The Fat Wallet Show from Just One Lap
The Fat Wallet Show is a show about questions. It’s about admitting that we don’t know everything, but that we’re willing to learn. Most of all, it’s about understanding as much as we can to make us all better investors. Phrases like, “I’m not sure” or, “Let me look that up and get back to you” or, “I don’t know” don’t exist in the financial services industry. If you ever had a financial question you were too embarrassed to ask, you know what we’re talking about. In this business, appearances matter, and nobody wants to seem like they don’t know how things work or what the outlook is for the buchu industry. It’s easy to excuse that little vanity, except that people in the investment industry are meant to service investors - people like you and me who need to figure out what to do with our money. There’s no such thing as a stupid question in this show. If you have unanswered financial questions, this is your opportunity to have them answered in a way that even I can understand. Pop them to us at [email protected]. Hosted by Kristia van Heerden and Simon Brown
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What The Fat Wallet taught me (#245)
03/28/2021
What The Fat Wallet taught me (#245)
Like many of you, I have listened to every episode of The Fat Wallet Show. I’ve learned so much over the years, but I find it interesting that some lessons keep repeating. This week, Simon and I spend our last episode together reflecting on lessons we keep on learning. Think of this as the TL;DR version of 245 episodes of this incredible show. Here’s what we know for sure: Many people who listen to the show think their biggest financial decision is ahead of them when actually they’ve already made it: being an active participant in your own financial life is the best financial decision you’ve ever made. Emergency funds are more important than any other product we ever discuss, but you can’t tell because it’s boring. A bad plan is better than no plan. Time matters more than money. Lesegisha using a kota as an example, so I also learned what a kota was. Fees matter at least as much as returns, if not more. Grant Locke this is when OUTvest introduced its Onefee product. 100 years worth of market data support this. Because there are so many variables in the market, it’s worth being suspicious of people who sell certainty. Cash offers certainty. Fixed interest bonds offer certainty. Aside from that, forget it. “The best investment” doesn’t exist (but bad investments do). Taking positive action, keeping a close eye on things and learning as you go is the only way to do this. Start with what makes you comfortable and build from there. If that means a GIANT emergency fund and one fixed-interest bond in addition to your work RA, that’s as good a place to start as any. The habit of setting money aside matters more than where the money goes. There is no single right answer. In fact, there are as many ways to get to financial independence as there are people in the world. ETFs are the market. When ETFs try to beat the market, they are no longer the market. The harder they shout, the farther I run. Wealth building is either silent and slow, or extremely hard and slow. Just because someone says they’re doing something in the media doesn’t mean that’s what they’re doing. Subscribe to our . . Win of the week: Tim I feel like you are both good friends due to the millions of hours of the Fat Wallet Show I have listened to. I have been there from the beginning when I discovered your show in 2016 during the start of my financial obsession ( don't judge me for not writing, I'm an expert procrastinator). Although living in Germany since 2018, I have been listening to your show religiously and a lot of what I have learnt is the bedrock of my financial strategies. In October last year, my world changed forever, when in the week of the birth of our first child, my partner and I both got Corona which was a complete nightmare. Now 5 months later, a healthy beautiful boy, 2-3 hours of sleep a night, I am emerging from the haze of these challenging last few months to get back to old habits. I turned on the Fat Wallet Show and was shocked and saddened to hear that you are leaving Kristia. I just wanted to thank both of you for the amazing job you have done over the last 240 something episodes. You have taught me so much and done it in such a fun and enjoyable way. As a teacher myself, I hope that some of my students could have such an enjoyable learning experience as I have had with the two of you over the last few years. Ros It's worth looking into the bottom-of-the-range Discovery card. The Gold credit card, on its own, is R60pm. If you want, you can add R15pm for Vitality Money. I would recommend adding the Vitality Money for the extra discounts and rewards it gives you. I'm attaching the Discovery brochure that explains the "dynamic discounts" (it's almost impossible to find this on their website, and almost impossible to understand the product without it, which is why I'm attaching it) as well as my spreadsheet showing how much I "make" out of Discovery Health and Card each month. Some things to note about the spreadsheet (there are two tabs): All my calculations are based on Diamond Vitality money status. (Also Diamond Vitality Health status, but I'm not sure that has any effect on the cashback calculations). A lower Vitality Money status means lower Vitality Money cashback percentages. I got to Diamond Vitality Money status without really trying - you should be able to as well. I'm a single person and generally a low spender. About 90% of my food spend is on "Healthy" food at Pick n Pay. I don't spend much on HealthyCare or HealthyGear, so the extra monthly cost of the Platinum credit card, or taking out a Gold transactional account, isn't worth it for the extra percentage discount on HealthyCare or HealthyGear. I battle to hit the R12500 monthly credit card spend in order to hit the maximum Vitality Money extra cashback percentage on HealthyFood, fuel, and exercise points to miles. And I put *everything* on my card - even a chocolate for R15! Of course I pay it off in full every month. Even at my low spend levels, I'm netting R450 to R650 per month (and that excludes my gym savings). spreadsheet.
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Access bonds explained (#244)
03/21/2021
Access bonds explained (#244)
If you’re new to this money business, access bonds will confuse you. Not only do we use the word “bond” to mean “lending money to the government” and “borrowing money from the bank to buy a house”. The access we’re talking about has changed over the years. As Simon Brown explains in this week’s episode, in the bad old days before the 2008 crash, banks used to give you a little additional spending money when you took out a home loan. Those days are long gone, but the idea prevails. These days you can’t access the interest or principal repayments you’ve already made. You can only access additional repayments you’ve made to reduce your interest payments over time. For this reason, many people store their emergency fund in their access bond. It simultaneously reduces the interest you pay by reducing your principal amount outstanding and protects your cash from tax on interest. In this episode we discuss the possibility of using your access bond to become your own credit provider. Subscribe to our . . Gwen I am in the process of searching for a house and I often hear people saying that they use an "access bond" as an emergency fund. A friend of mine once told me in the past that I should never take up an access Bond because you never finish paying it. Listening to a lot of podcasts I often hear people saying they use it to put their emergency fund and then they get the benefits to reduce interest. Am finding it difficult to understand how this works, can you kindly explain this to me and how it works practically. I need to understand how I put money in the access facility, do I deposit it and will the interest reduce automatically? Win of the week: Katrien Just a short note to say thank you for the work you’ve done at Just One Lap. I’m one of the many thousands of people who drive to work on a Monday morning with a big smile to start our week. In addition to learning about personal finances, you guys lift our spirits and give us hope. Greg Moving towards pulling the trigger on the investment side so getting there... TFSA for kids... (trustworthiness aside) If I want to play catch up with their contributions (or mine) as we are all starting late (12 & 14 for them and 49 for me) I am aware of the 40% tax on over contributions, but surely in the long term their returns will work this off and they will be ahead of the slower sticking to the limit curve? No.. I have not tried to spreadsheet this yet... My assumption is that the tax is on the input only?
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The cost of moving retirement products (#243)
03/14/2021
The cost of moving retirement products (#243)
It has always been the philosophy of this show that a good question is more valuable than a good answer. It’s incredible what you can learn from a really good question, both about the topic and about the person asking the question. This week, Frank had an excellent question about moving retirement funds. This question reveals, first and foremost, just how much Frank already knows about the market. It also reveals a thoughtful person who has found a balance between taking calculated risks and doing whatever he can to protect his assets. In this episode, we address issues around the ethics of retirement product providers, loss aversion and rand cost averaging. All of that, from a single question! Subscribe to our . . Frank I have been contemplating transferring my retirement funds to OUTvest. I have some money with Allan Gray, some with Sygnia and most recently with EasyEquities. Combining all with Outvest will qualify me for the R4,500 fixed fee. My concern is switching providers too frequently and whether the risk associated with the potential savings is too high. The time out of the market between the exit and the re-entry may result in losses. Is it worth considering? What happens if someone cheaper comes along next year and I'm tempted to switch again? My other concern is the potential manipulation by the provider that I'm transferring away from, the amount that went to Allan Gray from Old Mutual was significantly lower than the balance showing on the investment platform around the time of the transfer. I had no control over what day the selling of the units happened and had no way of verifying whether the sale actually happened on the day they said. A number of weeks pass from the day you notify a provider of your intention to move away to when the move actually happens. What prevents them from selling on day two after I notify them, but selecting the lowest unit price in the following days and reporting that to me as the day on which they sold my units? They could sell on 1st of the month for R50, but the transaction is only finalised at the end of the month (31st) - they could then see that the unit price on the 12th was R46 and report to me that my units were sold for R46 - giving them the profit (is this a kind of arbitrage?). I'm conflicted about whether I should move to Outvest now and whether the benefit would be substantial or whether I should just leave the money where it is to grow and perhaps consider Outvest the next time I change jobs. With the bulk being in a Preservation Fund, what are the considerations I should take into account when combining it into my RA? Sygnia had allowed me, at the time, to change the allocation of my provident fund to 75% SYGWD (MSCI World ETF) and 25% SYGP (Global Property ETF). My concern is that with the uncertainty around the changes, the online platform is now reporting that my investment is not reg 28 compliant. What are the risks? Whose responsibility is it to ensure that the provident fund is compliant (me or Sygnia). What happens in reg 28 compliant providence where there is "drift" in allocation (ie I may have had the correct percentage in equities during January, but price changes in asset classes may have resulted in "drift" where the asset value in that class is now outside the allowed percentage?) In a previous episode Simon briefly mentioned that there may be scope to use available funds from a bond to invest in the market for returns that neat the interest. My current bond interest rate is 6.55% and I have a substantial amount available in the access bond portion. Could you discuss whether I should use those funds to buy ASHEQF? Am I correct in stating that 6.55% per annum is 0.55% per month? My logic says that as long as ASHEQF returns more than 6.55% per annum I should get out ahead. Thoughts? Win of the week: Shumi I am 33 years old, single, female with no dependents. I am not a cat, engineer or doctor. I studied Philosophy, Politics and Economics and ended up in finance but not the math side. I found the Fat Wallet in late 2018 after a financial awakening when I found FIRE and Stealthy’s blog. Since then my net worth has grown from -R660 000 in June 2018 (I bought a house before I found FIRE 😓) to over half a million in March 2021 (technically over a million if you include the house but I know that although it is an asset it is not an investment). This is attributable to two main factors, my standard of living remained the same as my income increased allowing me to save and invest the difference. Kristia once posted a hand written note of the Fat Wallet manifesto on twitter and I followed it to the letter. I live on less than 40% of my income, no debt except for my bond, have a 12 month emergency fund, max out my RA and TFSA and also have ETFs in a local and offshore discretionary accounts. I also save and invest any increases and bonuses (Simon’s rule of thirds really helped me). So far I’ve stayed away from bitcoin, bees, gold and Tesla. Precovid travel was my money dial and I happily spent on frugal and extravagant local and international trips. Most of that has been diverted to chuckles & diy during the pandemic. This simple plan has worked well for me. My income is relatively high (2 promotions in 3 years) so a lot of this success is because I earn enough to have a gap between what I make and what I spend. But without the Fat Wallet, lifestyle inflation would have creeped in and I wouldn't have known how to grow my money. From the outside nothing much has changed, I live in the same house and drive the same car (pushing 8 years now) as when I was in debt but I sleep much better knowing I have a solid financial base. Thank you for all you do. Good luck on your new journey Kristia. Simon I listen to you 8 times a week so I will still be learning. Feedback from Kris about contributing to a bond vs investing in the market A good approach could be to use asset allocation. E. G. If you already have a lot (or some) home equity but now want to start investing then why not aim for a certain ratio e. G. 50% each. So over time contribute to each such that you reach equal amounts in home loan equity as in stock market investments. Once you reach this equilibrium just maintain it going forward. It's diversification. Itshekeng I was swamped with debts and could not repay them all at the same time. I sold my house and have a lump sum which I would like to invest. On the other hand, I wish I could use some of it to reduce my debt repayment period. I am still working and would really like to get out of debt and be able to save up for a house and a car and retirement, and take out policies for my child. What is most important and where to invest with good returns over 5 years?
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Passive income (242)
03/07/2021
Passive income (242)
A conversation on our excellent had me wondering why we’ve never dedicated a whole Fat Wallet to finding passive income streams outside of investments. It took about ten minutes for the realisation to dawn on me: true passive income is a myth. We often talk about side-hustles. “Hustle” is the operative word there, because we’re describing a second job. The appeal of working in your free time is the diversification of income streams and the potential to eventually earn your monthly income doing something you enjoy instead of your day job. True passive income means you work at nothing but capital for the initial investment. It’s important to remember capital can be physical or it can refer to your time. We discuss the potential of online businesses and the enormous amount of time required to get any sort of momentum. We talk about rental income, having an Uber fleet and selling products online and in each case talk about the work required to truly make it work. Subscribe to our . . Win of the week: Kay I stumbled across your podcast Sep 2019, via Sam Beckbessinger's book. I binged listened to all the episodes in a rather short space of time. I got a much clearer understanding of TFSA, and opened one immediately. My fear of stocks (which was more a lack of understanding) disappeared. Took my ostrich head out of the ground, and looked at my liberty RA. Ouch. That got shifted out, can't say immediately, but Liberty did eventually let me go. I started pumping money into an emergency fund. Life had taken an interesting turn in early 2019, and my income was more than halved. Come 2020 I had an emergency fund, which has saved my ass (or more like my animal’s asses....pet insurance is definitely a future consideration with younger animals ) more times than I thought I could possibly ever need to use an emergency fund. If I had not discovered your podcast before 2020, I shudder to think what may have been in 2020. Once again, thank you for all that the two of you have done. It really has been life changing. I have a feeling once I finally retire, and I am able to still drink a fairly decent whiskey, I will think back to the early days of The Fat Wallet Show, and think thank goodness I discovered the podcast. On a side note, does Simon get to keep all the future donations that will be sent once we all have it made? Inge I currently hold Ashburton 1200 and Satrix top 40. Now, with SATRIX I am guessing I am not taxed on dividends as these are SA stocks and fall under SARS, so they can't shaft me here. But do I pay tax on dividends and gains in the Ashburton 1200? Is there any benefit to holding it in my TFSA or should it just be a discretionary investment? Should do a 50% , 50% split between these two? OR because I have a local RA, do I max my offshore in the TFSA and do a 70 ash / 30 satrix split? I am torn between putting extra into my bond to reduce the term (and amount of compound interest paid) vs putting money into my RA/TFSA for the future. Currently my bond is also my emergency and travel savings fund. My current strategy is- RA: maintain and only do standard annual increase. Bond: pay in an extra 50%, I take about the same amount I put into my bond and put 2/3 into a TFSA and 1/3 into an FNB share account. Do I pump up that bond and get it done, or maintain the current strategy? Do you have any suggestions of what calculator to use to show someone the value of time in the market? Una I began a new job in early December and had my daughter in early February. While I understand the value of getting medical when you have a child, I signed up for health insurance instead of medical aid because I was in a hurry. I'm not sure if I should cancel and get medical aid; could you please advise which of the two choices is the best? Tim She owns her home and should downsize. She likes having 2.5 vacant bedrooms for myself and my brothers.. despite 2 of us being married. In 2014, we started buying apartments in Joburg, she owns a 1/3 of the company that owns 4 units (1.5 still bonded). She is a member of the GEPF She has minimal discretionary investments (Satrix etc.) and I started her on a TFSA last year. My stepdad lost all his pension funding assets in his divorce. He’s a (retired) teacher with a (small) preservation fund (and a TFSA from this year). My mom currently has R15k per month cash to invest. My thinking is smash R6k into their two TFSAs and convert the balance to USD through EE/Shyft and buy VT through EE or TD Ameritrade. She will need to leave that money for at least 5 years. She has a large amount of property and Reg28 exposure relative to offshore/ETFs. Is there anything else you would suggest looking into? I’ve heard you say a few times that dividends within an RA/preservation and a TFSA are tax free whilst in the vehicle. Apart from the total return ETF complication, how does the company paying the dividend know that it is going into one of these vehicles and, therefore, doesn’t deduct the tax? Christiaan It might seem that we have some tax relief, but when electricity prices are going up 15% and the fuel levy is increasing by 27c/l, does it just not mean indirect taxes are just diminishing any perceived gains? Are we being tricked into feeling good, but when you look at your personal cash-flow you realise there is not more left? When electricity and fuel go up, would it not mean we have increased food prices, inflation in the general economy and will pay more for goods and services in general? When that happens, are we also likely to see interest rates going up? Mo My goal over the last year was to get an apartment and pay it off quickly to avoid big interest payments. I have already set aside an emergency fund and I am now paying extra into the bond to get it paid off hopefully under seven years. Having discovered the wonders of TFSAs, ETFs, etc. I am now torn as to how to go about spreading my money. I am struggling to find a good ratio between the additional bond payments and an investment account (ETF invested account, not TFSA). I like the idea of having the apartment paid off but I am worried that I am putting too much emphasis on reducing the time period of the bond and at the same time losing out of potential growth of ETFs. I was previously putting all extra cash into the bond account, but am now looking at putting 2/3rds into the bond and 1/3rd into investments. I am still young and doing what I can to live frugally and not stuff up being in a good position.
