Podcast: Should I stay or should I go?

In Latest, The Fat Wallet by Kristia van Heerden

Many people take their first wobbly steps into the financial world because they understand money is meant to do something. What exactly that “something” is, is often left to someone else to figure out. However, once they start learning about the financial environment for themselves they realise there might be products better suited to their needs.

Moving a lump sum away from a provider you’ve trusted for a few years is a daunting process. Even if your reasons are sound, it’s not an easy decision to make. 

In honour of the brand new tax year, we spend this week’s episode helping Carmen decide what she should do with her existing high-cost retirement product. We hope the discussion will help you decide what to do with an investment product that no longer suits you.

We apologise for the ear worm. 

This week’s show is also the last of our shows sponsored by OUTvest. We are deeply grateful to them for their support.

Also remember tomorrow at 11:00, Bobby from AJM Tax will talk about how the tax changes announced last week will affect your pocket. Join the Facebook community group to watch it live and ask your questions.


The bleeped show is below.


Carmen 

Do I keep pumping money into my high cost actively managed RA at Old Mutual (I like the idea of money going somewhere that I do not think about)?

Do I transfer the current balance to my low cost EE and let it sit there and grow (along with the increased monthly premium plan)…but then continue the R3500 contribution to OM (which will likely have even higher fees because now my base amount is R0).

Do I reduce my RA contribution to Old Mutual to the minimum R500 per month (so that I don’t incur an “admin fee”) and increase the RA amount to my EE RA immediately by R3000 per month?

Do I get outta dodge re: Old Mutual RA and move alles completely?

Ancillary reasons for sticking with an actively managed fund at a big investment house are: not to have all my eggs in the EasyEquities basket; my personal risk insurance side is sitting with Old Mutual (disability, illness etc) and my OM is invested in other items than my EE portfolio (bit of diversification); keep contributing to one RA up to age 60 and only pull from it from 65…and other RA only pull from later.


Win of the week: Nalisa

I started this email about four months ago, and listening to this week’s podcast made me decide to get it done. Especially when pet expenses came up! 

To clarify, I’m a vet and best you believe my creatures are on insurance! Yes, I’m a vet and proper medical care is still expensive for me! Akina, my eldest, decided to go ahead and twist her spleen (after hours, fucking typical) and the resulting bill came to about R20 000, and the medical aid paid me back in under a week.

Even if it wasn’t for that incident the peace of mind we get from it is worth every cent. But do your research and (I can’t stress this enough) read the fine print! Know what they cover and what they exclude, and especially look at their limits (per claim and annual limits). They’re still insurers, they’re still trying to screw you. 

My fiancé and I were discussing how one could become completely self insured.

 We only insure our cars, our home and our pets. We both have life insurance ( to cover the bond), medical aid and I have income protection.

We’ve always agreed that our home contents (aside from his laptop) are considered self-insured because our quote for insurance was exorbitant.

In an ideal scenario, we’d need to have enough saved to be able to replace everything with cash, and have about R50k for the animals. The figure gets big really quickly.

The main concern would be that you’d have such a huge pile that needs to be fairly liquid and would earn very little (but still more than handing it over to someone else every month). Are there any strategies for self insurance? Or is it actually a silly goal and we should resign ourselves to gamble on bad luck against insurance companies, while trying to save whatever else is left? 


Solly

I really like how you break down things for us that are so complex and make it consumable. I started listening to Just one lap last year around February and I have gained life changing insight. I just thought my first email to Just one lap is to say thank you so much!…for all the effort, the laughter and swearing😂, but most importantly for sharing the financial concepts in the simplest way that we all can understand.  I always had an interest in finance, but you guys made me love it.

 


Petrus

It feels like I am losing a long time friend even though we have never met. I still remember some of our exchanges very well and also how ridiculously simple some of the things was that I deemed necessary to send you an email for (buy a cellphone or take it on contract 🤦🏼). I will admit, I might have had a finance nerd crush on you at some point.

A lot has changed since the first email I sent you from a train somewhere between Regensburg and Munich while still working and living in South Africa. Since then I,

– cleared all my debt

– started investing 

– got married

– moved to Germany

– figured out investing in Germany

– learnt German

– close to hitting €150k net worth in 3 years (after starting with 0€). 

– just bought a house in Munich. Funny how all us finance or FI nerds say buying is not a good investment, yet we all do it. My transfer fees is more than the cost of my house in South Africa. 😭

I say these things not to be windgat, but to document the influence you had on my life. I never really knew how to manage and grow my net worth until I started to listen to The Fat Wallet Show. It gave me confidence to take charge and I am blown away by what was possible. You have probably made and influenced many future multi-millionaires. 


