It’s a nutty time to be alive, isn’t it? A market crash is bad enough. Adding a national lockdown to the mix is bound to provoke some anxiety. Our strategy in this time is not dissimilar from our usual strategy: focus on what you can control.
To that end, our podcast this week is the first of three money challenges. We are starting with wills and estates and then moving on to short-term and long-term insurance. We all know what a drag it is to wade through the fine print of these documents when there are more exciting things to do. Unluckily for the insurance industry, we are all now confined to our homes with nothing but time on our hands. We might as well save some money in the process.
We also think this is a fine time to speak to your family members about your will and segue to money in general. If you’ve been wondering how to broach the topic, the madness in the world has solved this problem for you.
We’ll be doing some live video interviews with members of the Just One Lap community over the next three weeks to get you through the lockdown. These will be broadcast live on our Fat Wallet Community Group. If you’re not a member yet, now’s the time.
Win of the week: Cyril Ramaphosa for being epic at his job.
Today we’re only going to deal with your estate and your insurance.
Will and Estate
Insurance:
Mike has decided to go for five regional ETFs instead of one world-wide ETF in his portfolio.
He buys Sygnia S&P 500, Sygnia FTSE100, Sygnia Eurostoxx 50, Sygnia Japan, Satrix Emerging Markets.
He’s comparing his 5 ETF strategy to the single, global ETF strategy across seven areas: Currency spread, dividends, emerging market access, regional exposure, sector exposure, rebalancing and TER.
Currency spread:
Regional Amounts other than USD are first converted to USD for the underlying index and then converted again to ZAR for the Tracking index.Do we lose twice on currency spread every time we buy, sell or receive distributions?
Dividends
Sygnia MSCI World Gross Dividend
Yield = 1.11%
Ashburton 12 Gross Dividend yield =
1.51%
JP + US + UK + EU Average Gross
Dividend Yield = 1.81%
(I didn't include Emerging Markets (Satrix automatically re-invest)
Emerging market access
Since he’s buying the EM ETF, he can control how much exposure he has.
Regional exposure
+-60% of the global index is exposed to US (which also has the highest foreign
dividend witholding tax of 30% compared to Japan/Britain 20%, Europe 26%).
Sector exposure
World: Heavily exposed to IT
Japan's no.1 exposure is to Industrials. FTSE, EUROSTOXX and Emerging Markets no 1 Exposure is Financials. Energy is also no.2 on the FTSE but is only no.7 on the MSCI World.
Rebalancing
World: Done every +-3 months. When you top up account you are topping up both the winners and the losers of all regions
Done every +-3 months though you have the opportunity to top up only the regions doing the worst
TER
Low TER of 0.35% (Satrix MSCI)
Low TER of 0.45% (Ashburton 1200)
Average TER is high at 0.63%.
It’s looking rather scary considering EU & Uk’s big drop! Portfolio is 16.83% down.
I can still contribute R27k for this year (R36k limit) so was thinking of doing +-R6k per month until limit is used up and sticking to strategy as I don’t know if it has already or when it will bottom out.
I do like the idea of Dividend paying ETFs within a TFSA. Once I have reached my lifetime limit I can still use the dividends to purchase new shares without having to sell my current shares. I’m sure better/cheaper ETFs will come out in the future. I also then won’t be forced to sell shares (and pay more fees) should I wish to take a small drawdown in retirement. I can just withdraw the dividends.