Survivors of a battle with the Debt Monster already got a nasty introduction to the world of fees. A combination of account fees and interest on debt will leave you poorer every time. This baptism of fire may have been unpleasant, but it’s not a lesson you’re soon to forget.

Those most vulnerable to the wealth-destroying effect of fees are those new to the financial world. When you don’t have much money and a brush with debt hasn’t yet alerted you to the grimy side of the financial system, a 1% fee on a small transaction is unlikely to set off alarm bells. On a R300 investment, a 1% is only R3. What could you possibly buy with that? Beware, dear lambs, this is how they get you.

In this week’s episode of The Fat Wallet Show, we try to show you why you should care about fees very much. We run the gamut - from expensive, ego-stroking bank accounts to total investment costs in ETF products.

You might be disappointed to find that we can’t offer cut and dry solutions to fees. A lack of consistency in reporting among financial institutions makes it almost impossible to do a side-by-side comparison of fees. Instead, we try to steer you in the general direction of clarity.

We reference this document.

Kelly

I’ve just received my first salary and am extremely eager to make my first investments into TFSA ETFs, however the more I started thinking about life expenses the more I realised that there are a couple of other financial planning decisions that I still need to make. I would like your advice relating to the following matters:

Which bank account for day to day activities? Investec approached us first year trainees with the young professionals’ private banking account. It has a monthly fee of R295 with no additional charges. It gives you reward points and access to airport lounges and all sorts of shiny bells and whistles.

In what ratio would you advise me to invest my savings into an emergency fund and TSFA ETFs? Also, in which bank account would you advise me to keep this emergency fund?

I am aware of the extreme importance of saving for retirement, and am unsure of whether I should be contributing to a pension fund as well as TFSA ETFs or if focusing only on TFSA ETFs for now will be sufficient.  What is your opinion on this?

As I am young, I would like to focus on high risk, high return (hopefully), equity ETFS. I have considered the Satrix Top 40, as it is a known favourite and I can “catch up” on the time I have lost due to the sideways market with the hope of a more favourable market in the near future. I have also considered the Ashburton Global 1200 and Satrix MSCI World ETFs. The new ABSA low volatility ETFs also caught my attention but I am concerned that the risk on these ETFs are too low? Will you please advise?

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Flipi

Any change in your opinions about 10x as a good RA choice?

Would Stanlib's new TFSA be as good as any other? I have some investments with them and it would be convenient to simply move the money across in the next few days.

Other Gerhard

I opened a TFSA account for each of my daughters and did my first transfer.

I did the instruction on their website and the trade was done 09:15 in the morning.

I bought the Satrix MSCI World ETF and the trade price was R39.16 per share.

From another trading system I use on a personal level I couldn't see this price trade anytime during the day. The highest price traded was R38.65 for the day, which means that over and above the normal small trading fee I paid to EasyEquities I also paid R0.51 or 1.32% of the share price.

I invested R10,000 and the total transaction cost according to their break down was R37.40.

But I got charged R39.16 per share instead of R38.65 (assuming the highest price for the day) and therefore I paid another R130.24 in "transaction charges". The total transaction charges therefore R167.64.

If I did the same size transaction on Investec's trading platform I would have paid R151.72 in charges.

Did I do something wrong here?

Always Abundant

In 2002 we bought into an Executive Redemption bond offered by a UK-based Life Assurance Co via the International arm of a large South African financial institution. This was sold to us by our financial advisor (at the time) as a way to maintain our offshore diversification.

In 2012 we applied for a full withdrawal in order to close the policy. We were able to redeem everything other than 1 of the funds (a UK-based Property fund) which had gone bust. We accepted our losses, which were considerable, and forgot all about it. Recently we received a letter from the International Arm of the local company informing us that the annual fees on the policy had gone up.

I obtained online access to the account and noticed that the Property fund in question had eventually liquidated in 2018. The small amount that was generated from the liquidation had gone towards paying these fixed annual fees. But since the fees were charged continually, there is now in a significant amount owing (1.5K USD).

The policy is worth nothing but the fees continue to accumulate even though we had submitted the withdrawal form years ago. No one has informed us about the fees owing.

What are our rights in this case? Surely there must be some kind of Consumer Protection laws to protect us from being liable for these fees? What should be our course of action, if any?

Win of the week: Phasane

2018/2019 Tax Year has been, surprisingly, a good year for me.

• I finished paying off my car, not planning to buy any car until 2023. The only debt remaining is the bond.

• I discovered the Fat Wallet Podcast and the Just One Lap community in general.
• I listened to all Fat Wallet episodes (the weekly wait is now killing me).
• I moved my RA from Liberty to 10X, a process that started late in October 2018 and about to be wrapped up as I write this mail (waiting for some Trustees what what signature but 10X have kept me informed every step of the way). By the way, I started with my RA contributions to 10X in November and contributed to both Liberty and 10X that month.
• Although I wanted to do more, I contributed 16 600 ZAR to my TFSA (up from the R4 620 that I contributed the previous Tax Year). I am comforted by the fact that I have built my emergency fund to levels I am comfortable, from 0 - 4 months worth of living expenses (in Simon's own words, "that makes me sleep well at night").

2019/2020 goals

• Contribute the max amount to the TFSA, this is important considering TIME in the market.
• Add one more month of living expenses to the emergency fund.
• My normal RA contributions will continue, this is a top up to the work pension fund.
• Everything else remaining, including change from the F##k it monthly budget, goes to the Bond. I am planning to settle the Bond in 2022 (9 years from the registration date)