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Should I stay or should I go? (#241)
02/28/2021
Should I stay or should I go? (#241)
Many people take their first wobbly steps into the financial world because they understand money is meant to do something. What exactly that “something” is, is often left to someone else to figure out. However, once they start learning about the financial environment for themselves they realise there might be products better suited to their needs. Moving a lump sum away from a provider you’ve trusted for a few years is a daunting process. Even if your reasons are sound, it’s not an easy decision to make. In honour of the brand new tax year, we spend this week’s episode helping Carmen decide what she should do with her existing high-cost retirement product. We hope the discussion will help you decide what to do with an investment product that no longer suits you. We apologise for the ear worm. This week’s show is also the last of our shows . We are deeply grateful to them for their support. Also remember tomorrow at 11:00, Bobby from AJM Tax will talk about how the tax changes announced last week will affect your pocket. Join the to watch it live and ask your questions. Subscribe to our . . Carmen Do I keep pumping money into my high cost actively managed RA at Old Mutual (I like the idea of money going somewhere that I do not think about)? Do I transfer the current balance to my low cost EE and let it sit there and grow (along with the increased monthly premium plan)...but then continue the R3500 contribution to OM (which will likely have even higher fees because now my base amount is R0). Do I reduce my RA contribution to Old Mutual to the minimum R500 per month (so that I don’t incur an “admin fee”) and increase the RA amount to my EE RA immediately by R3000 per month? Do I get outta dodge re: Old Mutual RA and move alles completely? Ancillary reasons for sticking with an actively managed fund at a big investment house are: not to have all my eggs in the EasyEquities basket; my personal risk insurance side is sitting with Old Mutual (disability, illness etc) and my OM is invested in other items than my EE portfolio (bit of diversification); keep contributing to one RA up to age 60 and only pull from it from 65...and other RA only pull from later. Win of the week: Nalisa I started this email about four months ago, and listening to this week's podcast made me decide to get it done. Especially when pet expenses came up! To clarify, I'm a vet and best you believe my creatures are on insurance! Yes, I'm a vet and proper medical care is still expensive for me! Akina, my eldest, decided to go ahead and twist her spleen (after hours, fucking typical) and the resulting bill came to about R20 000, and the medical aid paid me back in under a week. Even if it wasn't for that incident the peace of mind we get from it is worth every cent. But do your research and (I can't stress this enough) read the fine print! Know what they cover and what they exclude, and especially look at their limits (per claim and annual limits). They're still insurers, they're still trying to screw you. My fiancé and I were discussing how one could become completely self insured. We only insure our cars, our home and our pets. We both have life insurance ( to cover the bond), medical aid and I have income protection. We've always agreed that our home contents (aside from his laptop) are considered self-insured because our quote for insurance was exorbitant. In an ideal scenario, we'd need to have enough saved to be able to replace everything with cash, and have about R50k for the animals. The figure gets big really quickly. The main concern would be that you'd have such a huge pile that needs to be fairly liquid and would earn very little (but still more than handing it over to someone else every month). Are there any strategies for self insurance? Or is it actually a silly goal and we should resign ourselves to gamble on bad luck against insurance companies, while trying to save whatever else is left? Solly I really like how you break down things for us that are so complex and make it consumable. I started listening to Just one lap last year around February and I have gained life changing insight. I just thought my first email to Just one lap is to say thank you so much!...for all the effort, the laughter and swearing😂, but most importantly for sharing the financial concepts in the simplest way that we all can understand. I always had an interest in finance, but you guys made me love it. Petrus It feels like I am losing a long time friend even though we have never met. I still remember some of our exchanges very well and also how ridiculously simple some of the things was that I deemed necessary to send you an email for (buy a cellphone or take it on contract 🤦🏼). I will admit, I might have had a finance nerd crush on you at some point. A lot has changed since the first email I sent you from a train somewhere between Regensburg and Munich while still working and living in South Africa. Since then I, - cleared all my debt - started investing - got married - moved to Germany - figured out investing in Germany - learnt German - close to hitting €150k net worth in 3 years (after starting with 0€). - just bought a house in Munich. Funny how all us finance or FI nerds say buying is not a good investment, yet we all do it. My transfer fees is more than the cost of my house in South Africa. 😭 I say these things not to be windgat, but to document the influence you had on my life. I never really knew how to manage and grow my net worth until I started to listen to The Fat Wallet Show. It gave me confidence to take charge and I am blown away by what was possible. You have probably made and influenced many future multi-millionaires. Ryan I had twin boys in July last year. I opened them TFSA days after they were born and put R36k into each account. I remember Simon saying if you max your child’s TFSA at birth and leave it, by the time they turn 65 they will have enough to retire. This is the time horizon I am looking at for them. I bought SYG500 for one and SYGWD for the other. They have both done very nicely. With 1 March approaching, I have been thinking of buying SYGEU for both of them. What are your thoughts? My other option would be the Ashburton1200? I know Simon will probably say I need to add some local exposure but with the current rand strength I think it’s a good idea to get as much offshore exposure as possible? I have been contributing to my own TFSA into an RMB fixed deposit for the past 6 years. I know I need to move it into an ETF based account which I have applied to do (EasyEquities). I am 34 years old with no plans on using these funds for at least the next 30 years. What would your and Simon’s suggestion be in terms of the ETF’s to split this into? Keith I enjoy listening to your podcast. Even though I’m in the USA I get very good investment advice from you guys. I am an amateur at best and a lot of the things you discuss are unknown to me. Do you have anything that starts with the basics on up? Jennifer Most of my closest family and friends live in other parts of the world. I love South Africa and don't want to leave but it makes me sad that I won't be involved in my family and friends lives like I would like to be and I'm not sure whether I'm in SA to stay. Unfortunately I'm not sure where I will end up - either the uk (I have a british passport) or Australia. What do you advise I do with my investments? I don't want to contribute more to a retirement annuity (other than what I contribute through work) because I don't know whether I will be here for retirement... but who knows - there is also a good chance I might be. Because I'm so uncertain I don't know what the best thing to do with my money is. I'm struggling to understand market makers. I've heard people say ETFs can turn out more expensive than unit trusts due to the spread between the bid and ask price. I understand what the spread is and I understand that the market maker can redeem and create units in order to create liquidity for the ETF... but who is the market maker and why can the spread be massive at some parts of the day? How do they determine the ask and buy prices? I recently watched one of the JSE power hours where Nerina Visser went through all the costs associated with investments. It was so informative but made me think a bit about my EasyEquities investments. The webinar seemed to say that for every investment I make I am paying JSE fees and levies and these appear to have a minimum fee. I can't seem to find these on EasyEquities though. Essentially my question is - Does it cost me more if I invested R10,000 split into four R2,500 transactions vs a lump sum? The only fee that I can find that could potentially be fixed is the STRATE fee but EasyEquities appears to not charge a minimum fee here either. My second question is to do with total returns funds in a TFSA account. I know this has been spoken about a lot but I'm still a bit confused. I like the Satrix MSCI World more than the Ashburton 1200 for some reason but the tax issue surrounding the total returns worries me. I understood that you couldn't avoid dividends tax charged by the foreign entities anyway... So why does it matter if an offshore eft is a total returns within a TFSA? Louise I love ETFs (easy to understand and invest in myself), but I also like me some Unit Trusts (UTs). What I however find daunting, is the long alphabet list of UT classes. Thus far this has forced me to go via a financial adviser, when buying UTs. Did I mention that I am allergic to financial advisers and their high fees? And then sometimes the adviser afterwards willy-nilly moves me into a different class of the same UT, and I wonder when this is in my favour from a fee perspective or not. The classes include A, A1, A2, A3, B, B1, B2, B3, B4, B6, 3B1, C, C1, D, E, F, G, H, O, P, R, etc., etc. (Let's first just stick to local UTs - offshore UTs is a kettle of fish for another day.) I've figured some of them out, e.g. the regulated class R, those that are available only for Institutional Investors and those that are for Retail Investors. Those that come with a with/without adviser fee, the clean classes etc. ASISA publishes quarterly spreadsheets that help a bit, but not much. I've also learnt the following: There is no standardisation in terms of the naming of the different fee classes between the different management companies, with the only exception being the “R class” (deregulated in June 1998). Some "clean classes" are cleaner than others. FSB Board Notice 92 of 2014 specifies that UT management companies are required to publish the most expensive class that is available to a retail investor. Well, that's good in that the available MDDs tell me how bad the fees can get. But it is bad in that I want the cheapest class that I can get into, which is not as well published on the internet. I also read a Moneyweb article (by a PSG Adviser, nogal), where the guy shows how much better performance you get by just switching all your UTs to the cheapest classes, which makes me green with envy and hot under the collar. Where is the FSCA in all of this? They are responsible for consumer education in this regard (non-existing) and also responsible for regulating the industry in a manner that creates standardisation, consistency and transparency, to allay the frustration and confusion experienced by poor little retail investors like me. "Power to the people", I say! Until such time as the FSCA steps up, can you, Kristia and Simon, please help me find my way through this maze that is UT fund classes? I understand MDDs, TER & TIC, but per Board Notice 92 not all MDDs are published.
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Farewell Fatties! (#240)
02/21/2021
Farewell Fatties! (#240)
After five rewarding years as host of The Fat Wallet Show, my time with the show is coming to an end. This episode is a short retrospective of our time together, followed, as usual, by your questions. On 30 May 2016 we published the of The Fat Wallet Show. We knew from our personal experience and from our work at Just One Lap that money was such an emotional topic. All so-called financial education came with an assumption that you would already know the jargon and have some basic understanding of how the system worked. Based on the questions we got at Just One Lap, we knew that wasn’t true. I had started at Just One Lap a year before that and I was like a toddler, asking a hundred questions a day. These questions weren’t orderly. I’d latch on to one topic, ask every question I could think of, mull it over and come back a few days or weeks later with either the same questions or more questions. I was learning a lot, but I wasn’t learning it all in a straight line, because learning isn’t linear. Luckily for me I had a mentor with superhuman patience, who would keep explaining it to me until I got it. I figured if this is how I’m learning about money, this could probably help other people learn too. The Fat Wallet Show was an experiment. It was just going to be questions and answers. It was always just going to be two people on the show. We decided to swear in the show, because we swear when we talk to each other normally. We didn’t want any barriers to making the show sound just like our ordinary conversations. We didn’t want experts, we didn’t want to interview CEOs. We just wanted to get together once a week and talk about money. Since our first episode, the show has been downloaded 717,000 times. We’ve received 2,600 emails. Our Facebook community is 9,000 members strong. We’ve been supported by companies we truly believe in, companies where we have our own money. OUTvest especially has been a true friend to this show. We’ve made friends that I hope we’ll have for life. I’ve been so inspired by the members of this community. Subscribe to our . . Ernst, in response to Louise’s question: Louise is referring to her provisional tax estimates. So there is a timing difference as she will only get her certificate around June but she needs to estimate it now. She needs to run her own calculation and try to get as close as possible taking into account rate adjustments etc. Again tax works on accrual or paid, whichever comes first. It would seem that she has a considerable amount of interest as she probably uses up her annual exclusion amount. So if she ‘underestimates’ her taxable income she may be liable for penalties if it's too far off. She needs to do an excel calc to try calculate her interest so she can estimate accurately before 28 Feb 2021. She cannot wait until she gets paid or gets the certificate. Suzanne I did a little happy dance this week, on reviewing my OUTVEST RA statement. My transferred RA landed @ OUTVEST in May 2020 and the growth YTD has been SUPER! My set R4 500 fee, which is about 0,75% of my investment, has really made a huge difference. I will be saving my butt off over the next 10 years, to reach that minimum 0,2% fee balance. This led me down an investment spiral, and after listening to episode 183 again I ended up asking the following question….where are the OUTVEST fixed fee living annuity products?……. If I am happy with the asset class breakdown, would there be any reason not to be able to continue with my pre-retirement investment strategy, after my retirement date, at the same 0,2% fee? I have no idea what the general going EAC is for a living annuity, apart from what I have seen on my Dad’s statement – which stated a 1,5% fee. Chris I listened to your Money and Travel episode. Simon mentioned that the SYG4IR is bespoke and doesn’t have a US equivalent - that is partly true. I fill up my TFSA with SA listed ETFs with risk that I like (STXCHN, STXEMG, SYG4IR, SYG500), build up some cash to make the EasyFX worthwhile and then buy similar exposure in the USD account. Long story short, SYG4IR tracks the Kensho New Economies Composite Index (KNEX). There is a US-listed ETF, SPDR S&P Kensho New Economies Composite ETF (KOMP US), that tracks the same index. The current hurdle is that KOMP isn’t available on EasyEquities currently, but I have reached out to them to add it to the platform. Perhaps if enough of us chase them it will get listed sooner. Doris I've been a loyal listener since near-inception of the Fat Wallet show (via my spouse, though we tend to listen separately.) You kick-started my TFSA journey. Eventually I figured I need to get this RA business sorted (I've been lax due to GEPF; OutVest it was when I eventually got my 💩 together). Going from listening to action is a big step, and I still feel like I'm in process, but getting there. The year that was left me with little time to listen to your invaluable show, but #bingelistening ftw. I've been wondering about marriage (or long term relationships) and investing/saving for a good long time now and cannot find a satisfactory South African-specific answer anywhere. As far as I can tell joint accounts aren't really a thing in SA. There's the main account holder and someone else who is granted access. What are the options for joint savings/investing? If there are any! For instance, saving as a couple for a house: What's the best way to save or invest jointly, in a single place to benefit from two sources of funding, without the account being in one person's name? As far as I can tell, the main tax implications when getting married is income outside of your salary and how SARS taxes those married/in a civil union. For those married in community of property - this is shared between spouses. For those married out of community of property (with/without accrual) it's only really divorce or death where things have to be figured out. R.C I have a home that's paid off, a tax free plan with Old Mutual balanced fund (started in 2016). I also have an Old Mutual core balanced fund with a monthly debit order. Gepf R.A Property unit trust Old mutual equity I have an investment that matures in May. I owe 70k on a car (only debt. How do I make sense of my financial goals going forward? My divorce really confused me and my goals. Should I continue with my discretionary investments and where should I invest the R650k maturing in May 2021. Please help to put a plan in place as I was looking at retirement at age 56/57. Mr P Ok, your statement on episode 235 about the request for rate review just reminded me to do mine, I also want prime or less. So, I sent them FNB Housing Finance an email requesting them to review the interest rate on my bond. Unlike last time where they changed the rate with no hassle, this time they sent me a form. I mean a whole Form that I must print and manually complete, scan it and email it back to them or fax it. I think they are discouraging us from sending these requests with the paper work. I'm certain only people who listens to the show are the ones sending the requests. Is there any Fatty whom FNB responded with a form? Otherwise I'm not deterred, I will gather some strength and fill in the form. PJ I recently requested FNB to adjust my home loan interest rate, 6 years into the 20 year term. They immediately reduced the rate with the below information: "The rate has been amended from 7.60% (P+0.60%) to 7.30% (P+0.30%). Prime currently is 7.00% and therefore your new rate is 7.30%." My emergency fund of course comes from the Flexi portion from the bond so I requested that if I restructure R100 000 of this flexi amount if they could give me a further reduction. They then replied with: "Furthermore, should you agree to restructure the prepaid amount of R 100 000.00 the bank is willing to improve the rate to 7.20% (P+0.20%)." Is it worth the 0.1% reduction and not having this money immediately available to me anymore? The money remaining in the flexi portion is still enough to cover my emergency fund needs. I have a second Home Loan at Standard bank. The rate is somewhat confusing to me. These figures are from July 2020. Weighted Average Interest Rate (non-VATable) :7.81 First amount :R 0,00 - R 846 000,00 @ 7.77% pa Next :R 846 000,00 - R 1 128 000,00 @ 7.82% pa Balance of the loan :R 1 128 000,00 - R 99 999 999,00 @ 7.92% pa Registration amount :R 1 410 000,00 So I'm trying to figure out, are the brackets just generic or does it mean the more I pay into the bond the less my interest rate will be? i.e. if the outstanding amount goes below R1 128 000 I will pay less interest. Stewart invested 250K in feb 2016. value now jan 2021 184K only started taking an interest now.want to retire soon!!! what can i do now?? still very busy with work,but want to stop now. ANCHOR GROUP LIMITED - ADH ADVTECH LTD APN ASPEN PHARMACARE HLD ARA ASTORIA INVESTMENTS BAT BRAIT SE BTI BRITISH AMERICAN TOB BVT BIDVEST LTD CFR COMPAGNIE FIN RICHEM COH CURRO HOLDINGS LIMIT EOH EOH HOLDINGS LTD FSR FIRSTRAND LTD MDC MEDICLINIC INTERNAT NPN NASPERS LTD -N- OML OLD MUTUAL PLC REI REINET INVESTMENTS S RFG RHODES FOOD GRP HLDG SNH STEINHOFF INT HLDGS SRE SIRIUS REAL ESTATE L STP STENPROP LIMITED WHL WOOLWORTHS HOLDINGS Louise By now all Fatties are aware of the two ways to invest offshore: a) use your foreign investment allowances, and b) via an asset-swap, provided that the FSP has adequate asset swap facility available, as regulated by SARB. My questions relate to the latter: 1) What determines an FSP's asset swap capacity? 2) How can a retail investor check this? 3) When / how can an FSP replenish this facility? 4) Is it better to stick with product providers with ample such facility? E.g. Sygnia recently ran out of capacity, which meant that, temporarily, their living annuities could not allow for a large offshore investment component via asset-swap. This was temporarily limited to 30%. Theoretically one can invest 100% offshore in your living annuity, should you wish to do so. Jen from My parents have recently sold their house and will have money to invest in the coming weeks. They are in their mid-70s and they have various bits of income aside from this amount like foreign pensions, my Mom's pension from her job and until covid my Dad ran a business and will hopefully do so again. They also have a living annuity with Ninety-One that is invested in Nedgroup Investments Property Fund A1, this was comfortably covering their living expenses but they have drastically reduced their drawings because of how horrifically this has performed over the last few years. It is actually nauseating. My Dad wants to put this money into an income-generating product and has hinted at possibly even just adding it to their existing annuity (if this is possible) - I want to ask what you and Simon would suggest? My feeling is that adding to the existing annuity is a rubbish idea because their timeline is not a long-term. Their living-annuity has really been atrocious and to me this seems like a good chance to find some better and that could add some diversity to their situation.
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TFSA strategies (#239)
02/14/2021
TFSA strategies (#239)
Christmas is the most wonderful time of the year, but tax month is a close second. For buy-and-hold investors like myself, this is the only time of year I get to do anything significant in my portfolio. That’s why I take a moment to reflect on my portfolio every February. My tax-free strategy may seem static from the outside, but it has changed as new products have come into the market and as I’ve matured in my investment philosophy. The market is a highly dynamic environment and even a buy-and-hold strategy requires sharpening every so often. In honour of tax-free savings month, we think through tax-free investment strategies in this week’s episode, with the help of a few listener questions. Subscribe to our . . Rhona I am asking on behalf of my daughter (turning 30!) regarding her tax free investments. Are there any recommended changes for 2021 to the high risk etf portfolio. Sonya I am 30 years old and have recently started worrying about my future financially. Until now, I have been using most of my savings to pay off as much as possible into my bond. I have also been contributing to my pension fund. I’ve gotten to the point where I can finish paying off my bond in about two years and I have that additional money to put towards my investments. Should I continue to pay extra into my bond and pay it off in my two-year timeframe or rather put more into other investments? Any advice on what to do with that extra money? I recently opened a TFSA started putting 60% in Ashburton 1200 and 40% into Satrix Top 40. I plan on putting the maximum monthly amount in there but not really sure of what ETFs to invest in. I then plan on putting the money left over into ETFs but am unsure of which ones - I have thought of adding MSCI Emerging markets or maybe Dividend Aristocrat. Also, is it worth adding bonds into the mix? Boitomelo I like how Kristia pronounces her name as KRIS-tia while Simon pronounces it as Kris-TIA with emphasis on the last three characters. Have you guys noticed? Just love it 😊. Thank you for your contribution to my getting my act together as it relates to finances. Towards the end 2020 I became debt free and I am never going back to debt for anything. It has been a long 4.5 years’ journey, but very rewarding. Thank you for your service to the community. Anyway, my question is this. Why / How does it happen that the same ETF, Ashburton 1200 for example, can be green in my normal ZAR account, while it is red in my TFSA account or vice versa? Does the different amount in both ‘accounts’ matter? Edwin Like many Fatties I am a pet lover. Many decisions I have made about my dogs are purely irrational, but hit the budget really hard. I want to share a summary of my recent pet experience just to alert people about what they can prepare for in terms of how hard a pet can hit your budget. I have an 11 year old basset hound named Rossie. He is low cost and low admin. Loving, gentle, healthy and clever. A perfect dog. We realised that Rossie doesn’t have many years to go and decided to phase a younger pet in so that when Rossie kicks the bucket we have pet continuity. [caption id="attachment_24694" align="aligncenter" width="225"] Rossie: the perfect dog[/caption] Wanting to be a good person, I opted to get a rescue from the SPCA and chose a lovely mixed breed something named Lucy. The entire adoption process cost me about R800 as the SPCA sterilise and vaccinate the pet too. Lucy arrived home on a Thursday and by Saturday there was a dog fight. Rossie ended up at the Vet. With after hours rates his treatments for his bites including meds were R2.5k. He is not on pet medical aid because he has had a very good track record and in most cases my emergency fund could cover his expenses easily. A day later we found out that our rescue Lucy could easily scale the wall and visit our neighbours. 3 quotes later this was another R8k in expenses to raise our wall on one side. With the 2 dogs not getting along we decided to get a pet trainer in to assist us in managing the transition. The total bill for pet trainer was R2k for 2 sessions. [caption id="attachment_24693" align="aligncenter" width="225"] Lucy: a menace[/caption] Yes, in 7 days our new pet had cost us upwards of R13k. Deep down I know more drama is coming. The rational option is to get rid of her and return her to the SPCA, but the emotional option is to try everything we can to integrate her and give her a home. The latter option costs money. Fatties, when the day comes...be prepared. Pets can be very expensive. Second, get pet cover. Even if it’s just the cheap accident version. Lastly, don’t expect to think rationally once you have the pet. Jacques I am 38 and receive a non-taxable disability income through group insurance. 21% of the total non-taxable amount goes into my provident fund directly from the Insurer and the balance I receive as a non-taxable salary. I have no other retirement products, but have opened a RA for my wife over and above her pension fund to maximise tax returns. A few years ago, I withdrew money from my first preservation fund to buy our house cash and save on the interest over 20 years. I am working towards a balanced portfolio (TFSA, unit trusts, shares) across all asset classes. I am wondering if I should open an RA to manage tax post retirement with contributions that carry over. Scenario 1: I create taxable income with our Airbnb flat rental and keep rental income very low, i.e. R1000 for each year for the next 20 years. I open a low cost RA and contribute as much as possible each year. The contribution builds up at SARS for the next 20 years. At age 60 I convert my provident fund into a living annuity and then draw income which is taxable. I can reduce my taxable income by 27.5% which is taken from the contributions that didn’t previously qualify until that’s depleted. The time frame can extend depending on whether I continue to contribute to the RA post retirement. This RA also provides options where I then have two retirement products to be converted to different annuities if needed. Scenario 2: Instead of trying to manage future tax liability, I don’t open an RA and invest into high equity products. I am thus not bound by Reg28 and may have a significantly return higher. This higher return could far outweigh the over contribution in the RA I would have built up as an example. However, there is no tax benefit post-retirement as I would be in a position to live from an annuity anyway which is taxable. This scenario seems from a returns perspective better, but from a tax management perspective not so. Louise I am a provisional taxpayer and must submit a second period estimate by February 2021. - I have"received" my first interest payment in September 2020, so I know what to report to SARS. - But I don't have clarity on how Treasury will reflect the interest from October 2020 to February 2021. Remember, it only gets paid in March 2021 (in the next tax year). - Will they apportion 5 months worth of interest in my 2020/2021 IT3b, or nothing at all, as it is not "in my hands" as yet? - Remember that there is also an option to exit early (with a good excuse), so Treasury does not know in advance what I might do. I remind you that there was, a couple of years ago, a change in tax rules, which forced FSPs to report not only just the interest capitalised, but also interest accrued (but not yet capitalised). So, for a normal deposit with a bank, it is easy: Your IT3b shows both interest capitalised and interest accrued thus far, even if the capitalisation of the accrued portion only happens in the next tax year. But this wonderful product from Treasury is a special child that might get special treatment, especially given all the wonderful optionalities that come with it (such as early exit and resets). My tax practitioner does not know the answer. (Apologies to the Fat Wallet community for admitting that I actually have and pay one, that can't even answer this question. I cut costs where I can, but tax is difficult.) I've also approached the RSA RSB helpdesk for an answer, only to get the following nonsensical response: "Please note that you will only receive a Tax certificate in 2021 [duh, sic], the certificate covers for both reinvested interest and paid out interest." Ash I hold a bit of the CloudAtlas Africa Big50 ETF (AMIB50) in my discretionary portfolio & I came across a disturbing titbit hidden away at the bottom of their fund fact sheet (attached). While the TER in the summary is 0.85% (already quite high but understandable given the illiquidity of other African markets), another TER of 7.32% 🤯 is provided right at the end, incorporating a bunch of different fees & ‘dividends not distributed’. I had to do a double take because this is more than triple the fee of an average actively-managed unit trust. l Is this really what I am paying as a retail investor to hold this security or am I missing something? If the latter TER is the real one, it would likely wipe out any long-term gains from the investment, even with its supposed growth potential. The fact sheet also gives a bizarre asset allocation of 70.8% Cash & only 29.2% Equity, which I am struggling to comprehend. I understand CloudAtlas is a smaller boutique company but surely this needs some clarification for investors. I would appreciate if you and Simon could unpack this as it is a real head-scratcher for a novice investor like myself! Cloud Atlas’ Maurice Madiba says, “We are required to disclose all the fees going off the fund which includes Audit, Administration, Custody fees, Index fees etc expressed as a percentage of fund size. Some of these fees are variable like our management fee at 50bps and custody fee at 35bps but the others are fixed. Last year the fund size reduced dramatically because of two factors: market movements and redemptions which significantly increased the fixed costs expressed as a percentage of fund size. We are exploring the options to curtail the costs and will provide more details.” Theresa Where does Simon invest for his niece and nephew? Are the accounts in their own names or in his name? I opened an ETFSA account about 6 years ago for my special needs grandchild who will be 9 this year. It’s not a tax free account. It’s in his name, with his mother’s details and bank account listed and the R500 monthly debit orders are paid from my bank account. It’s still administered by AOS and I find them extremely painful to deal with. Simple things like changing his mother’s physical address and bank account is taking a ridiculously long time to process even with the correct FICA documents. I have various accounts with Easy Equities, I enjoy the simplicity of the app and wonder if I should open a TFSA account for my grandchild with Easy Equities and invest into that in future. I’m 67 but hope to keep this up as long as possible. I can’t decide if I should just cancel the debit order on the old account and leave the existing ETFs on the AOS platform or should we redeem them over two tax years (R75000 total value) to fund the TFSA and avoid any CGT. Hopefully his mother won’t spend the money in between!! If I’m going to start closing the EFTSA AOS account I need to take action fairly quickly to redeem the first lot before the end of this tax year.
