There's more guesswork involved in retirement planning than we'd like to admit. If you've ever gone through the retirement planning process with a financial advisor, you know what I mean. To calculate how much money you'll need for retirement, you need to factor in the expected inflation rate as well as the expected growth rate of your investments. If you had the ability to know those things with any degree of certainty, you wouldn't need to do any retirement planning because you'd be psychic.

One of the most crucial guesses you have to make is how much money you'll need in retirement. It's hard for us to imagine our lives a week from now, much less decades into the future. How do we tackle this dilemma?

The Financial Independence, Retire Early (FIRE) movement offers a useful rule of thumb to help here. To ensure you have enough money to retire and never run out of money, you need 300 times your monthly expenses. This is an excellent shorthand, because it forces you to put as much effort as possible towards controlling what leaves your account every month.

However, using your current expenses would be to over-prepare. Some of your current expenses go towards preparing for your retirement. Your long-term savings and your long-term insurance products exist solely for this purpose. Once you reach financial independence, you go from having to look to others for an income to paying yourself.

That means your cost of living will automatically reduce by the amount of money you put towards retirement the minute you reach financial independence. Once you've accumulated enough assets, self-insurance becomes a reality. Stealthy Wealth does an excellent job of explaining how that works in this post. That's another expense you can take off the list.

But what about the hobbies you plan to take up once you have more time? How should you plan on paying for those? What if you wanted to take a holiday?

In this week's episode, we talk through how you can think about your expenses in retirement when you're working out your financial independence number.

We are once again so grateful to OUTvest for funding this week's episode. If you're looking for a place to save towards your retirement goals, have a look at their excellent product here.

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Win of the week: Joy

I think another example of upside risk is in studying. It is possible to work so hard at school and university to get top grades which give you a suite of distinctions and awards, but at what cost to friendships, hobbies, physical and mental health?

I know many adults who because of the sacrifices they made to achieve those things have always had that as a huge part of their identity. I'm sure you know, for example, middle aged men who are still called by their nickname from school or are part of the old boys club. Really?

Your qualifications are only important so far as you can actually make practical use of them. Who cares if you qualified as a doctor cum laude from Cambridge university if you are unprofessional, unkind and thoughtless? Or if you can't even balance your personal finances 😂

My dad's idol was to retire early. He achieved that well. He never thought much about what he would do after that and as a result has really had (to my thinking) a pretty poor quality of life wandering aimlessly through this supposedly amazing thing called "early retirement". When the idol shows itself as gold plated outside but hollow and empty on the inside 😢

Rafi

The number you get when you multiply your expenses by 300 does it include your Pension/RA, paid off house?

Lyzelle

I have Old Mutual Unit trusts. I would like to get out of there.

I suppose I already know the reply for this one, since you have said numerous times that you cannot time the market, but here goes... do you think now is an exceptionally bad time to move money from the Unit trusts elsewhere?

Melanie

I don't understand half these fees. Are these fees normal or should i run for the hills and move my RA.

1.Yearly marketing and administration charge % of fund value

First R500 000 4.20%

Next R500 000 3.75%

Excess above R1 000 000 3.50%

1. Guarantee charge (Yearly guarantee charge % of fund value=1%)
2. Deductions made by the asset managers:

Sanlam Escalating - Coronation Balanced Plus Fund P (TIC 1.15%)

SATRIX Dynamic Balanced Fund B Fixed (TIC 0.30%).

Herman

I moved to Belgium recently (for how long I don't know). I thought I'd share some interesting personal finance observations from here. Not really applicable to SA, although it did help me to rethink some assumptions about "the way things just are" in SA:

First I have to say that I pay a hell of a lot of tax on everything else - like 50% on any income above €37000, plus a lot of VAT, plus municipal taxes. So this is not to say that SA is bad and Belgium is good, but:

- My bank account is free. I also get a Mastercard debit card with it. All transactions, withdrawals (internationally as well) are free. Also 0% interest, so in that sense you pay for it. But still cheaper than in SA (perhaps the newer banks are better).

- Savings accounts: interest rates of 0.1% p.a. are standard. That is lower than inflation here, just as interest rates on savings accounts in SA. You can do better in special accounts, but you really want to go for ETFs for saving.

- The only capital gains tax here is attracted if you flip a house within 5 years of buying it. No CGT on sales of shares...

- No dividends withholding tax if you reinvest the dividends.

- DeGiro is a Dutch broker where you can open a free account and make 1 free purchase per month of an ETF. Like, zero deposit and withdrawal fees, zero monthly fees. etc.

- ETFs domiciled in Ireland attract no taxes in Ireland. Many ETFs are domiciled there for that reason.

- Hence, investing through DeGiro in some ETFs in Ireland attracts zero taxes - CGT or DWT, and zero fees. It is like a TFSA in SA, but with no cap!

- They also have things like RAs here. They suck as much here (if not more) and for the same reasons as in SA. High fees, prescribed asset percentages leading to low growth, exit taxes (only 8%), etc. Also smaller tax breaks initially.

I think the SA financial services sector is more advanced and competitive in their offerings than the Belgian sector, although Europe is much more focussed on ethics etc, which I really appreciate. Nevertheless, I find it amazing that in SA a TFSA is this special thing, but here it assumed in the FIRE etc. communities.

Neville wanted us to look at this ETF holdings. Catch Nerina Visser's presentation on how to think through your holdings.

Mary

I received my IRP5 as a non-provisional taxpayer. Currently I contribute 23.5% of my base salary to two annuities.

I realized that this percentage is calculated on my basic salary, but on the IRP5 there's an income code portraying gross income received and this amount is much higher than the base salary.

Could this higher amount be used to calculate higher contributions without it rolling over to the next year so long as it's still under R350k as capped by the government? Or is it better to stick to base salary limits?

Molekoa

I've been working for 26 years and decided to resign as a civil servant. What is the best option for investment.

What is diversification? Should you care about it? If you do care about it, how do you do it? In this week's episode of The Fat Wallet Show, we spend some time at the intersection between risk and diversification. We help you think through the role of cash in a portfolio and once again reject the idea that your portfolio should start de-risking in your fifties. Coronavirus or no, modern humans live for a long time. Very few people can afford a multi-decade low-growth portfolio.

