The Fat Wallet Show with Kristia van Heerden

Podcast: Money and family

In Latest, The Fat Wallet by Kristia van Heerden

Sorting out money between partners can be fraught, but it’s a walk in the park compared to parents and siblings. We spend our formative years trying to secure the love and acceptance of the very people who we now have to say “no” to, which is why we are Money Enemy Number One.

Your best chance at success is substituting emotions for numbers. If you are the person your family looks to for financial support (and you have no moral objections to helping out), the first number you should care about is what you can afford. This doesn’t mean how much you have left over, but how much you are willing to give. You also have the option of paying directly for fixed expenses and letting them figure out the rest. Alternatively you can offer a cash amount, walk away and fight every urge in your body to give more if they run out.

You don’t have to say no to your family if you don’t want to, but you are allowed to have boundaries. If all else fails, ask yourself what you would do if your kid made the same request.

Devon’s mom told him he’ll have to take care of her his whole life. After paying off her debts, renovating her home and countless budget discussions, he’s losing hope.

I have had endless budget sit downs and fiscal meetings with my mother to try reign in her expenses, but after a few months the old habits come back.

She’s very good at convincing herself whatever she buys is absolutely necessary.

I listened to your podcast about talking to your partner, but I find having a talk with my mother far more difficult and emotional.

Her house is paid off (just levy, water, electricity, medical aid and living expenses are needed) but she spends over R10,000 on groceries on just her and my sister at home plus clothes and other non-essentials, plus having a domestic worker twice a week and a gardener for a small garden and a pack of 5 dogs which obviously need to be fed (I tried everything to stop her at just having 3 max).

How would you suggest approaching this firmly enough that it actually does stick with her and leads her to actually taking action to cut expenses?

In essence how do you get this message across to someone doing their utmost to stay dependent on others to avoid the responsibility of their own financial position.

I feel like I have tried absolutely everything and have spent so much energy and effort that I am at my breaking point.


Market commentators will say they would only buy a stock at a particular price level. For example, stock A is expensive at R100 but fair value at R80. Is this merely a reflection of the rand value of the P/E at different levels i.e. R100=P/E of 20 and R80=P/E of 16?

Clean swearing bleeped out show is below.


Taxpayers get a R23k interest deduction. Wouldn’t it be better to first max out this benefit, before going to TFSAs, because it’s already tax free!

What is TFSAs offer the best returns? Can I expect more than e.g. a 32 day notice deposit or a 24 month fixed deposit somewhere? As far as I remember, the TFSAs have a lot of red-tape w.r.t. what to invest in and how much risk these funds may take on. Will this not mean lower returns?


Marina’s twin sister introduced her to the show. She has a question about ETFs.

Stealthy mentioned that the smart beta indices try to outperform the market and rarely do so, and that is why he sticks with vanilla indices.

She also read a Moneyweb article about the SPIVA report.

Some are of the opinion that active funds rarely outperform the market but passive trackers can? What is your opinion on the matter? If active funds with competitive fees were to become available in the future, would you buy them?

Lars Kroijer Investing Demystified series:

Frank sent a link to a podcast called How It Began, where they discuss the stock market after episode 123.

Mpilo wants to know what listed property is. They also want to know what a mutual property fund is.

Psychedelic Nerd wants to double-check that they understand CGT:

If I invested R5,000,000 into the market, and now it is worth R10,000,000 . I decide to withdraw R400,000 (i.e. a 4% drawdown rate) to live on for the year. Half of this (R200,000) is capital gains. So, after the R40,000 CGT allowance, I am due to pay CGT on 40% of R160,000, which is R64,000. I have the 2018 income tax free allowance of R75,750, which leaves me with no taxable income! So I keep the full R400,000.

In this scenario, the CGT mentioned here is the only income for the year.

Does this scenario sound right to you or am I getting some steps wrong?

(If this is correct, over time I guess it will change as the percentage of the annual drawdown that is capital gains will probably become higher.)

They also want to know what I mean by “cash” savings and if it’s a good idea to have an emergency fund in a money market account.

Ivan made Kay a spreadsheet to calculate her tax liability in a year.