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Finding the next hot thing (#238)
02/07/2021
Finding the next hot thing (#238)
We are still running our survey. Please take two minutes to . Around the beginning of every year we notice a strange phenomenon. Energised by the holidays and inspired to turn life into an everlasting vacation, investors start searching for the investment Holy Grail. “What is the one, hot thing that will finally liberate me from the shackles of employment?” The opportunity that generates the most excitement changes every year, but the pattern is the same. Newbies and impatient veterans alike flock to alternative assets, penny stocks or underdog listed companies believed to be the next hot thing. This is an especially alarming tendency in first-time investors who have no other savings or investments to fall back on. Some of the questions we’ve seen this year are: Is it wise to buy Aveng shares now? Has anyone invested in the alternative stock exchange on the JSE? If you have, how does it work ? I'm looking to invest in penny shares through my bank FNB, how do I go about that? How do you buy "Doge Coin"? I don't know a lot about it but I just wanna try it out. What makes this question complicated is that there are sometimes hot things that run forever. By the time the rest of us wake up to the opportunity, it’s over. How can we tell what has the potential to be the next hot thing and what is sure to wipe out our investment? Here are a few tips we identified throughout the course of our conversation: Do you have an investment strategy unrelated to this opportunity? If you have an existing investment strategy, have you confirmed that this purchase fits into your long-term investment plans? Why are you considering this? If it’s only because someone else said so, do more research. Can you afford to take this risk? Only consider it if you can afford to lose 100% of your money. Are you considering this because a company called you about it? If it were really that great, would it need a marketing strategy? Is it listed? If it’s a penny stock (a stock whose share price is only a few cents), has the price been steadily increasing over a period? Remember, for something to be a ten-bagger, it first needs to be a one-bagger. What are the fees on this investment? Your fees have to be deducted from your returns before you get your real return. What is your investment horizon? If this is part of your long-term investment strategy, will this product be around for long enough? How do you get out of this investment? Some over the counter (OTC) products can only be sold under certain conditions. A 100% profit is worth 0 if you can’t cash in your investment. Subscribe to our . . Win of the week: Wesley W Hey Buckles (better combined name than Chubbles...) If one assumes a dividend yield of +- 2% and you pay foreign DWT of 30%, then the effect would be a DWT of 0.6% (30% of 2%) of your total investment. If you were to have this in your TFSA you could almost treat this as an additional cost to your TER for comparison sake. If the index did poorly and no dividends were paid the extra cost of DWT wouldn't apply, but based on a long-term investment that yields the 2% dividend average, you could factor in what you're losing out in tax as per the below. E.g if you were choosing between MSCI World vs Ashburton 1200 you could compare the costs as follows: Ashburton = TER = 0.55% p.a MSCI World = 0.6% DWT + 0.35% TER = 0.95% p.a I initially went for the MSCI world in my tax free account based on TER difference and assuming the DWT might be minimal but now that I look at the numbers it seems I might have been mistaken. Vincent Will the government increase the 1/3 of the lump sum value withdrawal on maturity of an RA? What is 500k going to be worth in 40 years? It seems pointless to take out an RA when the withdrawal amount is not adapting with inflation each year or at least increasing to cater for the cost of living? I'm doing the RA thing, but only until my TFSA lifetime limit is reached via all my rebates from SARS [13 years to go]. Thereafter I'll stop contributing to the RA. RAs aren't podium investments, but should I set the quality of growth in an RA aside and see the tax break as the big win? Would you say that having an enormous amount of money well distributed in ETFs is the way to go when debts, TFSA, RA and emergency funds are sorted? You'll have this major asset base ready to sell when the hits the tar. You'll pay CGT and Dividend tax at most, and both will be lower than your marginal tax rate. Dividend payouts or general interest/capital gain can be used as your monthly income, versus monthly annuity payouts as you'll probably outlive your RA and never use/see the full value. Stephen I see Long for Life have an aggressive share buyback strategy. Berkshire Hathaway and others also utilise this mechanism to boost their share price - I assume. From my observation it normally illustrates that the company believes their share is undervalued. However, can this not also be seen as insider trading? What's to stop a company initiating a share buyback when they know there is something big in the pipeline? Are there corporate governance processes in place to stop this happening? I just don't know if we as investors should see a share buyback as a buying opportunity. Hendrik I am trying to understand the NFGovi ETF. I am looking for a high as possible risk-free income yielding investment for my in-laws, whose capitec 49-month deposit at 10.25% is about to lapse. The renew options look very poor under current circumstances and I am struggling to find anything north of 8% that defends capital. I am aware that nfgovi etf does not guarantee capital and there is price movement risk. I would just like to wrap my head around that option and understand all factors. Wesley Instead of two RA accounts which was my plan, rather a much larger single account. At 55, immediately convert this large RA to a living annuity. Growth in the account is still tax free, as is income and Dividends. Adjust asset allocation of this big LA to get more international diversification. (I expect a significant amount of my spending to be in other currencies so global is a basket of currencies, which is ideal.) If I don't want additional income and tax burden, set the distribution to the minimum percentage allowable eg 1.5%. Contribute to a new RA account to offset the tax burden of this excess income. My LA + RA asset allocation in aggregate can have geographic diversification, can be better matched to my spending and I have control of my income / tax. If the tax free lump amount is adjusted upwards, check if I need to contribute extra so that 1/3 takes advantage of the adjusted tax table, then retire from this RA the following month. Repeat as necessary. This will get the significant tax free lump sum(s) out as soon as possible, which seems ideal to me. I can spend this lump sum cash initially while deferring higher withdrawals and therefore higher tax from the LA(s) to squeeze out a bit more tax free compounding. Craig Despite my attempts at getting them to increase it sufficiently enough so I don’t need to go through it every month, I fail. It seems it might all be automated with fixed rules, as the “agents” never really seem to read or acknowledge my pleas / questions. They just ask for payslips and bank statements then I get an email saying it's all sorted. Rinse & repeat the following month. Have you guys heard anything about this process? How would you suggest I explain to them why the percentage they have chosen should not apply to me, as previous attempts of mine have all failed? I’m wondering if once your portfolio hits a certain size or if your monthly contributions are over a certain size, if it might be better to go with another provider? Do you know if other providers also make you jump through these hoops to spend your money on ETFs? Brett I have just been sent an email from the money transfer company I use. I am not sure if this is new regulation that has been put in place. I am a SA tax payer, but am starting to rethink this decision. Can you confirm that this new tax has in fact been put in place?
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Money and travel (#237)
01/31/2021
Money and travel (#237)
There’s nothing like lockdown to induce a bad case of wanderlust. 11 months into the biggest bummer of many of our lifetimes, it’s wonderful to hear some ordinary good news. Remember weddings? Lady Kablo certainly does. She got married in December. Lockdown is giving her a little time to think about what she’d like for her perfect honeymoon. Many of us striving for financial independence hope to travel once we no longer have to work. Every time I take a trip, be it abroad or local, I’m reminded travel money works differently from ordinary money. While I’m extremely frugal in my day-to-day life, when I travel I don’t think about money. I also don’t worry about how much I eat or drink, I never check my phone and in general I’m just a much cooler person. In this week’s episode we help Lady Kabelo think about her honeymoon. In the process, we reminisce over some of our own adventures and dream about a time when we can do exciting things like visit friends and go to the shops. Hopefully this episode delivers a spot of whimsy to your lockdown. Subscribe to our . . Lady Kabelo I got married in December. Having spent the last 3 or 4 years following your savvy advice to tackle debt, emergency fund, insurance, retirement and medical aid, the time may have arrived for an international honeymoon trip (Yes, Covid is also a factor. I'm hoping when it's over some hard-hit places will be a little cheaper in an effort to attract visitors.) Every overseas vacation I've taken has been with my parents, so I've never considered the planning and budgeting that goes into an international vacation. My biggest nightmare is running out of money in a foreign country. As a result, I am leaning towards all-inclusive packages - even if we overspend, we'll at least have food. The downside is you're in a resort removed from the "real" place and people but then you can get cabs into the nearby towns for daily excursions. But I'm not sure if this is the most cost-effective way to travel. So, my questions: Are the all-inclusive packages a good way to travel? What are the hidden costs people commonly forget to plan for? What are the biggest financial mistakes people make with regards to travelling? Any additional tips for cost-effective travel? Win of the week: Charlene Thank you from the bottom of my heart for the financial education. I’ve been reading and listening to all your advice since lockdown in March and it has really made a HUGE impact on my financial decisions. I cannot thank you enough. I live in Mossel Bay. Should you ever be in the area I would love to offer lunch/dinner to thank you both for everything. I’ve been getting my financial house in order ever since. I have identified ETFs that I have invested in and I am very happy with the performance. I have invested in Satrix Emerging Markets(20%), Ashburton Global 1200 (60%) , Sygnia 4th industrial revolution (10%) and Satrix Nasdaq 100(10%). I have now sold a property and have money I want to invest. I want to invest it in the overseas markets directly. I’m currently using EasyEquities and I see I can use their platform for international investments as well. I had a look at their fees and I see they charge a brokerage fee of 0.25%. This whole world story is a bit intimidating and scary... so I am thinking to approach it using EasyEquities even though I know it's a bit more expensive. What are your views on this? My next hurdle is choosing what to buy. I want to buy similar ETFs to those I currently have, but don't know where to start. I saw Vanguard has a Total World stock ETF etc etc. Could you please kindly point me in the right direction? Dylan I was wondering whether a RA can be paid out to more than one person? In a family where the wife was a stay at home mom for most of their life and they only really have the husband's retirement fund to live off when he retires, would it be possible to pay the fund out to both people in order to split the retirement income between two incomes to save on income tax? I read the blog on Tax on lump sums in retirement. It states that if you have discretionary investment funds available at retirement, it's a good idea to hold on to your retirement savings and rather use your discretionary savings to cover expenses. It explains that by doing this, you allow your retirement savings to grow some more. Now this got me wondering, why would you want to cash out discretionary investments to have your retirement savings grow more? It seems the wrong way around to me. If your retirement savings grow larger, sure you save on the CGT and DWT inside the retirement product for the time your discretionary savings last you, but now you will probably pay more income tax on the extra retirement income than you ever would pay on CGT if you did it the other way around. My gut tells me it would be more efficient to take your retirement income when you start needing it and supplement that with your discretionary savings where required while trying to minimize the CGT of the investments you cash out. Jean We have been saving for our son's tertiary education and now have a sum in our bank account earning pathetic returns. We will need to start drawing from this in about 9 months time. We have been thinking of Satrix world as we really need better returns. Are ETFs/ international ETFs, too risky for this application? Chad I am a great fan of 1 share to rule them all. (Vanguard total world in my case). However, your recent podcast wrt the dangers of too much exposure offshore got me thinking about Rand-hedging. What would you say is the best ratio of Offshore vs Local equities in a total equity portfolio (apart from 20% which is Reg28 compliant)? Then there is the question of which is the most diversified local ETF? I have been investing in the Satrix 40 when the Rand is really weak but realise now that this might not exactly be a Rand-hedge ETF. Is the Sygnia itrix SWIX 40 ETF a good rand hedge option? Please help? Martin My brother sent me a link to one of your shows when I took an interest in my finances and I’ve been hooked ever since. Thanks for all the education, even if the majority goes over my head at the moment. But I can confidently say there is a huge difference now in comparison to when I started a few months back. I follow the Dave Ramsey baby steps: I am currently saving my emergency fund and up to two months-worth of expenses. It is a decent amount but I feel it is being wasted in a savings account. I keep hearing everyone say put the money in a money market account. I have been looking around with no luck. I bank with FNB and for example the one they propose I open is one with an opening amount of 100k. I also came across one from Old Mutual which seems reasonable and you get a card as you would want to have easy access to the funds when needed. What are the options out there and which do you guys use?