We spend a little more time than usual on inflation risk. Inflation is the silent wealth killer. It's so stealthy, those risk-tolerance questionnaires financial companies make you fill out don't even ask about it. Just like shares held in the short-term introduces a lot of risk, cash held for a long time introduces risk to your portfolio. We play with the idea of diversifying into other currencies as an inflation hedge.

We even have a little section for those who want to build their wealth with blueberries. For alternative investments, ask yourself:

• Who is the price maker?
• How liquid is the investment?
• How likely is it to beat inflation?

We hope this episode gives you some tools to think through some of these issues in your own portfolio.

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Win of the week: Nokuthula

After discovering the podcast, I went through a phase of being giddy and hysterical for two weeks catching up on all the episodes.

I started my savings journey late. I am not paying extra into my home loan and rather choosing to invest,

I still have upcoming university fees for my niece and nephew who I'm partially supporting and will continue to support until they are independent. I can only do that from my salary as I am not putting any money away for them for future expenses. It is not a watertight plan, but I had to be realistic.

There are many holes to plug but I had to be decisive. Being able to fund my own retirement is paramount. I am continuously working to change things for the better and nothing is off the table, including selling the house and working beyond age 55, but this is where I am now.

Most of my money is saved in Reg. 28 accounts. I only started my TFSA in 2018 and I have been contributing the maximum allowed. I will only start contributing to my USD account in July so it is at zero right now. The breakdown as a percentage of my total monthly contributions is:

• Pension fund: 43%
• RA: 32%
• TFSA: 13%
• EE USD: 13%.
• Provident preservation: 0%

Considering that the TFSA is the last to spend I think the preservation fund will be first, the current legislation allows that I can withdraw the full amount at retirement, but it will only last me a few years. That means my Reg. 28 accounts will have a bit of time to grow outside of the Reg. 28 restrictions. Then I guess it will be EE USD next.

In a South African context, what should one think about in terms of a retirement drawdown strategy? What accounts should one have set up whether it is for FIRE or just FI? Should one also consider a South African discretionary account? I am also wondering if an endowment plan can also be part of the retirement mix. The ones I have seen are being marketed as being good for tax planning for people with a marginal tax rate of 30% or more. I would only go for one that is passively managed with low fees and if such does not exist then I will pass.

What is diversification? Should you care about it? If you do care about it, how do you do it? In this week's episode of The Fat Wallet Show, we spend some time at the intersection between risk and diversification. We help you think through the role of cash in a portfolio and once again reject the idea that your portfolio should start de-risking in your fifties. Coronavirus or no, modern humans live for a long time. Very few people can afford a multi-decade low-growth portfolio.

We spend a little more time than usual on inflation risk. Inflation is the silent wealth killer. It's so stealthy, those risk-tolerance questionnaires financial companies make you fill out don't even ask about it. Just like shares held in the short-term introduces a lot of risk, cash held for a long time introduces risk to your portfolio. We play with the idea of diversifying into other currencies as an inflation hedge.

We even have a little section for those who want to build their wealth with blueberries. For alternative investments, ask yourself:

• Who is the price maker?
• How liquid is the investment?
• How likely is it to beat inflation?

We hope this episode gives you some tools to think through some of these issues in your own portfolio.

• Subscribe to our RSS feed here.
• Subscribe or rate us in iTunes.

Win of the week: Nokuthula

After discovering the podcast, I went through a phase of being giddy and hysterical for two weeks catching up on all the episodes.

I started my savings journey late. I am not paying extra into my home loan and rather choosing to invest,

I still have upcoming university fees for my niece and nephew who I'm partially supporting and will continue to support until they are independent. I can only do that from my salary as I am not putting any money away for them for future expenses. It is not a watertight plan, but I had to be realistic.

There are many holes to plug but I had to be decisive. Being able to fund my own retirement is paramount. I am continuously working to change things for the better and nothing is off the table, including selling the house and working beyond age 55, but this is where I am now.

Most of my money is saved in Reg. 28 accounts. I only started my TFSA in 2018 and I have been contributing the maximum allowed. I will only start contributing to my USD account in July so it is at zero right now. The breakdown as a percentage of my total monthly contributions is:

• Pension fund: 43%
• RA: 32%
• TFSA: 13%
• EE USD: 13%.
• Provident preservation: 0%

Considering that the TFSA is the last to spend I think the preservation fund will be first, the current legislation allows that I can withdraw the full amount at retirement, but it will only last me a few years. That means my Reg. 28 accounts will have a bit of time to grow outside of the Reg. 28 restrictions. Then I guess it will be EE USD next.

In a South African context, what should one think about in terms of a retirement drawdown strategy? What accounts should one have set up whether it is for FIRE or just FI? Should one also consider a South African discretionary account? I am also wondering if an endowment plan can also be part of the retirement mix. The ones I have seen are being marketed as being good for tax planning for people with a marginal tax rate of 30% or more. I would only go for one that is passively managed with low fees and if such does not exist then I will pass.

Not all investment products are created equal. This week, listener JP was struggling to understand why his RA was performing so poorly while his tax-free account was making money. The answer is important for everyone who holds more than one investment product.

This week we help you (and JP) work out what exactly you should be looking at to ensure you're comparing apples with apples. We discuss the role of Regulation 28 in the performance of retirement products, how different asset classes behave, the role of active managers and what the rand/dollar exchange rate has to do with it all.

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JP

I need some clarity on how an RA can perform so poorly when an ETF does so well.

Firstly rate of returns: Investec is -17.58 where my Satrix is +6.4 percent over this troubling period. That's a difference of almost 24% in the same market.

The one with Investec is with a financial advisor who charges 2.8% fees (that includes Investec platform, admin, etc) and is supposed to be a Inflation + 6% growth portfolio.

My Satrix platform charges less than 1% fees.

He holds the following Satrix ETFs: Divi, property, 40, World and S&P 500.

How is it that financial institutions and professionally trained people can't get investment right but an index investor does?