Download the tax calculator here

Kiril has a hella fancy car. He wants to know if he should speed up his repayments.

I currently have an emergency fund, maxed out my TFSA for the year, contribute to a provident fund through work, and have zero debt except my fancy car.

Whether owning a fancy car is a good idea is not part of this question. My designated installment is R7600, which I’ve upped to R8000. Should I increase this to R8600, and put in some sizeable lumps sums, eg. My tax refund?

My interest rate is 10.5%, but Tito’s jitters indicate this might rise in the coming year. Please, I’d really appreciate your advice.

Promise wants to know who we prefer for TFSAs.


If I sell out of a fund and incur a 360k capital gain which I will be taxed on, can I invest 360k straight into an RA and thus pay no CGT?

No – but you can contribute 27.5% of your profit to your RA for the tax break.

First point RISK = REWARD, pretty basic if you take more risk your return can be higher (or lower), take a small risk and you make a small return.

Bonds have a very little risk so you get a small return BUT you are very sure you don’t lose your investment. This is called the investment risk pyramid.

Cash (no risk)

Money on deposit in a bank which as a guarantee if a bank goes bust

Bonds (low risk)

1)US treasury bonds

2)Developed markets

3)Emerging Markets

Within each of these 3 sectors you get municipal and corporate debt too

ETFs / Unit trust (medium risk)

The more diversified the ETF/fund lower your risk should be, ie if you buy an ETF with only 30 shares and they are all banks it is less risky than buying one bank share but riskier than buying an ETF with 1200 shares in it across many sectors.


Within the share universe you get more and less “volatile” shares. Volatility means how a share price moves day to day around its average price over time in laymen terms. So a stock that is speculative like saying your Blue Label group moves in massive swings, something like a property stock which is run by a well managed reputable outfit which owns shopping centres and hard assets and receives their rental income from these properties every month will have a stable income and below volatility. Worst comes to worst the assets (buildings) are sold on their own and the shareholders in the stock can get their cash back. The assets are easy to value.

Stocks are theoretically priced by their earnings, how much we are willing to pay for those earnings is called the price-earnings ratio, higher PE the more willing people are to pay for its earnings. Sometimes stock prices make very little sense. Example – Tesla, we all love Elon Musk, he is trying to change the world, he has very big ideas, he has shown potential BUT his company is not making that much money yet. People believe his dream and keep buying Tesla shares thus it has a very high PE. Very low earnings and high PE. Every sector has its own go to PE. Banks in SA generally below 12.

Leverage / Speculative Funds/Small business/Bitcoin

Risky stuff, could lose everything or double your money, need a lot of research and gut feel to know what’s what. Not for the amateurs, no matter how good the tip was your buddy gave you or you ever heard at the gym.

Ok so that how risk is priced in instruments next layer of risk is the country risk, it is generally expected that:

  • US least risky (now)
  • Developed markets (UK, Japan, Germany etc)
  • Emerging markets (South Africa, Turkey, Russia etc)
  • Junk Markets (Zim, Venezuela etc)

Each of these countries has their own risk profile and within each you can buy a bond (least risky for that country) or you can buy a share (risky for that country) .

If you buy a bond in say South Africa you might expect the same return as a medium risky share in a big developed market. Theoretically speaking, my idea to get the concept across. The risk is everything, the risk is priced in return, for a stock that return is measured in its earnings for a bond/cash in its return.

So back to your story, why did my ETFs in SA do nothing but when the market fell I still fell along with it, should I have been hedged through my diversification?

There are 2 parts to the answer.

1) Naspers makes up roughly a quarter of our Top40, Naspers is basically a company holding a share called Tencent, Tencent is basically the google plus facebook of China. It’s gone up in a straight line for last 5 years. Dragging our TOP40 with it. If you take out Naspers/Tencent our markets has done sub9% maybe less… Why is that you might ask, unemployment, bad ANC policies, international investment firms selling South Africa as a brand, the land appropriation bill is a massive massive issue, firstly our banks are being sold off more intensely than I have ever seen in my 15 year career, you can get a big 4 bank stock now at a PE of 8 (side note at this rate it will be more tax efficient to buy a bank stock and get a better dividend yield on your money than the bank can offer you on the interest rate and the div yield is tax free!!). Banks own the bonds on the properties the ANC want to appropriate thus banks go to zero, the market has decided to rerate the risk on banks and the price went down, more risk bigger move in this case down.  

