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Clean swearing bleeped out show is below.
It seems having enough money to retire is only half the battle. There are so many decisions to be made post-retirement. This is true for old school retirement and financial independence, as Alistair Hennessey’s question illustrates this week.
He and his wife have sold everything to live their somewhat odd dream of following winter around. (We strongly discourage this abnormal behaviour.) They’re both in their 30s and lucky enough to have jobs they can do anywhere in the world. Having accumulated enough assets over the years to make this possible and still earning enough money to continue investing, how would one even begin to untangle all the possibilities?
Luckily we have access to our financially independent friend Patrick Mckay, who has been thinking about his options for a while. In this episode he helps think through the Hennesseys’ options and talks about the wonders of tax-free investments.
My wife and I have sold our apartment and all our shit and are moving to Lisbon.
We’ll be living in AirBNB across Portugal, Europe and back in Cape Town, probably following the winter around.
After selling everything, they have:
I think we’ll still contribute the minimum monthly amount to keep them active (about R400 each).
TFSAs: R66 000 between NFEMOM, PTXTEN, CSEW40, STX40
Currently with ABSA but soon to be moved to Easy Equities.
Going forward we will just buy STX40 and/or possibly the Satrix MSCI Emerging Markets ETF STXEMG.
ETFs: $22 000 between Vanguard FTSE Developed Markets (VEA), Vanguard S&P 500 (VOO) and Vanguard Total Market Index (VTI).
I only found out after buying these ETFs that they are domiciled in the US, which means the US tries to steal quite a bit if I die. Although this might only be when it’s worth more the $60 000.
I’ll be getting new wills done as soon as we get to Portugal.
We’ll put aside cash for six months’ expenses in EUR. Since selling the house we have dropped our monthly expenses by about 50%.
I still want to transfer R66 000 into our TFSA each year. If we have a ton of extra cash we might top up our RAs, but there is no tax saving with us being in Portugal, so I’m not sure it makes much sense.
He has between EUR 1,000 and 2,000 to contribute to ETFs every month.
For the ETFs, the plan would be to take the bulk offshore and buy the Vanguard FTSE All-World ETF.
To be honest, I don’t actually know where we will be living in 10 or 20 years so I was thinking of investing mainly in EUR.
The Vanguard FTSE All-World ETFs is domiciled in Ireland, which means that everything can happily pass to my wife without too much fuss when I die. Portugal also has some great tax savings around offshore dividends.
But this ETF has an expense ratio of 0.25% (The Vanguard ones have 0.04% and 0.07%)
Assuming my maths is right, on a 200 000 EUR portfolio the annual costs would be:
0.25% TER is 500 EUR
0.04% TER is 80 EUR
So over 10 years, Vanguard all-world needs to do 12.5% annual return to keep track with the S&P 500 ETF just doing a 10% return.
Over 20 years the all-world (VWRL) needs to do 14.5% annual return and the S&P 500 (VOO) just 10% to get to the same place.
6 months worth of expenses in EUR for an emergency fund
Rest of the cash into either:
VWRL (EUR) and VWRD (USD), Leaving what’s currently in VEA, VOO & VTI
Keep adding to VOO and VEA (and not die before my wife)
Every year add 33k ZAR each to our TSFAs STX40 & maybe STXEMG leaving what’s currently in NFEMOM, PTXTEN, CSEW40, STX40
Leaving RAs intact (sigh)
Our friend Jo wrote in for the first time in a long time!
My TFSA is in cash. And has been since it started. Let me lay out my logic for you.
When TFSA came out, I decided markets ‘felt’ expensive. I know, super subjective, but TFSA has quite a long horizon. At R30,000 a year it just didn’t feel amazing me to me. I think you’ll do okay with a TFSA, but it won’t make you insanely wealthy.
As it turns out I’ve made about the same return in cash as I would have buying DBXWD or a some local top 40. Which wasn’t guaranteed. Markets could have done amazingly and I would have had to eat my words. Theoretically it could have also gone the other way.
I’m keeping my TFSA in cash for the time being. I’ll add my emergency fund to that and wait for the next big sale/market correction. That might not happen for a while, or it could happen next week, but at some point it will happen.
For example, the PTXTEN 25% down? I took my daughters TFSA and I bought a great big chunk of that particular fire sale. Thank you.
You could argue I’m trying to time the market, but this is all still ancillary to my other normal investing – you know, dutifully plugging away into my ETFs every month. I see my TFSA as a kinda hedge bet and am happy to play a little loose with it.
Not for everyone. But you know, just thought I’d posit an alternative.
Paul has a question for Patrick.
Would you please ask Patrick what he buys in his TFSA account?
I know he’s a one etf guy, but I believe he buys a local equity only etf in his TFSA to avoid foreign tax.
The Fat Wallet Show is a no-nonsense personal finance and investment podcast hosted by Kristia van Heerden and Simon Brown. Every week we answer questions by a growing audience of finance enthusiasts. Submit your pressing money and investment questions to firstname.lastname@example.org.
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