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Intergenerational wealth (#236)
01/24/2021
Intergenerational wealth (#236)
Time is such an odd ingredient in the realm of wealth creation. When treated with respect, a good amount of time can be your greatest ally. When ignored, however, time can be your biggest risk. In a country with so much historical inequality, the idea of intergenerational wealth seems entirely mythical. However, a small amount of money sprinkled with a great deal of time makes building a nest egg for the next generation seem downright simple. By the same token, sleeping at the wheel creates an opportunity for inflation to eat away at real returns. In this week’s episode, we explore intergenerational wealth building strategies using two real world examples. Is this our cutest episode yet? You tell us. Subscribe to our . . Mark I have twin girls who just turned five. I have contributed to their own respective RAs since they were eight months old. I started at R1k a month each and this contribution has increased by 10% a year. I will keep up with the annual increases for as long as possible, but I realise the contributions will become pretty large over time. My girls have Capitec bank accounts and are registered with SARS and file tax returns. They are building up tax credits from the RA contributions in their name with SARS given they have little or no taxable income. I realise this might not be the most tax-efficient or tax-effective option for saving for your kids and DeWet and others might disagree with it. I have outlined below why I went with this strategy over TFSA or unit trusts in their name or the plethora of additional options and combinations. RA is with Sygnia, so it is a low-cost product, and their capital can compound tax-free over a long period 50+ years. They can't touch it when they turn 18. I acknowledge this lack of access can be a double-edged sword given they might like it for a car, a deposit for a property, starting a business, etc. The tax credits they are building up with SARS should see them receive some decent tax refunds when they first start working which they can use for the uses as mentioned earlier or to plough into their own TFSA or back into the RA for even more tax credits. I acknowledge I am giving SARS an interest-free loan and the effect of inflation on the tax credits is a downside here. I also recognise I am losing out on the tax credit myself. They can keep contributing to the RA's when they start working as it is already set up for them. Having the RA, Bank A/C, EasyEquities account, and a SARS efiling profile provides an excellent financial education base when they are older. TFSA and/or unit trust they can access when they are eighteen, and they could withdraw everything and blow it all so this strategy guards against this. Some may see this as excessive control or control from beyond the grave, and I take their point. This RA is their inheritance which should be substantial even in today's rands by the time they can draw down on it. Some of their inheritance they get when they are younger once the tax refunds kick in from the contributions and the balance when they are older. There are pros and cons to the above approach compared to other kids saving options but after I weighed several different approaches and strategies, I decided to go with this one for now for better or worse. Wesley The lifetime limit is inflated periodically The scheme is abandoned to inflation The allowable limits are significantly increased (as has happened in many other countries) If the lifetime limit is not increased periodically, the TFSA scheme is abandoned to inflation and will become worthless, much like the interest income exemption has been abandoned. At a 4.5% midrange inflation target, assuming the original 30k annual contributions took 16.7 years to max out the 500k, the value of the 500k limit at that date will be around 240k in today's money for someone starting out on that future date. Those future starters will be proportionally disenfranchised from the TFSA scheme. The time horizon from birth to earning enough to contribute to a tax-free account is 20 or 25 years. The optimal time horizon for a TFSA is much longer than that. A child born now, six years into the TFSA scheme, starting their contributions at 25 years old would have lost 75% of the value of the original 500k limit. It's not a very valuable loss at that point. I’m assuming the lifetime limit will always increase to allow an annual contribution. If not, the best possible course of action is to get in on the ground floor on this once off opportunity before it becomes worthless. Win of the week is: Henno Feedback for Lizl, whose company wants to force her to move her brokerage accounts in-house. “It’s always important to take a closer look at the conditions of employment in your contract on the day you started. Anything that changes after that requires a process of consultation. The employer can’t make changes unilaterally. The consultation process is more than an email from HR. What typically happens is HR sends an addendum to your employment contract, none of the employees query it before signing and then it’s as if the consultation happened and you accepted it. I’d argue if my original employment contract didn’t include anything about this, if there was no consultation process and if I didn’t sign anything, they can’t enforce that rule. If they want to fire me after that, I’d go to the CCMA on the grounds of an unfair dismissal.” Gerrie My employer is massively exposed if I were to abuse any potential privileged information to do some insider trading, either on my own accounts or within family accounts. The regulatory world has changed massively in recent years and fines from the FSCA can run into 100s of millions in addition to imprisoning my employer’s directors. Banks and other institutions take this very seriously and would rather have too harsh restrictions on their employees than to allow anyone to abuse the system. Financial institutions force all their employees to trade under a watchful eye. It’s not fun, but I understand why. I informed my employer’s compliance team of all my and my family’s accounts at EasyEquities and I told them I have no desire to move it. Turns out the process was slick and simple. I only buy ETFs at EasyEquities and never individual shares. My purpose is to invest and not to trade and ETFs fall outside of the trading restrictions. I made a declaration to that extent and the compliance team told me to happily continue doing so. They may ask me for a statement from time to time and I’ll gladly supply it, but there is no need for any ongoing burdensome process. The entire process took me half an hour to resolve. I made full disclosure. They are aware of my accounts and my or may not check up later. I have undertaken to inform them the moment I intend doing anything other than investing in ETFs. I prepared myself for much pain that never happened. So Lizl– my experience was that there was no need to move accounts and trigger capital gains events. What a relief. Koketso I started looking into my investments and was horrified that: - My EAC was sitting around 2.45%; 1.15% of which was advice fees - The general performance of my investments in the last 3 years was not great and with the 2.4% in fees I practically kept money under my mattress and all that prudence was for nothing! What I have done so far is: - Got rid of my financial advisor dropping 1.15% of fees from my EAC - stopped contributing to my RA as I have intentions to move abroad in the next 2-5 years - Moved funds from the more expensive products to a global feeder while I figure out what to do I recognise that this is not ideal, but this was a first step and one step at a time! And the questions: For my global money, I would like to invest most of my USD abroad (not using any local platforms) and in ETFs. Do you have any recommendations? I understand that from an estate planning perspective, Switzerland recognises SA wills should anything happen Before I fired him, my financial advisor recommended two products, the first with the above in mind: the Galileo balanced fund which has fees of 2%+. I must mention here that the advisor works for Galileo so I was not 100% sold on this idea. the nedgroup investments core global fund, details also attached For my local money, again I am all in for ETFs and would also want to look at moving away from my expensive platform. - If I wanted to say move to a cheaper provider, how do I actually do that? Would there be CGT on my unit trust and TFSA? - I am thinking the following for my ETFs TFSA: 50% ashburton 1200 ; 50% MSCI world Unit trusts: 50% - ashburton 1200, 30% satrix 40 and 20% MSCI world Retirement annuity: I won't add to this for the moment. I know there is a requirement to have a max 30% offshore holding so I'm thinking to change the makeup of my RA to: 15% ashburton 1200; 15% MSCI world and not too sure what else Brendt My mother is 62 years old, and will be retiring from work in Apr 2022. My parents plan to save R20k a month from now on until they retire. My mother has no retirement products apart from one RA that has a current balance of R80k. My parents want to have as much of their savings available in discretionary savings as possible. My idea was for them to pay the R20k monthly saving into my mother’s RA until it reaches a balance of about R220k. Then open up another RA with a different service provider and save the remaining monthly amount to this RA. That way my mother would have two RAs on retirement, both of which will have a balance of less than R247k, which is the lowest amount for which it is mandatory to buy a living/guaranteed annuity with. Meaning that she would be able to withdraw 100% of both RAs as a lump sum, tax free (She has yet to make use of the R500k tax free withdrawal concession), to invest in ETFs for retirement. She will be able to reduce her taxable income in the year or so that she invests the money in the RAs, without being bound to a guaranteed/living annuity and the personal income tax implications on retirement (CGT is sooo much cheaper). In effect SARS will be paying them. :)Chris Many young South Africans are drawn to the idea of working on the yachts in the Mediterannean as a way to explore the world and earn some hard currency. I spent five months as a steward, sailing from Monaco to Barcelona with plenty of glamorous stops along the way! I managed to save some of the Euros that I earned overseas and those are in a Standard Bank Isle of Man account (earning next to no interest). I am keen to make that cash work a bit harder, so I would like to exchange it into Rands and invest it in some ETFs (a question for a later date). I have been hesitant to “just transfer” the Euros to my South African bank account until I fully understand the tax implications. What is the most tax efficient way to get the funds from my Isle of Man account to my South African account? What is the best way to actually transfer the funds from one account to the other? Brett My emergency fund will cover about 6-9 months of living costs. That is more than I’ve got invested in equities. I’d like to have much more exposure to equities to get maximum growth over the next 20 years. How would you recommend investing such a lump sum to gain relatively high growth for cash (5-10%), while keeping it relatively low risk, and liquid? I’ve considered the following: FNB Money Maximiser - 3.75% interest, completely liquid. The interest rate I believe is fixed to the lending rate as it was closer to 7% a year back. It’s still higher than typical liquid saving accounts. Fixed deposit or 32 day notice was not considered liquid enough. Money Market products offered the highest growth out of the products i looked at, i.e. a few percent above inflation. But the costs and fees were also the highest, and based on recent performance and inflation, the high fees largely eroded any gains. High dividend or REITs ETFs, which seems to have a yield of about 2-5%, so very much in line with inflation. (And then some growth) Bond ETFs, like New Funds GOVI, which was about 6-7% growth based on 3-5 years. And last is to keep it in my mortgage to reduce the interest I pay each month, at prime. So many options right? Would you recon it is best to keep the cash? Candice De Wet mentioned asking your HR department to adjust the RA contribution figure on their payslip to include the personal contributions. My payslip has been showing an R2906.75 shortfall in contributions as I have been doing my own thang. I asked the HR department to adjust this and the difference is just over R1000 extra on my net. This will be going straight to my TFSA monthly. Lebo I currently have a tax free account with EasyEquities. I've maxed out the R36000 limit for the year and I know the lifetime limit is R500000. I was wondering once the lifetime limit is reached, can I open another tax free account and receive the R36000 tax free benefit on the new account? Basically can I start the process over with another account and effectively have a R1m lifetime limit?
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Tax creep (#235)
01/17/2021
Tax creep (#235)
There’s more than one way to raise taxes. You can subject yourself to the ire of the masses by being up-front about it, or you can eke out little tax wins on the sly. Our government likes to do a bit of both. This week, with the help of Wesley, we explain how tax creep works and what you can do about it. We also talk about lump-sum withdrawals. You are taxed on previous withdrawals taken after the following dates: Withdrawals: 1 March 2009 Retirement benefits: 1 October 2007 Severance benefits: 1 March 2011 If you took lump sum withdrawals before these dates, consider that an entry for your gratitude journal. Wesley It’s been 6 years since the lump sum benefit was last adjusted and we have lost 26.5% of the value of the incentive during this time. Where is my inflation adjustment? Obviously someone is desperate for cash right now, and SARS doesn't think it is pensioners. When the lump sum is adjusted from 300k to 500k, but you already took 300k in the past, what happens when you take a 200k lump sum from your other RA account? More complicated. Was 300k, take 400k, pay 18% tax on 100k = 18k tax. Now the limit is 500k. take another 300k lump sum from your other RA account. What on earth happens? Do you not get any benefit from the increase? Does 100k at 18% wipe out half of your new 200k tax free lump sum? Or do you treat it as a 700k lump sum on the new provisions less 18k tax previously paid on lump sums. It seems like a good idea to have at least 2 RA accounts. Subscribe to our . . Win of the week: Candice Just thought I'd say a HUGE thank you. After being introduced to the show just 3 years ago, I feel like we are in a committed relationship. It's the only podcast I listen to and look forward to my Monday morning drive to work with you guys. I finally budgeted. I’m horrified to see where our money goes monthly. I can't complain though, because without knowing I wouldn't be able to change spending habits. Martinus I've always championed Total Return ETFs. Outside a TFSA you’d have to pay Capital Gains Tax. TRTs also save on brokerage costs and admin. However, the feedback from De Wet has me reconsidering that approach. If the fund is a feeder fund like the Satrix MSCI World, is there any local tax event? To me, it makes sense that if they just reinvest the distributions they receive outside SA the only tax event would be in the foreign country. Your only local tax concern then is CGT. It is possible to switch from Satrix to 1invest MSCI world at an increase in fees of 0.05% and then have dividends paid out. This leaves an increase in brokerage costs and personal admin. Martin I’ve been putting money into the Satrix World. As I understand it, I lose the benefit of the saving on dividend tax in a Global ETF, but I’m at least hedged in a way with the rand weakening over time, and it should show better growth over time than local (who knows though). So I just listened to your podcast (Asset Allocation Problem – 14/12/20) regarding total return funds (like MSCI World). Am I correct in my understanding that the dividend tax is in the region of 28%, not 15%? Furthermore, are we saying that tax free investments should pay out the dividend, and not reinvest? That feels wrong though, that money then can’t keep growing? Then, to make matters worse, when you Google “tax on tax free global etf”, you get many links proclaiming that you do not pay ANY tax on either local or foreign tax free investments, e.g. Please put me out of my misery on this one! Lizl I have the *honour and privilege* of working for a financial institution that recently decided all employees must close all accounts with other brokers and open a stockbroking account with them. Exceptions may be approved, but I don't want to open that can of worms just yet. I have EasyEquities accounts - both an Easy Equities ZAR account with individual shares and a TFSA account with a few ETFs. Does Easy Equitites count as a stockbroker in this case? Should I just sell the individual stocks and hope they'll let me keep the TFSA? Does the TFSA fall under this prohibition as well? And why is it that they can legally do this? I have zero energy for the admin of moving and the inevitably higher fees, preferential staff rate or not. Greg Normally I put my TFSA allocation of R3000 per month into my bond. At the end of the financial year I draw R36000 and buy the Ashburton Global 1200 ETF in my TFSA. Should I still be doing so for the coming year? Is this still the one ETF to rule them all?
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RAs and tax (#234)
01/10/2021
RAs and tax (#234)
For all the flack they’ve been getting, there’s no easier way to reduce your tax liability than pension fund contributions. In this week’s episode of The Fat Wallet Show, we help Megan correct an assumption about her tax savings on retirement annuity contributions. We use the opportunity to talk about offshore allocation and prescribed assets. Subscribe to our . . Win of the week: Megan I listened to your "To RA or Not" episode today, and one of the questions (about RA contributions vs paying off a bond) reminded me of a dilemma I've been wondering about for a while. I'm 25 and working as a junior engineer. My marginal tax rate is at 26%. I'm currently putting R3000/month into my TFSA (Satrix MSCI World ETF with Easy Equities) and R2000/month into a Sygnia RA with decent fees. I save R1000/month in a TymeBank goalsaver for holidays. After that I can't really afford more savings at the moment, which means I'm not adding anything to my long-term discretionary investments. (I have an emergency fund and enough short-term investments for my needs and goals.) My question is this: Considering 1) The Regulation 28 requirement on the RA which limits global diversification, 2) My low tax bracket, and 3) The fact that Rand devalues around 4% per year to the dollar, is the RA really worth it? Putting money into an RA saves me 26% now. But what if I were, instead, to put that R2000 into a discretionary investment (e.g. MSCI World ETF)? If the MSCI World outperforms the local 70% of my RA by 4% a year (which seems likely imo), then surely the discretionary fund would be "outperforming" the RA in the long term? For arguments' sake, with the assumption that global returns outperform Rand returns by 4%, then after 10 years, R2000 in the RA + 26% (assuming I could magically reinvest the tax return instantly) would be worth (2520 x 0.3 x 1.04^10) + (2520 x 0.7) = R2883. While R2000 in the discretionary global ETF would be worth: (2000 x 1.04^10) = R2960. (I mean this in relative terms, I don't really expect 0%). This difference would only get greater over time due to compounding. The other thing is that the RA money will all get taxed in future. And that the RA fees, although low, are higher than the discretionary fees. So while I fully understand the tax benefits of an RA for people earning at 45%, I'm not as convinced for those of us in some of the lower brackets. What do you think? Is my assumption wrong about global markets showing better returns? Is it normal to feel this uncertain about putting so many eggs in the SA basket, or am I being silly? Is an RA worth it for me now, and if not, when does it become worth it?
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How to brace your money for 2021 (#233)
01/03/2021
How to brace your money for 2021 (#233)
2020 gave us all a new appreciation for the humble emergency fund. In this episode of The Fat Wallet Show we think about some steps you can take to prepare your money for the year ahead. Win of the week: Celma I turned 55 and had to visit my bank (Nedbank) a few months later. I asked them if there is any reduction in bank fees when you turn 55 and to my surprise my bank fees got waived provided I make a R10 000 deposit. I only get 2.5% on the deposit, but save about R300 in monthly bank fees. The facility is probably available to everybody but seems like you must ask about it - it is not as though they tell you or advertise it. Subscribe to our . . Zee I've been listening to you guys like a fiend for the past 3 months and I have managed to follow your instructions of having insurance, reducing living expenses etc. Now I'm at that stage of forming my retirement strategy. Annnnnddd I'm pretty much having a bit of a breakdown as to whether I'm going in the right direction. So I'm 28 and working in South Korea. I've never had any debt, I don't pay rent, car, I have no kids or financial dependents. This allows me to save about 54% of my pay, which is split between my RA 16% and about 4% Unit trust (which I top up with my annual bonus) both with 10X . Then 30% in a ZAR Easy Equities monthly (I just opened my TFSA which I will max out on the 1st of March as I have already saved the R36K). Ohhh I have saved 3 months salary as an emergency fund. Should I keep the UT as a means of saving a year's worth of salary for when I am old and wrinkled and the medical costs are eye wateringly high or to supplement my income when the market falls apart. Orrrrr should I just leave that and go beast mode into EasyEquities and the RA. I also wanted to know if I should push to save up to a 6 months salary even if it takes me more than a year? And put it into a money market or savings account cause the prospect of going back to being unemployed for a long period of time scares me to death!
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Don't let the door hit you on the way out (#232)
12/27/2020
Don't let the door hit you on the way out (#232)
If nothing else, 2020 was humbling. There were many things we thought we knew about the market, about gold, about interest rates and about predicting the future that just turned out to be not so. In this year-end episode of The Fat Wallet Show we share some thoughts and insights, as well as a nice bottle of bubbles. Here’s to a happier 2021. Subscribe to our . . Win of the week: Tayo One thing I do however is set up separate scheduled transfers with different references if I have a more specific goal. So instead of transferring R100 every month into my EM, I'll have a transfer with reference UPGRADE_KITCHEN of R20, another with R10 for UPGRADE_PHONE_FUND and the rest a normal EM dump. This way I can just search for UPGRADE_KITCHEN on 22seven and I can see how much I've saved up for that particular goal. Extra points for using the same UPGRADE_KITCHEN reference when taking out of that 'fund' so I know how much I've spent and how much I have left. I make sure to keep it simple: Keep those goals as broad and few as possible (I only have 3 at the moment) Don't overthink it. 1 bank account (also 1 banking charge), no excel admin
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A fat fairytale (#231)
12/20/2020
A fat fairytale (#231)
In honour of Christmas this Friday, this week’s episode is the first ever Fat Wallet fairytale, written by Suzanne for her daughter Nina. Happy Holidays, everyone! Win of the week: Suzanne I just want to say thank you for the great work that you are doing. I know that we as a society tend to use the word EMPOWERING quite loosely, but there is no better way to describe how I personally have experienced this whole journey into personal finance. I also feel it has made me a better parent to my kids – that can now guide and empower them on their own road to financial independence. I attach a little Christmas Fairytale I wrote for my daughter, that I hope you will enjoy – and as a little ode to a Fairy Godmother that you may recognize…… A CHRISTMAS FAIRYTALE FOR MY DAUGHTER As smart as a whip, and with a feisty personality to match, Princess Nina was considered by all to be quite the catch. But frowns of worry have been darkening her day, For on the eve of her sixteenth birthday, she was unsure of her way……. “OH”, she cried, while munching on her two-minute noodles, “This world has to offer me oodles and oodles, Yet I am unsure of what I need to do! I know I am a Princess, and being one too, Cinderella and Rapunzel I should probably like you, And don’t forget Snow White, she is in the mix too.” “But, being rescued has never really been my vibe, I think I am more part of the Katniss Everdeen tribe. I wear my hair in a bob, and can really whack a hockey ball, I don’t really mind people, but love dogs more than all.” “I have no desire to be rescued by a prince, To me that sounds about as appealing as a bowl of pets mince! I don’t want to toil away my days in some remote castle tower, I want to learn Korean, travel the world and find my own Power!” It was then that it happened, in a flash she appeared, The extremely tall fairy godmother, all mothers-in-law feared… She was known through the land from north to south, For her sensible advice ….and her potty mouth. “Girl”she exclaimed, ”I heard your pleas, And I think you are cooler than the fucking bee’s knees, So in your future there will be no dwarfs, prince’s or even a count….. What you get is a Tax Free Savings Account. With the whip of her wand, she quickly set about, to set up an Easy Equities TFSA account…. “That is it”, she cried,” my magic is done!” “Now, my dear princess, starts all the fun.” “You will go out into the world, and chase those dreams!, But you will also be smart, and live within your means. You will graft at your craft, and your joy will be astounding, You will also be saving a shitload, and experience the magic of compounding.” “This blessing and wisdom I bestow upon you, Is not one to be horded, but for you to share with other princesses too. So should Cinderella come crying about her boring days, Or Rapunzel curse about her man’s whoring ways…….” “You can exclaim: “Girl, I hear you cries, so let me sort for you, the truth from the lies….. You don’t need to live your life as prescribed, Where fate is fate, and choice is denied. You don’t need a blesser, or a large inheritance amount, You need a Tax Free Savings Account!”