Win of the week: Alida

When are dividend distributions assigned?

I've noticed that most ETFs will only distribute the dividends for a financial quarter a few weeks after the end of the quarter and it has me wondering:

If I own some ASH 1200 at the end of the quarter, but then sell that before the dividends are distributed, do I still get the dividends for that quarter or not? Do I have to hold the shares until the dividends are distributed a month or so after the end of the quarter?

Similarly, let's say I buy after the end of the 1st quarter, but before the distributions, would I then get the dividends for the 1st quarter?

Pascal

I've spent time reading as much as I can find about all three of our global property ETFs to make a decision on which one to hold. Even though it will form a small part of my overall portfolio, this will be one of only 3 ETFs I ever hold, and plan to hold it forever, so it's important for me to make the right choice now.

The 1nvest product seems like the clear winner and I'm buying it currently. They simply chuck your funds directly into the iShares Global Property REIT ETF in the US, which seems like one of the best and most widely used ETFs in its class. It tracks the FTSE EPRA/NAREIT Global REIT Index. The index is used by a ton of other ETFs around the world.

The CoreShares and Sygnia products track some other arbitrary thing: The S&P Global Property 40, which sounds super official until you google it and the rest of the world is like.. "nah dude, that's not a real thing" It seems that these are the only two products on the globe that I can find that actually track this 'global index'.

If you look into ASHGEQ's S&P1200, you get charts, factsheets, methodology documents, everything. But there's almost no information online on this one. It's basically a ghost index. Something about this just makes me feel uneasy, but maybe I'm being too pedantic? What are your thoughts?

Also, and this was the final kicker for me, they pay dividends bi-annually instead of quarterly like the 1nvest product or any other self-respecting, well-to-do fund.

If the 1nvest product is basically just rolling up my funds and passing it to the US iShares ETF, is that hefty US withholding tax already baked into all my dividends before they come full circle into my account?

If that's the case:

Am I being a dumbass holding this thing in my TFSA instead of one of the fully locally-crafted products like the Sygnia? Now, I understand that any global ETF has a certain amount of baked-in withholding tax from other countries, but if the 1nvest fund is basically a middle-man for a totally foreign ETF, am I needlessly adding an entire second layer of unavoidable withholding tax into my supposedly tax-free portfolio? Or perhaps is this all pretty negligible in the grand scheme of things? It's okay (in fact preferable) to tell me that all of this is literally a non-issue and it's just my lock-down brain overthinking literally everything.

You guys mention the CoreShares one a lot, but... its more than twice as expensive as the Sygnia (in terms of TER). Why would I go for something that does the same thing for more than double the price? What am I missing here?

Bea

I have only recently started earning a relatively large amount of money abroad. At 61 I have to make sound investment decisions - there is very little margin for error at this stage!

The kind folks over at the Fat Wallet FB group have assisted, but I still feel the need of some more practical pointers to guide me. My situation is as follows:

* I have around R38k monthly to invest

* My Emergency Fund is available and will most likely use Tyme Bank.

* I am going to choose Brightrock for disability and dread disease cover - heard about them on the Fat Wallet FB group. Are there other providers which you could suggest I try for the cover mentioned?

* I have no debt...however:

* ...I pay R2 500.00 monthly for storage of my things in South Africa and shuddered when I heard Kristia's definition of an asset. It's a nightmare cost and really don't know what else to do with beloved items of furniture.

* I plan to open TFSA and have R36k available for tax year 2020/21 deposit as soon as I can. I have no idea what to invest in. ETFs sound good since in this case I will hopefully have no need to touch this money, hopefully not for a long time.

* I have around R300k ready to invest at present - the foundation for the house savings. I have opened a Sygnia Money Market Fund to invest this. However, I am concerned that I could do better in terms of interest elsewhere! Would I be keeping abreast of inflation etc?

* I would like to buy house in around 4 years in SA, hopefully cash - with the money I hope to have saved from now until this point. In this case, I wil need to work until age 70 to save in order to cover my living expenses ( age 65 - 70). This is the reason I have been advised to use a money market vehicle - safety and availability, but could I not do better elsewhere?

Do you think that this is the best course of action in my case? There is a need to both grow and protect my funds. However, I have heard Kristia talk about Index Funds and wondered if these applied in my case. They sound wonderful. Someone mentioned that I should be careful of my asset allocation - specifically stocks because of the time factor?

* I have heard Simon mention that he has an RA. Should I have one?

* What are your thoughts on a living annuity in my case and how does this product work?

* I have been advise to rather place the salary I earn in the Gulf country into a USD account and not bring it into ZAR. I haven't a clue on how to do this and wonder how safe this is? Interactive Brokers and Degiro not applicable - the former's fees are too expensive and I don't feel confident about Degiro. I get paid in a Gulf currency and most likely have the option to transfer funds to another account in any of the major currencies.

John

Are European joint accounts included in your estate upon death? Also are they subject to SITUS tax from foreign jurisdictions?

Santosh

Do we invest as much as possible and never enjoy it? Presumably most people want to leave a fortune to their heirs, thus amassing a stash and never actually drawing down for purchases - yes like a car, holiday or some other significant purchase.

At what point does one reach a "number" and after this anything more, whether you actively add or it grows via its own momentum, do you start just taking out ?

I suppose this is really relevant for those without dependents and singles where there really is no one to leave it to.

Those of us slowly building a portfolio every month accept our investments will be determined by our overall strategy. This strategy would include our ultimate financial goal, plans around asset allocation, diversification, tax planning and future drawdown management. We understand we have to consider these variables throughout our portfolio, including our retirement products. New money coming in goes towards old strategies. It's boring, but effective.

Those who just came into a large amount of money are subjected to a terror to which the rest of us are immune. Where is this money supposed to go? The bigger the amount of money, the more flimsy former investment strategies seem. Oddly, new investors with only tiny amounts of money to invest seem to experience a lot of the same anxieties. At the extremes these decisions feel very large indeed.

