The Fat Wallet Show from Just One Lap

JustOneLap.com
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 ask@justonelap.com.

  1. What The Fat Wallet taught me (#245)

    28/03/2021

    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 pointed this out 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 explained why 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 RSS feed here. Subscribe or rate us in iTunes. 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).  Download Ros' Discovery cashback spreadsheet. Discovery dynamic discounts

    49 min
  2. Access bonds explained (#244)

    21/03/2021

    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 RSS feed here. Subscribe or rate us in iTunes. 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?

    30 min
  3. The cost of moving retirement products (#243)

    14/03/2021

    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 RSS feed here. Subscribe or rate us in iTunes. 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?

    45 min
  4. Passive income (242)

    07/03/2021

    Passive income (242)

    A conversation on our excellent community group 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 RSS feed here. Subscribe or rate us in iTunes. 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.

    1h 2m
  5. Should I stay or should I go? (#241)

    28/02/2021

    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 sponsored by OUTvest. 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 Facebook community group to watch it live and ask your questions. Subscribe to our RSS feed here. Subscribe or rate us in iTunes. 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 o

    1h 8m
  6. Farewell Fatties! (#240)

    21/02/2021

    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 first episode 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 RSS feed here. Subscribe or rate us in iTunes. 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.

    1h 14m
  7. TFSA strategies (#239)

    14/02/2021

    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 RSS feed here. Subscribe or rate us in iTunes. 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 reduce

    1h 14m
  8. Finding the next hot thing (#238)

    07/02/2021

    Finding the next hot thing (#238)

    We are still running our survey. Please take two minutes to help us here. 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 RSS feed here. Subscribe or rate us in iTunes. 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 tekkie 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?

    1h 6m
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About

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 ask@justonelap.com.

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