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The asset allocation problem (#230)
12/13/2020
The asset allocation problem (#230)
Investing history teaches us success is all about asset allocation, as Grant Locke explains . History is unfortunately annoyingly silent on what precisely the best asset allocation would be. Where does that leave those of us investing for the long haul? Should we pick a mix and stick to it? Should we adapt our asset allocation mix to suit the current market conditions? While Ash asks this important question in relation to a retirement product, it’s a question each DIY investor would have to answer for themselves. This is an excellent way to end our Fat Wallet year, because we’re once again reminded that intentionality and mindfulness matter when it comes to money management. 2020 gave us all a lesson in having high expectations of a new year, so this year I won’t toast 2021. Instead, let’s all raise a glass to the end of 2020 and have that be that. Thanks for listening! Subscribe to our . . Ash I get that you partner with Outvest and their Coreshares offering based on their incredibly low fees. I have since been looking at the passive balanced funds available in the market and have picked up that they are not all the same. Could you possibly comment on what is termed a "hard-passive product" which invests in ETFs like the Coreshares OUTmoderate Fund that has a Fixed Asset Allocation? vs a "soft-passive fund" like the Sygnia Skeleton Balanced 70 that is able to adjust its asset allocation on a regular basis however it still uses ETFs and low cost passives in its portfolio. When reading multiple articles online it's seems asset allocation brings in the bulk of your returns over stock picking, so wouldn't it be beneficial being in the Sygnia portfolio that is able to adjust its asset allocation to market risks over time? A prime example being that Sygnia currently doesn't hold any property in its portfolio vs Outvest with 15% exposure to Property (Domestic and Local). When looking at their returns it seems that Sygnia may be more expensive by roughly 0.2% per annum but has managed to deliver far better performance because of its flexibility over the last few years making the 0.2% difference probably worth it. Win of the week: AN I started a Stanlib Unit trust when I was 23 and had stable employment. I injected approximately R100k p.a averaged over the 8 year period. The average returns have been about 7%. However, I suspect that I am being too risk averse and losing out on many opportunities. Please can you help me decide how to progress from this into more diversification. I have opened a TFSA with EE and I will be purchasing ETFS. What amount of my current unit trust should I move over to ETFs as a guideline and what would be the best 2 or 3 ETFS for me to start with? Pascal When you guys mention Interactive Brokers, you imply that it's totally off limits to anyone with less than 100,000 USD. There is no minimum account balance with interactive brokers. Only a small monthly "inactivity" fee if your balance is less than 100K. It costs 10 dollars a month, minus the cost of each trade made in that month (at 1 dollar a trade). So if you buy shares of 2 ETF's each month as I do, your monthly fee is 8 USD (excluding the trades). In other words, aside from the 10 dollars a month, you can buy and sell ETFs for free, up to 10 trades a month, so you're never paying more than ~R160 (at current rates) a month. R160 does not seem like that much for access to global markets though such a feature-rich platform. To put that in perspective, that's less than the fee for some current accounts in SA. When you consider EasyEquites USD fee is 0.56% of each trade value, a 10 dollar fee equates to a trade value of (I think) ~1785 USD. So, IBKR actually becomes cheaper than EasyEquities anytime you invest more than 1785 USD a month. (if my math is correct? Please feel free to check this). Magan If one passes on with a living annuity, can the spouse transfer the amount that is due to her to her own living annuity? What will the tax consequences be, if any? Andy I would like to believe that I was listening before the famous Wilhelm stole the limelight. I was also on the ships and scratched my head on similar issues faced by some of your doctor listeners. I’ve made so many of the mistakes you have spoken about in your show, but I can certainly say I have learnt some lessons and am getting better. From a horrid financial advisor who had never even heard of ETPs, to being invested in some kak expensive funds on Alan Gray. (Said advisor had also not heard about TFSAs). A lot has transpired since then. I now run my own portfolio except a minimal amount for my RA with GEPF (which I can’t control) and 10x, which I am kind of okay with. I’m now 5 years into TFSA. The majority of my other investments are in ETFs and I’ve had some success (read luck) and some failures (read Woolies) in single stocks. I’m also teaching interns who want to listen about the pitfalls of getting a good starting salary with little financial background and I find this really rewarding. What is the difference between dividends and distributions. What are the tax implications? Which products would be better to hold in the tax free space, one that reinvests distributions or one that pays the dividend? On a similar vein- if an etf like satrix world reinvests distributions, what are the tax liabilities? Santosh I understand the argument on fees, but one has to also acknowledge that service is worth paying for. When I sold the last lot of my Satrix Property, I experienced the same as most ie. no response to emails, ineffective and incompetent staff on the other side of the telephone, when one could actually speak to an individual. Ask practically any question unrelated to that day's share price and you're greeted with a stunned silence. Then there's the JSE process and it's associated fees and processing times I decided never again! The level of service, competence and responsiveness of Allan Gray and Coronation, for example, is stupendous to the point where I'm willing to pay a premium. When I have had questions, I've directed it to the individual fund managers themselves and have received detailed, well thought-out responses. Before I invested with Prescient, one of the fund managers actually took the time to meet me over coffee and today still answers my questions directly. Would an ETF provider do this ? Never - not in a million years. The funds are expensive, but the service by the asset managers is worth paying for that is if that is important to you. In 2018 after I met with 10X and he was "blown away" with my interaction with Allan Gray and how professionally and attentive Allan Gray was. Any transaction—irrespective of complexity, local or international—is handled either on the day or 24hrs and really, they respond to EVERY email. Furthermore, the level of staff knowledge at any of the Asset Managers is incredible! Irrespective of who answers the phone, the competence is assured. I really don't know how these asset managers are able to find and train staff to this level. It seems to be something unique to the asset management industry. Even performance-wise, the Ash1200 is not without its competitors. The 1-year performance of the Ash 1200 against the Coronation Optimum growth fund is practically identical after fees and in this case, the Optimum Growth fared marginally better. Taya I have been contributing to an RA since 2014 through one of the dreaded 'old school' companies. I blame this on a younger, stupider version of me. I am investigating the fees I am paying and will most likely move this to another provider such as 10X / Outvest. My employer is dead set against RAs. He knows his way around tax (he has a Masters in Tax law and worked for SARS for some time), so I am inclined to give his advice some thought. His view is that by the time I am of retirement age, the government would've gotten their hands on RAs through prescribed assets. In addition, RAs don't typically perform very well. His advice is to take the tax knock and invest your money elsewhere. What are your thoughts on this? If I am going to continue investing in an RA I need to seriously figure out how to contribute more to it monthly, but I am questioning whether this is something I should even be figuring out in the first place. Laurence We're on the bus to Portugal, due to roles that allow remote working and passports for EU access. I have a question around CGT on offshore funds (e.g the Vanguard.VT USD fund) when becoming a non-tax resident in South Africa. We plan to become non-tax residents in South Africa, and not financially emigrate (even though we assume we won't return to the country). I currently own the Vanguard USD fund through Easy Equities. I plan to do a position transfer from EE to Interactive Brokers. I would sell up any remaining South African funds (e.g. Ashburton 1200) and convert to Irish domiciled Vanguard funds. I know that Vanguard is US domiciled and there's some concerns about Estate Tax above $60K without tax treaties, but I'd like to think I can manage it based on the fact that Portugal may not be our final destination. I've (somewhat) come to terms on taking the CGT hit on the SA funds when leaving, but what happens to the offshore funds (e.g. USD VT) from a CGT perspective when becoming non-tax resident of South Africa? Do you have any insights around the need to pay the CGT on the VT gains (to date) in South Africa when becoming non-tax resident, or would the double taxation agreement with another country mean you only pay CGT in Portugal/EU when selling off the fund in e.g. 15 years time? Alternatively, am I just complicating the hell out of it and should I sell the VT fund whilst it's of moderate size and take the CGT hit now? Garry I am in my early fifties, married and dad to two high-school kids. My wife doesn’t earn an income. I have a good pension fund through work. I have also been contributing to an RA since 2005. The RA with Momentum is offshore denominated, which avoids over-exposure to section 28 regulations. I have stopped the 10% annual escalation on this so will now pay a fixed amount until my 55th birthday. We have an additional discretionary investment into unit trusts. We also have an emergency fund in a USD account. I think by and large we have been doing the right sort of things. Here are a few things I would like to correct: We have been investing in Unit Trusts rather than Tax Free investments first! On my older Unit Trusts I have a financial adviser associated with them and I am annoyed that he is getting free money without adding value. The Unit Trusts are in my name rather than my wife’s. She is a stay at home mom, so it seems sensible from a tax perspective that these investments should be in her name. The Momentum RA is USD denominated. 2 years ago I stopped the annual automatic increase and paid a penalty for that. I also have a few small paid up RAs from back in the day when I was young, naïve and exploited. Can you please comment on my proposed corrections: Open tax free investment accounts for my children, my wife and myself (last) before further funding other discretionary investments. Sell off my unit trusts in annual tranches, keeping the capital gains below the R40k annual limit and use this money to fund the TFIAs. This will have the additional benefit of reducing the free money to my financial adviser. Top up the TFIAs on a monthly basis, keeping below the annual limit. Put any additional funds into an ETF like an MSCI World fund from one of the providers Do you have a recommendation for what to do with my Momentum RA? When I reach 55 it seems best to take my various RAs as lump sums and add them to my discretionary savings. Any thoughts on that? Mary I wonder if there is such a thing as tax free converting, where you take R36,000 from your retirement annuity to deposit in the tax free account without being penalized. I read this is possible in the US with their version of tax free accounts they call Roths accounts. You transfer money from a 401K to a Roth IRA or Roth401k. It all sounded very interesting. I wondered if you two knew something similar existed here at home.
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To RA or not (# 229)
12/06/2020
To RA or not (# 229)
Although they’ve fallen out of fashion, we like retirement products. In addition to a generous tax break, retirement funds prevent us from cheating our future selves out of money to do luxurious things like live indoors and eat food. That said, if you’re prioritising investments, retirement products might not be the best place to start, as Dylan points out this week. At the beginning of your career, your tax bracket is quite low. Much as we like tax breaks, it might not be the best use of your investment money. Subscribe to our . . Win of the week: Stella Thanks so much for your absolutely fantastic show – I have learned SO much from you and Simon. I think of it as The Gospel According to Bubbles and Chuckles. I’m learning slowly and not there yet, but doing oh so much better with my money. My mother is 89 and has just sold the life rights to her cottage in a retirement village she was living in (she moved to another establishment where she pays a very low monthly rent of R5,900 – can you believe that?? We were so lucky to get this – it’s a fabulous place in a small town and working out well). She will receive R451,000 from the sale and I am wondering what she should do with this money to avoid taxes and fees. She really doesn’t have much money and her income is very low, between her pension and an annuity she gets just under R10,000/month, so my brother and I supplement her expenses – we split her rent in 3, covering various expenses. Her medical bills are a nightmare – her medical aid and gap cover sets her back R4100/month, and she has just been prescribed heart medication which costs R2,200/month, that the medical aid won’t cover. That’s R6,300/month on medical shit. Anyhow – she will need to draw on this money to cover said expenses, but it would be great to identify an investment option that allows the money to earn interest, but not have it tied up for years. Dylan If I am responsible enough to not use it for living costs it seems like a good place for my money: It is saving me on a guaranteed interest rate which (even at this stage where the repo rate is so low) is higher than inflation My understanding is that I will never have any tax implications on these savings since it is not actually interest that I am "earning". The only negative I can see is the whole "don't have all your eggs in one basket" saying, which also seems like it is not exactly applicable in this case. Even if something bad happens to my house or the property market, I would still be liable for the amount owed to the bank. So whether I have big savings in my home loan or in other investments, the loss would be the same. Since I am at the early stage of my career, I benefit the least in terms of tax. I only expect my salary to grow from here on, so later in my career I would benefit much more. So should I not be prioritizing TFSAs? My very basic understanding would explain that RAs let you reap the reward now and pay tax later, where TFSA let you pay now and reap the reward later. My current idea is to contribute the max of R6k per month between myself and my wife to TFSA. After that we can consider RAs and other investments. Then this ties up with my first question: would it not be a good idea to then take what's left after TFSA and contribute that to my home loan? This way, I could really quickly pay off my home loan and only after that start contributing to an RA again. At that point, I would need a new place for my emergency fund, but cash investments should be fine? If I stop contributing to a RA and rather contribute to a TFSA and my home loan (or any other investment), do I need to tell my employer that? Currently they pay me my salary and I contribute to my RA, but they do specify my RA contribution on my PAYE. Can I leave them and just save the tax I should pay and give the money to SARS at the end of the tax year or is that not legal? Herman I have been contributing to my TFSA the max amount for 5years now. This has been my only savings after my emergency fund. My student debt was low and I managed to pay it off in 3years. I have recently been approached to work in New Zealand, and now have too many options to consider - please help: What happens to my TSFA monies if i only work overseas, but plan to return to SA some point in the future? Am i still eligible for a TSFA, and can i continue to make my yearly contribution? Is there any advantage for me to file for tax emigration? Relating to above - I understand NZ and SA have a double tax agreement - Does this mean no SA tax? or just SA tax where the NZ tax 'stops'? (So the difference between my SA tax% and NZ% would still be payable in SA?) Tsebang I was invited to a presentation about Bitcoin Mining, the company that is mining the Bitcoin is Mining City I'm not sure if it is a scam or not. Could you please check and advise? I have a bad feeling about this. They are promising huge returns after 3 years. Candice What I can tell you is that they are not a platform, so there is no option of selecting external funds when you are not happy with performance. They offer only tracker funds which in general are 0.95% and they only have one actively managed unit trust fund. So the potential EAC would be 0.95 for AMF and if there is an advisor you can add a further 0 – 1.15% so potentially they would be very cheap. So it is extremely important to understand what your selected fund is tracking, currently the 1 yr return on their medium equity fund is 0.2% and they do not have any funds that offer guarantees. If you are looking for a similar product from Old Mutual it would be our OM Funds only option through wealth which also does not have an admin fee and our tracker funds come in slightly cheaper than 10x at between 0.55 and 0.9 and with a far superior actively managed fund range including offshore. When you are looking at the optimal plan, you are not buying it because it is cheap, you are buying for possibly the underlying guarantee that your fund may have and then for the future bonuses from year five until maturity. I would think very carefully before considering moving retirement funds to 10X for the reasons given above…in view of NO GUARANTEESand NO BONUSES paid going forward.Shane Thank you for a great show and for making me laugh at least N+1 times during each podcast. Please share your thoughts on trading with a Tax-free account. I've dumped R15k in mine a few weeks ago and opened several ETFs, (S&P500, NASDAQ 100, etc.), and split it evenly. I am a daily trader using equities. I’m wondering if the same can be done with Tax-free ETFs, while staying below the annual contribution limit but maximizing profits? What implications are there that you are aware of? Tim I’m 43 and my wife and I are debt free since the beginning of this year. House access bond is basically paid off, R10k left to keep the facility open, but it also is my emergency fund. I maxed my TFIA at Standard Bank with a couple of ETFs, I moved my 20 year old RA’s from Sanlam and Old Mutual to Outvest – boy did I get shafted in 20 years! I still have a Policy with Sanlam. I want to cash it in, but want to use it to my maximum long term benefit. Should I put it as a lump sum in my RA or rather buy ETFs with it?Ross I realize it's a massive double up and need to streamline the portfolio, I just can't decide what to hold onto and what to sell. I have also been quite interested in the SYG4IR. I just can't help but think this is the way of the future: clean tech, autonomous vehicles, drones, solar, space the list goes on. If I put a bit of money into it now and let that grow for 30 years who knows what the value of it might be by then, which brings me to my questions: Is there a way of telling if an index is a value buy? I know that indices trade at "fair value" but is that really the case? Take the S&P 500 right now as an example. There are four or five Tec stocks that are keeping the whole thing afloat, and making new highs, while the Russell 2000 has bearly even touched the March highs. I know your advice is always "time in the market beats trying to time the market" but I'm sitting on my money at the moment and haven't been buying as I just can't help but think the market is way overvalued at the moment? How have all these massive stimulus packages by governments worldwide affected the markets? Particularly the major indices. Are we now just in a massive debt euphoria pretending that everything is awesome and another crash is inevitable? Could there possibly be a better buying opportunity not far down the road? I'm just a country peasant but even I can see that there's much more to this than meets the eye.Jaco I only recently discovered that I am completely undercooked in terms of retirement. I had some investments, a bad RA, and some unit trusts for my kids with Allan Gray. (expensive AF) But was never aware of TFSA's and ETFs, etc... So I discovered Easy Equities, discovered your podcasts, through advice from my brother in law. Since then I have devised an aggressive plan to get back on track. Paid off my huge credit card debt and now only left with 2 vehicles. So, a couple of questions / thoughts. Priority 1: Max out TFSA for myself and my wife each year. Priority 2: Invest long term for my kids (2) - TFSA and other Priority 3: Save for deposit on my first home Thereafter invest what I can into the market. What would be a highly aggressive 1 year investment to save for a deposit? And what would the TAX implications be on that investment? Prineshen I am 26 and a budding young investor who started around 3 years ago. My strategy is mainly focused on ETFs in my TFSA with the rest into individual stocks picks and bitcoin for a bit of fun/speculation. I understand the importance of diversification in a portfolio. However given South Africa's history of fraud scandals such as Steinhoff etc, I have tried to implement a further layer of diversification across brokers and therefore tried to diversify my investments across Easy Equites, Satrix and Sygnia, although I know Easy and Satrix are owned by the Purple Group. What are the chances of one day waking up and seeing all our accounts at 0?
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Why do my returns suck? (#228)
11/29/2020
Why do my returns suck? (#228)
In our , we spoke about Suzanne’s PPS account. PPS felt our assessment of their product was inaccurate. We offered them a right of reply. . Pru has had a rough start to her investment career. She had a financial advisor she was . Just as she worked up the courage to let them go, the advisor got fired for committing fraud. This shocking news encouraged Pru to take a closer look at her investments. She was not happy with what she found. Many of you have expressed your frustration at the returns you’re getting from your investments this year. In this episode we help you and Pru figure out exactly what happened. As always, we explain how a high fee puts you at a disadvantage from the outset. Next, we discuss asset allocation, diversification and the general madness of the market. Being able to read investment documents is an important skill to develop. We wrote three articles to help you make sense of these documents. You can find them , and . Subscribe to our . . Pru Discovery gave me a call and told me they were doing a forensic investigation into my financial advisor. It turns out they forged my signature on a policy document, as such Discovery did the heavy lifting for me and took them off my policies. The rage regarding the forgery forced me into action. I started the process of moving my TFSA from Sanlam to Easy. This led to me scrutinising my TFSA portfolio and you two won't believe this! (Or maybe you will) My portfolio has done FUCK ALL (Sorry Sean) since I started it in 2017!!!! I have actually lost R 20 000 of my contributions!!! I am so upset! Where I have gone wrong and what the FUCK happened????!!! Meanwhile, back at the ranch, my demo portfolio on Easy Equities has made a profit of R5000... There are not enough exclamation marks and expletives in this email to describe how I feel right now. Thank you again for all the help. The two of you are doing the Lord's work, literally. Dirk How can I determine how safe my investment is with respect to the investment issuer/provider/platform? Many investments are for the longer term. What guarantee can an investor have that the investment provider will still be around in the future? There seems to be an increasing number of issuers, platforms and providers. How can I determine the risk associated with them? What is the situation in the case where I buy an UT or ETF via a platform (e.g. AG/ABSAStockbrokers/EasyEquities/etc/etc/etc) that is issued by another issuer, for example, AG/Satrix/Sygnia? Rudzani Given that cash is no longer king, what is the implication for people like me who have significant equity in our bonds? Should we looking to invest it elsewhere in the meantime? The bond has served as a mechanism to reduce interest rate expense, bond term and easily accessible large sums of savings. I have ETFs and max out my TFSAs each year. I sadly hold some unit trusts but I got those before I knew about ETFs and have just left them. What are some strategies with the cash currently sitting in the bond? Do I just leave it? Christiaan is intrigued by the new , but he’s not convinced that the money will follow the ethics. He wants to know if we have any strong opinions about it. Brent I am investing in ETFs for the long haul. I’m maxing out tax free first, but I’m referring to non-tax free and non RA investments. Say I buy shares monthly for the next 30 years and then I want to sell some, how is tax worked out on that? I will have been buying shares at different prices over time and now I’m selling them at whatever the price is at the time of sale. Will SARS tell me how much tax I should pay? Will Easy Equities? If I bought shares in Ashburton 1200 for R50 in 2020, then R300 ten years later, then R1000 another few years after that. If I sell them for R1200 the tax on the first shares I bought would be huge, but not so much on the last shares I bought. Sarel I follow the one ETF strategy, buying the world, bought Asburton 1200 and MSCI world. I have resources to add some spice to the mix. Any opinions regarding Sygnia ISO and 4th IR. Suzanne is wondering whether she should continue investing in ETFs once she’s maxed out her R500,000 tax-free allowance? Guy I invest using EasyEquities and focus on ETFs primarily (I’ve been listening to your guidance). My main investments were Satrix Nasdaq, Emerging Markets and recently the Ashburton 1200 (you mention it so often I couldn’t ignore). I invest in shares through my USD account on EE but was wondering if it would be best to move the ZAR to USD and buy the MSCI World ETF from iShares / Blackrock. Jason My question is regarding index fund platform offerings in SA. As you know, this would be different to ETFs - not trading live on the exchange - but trading like unit trusts that have updated NAV daily. The Vanguard Index funds are the prime example, having the same constituents as the ETFs but not trading live. This allows one to purchase these passive instruments on auto instruction, without worrying about losing out a spread due to the product not being live on an exchange, like an ETF would. I have an account with EE and the recurring investment option often sees this spread resulting in some low volume ETFs being bought at a premium, which puts me off and spoils the opportunity of letting my portfolio function truly passively. Anyway, I hope you guys can help with suggestions or at least expand on the conversation about the recurring auto-invest instructions getting spreads horribly wrong from time to time.