The one difference between making a choice about your first investment and the biggest investment lies in tax planning. Your first challenge is to hang on to as much of that money as possible. From there we're sad to say it all comes down to your strategy. What do you want this money to achieve? Which products are most likely to get you there?

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Jacques

I sold shares in a small private company. I now have to decide what to do with it and to invest it wisely for the future. I am 50 years old and married with two 8 year old twin daughters (having waited for kids for 20 years!).

I have current income streams and do not have to use any of the capital to supplement income. We are renting and own a plot hat has been paid for in full. I need to decide to build a house now on the plot or invest the share money in a diversified portfolio for strong capital growth in the 15 years to come before retirement at say 65. I have an RA currently invested in a portfolio of shares.

I looked at Simon's portfolio. I like his allocation of shares to "Death do us Part", Second Tier, ETF and Tax Free groupings. I read about the "Ashburton Global 1200 ETF" (ASHGEQ) fund that Simon proposes and the low fees of Outvest.

I need to decide how to structure the capital as the current levels of some share prices may present a once in life-time opportunity for me to buy low PEs (e.g Firstrand, etc.). I am willing to move the RA from Sanlam Private Wealth to Outvest. I need to get Tax Free Investment accounts for the kids, my wife (perhaps all 4 of us) and also invest more into my wife's RA (very small and also willing to move that to Outvest).

I can afford to be aggressive and have no debts. I am however scared of my own emotions whilst trading so I want to follow a long-term passive strategy and not trade for the short term (speculate). I have opened a brokerage account, but have not purchased any shares or instruments yet.

Win of the week: Albert

In podcast episode number 169, I had asked whether you would set up a Patreon. The rationale given for not having one seemed sensible at the time. Nonetheless, since August last year, following your sound advice regarding financial planning and cost management in general, I have saved quite a bit more than I would have otherwise.

For the most part, this means I do contribute more to my savings and investments, but I have also been growing a side savings account, for your benefit. Attached to this email is a Takealot Voucher, spend however you wish. I would recommend allocating it towards chuckles and bubbles, because I enjoy the somewhat more chaotic tipsy episodes, but you know it's a free world, I know there may well be more pressing matters at hand.

I am glad to have an emergency fund, and am currently parking my Covid-19 shut in lifestyle savings into a Tyme bank account. I currently have just over 8 months' worth of expenses in cash, but perhaps it would be prudent to be in a similar situation to Simon, by having the maximum allowable tax-free amount on the balance sheet.

Ordinarily I would like to carry on contributing to Tyme, but their savings limit per customer sits at R100 000, a number I will reach shortly if WFH continues. It seems that the ultra-competitive bank savings account offerings from last year have all but shriveled up. The most competitive 32-day account is African Bank's with a 5.85% per annum. This bothered me, as I know that the New Funds Traci ETF yields about 7.4%.

I would like to know what the cost implications would be for the ETF, as it would sit in my discretionary brokerage account. I know I would be paying Brokerage commission, the Investor Protection Levy and VAT on costs every time I increase my savings or cash out, but what are the tax implications?

As this is a total return ETF, I would not get paid the interest into my account as this would be re-invested into the ETF. Presumably I would have to sit down and spreadsheet the actual interest earned for that tax year.

Should an emergency arise, and I need to sell some units, would I be required to pay SARS capital gains tax on the interest earned as well? Your 2019 article about it on J1L also pondered the same question, so I wondered whether you had already received a response from one of the magical tax elves.

Old Mutual offers the ability to save in one of its money market unit trusts which also tracks the STeFI, it comes linked to a transactional bank account. It is a unit trust, so it has a higher TER, but if it eliminates capital gains tax, the other exchange costs and the added admin around tax year end by giving me an account statement for the unit trust, I would be willing to give up 0.1% of the yield difference between it and the Traci.

I would like to travel overseas after I get jabbed with a Covid vaccine. I have put money aside in a separate goal save. I get quite queasy when looking at ZAR exchange rates and what they may do between now and when I wish to travel, so I looked into SA based dollar/euro denominated accounts. Their interest rates on these are about as exciting as a finding a fly in one's soup. Would it be better to save for travel expenditure in dollars/euros in a hedge against a rand drop, or is it better to save in rands and suck up the volatility for the next 12 - 18 months for this purpose? I'm thinking of splitting the difference 50/50.

Marco

So question on Market Value Adjusters: Are they bullshit? I suspect that they are. My wife is moving her RA from the big mean green machine to Sygnia. She received a notification that an MVA has been applied to her RA to transfer and that it will reduce the amount that she is expecting by 5%. Is this just a way to keep people from transferring, or another penalty that's added on top?

I sort of understand what an MVA is: save from the good years to prop up the bad--but why add this extra "bonus" to a financial asset? To me it sounds like a turd wrapped in a sparkly bonus wrapper that just hides how bad active managers treat customers.

Mark

I have 20% of my Tax free investment and ETF portfolios dedicated to CSPROP and STXPRO, but every month when I buy these, I feel I might be throwing my money down the drain. Should I keep buying property ETFs as part of my TFIA and ETF portfolios or am I better to just hold what I have for a few years and not buy more every month? Should I drop my 20% allocation to 10% or less?

Alexander

Having just opened a Tax Free account, I'm ready to jump in with my entire 36k.

I know Simon's advocated in the past for putting it all in at once, but has the current situation changed that approach at all?

With my RA pretty much maxed out for last tax year, and this year looking to do the same, should I still be weighting my TF more to international markets? Or is it the case that since the rand is very weak against these markets that I'll be doing myself a disservice in buying now?

I am 25 so as an investment I plan to leave (probably till retirement) it may not be do or die, either way I would like to make an informed decision. Is perhaps this year the year to focus locally with my investment and then return to my international focus with my TFSA at a later stage? Uncertain of how to proceed during this shaky and tumultuous moment.

What do you recommend one does with an emergency lump sum of around 250k? I was surprised to see my Depositor Plus account with Absa having lowered interest rates as of April 2020. I was wondering whether you can recommend a few accounts or platforms to look at during this time now that interest rates are fluctuating?

