We can all assume the chief economist at Stanlib knows a thing or two about the world. Imagine my alarm when I read he thinks we need to fall out of love with equities. Thankfully the headline was just clickbait and Kevin Lings said nothing about Bitcoin. If you let yourself read beyond the headline (lesson learned, I assure you), you’ll find a thoughtful explanation of why the South African equity market is where it is today.
In this week’s Fat Wallet Show, Simon and I discuss what our alternatives are if we don’t love equity. We get to talk about bonds, which makes me so happy. We also delve into stacking your home loan and the right amount of emerging market exposure for equities.
Questions from listeners
What’s a general recommendation percentage-wise in ones portfolio allocated to emerging markets? I have been buying Satrix World and Emerging Markets ETFs in my tax-free savings, split 70% and 30% respectively. Is that perhaps too aggressive on Emerging Markets? I have seen online 20% max is usually recommended, at least for investors in Europe.
Stocks give a 13% return, but (tfsa aside) you pay tax now or later. Paying off home loan gives a 10.5% (or greater) return, tax free.
Am I missing something, or is a tax free return of 10.5% better than equity?
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Clean version is below.
Win of the week: Shane
We recently adopted a rescue cat named Myshka.
She’s 18 months old, has all of her vaccinations and has been spayed.
I’ve been listening closely to your views on funeral cover and thought that the same philosophy could be translated into pet insurance.
We spoke to a veterinarian friend of ours who indicated that Myshka is unlikely to have any health issues during the first 5 to 7 years. She has a life expectancy of at least 15 years. Diet apparently plays a large part in their health, so she’s only getting Science Diet (There go our bubbles…) With this information, the plan is as follows:
Step 1: Obtain quotes for the “Rolls Royce” of pet insurance for an 18 month old female cat with no medical history (Let’s let the actuaries assess her risk and do the hard work for us for free).
Step 2: Select the most expensive quote (the theory is that we are selecting the most risk averse actuary out of the lot). This quote came to R410 per month.
Step 3: Round up to R500 per month to build in an extra margin of error for risk and invest this amount into an equity ETF and watch our Money Bunnies grow (thanks Stealthy!).
We worked on the following figures and assumptions:
– R500 per month contributions adjusted annually by inflation (assuming 5%)
– Assuming an annual growth of 12% over the 5-7 year period
– Adjusting the 12% growth down by our assumed 5% inflation figure to 7%
We are assuming we are in a relatively safe space regarding kitty health in the first five years After 5 years we enter the “danger zone” but we have almost R30,000 in today’s money to pay for vet bills.
Assuming the pet insurance premiums don’t increase (which they will), this means that we would be spending in excess of R24,600 in insurance premiums during the first five years of Myshka’s life.
This is the same period of time that she is at low risk. This investment is not as liquid as we might want it to be for an insurance, but that’s why we have our six-month emergency fund to draw on in case of kitty emergency. We can then slowly replenish the emergency fund or cash out some or all of our investment to replenish the emergency fund when the market allows for it.
By the time Myshka reaches the end of her lifetime at a conservative 15 years and assuming she hasn’t had any major health events, we will have a tidy little sum of R215,000, which can be put towards a royal kitty funeral with loads of bubbles or a golden plaque in memoriam of our beloved Myshka (Don’t worry, I’m just kidding, I’d never invest in Gold… Bubbles it is!)
A few years ago I worked for MTN and they had a share incentive scheme in which the employee received shares after a certain number of years of employment.
I’ve watched these shares climb very nicely and have watched them drop very nicely.
I am way over invested in one share and was wondering how best to start selling and getting diversified whether in ETFs or other shares. My thinking is to start selling R40,000 a year to not incur CPT and that would be a great start to funding my TFSA and buy some other ETFs with the extra? Your thoughts?
Currently my MTN shares are with ABSA stockbrokers and they charge a +-R80 admin fee every month. Would it be worth moving?
Two years ago, I found myself desperate and in a deep, dark hole to the tune of almost R3m.
That was made up of a house, vehicle debt and over R600,000 in unsecured loans and credit card debt. We overspent my income by at least R20,000 per month!
From the outside looking in, I was probably ‘living the dream’. The reality was vastly different! I was unhappy and in debt that I couldn’t even afford to go away for a weekend.
I realised it was absolutely absurd that despite earning a decent salary I was literally broke.
I put the house and my wife’s car on the market, I started frantically paying back debt a little bit at a time, lump sums when I had them.
The legal fees for the divorce set me back a bit in my journey but they were SO worth it, I was divorced within six weeks. I also had an ANC which was helpful…
Today and I am in a much healthier (and happier) financial position!
I only have a few more rehabilitative payments due to my ex-wife.
I am debt free.
I have an emergency fund
I have a credit card with a R 1,000 limit.
The bank initially wouldn’t reduce my R 350,000. I had to threaten to close my account.
I have closed my Allan Gray Equity account.
I have consolidated my RAs into one.
I have fully funded TFSAs for my kids and myself
I am in the process of changing my medical aid from Discovery to Genesis for a R1,500 per month saving.
I have threatened the bank that if they don’t waive my R475 pm account fees, I am changing to Capitec… They have asked for a meeting to discuss…?!?
DSTV is on its way out…
I have life insurance for my kids… and a will…
I max out my RA annually.
This is with 10X now, at 75% local exposure? (Reg. 28) I don’t want any more developing market (or RSA) exposure.
Because I don’t want further rand exposure than already in my RA, I believe the STXWDM is right for the TFSAs. Am I correct in saying that I already have enough emerging market exposure in the RA?
I have a further R500,000 pa that I want to invest in dollars. I prescribe to Patrick McKay’s take on buying the market, so I am interested in the Vanguard world from either Ireland or the US.
Should I use my EasyEquities USD account to buy VT ETFs or try and set up an Interactive Brokers account and buy the VWRD? I am aware of the death duty on the VT, but you can’t control everything (or anything at times!), so it wouldn’t cause me sleepless nights that if I were to croak suddenly there would be a tax liability. If I were to croak slowly I could always sell or move prior to my last croak…
I would need an international will with the VWRD through IB, would I require an international will for the EasyEquities VT?
Is the EasyEquities USD account truly offshore?
If I reach my goal of financial freedom, become an international jet setter and say moved to Croatia, would I be able to access these EasyEquities USDs from there, assuming I have a Croatia bank account?
Do you see any gaping holes in my financial restructuring above?
At this point I will have all my investments in three places: 10X RA, TFSA STXWDM and EasyEquities USD VT, although I feel OK with this do you feel that it is sensible?
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.