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Fast Fatty the Third (#227)
11/22/2020
Fast Fatty the Third (#227)
We use my long-awaited holiday to catch up to some user questions for the next three weeks. We hope you enjoy the shorter episodes as much as I plan on enjoying my break! IM I have an Old Mutual Endowment policy that matures in November 2020.. I also have a lump sum in a TymeBank account in various GoalSaves, which I don't need to use any time soon. I have another lump sum in an African Bank account. I'm not sure whether I should pool all the money and put it into a fixed deposit account with African Bank for 5 years (the interest rate is very attractive at 10.01% annual interest payout) and have the interest payout annually, so that it doesn't go over the R23,800 tax exemption. Or should I take the money and invest it into ETFs, split 50/50 into local and international. With the idea of investing for dividends and growth. I know that I won't be sheltered from taxes if I do this. I was thinking of splitting it between the following ETFs (I use the same ETFs for my TFSA): Coreshares Preftrax Coreshares DivTrax Satrix Divi Coreshares Top 50 Coreshares Property Income Coreshares Global DivTrax 1nvest Global REIT Satrix MCSI World Satrix S&P500 Sygnia 4IR If I decide to do the fixed deposit, then I was thinking of using the interest payout each year and invest it in ETFs (and be subjected to taxes). My wife doesn't know anything about RA/TFSA tax benefits or investing, and has absolutely no interest in using her TFSA. I even helped create and set up one for her on Easy Equities. I could use the fixed deposit interest payout and then fund her TFSA each year and then top it up to max it out as well. However, the disadvantage is that on death, then the TFSA will form part of her estate. And then lastly, I could also put it into my RA, which I currently have with Sygnia (Sygnia Skeleton Balanced 70). I won't benefit from a tax return, but will possibly benefit from CGT, DWT and tax on interest earned. I'm finding it difficult to make a decision on what would be most beneficial. Any suggestions on what I could do with this lump sum? Subscribe to our . . Ash I switched the Sygnia MSCI USA to their new Health Innovation fund. This is an active fund (with performance fees 😱) that uses the MSCI World Health index as a benchmark and applies an ESG filter. My reasoning was that new developments in health care (including a COVID-19 vaccine) are likely going to play an outsized role in the world economy and I wanted a piece of that action. Unfortunately, there are no local ETFs which track any health-related indices, so this seemed the only available option for someone who wanted global exposure to this sector. I’ve attached the factsheet and I’d be interested to know your and Simon’s thoughts on this fund. Guillym thinks he knows why Anne’s Liberty fees are 12% of her monthly contribution. This is probably because these sort of products also can give one cover for illness and disability. Not that they not screwing you over, they probably are so fuck em, just this may explain away a bit of why its to high. Stephen Give Edwin a Bells! I have invested in some Thematic US ETFs and was worried about overlaps as I have ARKK (Ark Innovation (Active ETF)) and BOTZ (Global X Robotics and Artificial Intelligence). The comparison highlighted no overlaps whereas I was expecting a few. I should have done the due diligence via vlookups etc but the anchor equity for ARKK is Tesla whereas BOTZ anchor equity is NVidia. I like both equities and I also like the fact that both these funds consist of between 30 and 50 equities so are not over diversified. My 3rd ETF is iShares Global Clean Energy. Tania You guys often discuss the Ashburton 1200 ETF. I am considering cashing in my young kids’ Unit Trusts and rather investing it here. You once mentioned the Ashburton Global 1200 isn’t like a ‘normal’ feeder fund and that one actually owns the underlying shares. Is this still the case and it seems to have read somewhere that this might have changed recently? I would prefer to own the underlying shares as this as it feels ‘safer’ that the investment is then not under SA jurisdiction (even though it is Rand denominated.) I have called Ashburton but they couldn’t help me and said someone from The First Rand Group would fall me back and no one has... Adam By 30 you should have saved 1x your salary - by 40 it's 3x! Scary... Anton How do you choose a living annuity once you get to the stage where you must go on pension? I would prefer low cost/high performance Living annuities. I will not draw more than the 4% rule. I think having 3 years of money in the cash/money market and bonds. (Low risk) 3 to 5 years money in combination with bonds and equity ETFs. (Medium risk). And the rest of the money in offshore ETFs (High risk). I would like to structure and manage my own living annuity in one of the companies. I think you can do it in Alan Grey but I am not sure if they cater for ETFs and it seems they are also more expensive. It seems that Outvest has no living annuities. etfSa and 10X have living annuities, but it dont seem like you have the option for only offshore.
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Fast Fatty the Second (#226)
11/15/2020
Fast Fatty the Second (#226)
We use my long-awaited holiday to catch up to some user questions for the next three weeks. We hope you enjoy the shorter episodes as much as I plan on enjoying my break! Suzanne After finding your podcast during hard lockdown, I have been binge listening …..and can honestly say: You have changed my life! Thank you! I have kicked Sanlam and their 5.4% TIC under the arse, and moved my Retirement Annuity to OUTvest. The buggers charged me a R30,000 exit fee; but thanks to OUTvest’s amazing product – within 5 months I made up the loss; ½ coming from my contributions, and ½ from real returns! Following Nerina Visser’s fantastic presentation, I am also spreadsheeting everything, but have run into a bit of a snag and hope you can help. As a medical professional, I hold a PPS Policy which includes a sickness- and disability benefit, as well as life cover. Thanks to Stealthy Wealth, I now know that ‘PPS is a mutual society, and doesn't operate like a normal company. They distribute any profit they make back to the policyholders’. These profits are linked to the above policy, and deposited annually into my PPS Profit Share Account. Annually, PPS provides me with a current Rand value, for the value of my PPS Profit Share Account – and I am happy to say it has been growing steadily. On my policy statement it further states that ‘These accounts do not vest until the policy holder reaches 60 years;….and on this date the Profit Share Account can be taken TAX FREE as a cash lump sum’. Can I safely count this Rand value, and the projected growth, towards my retirement planning? And if so, any suggestions on what would be the best (tax efficient) way to do it? Subscribe to our . . Brett If you take out a life policy of a R1 000 000 and nominate a beneficiary. -Then SARS assesses you and says you owe them R800 000. -You don't pay the debt due to SARS. -Can SARS nominate the Insurance Agency as a 3rd party in terms of the Tax Administration Act to collect the outstanding debt from the Insurance provider? -In other words whose money is it/The beneficiary or the policyholder. -I have looked into this a bit and it seems that creditors cannot access life policies which would indicate it belongs to the beneficiary and not the policyholder. Kobus I have offshore funds in a Bank account earning nothing at the moment. I am considering investing this in the Sanlam Glacier Global Life plan and will do this without a FA to save on costs. What other reputable companies in SA offer this service where you can invest directly without the help of an intermediary? Rudolph I have a decision to make that I am a little confused about. I am wondering about the order that I should give preference to. I am currently first trying to max out my RA for the Tax benefit, but keeping myself from accessing the funds till I am 65. Then I try to max out my TFSA and Finally I allocate the remainder of my extra money to my house bond to pay it off quicker. I am not sure if this is the best order to give preference to. Ken We used to contribute to Little Eden and St Bernhards Hospice as part of our monthly tithe. But with our aging parents, and their lack of retirement savings, we are anticipating needing to help them out in the years to come. So we are diverting our tithe savings into a Allan Gray money market account (lowest fees on the market from what I can tell). But I often have a pang of regret when I think that we are no longer supporting these companies that are working so hard to help others. I wonder. if by no longer supporting them, we have resulted in them having to turn somebody away. My idea is a Charity "ETF". like the "top 40" of non profit worthy (researched and vetted) organisations that are helping others. The Charity "ETF" fact sheet will look a little bit different, with links to all of the top 40 organisations websites and a brief description of what they do. I was daydreaming about it popping up as an option when you are submitting a trade on Easy Equities (like the R2 KFC thing). There would be a management fee for whoever was running the "ETF" I suppose, but ideally all of the contributions go directly to the top 40 organisations. The main thought behind having the Charity "ETF" is that it may seem silly wanting to send, a once off, R100 to one of these organisations. And even sillier to try and split that R100 up into smaller amounts to spread the contribution to multiple companies. But that is what an ETF does best! take a little bit of everybodies money, combines it into one big pot and distributes it to the top 40 organisations. What would really be nice is if Easy Equities could provide you with a section 18A receipt at the end of the financial year as part of all the other tax certificates they provide. Greta Having recently been paid a lump sum (divorce agreement), and needing to live off the yield of my investments for the rest of my life, I have educated myself on personal wealth. I have a pretty sound understanding of my options and how I would like to invest - again based on sound investing principles that you and Simon live by. My question now is a completely practical one: I have the investment pots - one for growth, one for emergencies, one for income. But how do I give myself a monthly income drawdown (I am not a retiree or of retiree age - still 13 years to go). What investment vehicles are my options to hold my three years of expenses in from which I will draw my monthly income - is it a bank account? Or is there some other investment vehicle I can use to invest my 3-year-expenses money in and get a monthly income drawdown from? Robin I'm interested to understand how Bonds work as an investment vehicle. Can you and Simon dive into when and why one should invest in bonds? Should they be SA or Int. Bonds, and which Bonds should one consider? In the next month, I will have a maturing fixed investment, where I was getting a reasonable 7.58% compounded return. I want to re-invest these funds. However, with the decline in interest rates this year the bank will now only provide 4% compounded return, which doesn't help my cause at all. I have Tax Free savings in place, I have a Living Annuity that I recently moved from an RA as I can allocate the full investment to offshore equities rather than on 30% as per Reg 28, where the 2.5% compulsory payout of which I re-allocate to my TFS. I have a diversified SA ETF portfolio (SYGUK; STXNDQ, STXCHN, GLODIV, ETFPLD, ETFGRE, ETFIT, CSPROP, CSP500, STXEMG, STXRES, STXWDM, SYG4IR SYGEU, all in equal allocations) which I am building on (waiting for lower prices to allocate more funds). I also have an offshore Investment portfolio that I actively manage in both Offshore Equities and ETFs. My goal is to increase growth over the next three years, therefore I have taken an active investment approach. (I am 57 years old and I live abroad, therefore having both an SA and Overseas Investment Portfolios serves me well) Any pearls of wisdom where I can invest the funds that will be freed up next month? Taking all of the above into consideration.
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Fast Fatty the First (#225)
11/08/2020
Fast Fatty the First (#225)
We use my long-awaited holiday to catch up to some user questions for the next three weeks. We hope you enjoy the shorter episodes as much as I plan on enjoying my break! Willem I have an endowment in my portfolio which was a five year investment which started in July 2003 with the last payment in July 2007 which matured July 2008. Tax was deducted on all these investments for this endowment at ACSIS/OLD MUTUAL as per quarterly reports, as well as capital gains tax. When inquiring at Old Mutual recently, they presented me with a figure for CGT if the investment is drawn upon. The investment was 4 payments of R30,000 and the the last one R36,000. The value as at February 2020 was R572,089. Would you be kind enough to let me know how else can I get this investment to work for me in the light of being able to access this investment like a conventional discretionary investment without tax complications. I have a discretionary investment, as well as a living annuity in the same portfolio. Subscribe to our . . Sign up to receive an email every time a new show goes live. Veronica You guys seem to be big fans of ETFs but when I looked into buying one they all recommend an investment period of at least 5 years or more (i.e. they're high-risk and therefore long term investments). My husband and I are looking to potentially emigrate in about 4-5 years from now. In light of that, where would the best place be for us to invest our savings? I currently have a money market emergency fund and am putting away a bit into an Allan Gray Balanced Fund (both recommended by a financial advisor, although the more I listen to your podcast the more I'm thinking to start handling investments on my own ☺). ETFs sound like the best place to invest but are suited for way long term, in which case we might be out of the country before the product matures. Is the solution then to keep the savings in something like the money market? Is it still worth opening a tax-free savings account for 5 years? James is wondering about Zambezi preference shares. Can you please discuss the place of this product in a portfolio for someone that is on pension. Will it help with cash flow during pension? Pieter The thing people miss about the 4% rule is that the study didn’t work on the principle that your money should last forever. Success was measured on the fact that you would have more than $0 after 30 years at a 50:50 equity:bond allocation. That might also mean you have $1 left for year 31 which accounts for the 95% success rate. Another caveat is the study was run during a high interest period in America. Also just on a correction how the 4% rule worked in the study. You withdraw 4% in year one. After that, you withdraw what you did the year before plus inflation, not 4% of your asset base. Josh I plan to emigrate to the UK at the end of the year. I have been maxing out my TFSA and contributing to a Provident fund. When I maxed out my TFSA for this year, I started setting aside that cash monthly that was going to the TFSA, and reduced the amount going into my Provident fund monthly with a view of investing it when I got to the UK (after having converted it to pounds obviously). The UK equivalent of a TFSA allows contributions of a max of £20,000 per year (with single shares allowed). I plan to liquidate my TFSA when I move, cash out my Provident fund when I resign (and take the tax hit), and chuck all of that cash into a stocks and shares ISA, probably a Vanguard all world ETF. Also, I'll be using a broker called Trading 212 if anyone is interested. Do you think this is a silly idea? Cashing out of a TFSA and Provident fund is a big decision. And just something separate: I wish I hadn't bought a property now that I'm immigrating. I just want to sell the stupid place but am struggling. Wish I just rented a place. Conrad I’ve requested information on the OUTvest investment options for a preservation fund. I am not happy with these just by looking at the top 10 holdings in most of these options. I agree with your view on simplified broad-based ETF investments and wondered if these are the only options that Outvest offers or if I can structure a more simplified ETF based combination that will be Regulation 28 compliant. Sean I WAS one of those people who has religiously put monthly money away with a broker who was smiling all the way to the bank from the tender age of 15. I am now 29. In the past three years I have been paying a lot more attention to where my money goes. Thanks to you guys, I had that awkward conversation with said broker and have taken all of my funds away from them and reinvested in a much cheaper, passive investment group. Although this new firm is cheaper, it’s not as cheap as Easy Equities, so I have been splitting my monthly contributions for the past year with EE. Things have been going so well that I recently started looking into the TFSA on the EE platform. I have been able to max it out for the last three years. If I had known about it earlier it would have been longer but it turns out they aren’t very profitable for high rolling fund managers. With this being said, I did some deeper research on EasyEquities, and I was shocked! I have had a great experience with them so far, however I have not tried to withdraw any of my money yet. This seems to be a huge problem on the platform, if you have a look at Hello Peter. It’s a scary prospect to have your hard-earned money on such a platform that “doesn’t pay out withdrawals and doesn’t answer any emails or phone calls” the dreaded word “scam” is even mentioned by one of the disgruntled users. I know Purple Group is a legitimate, listed company that has legal obligations in place but other people’s VERY poor experiences are something I cannot look past. It has been an amazing platform for me so far, but there is a big BUT in the back of my mind now. Is there anything from your side that could put an innocent investor's mind at ease?
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Tax planning for humans (#224)
11/01/2020
Tax planning for humans (#224)
With Simon celebrating his birthday on the beach, this week’s episode is a tax bonanza. De Wet de Villiers, King of the Tax Elves and Great Guy finally shares with all of you what he shares with me for free every Monday. I love talking about tax, which is why this week’s episode is much longer than usual, and much shorter than it could have been. He gives us a useful checklist of things all of us should do when we submit our tax returns, among them: If you earn less than R500,000 per year, you don’t need to file a tax return. You can ask your HR department to factor in your medical aid and retirement contributions, even if you signed up for those services privately. You should check your details annually, including address, SMS number, email and bank details. Keep a record and declare all income streams available, including directorships and side hustles. Make sure all your investments and bank accounts are included. Provisional taxpayers should keep track of the following expenses: Expenses: Rental property magazine, conferences Side-hustle: Phone calls, data costs, Business travel: fuel, vehicle expenses Home office: Fibre at home, cleaning costs Don’t accept the auto-assessment. It doesn’t work yet. Check your prior-year tax return to look for things you may have forgotten. This is especially true if your circumstances haven’t changed much. Get a statement of account from SARS from e-filing. Don’t do everything in one go - do a tax recon every quarter so it’s not so overwhelming. Subscribe to our . . Win of the week: Jess Let me start by saying that the Fat Wallet Show and Just One Lap have completely revolutionised the way I think about my personal finances. In fact, I used to avoid thinking about it at all because I found it so overwhelming and confusing. But since listening to your show I actually understand words like "equities" and "diversification" and "All Share Index". I feel like a brand new person, so thank you for that. I was working on cruise ships and earning USD but thanks to Covid I had to come home. I am currently working in the public sector but might go back on board for another contract. Since listening to your podcast I have corrected some financial errors that the ignorant past-Jess made. Luckily, keeping expenses low and saving money comes naturally to me so I was doing that anyway - but my mistake was saving a lot of cash and being afraid of equities. I have an RA to which I am currently contributing 10% of my income, but other than that all my savings are in cash. Thanks to you, I am now moving my TFSA (currently at max) from cash to ETFs (which I did via EasyEquities much to my financial advisor's annoyance - now she won't reap the benefits of my investment). I also have a home loan on a house that I am renting out. The rest of my savings is in cash (32 day account for emergencies, standard savings account, extra payments into my bond and a USD global account) - I know, really silly! I want to move more cash to equities but I have a few questions and would like to hear what you think? Should I contribute even more to my RA (which has high fees and a financial advisor fee) first to get the tax benefits or should I rather buy a discretionary investment with lower fees? I stopped paying extra into my bond because of the low interest rates at the moment (in order to keep my rental income profits low and reduce my income tax). Is this wise? Or should I rather continue to put extra into the bond and just pay the income tax but get rid of the debt quicker? Since I have USD I want to open an EasyEquities USD account too. For someone who has no idea where she might live one day, what is a good balance between local and offshore investments? And this might be a stupid one, but what is the difference between investing in global ETFs in ZAR vs buying ETFs via the USD account? Gerard Can you possibly spend a bit of time on Physical Offshore investment accounts and how these things should be declared to SARS. I have an EasyEquities USD account, and they withhold 15% of Div tax, so do I get a credit for that or should I apply for a credit?
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The 100-year investment (#223)
10/25/2020
The 100-year investment (#223)
You might not be thinking about where your family will be in 2120, but Greg is. This week he shares a mad plan to make a 100-year investment. Greg I thought about starting an investment with a 100- year time horizon. A lot can happen in 100 years. Maybe we don't use money anymore. Maybe earth explodes. Who knows? But if things still kind of resemble the way they are now and there's still a stock market then once off R10,000 invested in equities could be worth around R30m in 100 years (in today's money). So I think it's worth taking the risk. I'd have to get my offspring onboard when it came to that point and then their offspring, to keep it invested and change the investment vehicle if and when needed. Worst-case scenario, a greedy grandchild decides to cash it all in and blow it on bubbles and a house with a sea view, which is also not a bad outcome. I started with R10,000 in my EasyEquities USD account and bought the Vanguard S&P500. Ultimate goal - I'm not sure yet, but hopefully it would get used wisely, to help supplement income for a few families, not get depleted and continue to grow. Just curious if you have thought about doing this? Subscribe to our . . Win of the week: Nokuthula and Bea Thank you very much for your thorough answers to my questions. Kristia, I love how you answer questions from the perspective of all - you do not assume that everyone knows all the financial keywords. I appreciate your guidance and the presence of JOL in our lives. Being new to all of this, both yourself and Simon's ongoing presence is a comfort to me and so many others - I am sure. Simon’s answer to my furniture and storage question was classic and was taken to heart. ' Burn it!' This got my attention since family have said things along the same lines. Both of you also seem to understand life situations, in my case the hold that belongings have and how they really own you. The grim reality is that, like Simon says, these things that we attached so much worth to...end being worth so little - in monetary terms...years later. Ina My brother lives in SA and I’m in the UK. He advised me to listen to some of your podcasts - I think they are truly brilliant! Could you recommend anything similar in the UK that I can listen to in regards to advise as I really need some tips on the UK market? Get in touch with . Peter I listened to your podcast which I enjoyed a lot. Someone asked what to do with a large amount of money- a windfall, obviously keeping tax efficiency in mind. I noticed that buying gold and specifically Krugerrands was not mentioned. Could you explain why not especially with the current Bull phase of gold. Sandy I have a life insurance policy that has age-rated premiums. Looking ahead even just 10 years, these monthly premiums become shocking. My policy is tied to a dread disease benefit, so maybe that's why. But as I get older, that's when I'll need this benefit, right? Especially with a family history of breast cancer. But how will I afford it? I don't want to pay all this money in and then have to cancel my policy. Are there alternatives to age-rated premiums, and if so what are they? Could you be insured for a specific amount that doesn't grow each year. But then, what about inflation? Urgh! Please help. I'm so confused! Mike A few years before I retired I became aware that I should take responsibility to inform myself about financial issues. At work in a secure enjoyable technical environment I did not have any exposure to financial issues. I was unprepared to manage the expected pending inadequate pension which I accepted with-out seeking informed advice from anyone. During that time I was introduced to Red Hot Penny shares material. I was also fortunate enough to have a small amount of capital to open an equities broker account with Imara. This is now Momentum Securities who charge me R40 per month even though I do not seek their advice and make all my own trading decisions. Over the years I have gained an interest in investing as basically a buy and hold investor. However I do now have a share portfolio despite my largely ignorant independent cautious DIY approach. I am a client of Standard Bank dating back to 1990, but I believe the time has come to move my broking account. I have made a feeble attempt to do this before but have failed to complete the exercise. I find my isolation as a pensioner in the new, to me, digital environment and lack of informed personal interaction is daunting for me such that I have not achieved the move. I know that with change I would have to work on an unfamiliar platform. Before I take the decision to commit to Standard Bank do you know if I am able to use a Demo trading account? Please could I speak to you about who to contact to get the website details and if there is a tutorial I can use to familiarise myself with the platform. Ben Before she even gets going she gets penalised with R20k, not to mention everything else that looks terrible with this option. Needless to say I put this on hold - I'm careful to meddle but couldn't let this one fly. I will recommend as an alternative a similar split in equity, bonds and cash (the proposed split is appropriate for this portion of her money), but the first two in ETFs. Here are my two questions: The equity ETF portion is easy, but is there also a bond equivalent of the "one ETF to rule them all" for more moderate risk investments that I can consider for the bonds portion in this case? () The product is being sold to her with the benefit that it won't form part of her estate and will be easily transferable and keep going if anything happens. Is there any merit to this? What will happen with her Ashburton 1200 and Bond ETF I buy if something goes wrong that could be avoided with the Glacier option? My first thought is to call BS on this too. Adam Is it possible to use the R40 000 CGT allowance each year? By selling shares for a profit just before the tax year end at a profit and then buying them back in the next tax year, would you then recognise the purchase of shares at the new purchase price? Is this a way to minimise future tax costs since you now recognise future profits off of this higher value? I've seen this being referred to as bed and breakfasting but I'm not sure what regulation is applicable in South Africa and how one would go about it. Marco I have a comment or question in regards to your use of acquiring a foreign currency "hedge" against the rand value declining over time. The problem (as I understand from reading around) is that there is a yearly tax "drag" on this method because any unrealised appreciation in foreign currency is taxed as income, as interpreted here: . Now, I'm unsure if this is entirely applicable to a "buy and hold", as I have used this method in order to do my own taxes as I do some day trading using USD and not ZAR. Perhaps this doesn't apply if you can show you were buying foreign currency as a "capital" gain if you hold onto it for longer than 3 years?