How would one start investing in the UK/&/Europe if one has a bank account in the UK, but no national insurance number? I occasionally get paid into that account by European clients and was thinking of using that channel to invest offshore, paying any applicable tax through my local accounts. Let me know if you have service providers you would recommend for something like this as well please.

Shailesh

I listened to "Five concepts that will make you rich". Simon mentioned in passing if you committed to your R33k annually (at that time) one could have as much as R25 million in 25 year's time.

How is this possible? My understanding is that your earnings are calculated on the amount it was initially bought and hence it is not really compounded except for the dividends that will be reinvested. Should one sell their ETFs and re-buy them annually to compound it?

This is a question about how shares make money. We wrote an article about that here.

The financial services industry has done nobody any favours. Not only were many of our parents sold retirement products with exorbitant fees, they are also offered the same awful choices now they've reached retirement age. They have learned the hard way you can spend your life doing everything right and still lose because of bad products with high fees.

This week we received five different questions from listeners who are trying to help their parents navigate the terrifying world of retirement money. For many of us, this is the biggest financial decision we would ever have to make. If you've been told you aren't qualified or equipped to make these decisions your whole life, odds are you're not going to start trying at 65.

Our parents need our help navigating this terrain. Hopefully this episode also helps us help each other.

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Win of the week: Emma

I am a proudly SA opera singer with a penchant to be a financially stable artist. I started my finance journey properly from last year, and was educated about Just One Lap by my mother, who was your winner of the week a while back.

I wrote a blog post this month, hoping to encourage a culture of saving and financial savviness amongst my followers, and thought perhaps you might want to feature it in your podcast.

Kenya

My mom has recently left her job to take a few months off. Her pension fund (currently held with Old Mutual) needs to be transferred to a preservation fund until she retires in two years. A financial advisor offered her a once-off fee of 1.7% to give advice on which preservation fund to choose (and to help her complete the forms- which according to her are actually very simple). Initially it didn't sound like much, but I was shocked when I calculated the rand value of this fee. The fund he's recommending still falls within the Old Mutual stable and has these costs:

Total investment charge: 0.63% p.a

Fund access: 0.18% p.a

Admin fee: 0.31% p.a

Totalling: 1.12% p.a

Alternatively, he has suggested a fund with Coronation with fees not dissimilar to the above.

Is this a fair offer? Are either of you aware of a better lower- cost preservation fund that she can choose? Bearing in mind she has two years before she will be required to access it and it is required to go to a preservation fund.

Jenna

I started listening to your show this year and have become completely addicted. I went back to your old podcasts and have listened to about 50 hours already.

My mother has never been great with money. However, she has somehow managed to pull through.

She will run out of money soon and may need to go into debt. I'd like to help in any way I can, so I've helped her reduce her costs and get a better overview of her finances.

She is 63 years old. She has no retirement fund or any savings aside from R100k in cash in a money market account. She has a brand new car, so her expenses shouldn't be too high for a few years.

She has a home loan that she can access at any time.

She has a house valued at about R2.5 - R3m, paid off.

The house has a back section that, if she renovated it, she could possibly rent out, however this would be expensive.

Asset-wise she seems to be in a ok position, but her expenses are more than her income and she'd like to retire soon. I don't think that she would be able to manage a large amount of money (if she were to sell her house.)

How can she continue generating income for the rest of her life while losing money each month? What's the best strategy for this situation?

Brendt

I recently had a look at my parents' financial situation. They already have a RA that has been converted to a living annuity.

When I inquired as to the fees that are charged on the living annuity, I almost fell off my chair.

This got me thinking: we are so focussed on getting a low fee RA going that we totally forget that the RA forces you into a living annuity. When choosing to invest in a RA one must also consider the fees that will eventually be charged on the living annuity.

The current high fees on living annuities (the cheapest I could find was Sygnia at 0.86%) makes RAs less palatable.

Nicole

My mom's money is currently with old mutual but she's retiring at the end of July. The living annuity they suggest will cost 2.2% per year and encompasses funds like Allan gray, coronation, ninety one etc.

I'm tempted to recommend that she rather go with 10x/etfsa or sygnia /the new retirement solution platform by Nedgroup (brand new so not a lot of info there but more choice than the other 2). With one of the first pair she just needs to choose a path and thereafter it's very little input from her side which makes her more at ease but I'm not sure there's enough diversification and control. With the others there might be too many options and the wrong funds chosen.

Is it sufficient to take the same approach as I would in my regular investments but lean slightly towards the conservative side? Like a world etf and then one that has more cash and bonds?

Ross

I am 35. My dad has a farm and a will that is so out of date it's frightening. He's unfortunately really bad with his own finances and paperwork. I'm trying to find out what the best options are to safeguard against all the legal fees, estate duty etc etc in the event of his death and not to have to sell off pieces of the farm in order to cover all the fees and taxes involved.

I am looking at life insurance policies but at my dad's age (70) they are not cheap. I suppose it's better than trying to find that liquidity out of your own pocket or selling off assets to pay all the legal fees and bullshit when the time comes.

There's a company called Capital Legacy that my insurer put me in touch with that deal with all the above mentioned woes. They draft the will, have a legal team, executors etc and cover all the legal fees and taxes in your monthly premium. It sounds all well and good I just wanted to find out if you guys know the company at all, and how legit they are? And if you have any better suggestions? I have listened to the "what happens when I die" podcast, but living in the Corona era maybe things have changed since then?

Richard

Now that we've entered unprecedented times, including the exponential use of the word 'unprecedented' how much of the old rules are still completely relevant.

• Is renting still better than buying, considering interest rate cuts?
• Is a broad ETF still the best option? Or should we focus on post-COVID winners in tech?
• How big should our emergency fund be, when the entire country is in a state of emergency?

Marco

I am looking to move my R.A to Outvest.

According to my latest investment summary: My value on 1st of January 2019 was R228 797.72 and 16 months later on 1st of May 2020 is R297 692.17. In that period my administration and advice fees were R6510.21.

With my current R.A invested in the Coronation Balanced Plus A fund from June 2005 , are the fees of the fund (which is 1.25% excl VAT) included in that admin and advice fees? Or am I paying that 1.25% excl VAT on top of the R6510.21? Are there any other fees I am paying that I am missing?

