Podcast: ETFs shouldn't be your second source of income

Simon had some family matters to attend to this week, so I did my first ever solo Fat Wallet. Turns out talking about money alone in your living room isn’t quite as entertaining as doing it with a friend. I’m sure you’ll miss him as much as I did.*

Recording solo today. Not the same without @simon_brown_za, who is dealing with some family issues. ???? Literally the only upside is I got to take 5000 selfies and choose the one I like best. Medical aids, bank fees, investing for income and investing R6000 through Stash. #podcast #flyingsolo #invest #money

A post shared by Kristia Van Heerden (@k_r_isis) on Oct 12, 2017 at 3:34am PDT

Two episodes ago, Daniel Jacinto wanted to find a good alternative investment for income. He currently owns a buy-to-let property that helps him pay for his parents’ medical aid. He looked into a Finbond product that offers 11% interest on a deposit fixed for six years. It’s a solid option, but it does mean the principal investment will lose buying power over time, and the 11% payout won’t keep up with inflation. This week, Riaan Honeyborne and Johan Harman both wonder if Daniel wouldn’t be better off just investing in an ETF for income.

The problem with equities as a supplementary income source is that you have zero control over the market. In my investment lifetime (short though it is), I’ve never gotten 11% return on an investment. When you are relying on that income every month, not knowing whether you are going to hit that target is going to cause you stress.

Maxwell wants to know whether listed property instruments can out-punch buy-to-let as a second source of income. I think not. If it’s the monthly income you’re after, you can probably get there much quicker with a buy-to-let. You can also buy an investment property on credit and use one as surety to buy another, gearing your portfolio.

However, you end up with a huge amount of concentration risk, and if you pay off a bond on a buy-to-let, you end up paying more for the asset than it’s actually worth. If I’m going to be throwing a lot of money at an asset, I prefer liquid, diversified and maintenance and paperwork-free.

Links and sources

Roneil sent a link to a Mybroadband article about great value smartphones. If you’re after a device that gets the job done, there are some great alternatives here. I’ll certainly be thinking more along these lines once my current phone dies.

I also mention Ingé Lamprecht’s hilarious article about going for a cheaper cell phone contract and the subsequent chaos. It’s “penny wise, pound foolish” in action.

I also mention that fantastic Power Hour Magnus de Wet did for us on listed property vs buy-to-let.

Listener Love Index

You know things are bad when you start thinking about losing as a sliding scale…

*How great is this selfie, though?

Kristia