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Getting out of investments (#222)
10/18/2020
Getting out of investments (#222)
We spend a lot of time thinking about building an asset base and which assets we should be buying. As you approach financial independence, getting rid of assets starts to present problems. Which assets should you get rid of first? How do you manage your capital gains liability? How many of your assets should you get rid of and when? How can you use a capital loss to offset your capital gains liability? This week we consider the challenges in living off your investments. If you’ve spent your whole life accumulating assets, getting rid of them is bound to feel like sacrilege. Subscribe to our . . Win of the week: Gert Was listening to your show about the confusing jargon, synonyms and abbreviations/acronyms we use, especially the term “coupon” used in describing the return on a bond. I seem to remember reading about the etymology years ago and looked it up on Investopedia, but found a better explanation on Wikipedia: The origin of the term "coupon" is that bonds were historically issued in the form of bearer certificates. Physical possession of the certificate was proof of ownership. Several coupons, one for each scheduled interest payment, were printed on the certificate. At the date the coupon was due, the owner would detach the coupon and present it for payment (an act called "clipping the coupon").[2] The certificate often also contained a document called a talon, which (when the original block of coupons had been used up) could be detached and presented in exchange for a block of further coupons.[3] Hannes For equity investments, I've read that it's important that there is a "CSDP account" for each user of the platform. central securities depository participant They note: "First World Trader Nominees holds a Securities Account with an authorised central securities depository participant (CSDP) admitted to Strate, in the name of FWT Nominees into which Clients’ Securities are deposited or stand to be credited." So it sounds like some rights are seeded to EE here. Should I be concerned? Luan I have an RA with work which is invested in Momentum Focus 7 fund of funds which I believe has a TIC of 2.08%. Work contribute 5% and I match that – I have come to the realisation that while they will continue to contribute into that, I can choose not to and rather put my portion into something that works better for me. I do have an RA with etfSA which I have been contributing to and wondered what your thoughts were on topping up into this or whether I should rather put it into ASHGEQ type investment? I am also looking to help my sister start her own additional RA and wondered what your thoughts were on the etfSA RA or Sygnia Skeleton 70 fund? (will be starting fresh so not beneficial to do ) My sister and I will likely not retire in SA and I wondered what advice you would offer on how to safeguard our future, specifically with the value of the rand (in 15-20 years) when our RA’s begin paying and we are in another country? Are we being silly contributing into personal RA’s now for the tax benefits and should we rather be buying investment ETFs like ASHGEQ it STXWDM with those monthly contributions (+-R5000)? We do not have offshore investment accounts (do have a UK bank account) and am assuming for now the best route is through EasyEquities USD account until we have a more substantial amount – would you agree? I want to make sure that we are putting our money to work in the right places and can then let that compounding go wild.
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How to spot a con (#221)
10/11/2020
How to spot a con (#221)
I find it odd that so many people fear the stock market and then get lured into financial scams. Inspired by James, who is trying to keep his clan from being conned, we help you figure out when something is just not right. Here are some tips to get you going: Find out if the company or product is registered with the Financial Services Conduct Authority (FSCA). This is not foolproof, but it takes a diligent kind of con artist to steal money in this way. It does filter out a lot of the scum. Run the opportunity through the Just One Lap five concepts filter: At the end of this experience, will you own an asset? Will you earn income on that asset and will that income compound? Will the returns beat inflation? Compared to what your index of choice did over the same investment period, do the returns seem too good to be true? The promised returns are a huge red flag. If you’re new to financial matters, it’s hard to know what’s a lot and what’s a little. As a rule of thumb, when an “investment opportunity” offers monthly returns, be very suspicious. It’s industry practice to quote returns for a year. Google not just the company or product (that’s usually fairly easy to control), but also every individual’s name associated with the product. Scammers love getting away with scams, so they tend to circle back. If you find media articles about the legitimacy of the product and the person you’re dealing with tells you they’re taking legal action against the media house, be very suspicious. This is an old trick to put potential investors at ease. Remember, you don’t have to be in the right to bring legal action. We also spend a little time on helping you think about alternative, unlisted investments and the place they should have in your portfolio. Subscribe to our . . James How do you know you are investing with a fraud? More importantly, how do you convince your friends or family that they are going to get fucked? A friend of mine invited me to listen to a guy that is willing to invest your money through his company. The returns are absolutely amazing! 77.64% for the year in 2017! To the untrained ear, this guy sounds lekker. He explained that they move the money to America and use a computer program (that his son developed) to predict the market. The level of risk is then adjusted by the amount of gold (held at the bank of England) in a portfolio. They do all of this at a fee of 1%. I asked him a few questions about custodian accounts, insurance, brokerage, total investment cost, TAX and all kinds of clever shit you and Simon spoke about on the show. I could see this guy has no idea what I am talking about and then he referred to an ETF as an "Electronic Traded Fund" then I knew this is a fucking keeper! He told me that he is not here to convince or force anyone to invest with him. But there he was, trying to convince people to invest with him. I am convinced this guy is a fraud, but my friends are not and eating up every word this guy is saying. My friends have family invested with him and have seen returns so now they are true believers. What do I do? Win of the week: Martie I enjoy your writing and podcasts. Think the fact that you do not come with a background in finances makes it easier for the ordinary person to relate to you. And the fact that you have learned so much about finances gives us hope that we can do it too. Definitely an inspiration. You and Simon are a mean team and I am really glad I discovered you. Ani I have an option to take a pension backed loan. Each month, the payment will be deducted from my salary. Should I default, they will take the money from my pension. The interest rate for the loan is prime minus 1%, and there are no registration costs (which would be a minimum of R35000 according to the bank should I apply for a 2nd bond). We are expecting the renovations to cost between R300,000 and R400,000, worst case scenario. We are also planning to move overseas within 5 years. We don't want to overcapitalise. Houses similar to ours in our area are in the market for between R2.2 and R2.4 million. We are trying to ensure our house is the most attractive house on the block. If we run into financial trouble, and we need to rent out the house, we shouldn't have a problem finding tenants. If we want to sell, we offer a better house for a similar price to the "outydse" one down the road. If we don't move out of the country, we will stay in this house. Is the pension-backed loan worth it, or should we take the R35,000 out of our emergency/insurance money(for registration costs) and rather take out a second bond? The Ts and C's indicate that should you leave the retirement fund, you can settle it in cash, or they take it from your pension (thinking about tax implications etc, that's the last thing I want to do). Or should we live with shitty floors and cupboards (and increased spending on sinus meds along with cracked heels) until next year March when we have more certainty on whether there will be salary cuts etc? Ndida How do I use this cost per use on a running shoe bought for R3,000. Do I use the 12 months I have used the shoe or the kilometers I have done? I am under debt review working my way to be debt free. I entered debt review in April 2019. In 2016 I bought timeshares with LPA under the impression that I was investing in property. The contract is for seven years until I have paid them in full, plus the annual management fees which are quite steep. I still have five more years to pay. Since I am occupying the place only once per year I am a loser ito cost per use. I am not sure how to untangle myself from this. I am paying a monthly installment of R1,700 and each year there is a seven percent increase. Wesley I have a bog standard TFSA with Standard bank that I've been contributing to for 3 years now. I only recently discovered your site and the opportunity to take this long-term investment and use it to buy ETFs to give me a better interest rate than the minor 3.5% I'm getting from Standard Bank. I want to make this money work harder for me and I don't plan on using it for at least 10 years, probably longer. Is it possible to transfer this TFSA from SB to a place like EasyEquities and start using it to buy ETFs? Is there any tutorial/how to on this process outlining what I need to do at the bank as well as with EE? Chris I would like to offer the staff some resources to help them with their personal finances, I can offer some help in my personal capacity from what I’ve learnt from you guys, but can you give some resources/tips on how to deal with reduced income? The school has applied to TERS from day 1, but those F%^&* have paid us diddly squat, and won’t tell us why…
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The jargon buster episode (#220)
10/04/2020
The jargon buster episode (#220)
Much of what makes investing confusing is that we use different terms to talk about the same thing. This is so frustrating for beginners. This week, we tackle jargon head-on. Not only do we tell you which terms are used interchangeably, but also what they mean. Here are the terms we discussed: Stocks, equities, shares. Stock market vs stock exchange Coupons and interest. Debt instruments, preference shares and bonds. Index-tracking products, index funds, ETFs and UTs, collective investment schemes, hedge funds Real return, future value. Retirement, financial independence. Brokers, investment platforms. Property, fixed property, REITs Tax-free savings, TFSA, tax-free investments. Tax on income, tax on interest. Listed, on the stock market MDD, fact sheet And then some stuff that’s used interchangeably (sometimes by us) that’s not. Marginal tax vs effective tax Pension, provident, RA, retirement fund Subscribe to our . . André My initial plan was to have more off-shore equity, of which I put mostly into a global equity ETF. I chose the Satrix MSCI world ETF purely due to its lower cost. I was wondering why you chose the Ashburton 1200 global ETF for this purpose. However, now that I got my first dividends from my property ETFs, I noticed the meaning of distributions was dividends, and then realized that the Ashburton ETF pays dividends and the Satrix ETF doesn't. In my mind, I'm thinking that if the dividends of the Ashburton cover the difference in costs between the 2 ETFs, then the Ashburton ETF will outperform Satrix MSCI world in total returns to me. Is this due to a difference in the type of ETF (feeder ETFs) that the one pays dividends or not, or is that simply a choice of the ETF creator to pass on dividends or not? My question is if you could elaborate a bit in your thoughts comparing the Satrix MSCI world ETF vs the Ashburton 1200 global ETF regarding the dividends. Win of the week: Leonora I have it that Reg 28 doesn’t apply to Living Annuities. I have mine with Momentum in Coreshares S&P500 and a small percentage in their money market. (After asking, my EAC is now down to 0.77%. Still too bloody much. I take a minimum 2.5% drawdown. The fee was +/- R2000 per month, now R1700! For what?) Zanele I wanted to open a tax free savings account but a friend told me that after 15 years I or my Son who is 5 years old will not be able to contribute because a person is only given 15 years to utilise the tax free account. I have researched this and I got no information on the time limit, please assist if this is true or not. I am currently investing anything from R200 to R500 a month which is what I can afford.
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What should I do with all my cash? (#219)
09/27/2020
What should I do with all my cash? (#219)
When you’ve gotten your debt and spending under control, it can be comforting to hold on to your free cash for a while. Taking the leap from that safe pile of money to the Big Bad Market is not easy. However, as we’ve discussed before, cash is not a risk-free investment. The longer you sit on a lump sum of cash, the more risky it becomes. This is because of inflation. The effects of inflation are difficult to internalise because the rand value of your money stays the same. Let’s say you put R100,000 in a low interest cash account today. The interest you earn is enough to cover the annual cost of the account, but nothing more. At an inflation rate of 5.5%, in 10 years you’d only be able to buy what R58,543 can buy you today. The rand amount is still R100,000 so it seems like you haven’t lost anything, but you can afford half of what R100,000 can buy you today. In 20 years your bank statement would still reflect R100,000, but you’d be able to buy what R34,272 can buy today. As you can see, the inflation risk increases every year. This week we help three listeners figure out how to put their cash lump sums to use. The checklist we managed to come up with for a cash lump sum is as follows: Fund your tax-free investment vehicle: Commonly referred to as tax-free savings accounts or TFSAs, these products should be every South African’s first investment. As an investor you are liable for dividend withholding tax, tax on interest and capital gains tax outside of a tax-free account. As we discuss in this week’s episode, these accounts are not meant for cash savings. Don’t speculate unless you can afford to lose the money: While cash makes it easier to capitalise on investment opportunities as they present themselves, cash can also make it easier to hop on a bandwagon that’s not suitable. Don’t invest your cash into a speculative investment (think alternative asset classes, sub-indices or individual companies) unless you can afford to lose that money. Lump sum vs average: While the math shows us investing an entire lump sum in one go makes more financial sense in terms of potential future earnings, going into the market one small investment at a time is a legitimate option if you’re scared. If this is your first investment, think of it as a teaching tool initially. Once you feel more confident, you can add the rest. Work out the future value: If cash is giving you a feeling of safety, find an online calculator to work out the future value of your lump sum using a 5.5% inflation rate. Now play around with higher or lower inflation rates. Hopefully seeing the value of your investment deplete will be the motivation you need to get going. Diversify: If you’re holding on to a large amount of cash, you are not diversified. Make sure to put your money to work. Subscribe to our . Win of the week: Matt: If I earn a salary from a foreign company and then decide to do the nomad thing and travel around low cost of living countries for, say, a year but remain a tax resident in SA. My understanding is the first R1m earned will be tax exempt- is that the case? “Tax residents in South Africa will be taxed on their worldwide income. But that is dependent that they’re still SA tax residents. Offshore salary earned is taken into account. R1.25m ito the latest tax amendments will be exempt from tax in SA.” Harry This was mainly due to the fact that I did not know what the best option was, and my new employer only offered a provident fund.. I've been maximizing my tax benefit with my new employer provident fund. I'm also sitting on cash in a savings vehicle with my bank, currently returning around 3-3.5% interest. I'm living rather small (renting only, no debt of any sort) and have quite a bit of money to invest/save every month. What would you advise I do with my portfolio? The preservation fund? Should I keep maximising my provident fund contribution? What about my cash savings account? Should I consider taking money out of the country? Investing offshore? Joe I know we may have missed the boat both with gold and Tesla, would you suggest we go for an ETF with some gold in them? We don’t mind going moderately aggressive. Steven I currently have free cash in my TFSA with ABSA Stockbrokers. Besides the fact that its not earning that much in the way of interest, they also charge a 1% service fee annually, which I believe is based on the value of the funds in the account? I’m reluctant to invest in the market right now as I feel there’s no value and would prefer to wait for a correction, when it eventually comes? Although I have no previous experience investing in bonds I am thinking this could be a suitable option at this time. Looking specifically at the Stanlib Global Government Bond (ETFGGB), it seems to be doing very well so far but is this mainly due to the Rand’s weakness over the past few years as opposed to any other factors? Considering that this is a reasonably low risk product, is it currently a better option than investing in a regular cash instrument which is offering such low yields at the moment? According to the fact sheet the time frame for this ETF is 3 years so assuming my investment period was 1 year or less, would you say that this is not going to be suitable? Santosh Based on FIRE (my FIRE btw is Fuck It, Retire Early) the rule is to have around 250 - 300x monthly income. So Kris, I know your FIRE number is R7M as you've stated this. so assume you have the R7M already and are still work and assume is sort of split into Cash, Bonds, Stocks and Property. If this portfolio yields you a modest 6% PA it amounts to your investments paying you R420,000 PA - Gross. Now this is gonna have a major impact on the tax you'll pay as there's no way that you can "hide" this from SARS and there's no way your PAYE accounts for this. You're gonna have to pay SARS either way. I know one of the solutions is to dump it all into an RA but then you are not liquid and you'll pay the tax in the future anyway. I'm sure the other FIRE guys like Patrick, Stealthy face this. What's the solution ? Does on just lap it up & pay the tax comforted in the knowledge that they're paying tax cause they've made money This tax liability is quite substantial as if you're an average earner, it pushes you 2-3 tax brackets higher and if you're a HNWI, even an increase of 0.2% of your taxable income can add R20000-R50000 to your tax bill for that year. Leon For the inflation linked option, the capital balance would increase by the cpi calculated rate at payment dates and interest is fixed at 5% of capital. The website mentions an index ratio calculated by cpi divided by base ratio or value, do you know where this base value(divisor) is obtained from? It only mentions that the cpi (numerator) is obtained from Stats SA. The fixed rate on the inflation linked 10 year bond is at an all-time high of 5%? Is this an opportunity to lock in a great rate or are the fixed rate bonds still the better option? It seems like there is more upside potential on the inflation linked bonds as it is unlikely cpi will remain at current lows over the 10 year period. I may be incorrect but it seems both options offer the roll over or restart option so you could capture any improvement on the fixed rates either way. Ross There is an awesome book by Andrew Hallam - "Millionaire expat" that details expat investing (He details options for people all around the world) He also has a blog. Another is investing advice and info based on Singaporean expat investing.