The Coronation Balanced Fund appears to have done well, I think? Not really sure how to read the performance well, taking everything into account. Ie fees etc

Would you recommend I pull my chute with the above mentioned R.A? Also , Outvest have four funds that are available for their R.A

They are:

• Coreshares OUTcautious Index Fund
• Coreshares OUTstable Index Fund
• Coreshares OUTmoderate Index Fund
• Granate Money Market Fund

Can you shed any light on these? Which would you recommend?

You may not be very happy with your workplace pension fund. In this week's episode, we think through some of the things you can do to remedy that situation. Pension funds, like all other retirement products, have to be Regulation 28-compliant. That means you don't have much control over what's inside. However, you can control your contributions and the fee you're willing to pay. You can also insert yourself into how your workplace pension is managed by becoming a pension fund trustee.

You can find Gerrie's article on maintenance we mention at the top of the show here.

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Kyle

I've been curious about forced pension fund contributions in the workplace. Is there any way we can direct portions and where this gets invested?

When stocks are discounted, would I not be able to take a more aggressive approach and direct this more towards equities? Alexander Forbes deals with my pension fund.

Win of the week: Steve

Been meaning to request the move my RA from Liberty somewhere else for a while now, so I requested a quote. They quoted me on moving to their new Agile platform after I specifically asked for a section 14 transfer quote. Anyways, these are the fees quoted for their new platform. Best part: it's 2.8% all the way to maturity. Pretty sure it doesn't matter what the penalty will be, I will move it.

Jason

You said it is "illegal to record someone without telling them".

This is sort of true but in the context described it's not. This is actually covered in the RICA act.

It is illegal to record someone without prior consent. However, the Act sets out the following exceptions to the rule:

• you are a party to the conversation
• you have the prior written consent of at least one of the parties to the conversation; or
• the conversation relates to, or occurs in the course of, the carrying on of your business

Since you are an active participant in the phone call that means you are "party to the conversation" and not eavesdropping and thus can record regardless. It is still considered polite to tell people they are being recorded, but even if they say decline it's not illegal. If you think the person is going to lie then maybe you shouldn't ask. I'm not a lawyer but this advice was given to me by one of my company's lawyers after I recorded a conversation we had with a client who was blatantly lying to us over the phone and I needed proof.

Dhiraj

One can hold cash in an interest bearing bank account or invest in a money market with a fund manager at a small fee.

Is it safer to hold cash with a fund manager even if one has to pay the small fee?

Specifically is one more likely to retrieve the money from an asset manager than a bank if both were declared insolvent?

Eugene wants to know why one would choose a preservation fund instead of an RA.

Meryl

How can you find the interest rates of the bond ETF? Obviously this depends on the price but where do you access the return?

On my Standard Bank investment account I have quite a few Sygnia ETFs. In my statements it shows a deduction for ETF fee whenever there is a dividend or interest payment. Have you any idea what this is?

Eric

For a relatively new retail investor like myself the information on your site is priceless, thanks again.

I just listened to your podcast on Covid bonds and the 11.5% interest sounds very appealing, my concern is SA Inc. In your opinion what is the chances of a default…thinking Greece and Argentina where a haircut was imposed on sovereign bonds.

Nolomo

1. Besides buying shares, what other assets can one accumulate with a budget of less than R2000p/m.
2. My dream is owning a house where I can live and raise my family. Is it possible to afford a bond with a salary of R10000p/m with monthly expenses of R4500 over a 20year period? I have a R30,000 lump sump
3. Is a bond the only way to own a physical house with a salary of R10000p/m and R4500p/m expenses?

Nadine

I was just listening to an episode when I heard you say you paid $16 for a kindle book! Kindle automatically makes the US store your default store but you can change that to the U.K. store (www.amazon.co.uk). I did this myself and I usually only pay £3-5 for a book on kindle now. The U.K. store is just SO MUCH CHEAPER!

Google how to do it - I can't remember the exact steps, it's somewhere in settings on the kindle. You need to open a U.K. account and connect your card etc. but it's worth it.

Ndida wants to know if there are any benefits to using offshore investment platforms over local platforms offering offshore exposure.

John

I hear SASOL may be forced in doing a Rights Issue in the future.. I have SASOL shares that I picked up at the lows in march and now am thinking of offloading them before the Right Issue occurs.

There seems to be a battle for dominance raging between medical professionals and engineers on this show. This week we happened to receive emails from four healthcare professionals. Considering what's happening in our hospitals at the moment, we decided to dedicate this week's show to these heroes.

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Win of the week: Busi

I am a doctor who has worked in both the public and private sectors.

I have a stockbroking account and always wondered what these random amounts of money popping up in my account were. Nonetheless would use the surprise money to buy more etfs and go on with life. Now that that I listen to you guys, I realise that these are dividends. I felt so stupid when I came to this realisation but thrilled at these little rewards.

I also had a chat with an older colleague of mine nearing retirement age. He advised me that the biggest hindrance to one's retirement plans are kids. His advice to me was not to have any. Fortunately for me, unfortunately for my retirement plans, I already have a rugrat and I'm not planning on sending her back!!!

I thought I'd help the lady who had a question about medical aids in episode 186.

There are medical aid 'brokers', the company Optivest comes to mind. They don't deal with all medical companies however, so like insurance brokers, they have their pool of companies they deal with and so any quotations you get are based on that handful of companies.

My advice is that since she already gets a subsidy from work on Discovery, to rather remain on there. Switching to another medical aid has implications as waiting periods may apply which is not idealnsince she has a chronic condition with expensive treatment. And much aa it pains me to say this, Discovery is one of the better medical aids. She should prescribe to the chronic programme, opt to collect her medication from a network pharmacy like clicks or Dischem or something, and can even look at switching options within discovery. The advantage of living in KZN is the coastal options work out somewhat cheaper.

A listener had mentioned considering switching to medical insurance. A medical aid scheme and medical insurance are 2 different things, and though the insurance is cheaper, its best to go with a medical aid scheme if one can afford.

