.
My foray into individual share investing made me realise my portfolio really needs a strategy. Currently I’m all about the equities, with a light splattering of property. Come the new financial year, I want to start balancing out my portfolio.
We are launching ETF baskets soon. The baskets will offer a guide for investors looking for ETF suggestions based on their investment time horizon. Because I fancy myself a young'un, I’ll be going for the aggressive portfolio. I need to up my property exposure, which I’ll do within my tax free account. I also need to invest some money locally. Currently my money is mostly in x-trackers. I used to like that, but Donald Trump and Deutsche Bank and hell in a handbasket.
The basket I'll be looking at has 40% exposure to the CoreShares Equally-Weighted Top 40, 40% in db x-tracker World and 20% in the CoreShares Proptrax Ten. Because I'm a smart-ass, I'll probably end up doing 40% in CoreShares' new offshore property ETF since I already have most of my portfolio in DBXWD, 40% in the equally-weighted 40 and 20% into bonds, because bonds excite me.
Come to think of it, perhaps I should cash the whole thing in and spend the end of days on a boat.
Simon is back from holiday and all is well with the world again. In this episode we catch up on some of the feedback and questions we received over the past two weeks. Coincidentally all of the questions we didn’t get to were submitted by people named Chris. Next week we’ll do a Chris episode - a Christening, if you will.
In the episode I mention that both David Pretorius and Alec Viljoen recommended I try investing.com for free data. What both of them failed to mention is the aggressive sales call that followed my registration on the site.
5 missed calls from the UK over 2 days. My imagination flies. I finally get to answer. Telesales. pic.twitter.com/qaUHggmAqj
— Kristia van Heerden (@kristiavh) November 3, 2016You know it’s a sales call, because the person on the other end says, “Thank you for asking” when you ask them how they are. This person also asked me if I don’t trade because I don’t like money. I can’t make this stuff up.
We also delve into how private placements work, how they differ from public offerings and what this means for people like us.
You thought we were just a podcast, but we also time travel. With Simon on holiday, we pre-recorded this episode two weeks ago, when #twentiestaughtmethat was trending on Twitter.
I learned my biggest financial lessons in my twenties. Reading through the tweets, I realised that that’s true for many people. I also realised how lucky I was to learn those lessons in my twenties. Of course it would have been better not to fall down a debt hole like a dystopian Alice in Wonderland, but at least I managed to claw my way out while I still had time left to correct my mistakes... We hope (she thinks grimly).
Three tweets in particular stood out for me, but I embedded the search below. Read through it. It’s quite amusing.
#TwentiesTaughtMeThat it takes more than a degree to own a Range rover.
#TwentiesTaughtMeThat it's easy for habits to become a lifestyle
#TwentiesTaughtMeThat: money matters even R1.00
Simon and I kick some ideas around about the best way to spend and invest a windfall. My deep-seated Calvinism has me shunning moderation in favour of austere financial measures. Thankfully I have my much more hedonistic friend around to pull me back to centre.
We received so much feedback after last week’s retirement episode. We’ll get to all of that next week. I still can’t get over the fact that people actually write us. Know that you’re making me very happy.
Remember to send your questions and comments to ask@justonelap.com. If you have a moment and would like to do something nice for us, please rate us on iTunes.