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How to correct an investing mistake (#218)
09/20/2020
How to correct an investing mistake (#218)
Often the fear of making a mistake keeps us from starting our investment journey. It feels like everything is on the line when we make our first investment, but missteps can be corrected fairly easily. Even the mistake of waiting too long and starting too late can be corrected. This week we think through some of the mistakes new investors fear most and how they can be corrected. Hopefully this episode will give you the courage you need to take the plunge. Subscribe to our . . Win of the week: Rory I started learning about the investing world about two months ago and stumbled upon your website within the first week. Most of the things you discussed in your podcast just flew over my head, but it did direct me to the things I had to go read up about. Two months later I realized I am able to follow your podcasts without any problems. I want to thank you both for that. If I didn't stumble upon your website it would have taken me much longer to actually understand the investing world. I have a friend, he is 25 and about to get married. His plan is to move to New Zealand in the next ten years. I told him he should look at starting to put money away in his TFSA, then the question came up about what happens to that money when he emigrates? I see EasyEquities opened a properties platform, where you can buy shares in buildings and earn your share of the rent. What are your opinions on this? Do you think it would be a good idea to invest some money there and what would the tax implications be? Travis I recently made my first attempt to begin investing using my TFSA. I have been listening to the Fat Wallet show whenever I can. I decided to invest in the Satrix NASDAQ 100 and the Satrix S&P 500 hoping to acquire some international exposure. I did not realise the NASDAQ has some S&P 500 companies. Now I am wondering whether I have begun on the wrong note, making a mistake and overinvesting or spreading myself too thin in some of these companies in the indices. Is there any way that way that I can correct this "imbalance" in my TFSA or should I even bother? Have I made a blunder in choosing both the NASDAQ and S&P 500? Ash Like many of my colleagues, I was hopeless with my finances for most of my working life. I had 2 RAs with my insurance broker that were fee- and penalty-laced products that underperformed my cash savings account. Four years ago, I started a tax-free and a discretionary investment with my bank which were both heavy on fees (2-3%) and did not perform as expected (annualized return of <2%). A year later, I took a two-year private scholarship, which meant leaving my government job after 10 years and my pension fund (GEPF) paying out. The scholarship only paid about 60% of my usual salary & I would have had a hard time keeping up with my bond repayments, instead of moving the pension payout into a preservation fund or my RA, I used it to settle most of my bond and reduce my monthly payments. Needless to say, this 2 year gap left a big dent in my finances overall as I had no other source of income & relied heavily on my savings. Earlier this year, when I was looking at investment options for my toddler’s education, I started reading up on personal finance & investing, discovered your blog and podcast, and realized all my missteps along the way. This set off a series of changes in rapid succession: I switched banks to a bank with a single, lower fee, and better cash investment options. This meant closing my access bond. With my biggest debts paid off, I cut down aggressively on unnecessary expenses, brought my expense:income ratio to about 40% and focused on saving and investing the balance. I started 2 new money market accounts with the new bank - 1 immediate access for my emergency fund (now have 3x monthly expenses covered), and a 90-day notice account with a higher interest rate (between 6.5-7%). I transferred both my insurance-based RAs (despite the protests and threats of penalties from my broker) to a low-fee new generation RA (10X) and started a new one with Sygnia (Skeleton Balanced 70). I increased my contributions from 5% to 10% of my income, and plan to increase further to 15%. I repurchased the poorly performing discretionary investment with my bank and reinvested this in an Allan Gray unit trust (High Equity Fund) - lower fees but still in the range of 1.6%. This was just at the start of the current crash so it has nosedived, but I am planning to hold rather than sell low. I began investing in a range of ETFs in quick succession: a) Satrix (50%): initially Top 40 (12.5%) and MSCI World (12.5%) - later added Emerging Markets (6.25%), NASDAQ 100 (6.25%) and most recently, the new SA Bond ETF (12.5%). b) Sygnia (25%): 4th Global IR ETF (12.5%) and S&P500 (12.5%) (initially also had MSCI USA but stopped the recurring contributions when I realized the huge overlap with the S&P) c) CoreShares (25%): S&P Global Property (12.5%) & SA Property Income (12.5%). I switched my tax-free investment from the ‘multi-managed growth fund of funds’ with my bank to the NewFunds MAPPS Growth ETF (using the same platform), and split my maximum contribution between this ETF (50%) & the Sygnia Skeleton International Equity FoFs (50%) (*factsheets attached). I would like to know your take on my financial moves and if there was anything I could have done better? My concerns are: Was it a mistake to close my old bank account just to save on fees, since this was my oldest and most diversified line of credit (home loan + first ever credit card)? Will this damage my credit score, especially when I apply for a new home loan? Am I overexposed to global (especially US) markets in my choice of ETFs & is there too much overlap in the holdings of the global ETFs (MSCI World, S&P500, NASDAQ 100 and the Sygnia International Equity FoFs, not to mention the 30% international equity in my RA’s)? My discretionary investments currently outweigh my RA contributions by about 40% & both RAs still only represent 10% of my income. I wanted to gain more equity and global exposure than a Reg28 product would allow (and have access to the funds if needed before age 55), but is this short-sighted and should I rather aim to maximize my tax deductions? The listed property ETFs are the worst performing products so far & I understand this reflects the poor performance of property markets in general - would reducing my exposure to this sector be wise at this stage since recovery is very likely to be sluggish given the current crisis? How do you feel about holding the NewFunds MAPPS Growth ETF in a tax-free investment? This is 70% local equity (SWIX) and also holds a significant proportion in SA bonds or cash (30%). Is this kind of ‘balanced’ ETF not ideal for a tax-free investment (TFI) since we are looking at long-term growth and equity-only would give higher returns? After listening to your podcasts, I understand the Ashburton 1200 to be one of the best choices for a diversified equity-only ETF. I am thinking of transferring my TFI to the ASHGEQ via Easy Equities, however this overlaps quite a bit with the Sygnia Skeleton International Equity FoFs (*fund breakdown attached), including emerging market exposure. Would I be better off consolidating my TFI into one ‘global’ ETF or is there any benefit to splitting between the ASHGEQ and the Sygnia International Equity FoFs (*not sure if this is really a ‘passive’ fund since it seeks to ‘outperform’ the MSCI ACWI)? Should I rather split the TFI between the ASHGEQ and a local equity ETF like the CoreShares Top50 since the SA market is not represented in the ASHGEQ? How do you and Simon feel about the Ashburton World Government Bond ETF (TER 0.51%), particularly as a part of ‘balanced’ ETF portfolio? I see from their factsheet that their returns have exceeded even the ASHGEQ (>20%), but I understand that this may change with interest rates over time, and may not reflect future performance. Would the combination below in a TFSA wrapper be the best long-term bet? Ashburton Global 1200 Equity ETF (1/3) Ashburton World Government Bond ETF (1/3) CoreShares S&P SA Top 50 ETF (1/3) I have been looking at the RAs offered by EtfSA & their Wealth Enhancer RA seems quite attractive - it includes more commodities (gold in particular), local mid-cap and Africa ex-SA exposure than my current RA holdings. The fees though stand at 1%, similar to 10X. What are your thoughts on this RA & would you recommend adding this to diversify my RA portfolio? Matt With many companies transitioning to remote work and deciding to stay that way, it's becoming easier to find a location independent job for a foreign company. If I earn a salary from a foreign company and then decide to do the nomad thing and travel around low cost of living countries for, say, a year but remain a tax resident in SA. My understanding is the first R1m earned will be tax exempt- is that the cae? Am I missing anything and does this seem like a feasible thing to pull off? Access the ETF comparison tool Edwin shared here: Anne My employer pays into a Liberty Provident Fund on my behalf. For the first time this month I requested my Provident Fund statement. I saw, with disbelief, that Liberty is taking 12% of my contribution each month in fees! Given what I have learned about fees from your website and podcasts I am dumbfounded. I queried this with Liberty and they said it’s because their fees are based on 0.02% of ‘payroll’ i.e my salary, rather than my contribution. I checked with our company CFO and she said these fees are in keeping with what is charged by other companies and I can’t go to another provider. What do other reputable SA companies charge to administer Provident Funds? Why is it so hard (for me, anyway) to find this out? Do you know if my company can compel me to stick with Liberty under SA law? Why can’t I leave the company provident fund to go to another provident fund or RA of my choosing? If not, Liberty can just make up a number (as they seem to have done) and charge me what they like and there is nothing I can do about it except leave my job.
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Understanding endowment policies (#217)
09/13/2020
Understanding endowment policies (#217)
I’ve been avoiding talking about endowment policies, because what even are they? I haven’t come across one in my own investment life. This week, a question from Sandile sent me down the endowment road. I had fun with it. I got the Tax Elves involved. They had fun with it. Fun was had by all. Endowments are the love child of insurance and investments. They have a five-year lock-in period, a tax rate of 30%, a life assured and a beneficiary. If you are in a higher tax bracket and looking for a long-term investment vehicle, endowments are worth investigating. They can also play a role in estate planning. It pays out directly to the beneficiary, which is great if you are leaving someone behind who is financially dependent on you. As De Wet de Villiers pointed out, the fact that they pay out tax-free doesn’t mean they’re not taxed in the estate. It simply means the estate is liable for the tax, not the beneficiary. In addition to teaching me a thing or two about endowments, Sandile’s question could serve as a template if you’re hoping to add new holdings to your portfolio. His clear reasoning and systematic approach to adding this investment is worthy of emulation. Subscribe to our . . Win of the week: Pru I’ve tried to break up with my advisor for the last year, but it has been difficult! Everytime I say to him, we need to talk and I want to move my investments, he takes me out on a nice date, listens to me and then goes on to scare me into staying with him. He tells me EasyEquities is not the right platform for me and I should be careful of companies like 10X. It does not help that he also butters me up and tells me how great I am, while also telling me about his life, so I end up feeling I can’t leave him because he confides in me. My people-pleasing self feels bad for wanting to break up with him. It's the perfect emotionally manipulative relationship and I JUST CAN'T LEAVE! How does one amicably break up with their financial advisor? More importantly, how do you leave them when you have a fear of managing your money independently? I have listened to your podcast, and some episodes more than once. I read Sam Beckbessinger's book and Vicki Robin's book called Your Money or Your Life. I aspire to be a Patrick Mckay and I have a financial strategy to reach FIRE, but my greatest hurdle is letting my financial advisor go and trusting myself that I can manage my investments myself. When he is not around I feel as though I can manage my money independently and I do not need him, but after meeting with him, I leave with a great sense of fear about moving my TFSA from Sanlam to Easy and moving my RA from Discovery to TenEx or Outvest. All the financial aspects that do not involve him I have managed relatively well, like my emergency fund. I know I can manage my money, I just fear that if I move my investments to the "big bad world of ETFs" (which is how he makes it sound), I will lose everything! I know he may be playing Jedi mind tricks on me, but how do I stop myself from being tricked! Also, he is not a bad person, he is a very nice guy, but I think this is part of my problem, I am making this whole relationship too personal! I feel defeated! Sandile I stumbled on this product by Sygnia where you can get direct exposure to Berkshire Hathaway. Here is why I’m looking into buying into this fund: I believe that Berkshire is going to have ample opportunity to buy really decent businesses at decent prices as Covid continues to decimate some much needed industries. I believe Berkshire is one of those great businesses that one can buy at a decent price, thanks to Covid; I bought a few units in late Jan through EasyEquities and the costs to transfer funds and transact in USD was rather hefty, so I think I’ll leave that to a local fund to handle that; I have looked at the S&P500 (which I hold) and in my view, the Berkshire allocation there is rather small and I’d like more exposure; Sygnia offers this fund for “discretionary savings into a 5-year endowment, a retirement annuity or a living annuity”. I would like to avoid setting up an RA with yet another service provider at the moment and I have no need for a living annuity, which leaves me with the endowment fund option. From the little that I could read up on endowment funds: I am fairly comfortable with the idea of leaving the cash invested for at least five years (if not more); My marginal income tax rate exceeds 41% so at 30% tax, the fund is saving me some element of tax; I have set up an emergency fund (around 6 months’ salary) so I think the risk of cancelling the endowment before 5 years is low; TFSA has been maxed for 2021 year of assessment. I contribute far less than the allowed 27.5% into my RA (I am busy assessing contributing into an RA vs increasing my employer-pension fund contributions); I am just uncertain if I’m opening myself up to more unknown risks/complications/costs by using this structure. Kimberley I am a shareholder for a company who has moved operations to Mauritius. If our company is lucky enough to declare dividends, this will now be paid in USD. How does this affect my tax? Is there a way I can get it in ZAR without losing so much to tax or is it better I keep it offshore ? I like the idea of keeping it offshore for emergencies or as a “life insurance” for me when I pass away to leave to my daughter. Is this possible with only holding a SA passport? Perhaps I could open an offshore trust and list her as the beneficiary and the dividends get paid into that? Could I open a USD trading account on EE and get the dividends paid directly to that? Is what I’m wanting to do by not bringing it into SA even legal? I feel there are not enough bubbles, chuckles, coffee and chai tea to get me through the questions I have and the changes I need to implement to get my financial ducks in a row. Right now these ducks have ADHD and when they seem to be in a row, they decide to go off on a fucking tangent. Anton I inherited a farm in 1994 and sold it in 2019. I have the value of it when I got it and when I sold it. I did not get a valuation in 2001 when CGT started. I would like to know how to work out the CGT on this transaction. . Moore I am 27 and have a pension/provident plan with my employer. I would like to have an RA for a top up. I would also like to invest in shares. I don't know how to go about doing any of those. I have an EasyEquities account but I don't really know which shares to target, and for which amount every month. I have a R1000 that I can divide for those two financial goals. With that amount of money and my age, I am not even sure if that will be enough to contribute. I’ve only been exposed recently to this saving and investing movement. I was so ignorant. Thanks to the Fat wallet Community on Facebook I have managed to put some savings for Emergencies with Tyme bank. Catherine I’ve tried the Interactive Brokers demo account and find it a little intimidating. I don't know what options or margins are, and I don't want to enact them by mistake by clicking the wrong button. I also imagine their customer service is not catered for noobs like me. Having said that, the platform is becoming less intimidating the more I play with the demo account. Another option is to buy the shares through a Standard Bank Webtrader account, which has broker fees of 0.345% and annual account fees of 0.26%, and then transfer the amount across to my EasyEquities USD account to avoid paying ongoing annual fees. Do you have any thoughts on each of these options, considering that my goal is to pay the lowest fees possible over the next 20 years, but also have a relatively user-friendly experience. I don’t have a credit card. The only time this has ever been a problem is when a hotel or car rental company requires a credit card for a booking or deposit. It is pretty frustrating being at an airport and unable to rent a car. And are there any ways to get around this booking/deposit problem without having a credit card? And do you know of any reasons to have a credit card aside from this (assuming I don't need the credit)? Are credit cards generally better than debit cards for general spending while travelling? Melisha I have two kids in grade 4 and grade 0. I usually save up the school fee money to pay once off and get a 5% discount in December of the previous year. I anticipate a 10% increase in school fees. So essentially I need to save R20k a month for both kids' school fees for the 2021 school year. We usually put the money into a savings account but now the interest rates are so low. At the moment the money is in a Tyme bank account goal save but i was wondering if there was something better out there? Something with low risk, short term and potentially to beat money market type accounts. Our friend Walter made a site called Rate Compare . Tristan Lately I have been seeing ads on YouTube for a financial service app called Franc. It has 4 stars on the Google Play Store but I was wondering if you had heard of it, seen it or tried it? Lastly, can we trust Franc? Ken What is all the hype over Mexem Africa about? I have gone to their website but, quite frankly, it looks like a scamsters website (although I thought the same about Easy Equities' website too, before I started using it). I don't see any info on tax free accounts, and they mention all sorts of foreign currencies but not much about how you convert your rands to Dollars/Euros/etc... The little section on fees is as clear as mud. As an ETF investor (tax free and discretionary) should I be looking into it in a bit more detail? Would really appreciate a chat between you and Simon on this. Brian I've been with etfSA since 2012. I am busy updating my etf portfolio and want to know if I should shift some funds or all to Easy Equities. I've already bought MSCI China through my Easy Equities account that I registered a few weeks ago. What is your suggestion?
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How to make up for lost time (#216)
09/06/2020
How to make up for lost time (#216)
Most of us kick our 20-year-old selves for spending all our money making poor decisions in Melville instead of taking full advantage of compounding. The financial independence, retire early (FIRE) movement has given us valuable tools to reach our financial goals despite those late nights in Melville. I discussed that with FIRE-man . Since regret over lost investment time is something so many investors grapple with, we wondered whether we could quantify exactly how much we missed out on in order to make it up. It’s a simple question, but the solution is hella complicated. I tried to do this for my own situation like this: First I worked out how much money I would have needed today so I could stop contributing to my savings and still reach financial independence in 10 years. I never considered this before, but it’s basically the baby version of financial independence. To do this, I multiplied my current expenses by 300 to get to my FIRE number. (I always do this, even though I know that number by heart.) Then, using an average growth rate of 8%, I worked out what that amount would be in today’s money. 8% is slightly below the 9.4% annual return the JSE ALSI achieved over the last 10 years. (You can use a future value calculator online to do this.) Next, I subtracted what I managed to save so far. I divided the difference by 120 months—10 years—to get to the monthly rand amount. The bad news is it’s a lot of money. To add that to my current investments to reach my FIRE-goal, I’d have to take on another job. The good news is, I don’t have to stop investing now. Remember, that’s the amount of money I would have needed to stop contributing to my investments today. I wanted to arrive at a simple rule of thumb to help us think about making up for lost time. It turned out to be far more complicated than that, but hopefully this discussion gives you something to chew over. I’m excited to hear your thoughts. Subscribe to our . . Win of the week: Stippled I recently listened to your podcast. I for the last 20, and my wife and I for the last 10 years, have followed a very simple "perfect money month" template. We are both 43 now and have recently become financially independent based upon the 4% rule (we are actually aiming for the 3% rule which will probably take another 3 years to achieve). The monthly template has been as follows: Give 10% of after tax income. Save 15% into a Pension, Provident or RA. Budget discretionary spend at the beginning of each month. [We use 22seven] Initially pay down debt, then Invest, the extra money [after we became debt free 7 years ago redirected to global broad based ETF . . no individual shares]. One great dinner out each month . . . but only one :-) General rules No debt except for housing [This means we still driving "student" cars] Automate as much as we possibly can Review insurance, cell phone and medical aid annually [In November for us] Review wills annually [In June for us] Balance investments evenly between each other to maximise tax benefits later on. Married out of community of property with accrual This has really been an unsexy and boring process to follow month in and month out. However the results have astounded us. They are: My wife was able to resign from her job when our first child was born seven years ago to be at home with our kids (we now have 2) which was always a dream of hers. We are now financially independent and we have made more money from our investments over the last three years than from my full time employment! We are able to afford to send our kids to any school of our choice which was always an important goal for us [Not that we automatically chose the most expensive, we just never wanted money to dictate the choice]. We are able to support friends and family financially if and when the need arises [Never a loan, always a gift] We also recognise how luck and privilege have played a very large part in our journey. We both have tertiary education and have never been unemployed unwillingly. But we have not wasted that good fortune and rather used it to create stability and choices for us and our family. Just in case I give the impression of all work and no fun . . . I took a year off work in my mid to late twenties and spent it backpacking from Cape Town to Addis Ababa and climbing mountains in South America. We take regular holidays locally to the beach and have taken 4 great international holidays in the last 10 years [We were even able to take my mom inlaw to Venice - It was her first trip out of SA]. We can honestly not recommend more strongly the boring "Perfect money month" idea. It has benefits far in excess of what you can imagine when you start. Approximately 240 months in, and we can say that without any hesitation. Mike The TERs of our global index trackers are extremely high compared with for example Vanguard. Is it not better to purchase them directly through the USD Account rather than purchasing a global tracker from one of our local providers at more than 6 times the fees? Eg. Vanguard VOO is 0.03% and the cheapest S&P500 tracker in SA is I think Sygnia @ 0.2%. I wonder why our RA providers use global trackers from local providers if the fees so much are higher? Maybe it is just easier for them cause they don’t have to move any money offshore but surely it would be worth their while to do it? Edwin I have been wondering if you or Simon have some tips or observations regarding the income side. I have been a salaried employee for most of my 15 year career and have spent a total of 6 weeks in my working life unemployed. I am currently employed. My question, therefore, is what else can you advise me to do in the area of increasing income, besides simply starting a side gig. I have tried a few side gig ventures before. Some are still going, but could never replace my income. It's a lot of work and I’m wondering if it’s worth giving up on this and just focus on being indispensable to my employer. Should I be job hopping multiple times maybe? Is increasing your income supposed to be this hard? Is it a worthy goal to actively chase? Hans If Jared is doing contract work in Kuwait and spends some of the year in SA, he might owe SARS tax on his foreign earnings over R1m. This is a change in the tax code as of March this year. Satrix has an ALSI Unit trust. Given that Satrix and Easy Equities (same platform) already treat ETFs as Unit trusts, i.e. aggregate buys and execute them in bulk, how would this be any different? Terence Many companies will be taking on that strategy in the future instead of paying bonusses etc. In fact retainer shares, bonus shares & even shares relating to ROCE (return on capital employed), BEE scorecard achievements etc are included in share awards these days. We are probably going to get to a position in SA where inflationary increases will be negligible (like Europe as an eg) and there will have to be creative ways to retain good staff. If your friend is working for a good company and believes that the potential can be achieved during his tenure, why should he not participate in a share scheme? Many employees are in the pound seats when the company lists on the JSE as they potentially make buckets of cash at vesting. Agree, many don't as well, but you should rather encourage that thorough homework prior to participating and or limiting the amount you purchase. Normally they discounted shares anyway and Management knows the upside on vesting or buyout occurs. Marielle My grandmother was drawing her dividends from Ecsponent on a monthly basis to sustain herself. She does not have a lot of money. I believe she has around 300k. She is 68 years old and in good health. What would be the best way forward? Any ideas on where to invest so that she can draw an income and have funds available for a rainy day. Nico decided to move his RA from Momentum, where he pays 3.2% per year, to OUTvest because he qualifies for the R4,500 fixed fee. Momentum want to charge 15% of this lump sum to move his RA. It’s double the growth he achieved over the past 10 years. I know you went through this process recently and I really need help.
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