P.S. What are Chuckles?

Kendra

I have a financial planner who advised me to go with Sanlam Echo Bonus as my RA. My current contributions are about 5% of my income.

I only recently started doubting what my financial adviser has recommended. I have seen the very high EAC of this RA. Is it true that the Echo Bonus is reliant on Sanlam's performance as a company and is not guaranteed at my retirement? I could be wasting money in an RA with high EACs without this buffer of the Echobonus. I understand I will forfeit a fee if I make changes to my RA now, but I would rather do it sooner than later if there are better long term investment options available. Please help!

The information I shared in this episode was found on the Sanlam Echo Bonus page. Double-check me there.

Carlo

I am a young doctor. I just started working with one of the big cruise ship companies before the covid 19 apocalypse hit. Currently I am drifting in the pacific on a mission to repatriate some Asian crew members with no idea when I myself will be getting home.

Having some extra time on my hands (to say the least) I stumbled upon your podcast and proceeded to binge it religiously. My mind has truly been blown by your wit, charm, judicious use of swearing, and of course financial wisdom. Somehow you guys have had a calming effect during these difficult times, please keep up the good work.

I have just completed 2 years of internship and 1 year of community service in the pandemonium which we like to call the South African Public Health Service, and promptly decided to head out for the high seas.

I almost fell off my chair when I saw what the rand had done just before my new paycheck on the cruise ship (getting paid in USD) - Despite being trapped in a floating prison I feel quite happy about it.

I opened an easy equities account and decided to split my savings between the USD account and ZAR account, buying similar ETFs.

Does it make sense for me to buy S&P 500 in ZAR and USD? Should I try to time my contributions by buying ZAR ETFs when the rand is weak and USD ones when the rand is strong (for example if we head back down to R15 to a dollar?)

If the rand does strengthen again I feel like I will get hit double because my salary will decrease and the ZAR ETFs that have offshore exposure will surely also take a knock. How can I protect myself against this?

Is it stupid if my TFSA and my discretionary investments mirror each other? Should I be throwing specific types of ETFs into my TFSA?

I see that some sectoral ETFs like the Satrix FINI have been "klapped" - do you think any of these have room for growth (which sector should I buy with my "F you" money?)

On the offshore side of things, are there any interesting USD ETFs which could offer interesting types of exposure that we can't necessarily get access to from rand based products? I see there is an iShares HealthCare ETF and an INDIA ETF for example.

I am wishing everyone back home the best of luck and I can't wait for Cyril to open the airports so I can come home and help with the fight.

Mary

I work in healthcare. Believe it or not, our job and salary are precarious right about now. I was fortunate to receive a bonus now and my question is :

Do I pay off my credit card of R12,500 or save the money to prepare for the unknown.

Can you talk a bit more in depth about rebalancing the portfolio. If one uses the Satrix platform and EasyEquities to invest, do we still need to rebalance and how?

Thank you for all you do. I look forward to listening to all your shows. You are appreciated.

Skhumbuzo

What effect does junk status have on RSA retail bonds? Does the interest rate get better or worse?

Here's a link to my friend's drive-in. https://www.facebook.com/DineInDriveIn/

If you went into formal employment straight out of university or school, odds are you have some sort of pension fund or retirement annuity. You may since have realised the idea of working until you're 65 is entirely optional. If you've already allocated a large part of your income towards your retirement, you need to find a way to incorporate that money into your early retirement strategy.

Our friend Kris has been giving some thought to this process. Your challenge lies in balancing two investments. Your discretionary investments should see you through to the age where you can access your retirement fund. The longer your discretionary investments can support you, the longer you can wait before accessing your retirement product.

Once you start tapping into your retirement fund, you need to manage your draw-down rate carefully, so you don't run out of money before you run out of body.

In this week's show, Simon and I discuss the merits and pitfalls of this strategy. In general we find it to be Very Good.

Kris

I have some questions I thought to send to you guys about a two-stage FIRE - which is very relevant to SA since we cannot access Retirement Funding (Pensions, RA's) until a certain age. The USA (where more FIRE content comes from) is different since they have some hacks where you can "convert" retirement funding to income before you hit that age. I am surprised its not a bigger topic in the SA FIRE community.

I had the idea for the two-stage path to FIRE and developed an approach - which basically means accumulating a large enough discretionary investment (DI) pot to last until your retirement funding (RF) income kicks in (say at age 65). This means the DI can be drawn down at a rate higher than 4%, since it need not be as large as 25x annual expenses - it just needs to last until formal retirement age.

In the background however - your RF needs to grow from the day you stop working to a level that will satisfy the 4% rule at retirement age.

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Win of the week: Ricardo

And Martyn. Check out his business here.

I'm new to the investing world, and it's pretty exciting. I'm also an active investor in the Netherlands via DeGiro. I've been lucky enough to join two online investor groups. These online groups are hosted on a site called Discord Chat. It's pretty awesome, because everyone can interact and there's a whole lot of Q & A involved.

I've learnt SO much in the 3 weeks I've been in these groups and I think it could be so beneficial for young South-Africans to share their experiences with each other. The chat allows for different categories (i.e medical aid, insurance, passive investing, personal finance, active investing) and categories like "idea's" where people can share topics on which they want more info on.

Hope you think this is pretty cool too - and that we can start an awesome online community of people passionate about personal finance.

Peter

I have excess cash in my savings account and want to invest in an ETF. Is it the right time now?

I have been looking at the Allan Gray Balanced Fund which has a nice diversification and 51% SA equities and 29% foreign and is at an all-time low but the 10 year prediction looks good.

I am also looking at the Satrix capped INDI ETF which is equities-heavy and also at an all-time low but the 10 year prediction also looks very promising.

I'd rather invest now than having my money sit in the bank. In these uncertain times, what do you suggest I do?

Darth

To curb my wife's over-reliance on me for income (for her stokvels and cosmetics), we constructed backrooms and for the majority of the Tax Year, they were bringing in R2 200 per month and that has since increased in January 2020 to R4 500.

All this money goes to my wife's account and the intention is to have it declared as her only income for the Tax Year.