Tech stocks have rerated after an incredible run the last few years, Tencent halved and with that the price of Naspers and thus the TOP40 or JSE and your ETFs. Buying the Top40 or DTOP is not a good diversification. I’ll say that again, buying the TOP40 is not a good diversification.

2) The second part to the answer is more interesting, think of all the capital in the world flowing around like water freely. When there is a lot of capital it sloshes around the world, builds up at the riskiest places and even forms bubbles, think bitcoin.

When is capital cheap? When interest rates are low, because anyone can borrow a lot and do with all that money what they want to. When was capital cheap, since the 08 crash, the Fed and other central banks took interest rates to ZERO percent, all that cash has been sloshing around the world and found new homes in the riskier assets and countries like you know who SOUTH AFRICA. For the last year or so the Fed has been slowly increasing its lending rate to try and normalize markets (or their market among things). The effect is like a giant sponge in America sucking up all the excess money they were out there in riskier assets. Starting at the riskiest and going down the pyramid to the least risky. So in our case, we are an emerging market check, we have are buyers of an ETF that’s listed over equity check, we have bad economic policies check, there is talk of taking away peoples assets which banks have bonds overcheck. And there you are, your ETFs have rerated in risk to the new reality.

I don’t want to make you feel worse but that return you lose you have is in Rands, as we discussed above, a South African Rand bank account is riskier than a USA bank account, thus the rand is also being sold and more people are buying dollars. (if you can earn 3% risk-free in the US why buy an SA bank account and only make say 6% with all our inherent risk too).

I have been a holder of 4 “hedge” funds over around 10 years. Over a decade plus they have been the standouts and I managed to get in quite early and trusted each of those outfits as I work in the industry and am well aware of what they do. That being said, you pay through your ears for this good return these guys get, there are also down times.

I decided at the beginning of the year to start liquidating investments in these funds down to 25% and buying ETFs listed on the JSE but in foreign exchange and international markets. I like and have moved into Ashburton world bond index in USD, NASDAQ listed by Satrx, GLODIV dividend aristocrats international, SYG500 SP 500. All of these ETFs hedge me against any South African and Rand risk.

My thinking is, I live in South Africa, I own my house in South Africa, I earn Rands in South Africa. South Africa is a tiny country on the tip of Africa, do you think if you approached someone in Japan or America and tell them you think it is a good diversification to buy TOP40 index ETF in a tiny country on the South tip of Africa. No ways! Buying SA listed ETFs like TOP40 ect is not being diversified, you are actually taking on a lot of risks, we now have the freedom and products to buy cheap, international ETFs on the JSE which gets you out of local currency, buy them and buy as many as you can.

I wrote about how I plan to approach the maintenance to my new house in last week’s newsletter. I said I’ll probably under-budget. Dave had a great point about that.

Your new project/s made me think of one of my favourite Project Management lecture points – don’t stress the accuracy, stress the completeness.  If you budget R100 and it runs to R110 you are 10% out, but if you don’t even put the item in the budget then you are in trouble.

Quinton wants to run his ETF strategy past us. These are ETFs he’s buying in addition to his RA and TFSA.

I don’t want to be to active as an investor, I’d like to select shares, then contribute monthly from now until retirement.

He’s looking at Satrix Top 40, Satrix S&P500 and the Ashburton Global 1200

My idea is to buy each monthly.

I am a minimalist and like keeping things simple, but also don’t want to invest in the wrong portfolios, or be too diversified.

If you think this is a good strategy, would you invest equal amounts into each or spread it more offshore (E.g. Satrix S&P500 and Ashburton 1200 = say 80%) and Satrix top 40 = 20%?

I have received dividends in my TFSA account now, and was thinking on using those dividends to apply the same logic.

What are your thoughts on the Satrix Emerging Markets, Nasdaq 100, or MSCI World index. Should one be considering any of these?

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