My question is whether SARS would rather have us splitting the rental income as it is coming from our joint property or it is okay for me to file mine as I've always done?

Talking about declaring rental income, I am realising that we don't have lease agreements in place and am wondering what would SARS require as source documents for the income. What sort of documents do we need to have in place before filing?

Javier

What are SENS announcements? when are they used? are they mandatory? where can we find them? is it important to know about them to average investors? Any tips or useful info about them?

Elaine

I took it out in 1999 and not really sure if it's performing like it should. I don't even know where to start. They want to put it (by this she means her contributions) up to R18 000 per month which I think is just crazy. I know I will be penalised for cancelling but I just feel like it's been a waste of time and investment .

Would you be able to advise on what to do in this situation ?

Mari

I've got an FNB Share Saver account, which invests into the Ashburton Top40 and Ashburton Midcap for you.

I figured if you invested R1000 they'd send about R500 toward each ETF. But I see they work out how to divide the money so that they buy the same amount of units from each. It struck me as weird 'cause the Top40 costs about R46.16 and the Midcap R5.65 at the time I'm writing this. So R1000 gets me 18 units from each, which means the Rand value of my investment in each ETF is very different.

What's more important here? Why do they do it this way?

Wiehan

We are currently stuck on site with no prospect of leave seeing as all the borders are closed and our charter flight can't take us to Uganda. There are no flights leaving from Uganda to SA. We're here for the foreseeable future, producing gold at full capacity. It's not the worst place to be, earning in Dollars with the current ZAR/USD exchange rate. More money for ETF's :)

My financial journey started around two years ago - thanks to the book "Manage your money like a fucking grownup".

It completely changed the way I think about and manage my money. Before reading the book, I had humongous study loan debt, an awful RA and TSFA sold to me by a greedy Sanlam advisor and no idea on how or where to invest my money.

I paid off all my debt, fired my advisor and I am in the process of moving my RA to Sygnia (will move to Outvest once I reach R400k) and my TFSA to Easy Equities. I was also able to build up a solid emergency fund.

I started to listen to your podcast just as the markets crashed - and realised I needed ETFs. Luckily, I had a lot of cash sitting in Money Market funds, and could buy when stuff was dirt cheap. I have chosen an asset allocation of 40% local equities (Satrix 40), 50% offshore (Satrix MSCI World + Emerging Markets and a bit of Sygnia Japan just because it tickled my fancy) and then bits and bobs in bonds, cash, property and a small bit of gold (just to support my industry ;)).

I will look at the Ashburton 1200 in the near future - hopefully it can rule all of my other offshore ETFs.

How do you feel about EasyEquities? Is it safe to use as my only investment platform, or should I diversify and use another platform for my TFSA? Do you have any other suggestions for nice/cheap platforms I can check out?

When I am back in SA again, I would love to meet you guys at one of the meet-ups and have little chat. You guys are awesome, and you make the time here on site much easier to bear. Lastly, send me an address and bubbles of choice so that I can courier a bottle or two to you as a thank you. It is the least I could do for the wonderful advice and laughs you have provided to me.

Santosh wants to know whether he should review his portfolio in rands or dollars?

If you listened to this episode on a single ETF strategy, you know my investment philosophy. This simple approach to investing saves me a lot of drama. When a new product comes to the market, I ask myself if it fits with my original philosophy. If it doesn't, I can satisfy my curiosity about the product without touching my investments. This is a good way to live.

The new China ETF from Satrix disturbed my Zen approach. If my philosophy is to invest in all the companies in the world according to their market capitalisation, China should have much larger representation in my portfolio. I never thought about it before, since we had no direct way of investing in that economy. This new ETF changes that and gives me a lot to think about.

In this episode of The Fat Wallet Show, Simon Chuckles Brown and I think about how to factor in the corporate governance risk that comes from investing in China. How do we get the right amount of Chinese exposure without betting the farm?

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Lady Kabelo:

I just got an email about the Satrix MSCI China ETF IPO.

My interest is piqued because China's growth has been all the rage for years - pre-COVID anyway. I'm sure it will be again. But I have a TFSA strategy that includes the Top40, SA Property Income, and the Global 1200 so I have emerging market exposure. Also, I'm not really an early adopter. I'd probably watch what goes on with this for a while before buying.

What would be a good reason to buy this China-specific ETF? I'm pretty sure I know you and Simon well enough to guess that you would stick with your global 1200. But might there be any merit in buying this?

I broadly understand what an IPO is, mainly from the news on interesting IPO drama like Uber and WeWork. What is the virtue of buying at the IPO stage? For example, is there a discount there that might be worth deviating from your strategy to get good value at a bargain price? I would be afraid of buying this at IPO at an inflated price only for it to sink. Is that a real risk? If so, why do people do it? What is the appeal of this offer supposed to be? Looks to me like the only upside is being first to get it, which seems a weak benefit.

Win of the week: Herman

In this week's podcast 'Spend money to save money', Andrew mentioned how, whilst poor, he had to be the King of cheap, and paid the price. You made a comment about the poor being pigeon holed into buying cheap, and it costing them. And I agree.

How often has it not been shown that the poor suffer the brunt of recessions, tax hikes, interest rate changes, and inefficient governments much more than the middle class or the rich.

THIS got me thinking: One of the reasons we should take charge of our finances, is to prevent being at the mercy of others. Be it to a horrible boss, or service providers/retailers with nasty products. One of the many 'luxuries' afforded to the rich or middle class, is to have a choice in our spending.

Thanks for making me think of this, and playing a role in helping me take charge of my financial situation.

Anet

I own both Naspers and Prosus. Would it not be better to sell and be in cash right now? I know that there is an Income Tax implication, but am more worried about the bigger picture right now.

Similarly, my gold ETF (NewGold) is doing well due to markets crashing and ZAR weakness but this could all reverse in the next 6 months.

Alistair

I've been getting all my financial advice from a podcast called howtomoney, which is in American. I wanted a South African perspective and I love your show. I've been binge listening for three days now during Lockdown.

How do you guys feel about the EasyProperties platform?