Ryan

I had twin boys in July last year. I opened them TFSA days after they were born and put R36k into each account. I remember Simon saying if you max your child’s TFSA at birth and leave it, by the time they turn 65 they will have enough to retire. This is the time horizon I am looking at for them. 

I bought SYG500 for one and SYGWD for the other. They have both done very nicely. 

With 1 March approaching, I have been thinking of buying SYGEU for both of them. What are your thoughts? My other option would be the Ashburton1200? I know Simon will probably say I need to add some local exposure but with the current rand strength I think it’s a good idea to get as much offshore exposure as possible?

I have been contributing to my own TFSA into an RMB fixed deposit for the past 6 years. I know I need to move it into an ETF based account which I have applied to do (EasyEquities). I am 34 years old with no plans on using these funds for at least the next 30 years. What would your and Simon’s suggestion be in terms of the ETF’s to split this into?


Keith 

I enjoy listening to your podcast. Even though I’m in the USA I get very good investment advice from you guys. I am an amateur at best and a lot of the things you discuss are unknown to me. Do you have anything that starts with the basics on up?


Jennifer

Most of my closest family and friends live in other parts of the world. I love South Africa and don’t want to leave but it makes me sad that I won’t be involved in my family and friends lives like I would like to be and I’m not sure whether I’m in SA to stay. 

Unfortunately I’m not sure where I will end up – either the uk (I have a british passport) or Australia. What do you advise I do with my investments? I don’t want to contribute more to a retirement annuity (other than what I contribute through work) because I don’t know whether I will be here for retirement… but who knows – there is also a good chance I might be. Because I’m so uncertain I don’t know what the best thing to do with my money is. 

I’m struggling to understand market makers. I’ve heard people say ETFs can turn out more expensive than unit trusts due to the spread between the bid and ask price. I understand what the spread is and I understand that the market maker can redeem and create units in order to create liquidity for the ETF… but who is the market maker and why can the spread be massive at some parts of the day? How do they determine the ask and buy prices?

I recently watched one of the JSE power hours where Nerina Visser went through all the costs associated with investments. It was so informative but made me think a bit about my EasyEquities investments. The webinar seemed to say that for every investment I make I am paying JSE fees and levies and these appear to have a minimum fee. I can’t seem to find these on EasyEquities though. Essentially my question is –  Does it cost me more if I invested R10,000 split into four R2,500 transactions vs a lump sum? The only fee that I can find that could potentially be fixed is the STRATE fee but EasyEquities appears to not charge a minimum fee here either. 

My second question is to do with total returns funds in a TFSA account. I know this has been spoken about a lot but I’m still a bit confused. I like the Satrix MSCI World more than the Ashburton 1200 for some reason but the tax issue surrounding the total returns worries me. I understood that you couldn’t avoid dividends tax charged by the foreign entities anyway… So why does it matter if an offshore eft is a total returns within a TFSA? 


Louise

I love ETFs (easy to understand and invest in myself), but I also like me some Unit Trusts (UTs). What I however find daunting, is the long alphabet list of UT classes. Thus far this has forced me to go via a financial adviser, when buying UTs. Did I mention that I am allergic to financial advisers and their high fees? And then sometimes the adviser afterwards willy-nilly moves me into a different class of the same UT, and I wonder when this is in my favour from a fee perspective or not.

The classes include A, A1, A2, A3, B, B1, B2, B3, B4, B6, 3B1, C, C1, D, E, F, G, H, O, P, R, etc., etc. 

(Let’s first just stick to local UTs – offshore UTs is a kettle of fish for another day.)

I’ve figured some of them out, e.g. the regulated class R, those that are available only for Institutional Investors and those that are for Retail Investors. Those that come with a with/without adviser fee, the clean classes etc. ASISA publishes quarterly spreadsheets that help a bit, but not much.

I’ve also learnt the following:

  1. There is no standardisation in terms of the naming of the different fee classes between the different management companies, with the only exception being the “R class” (deregulated in June 1998).
  2. Some “clean classes” are cleaner than others.
  3. FSB Board Notice 92 of 2014 specifies that UT management companies are required to publish the most expensive class that is available to a retail investor. Well, that’s good in that the available MDDs tell me how bad the fees can get. But it is bad in that I want the cheapest class that I can get into, which is not as well published on the internet.

I also read a Moneyweb article (by a PSG Adviser, nogal), where the guy shows how much better performance you get by just switching all your UTs to the cheapest classes, which makes me green with envy and hot under the collar.

Where is the FSCA in all of this? They are responsible for consumer education in this regard (non-existing) and also responsible for regulating the industry in a manner that creates standardisation, consistency and transparency, to allay the frustration and confusion experienced by poor little retail investors like me.

“Power to the people”, I say! 

Until such time as the FSCA steps up, can you, Kristia and Simon, please help me find my way through this maze that is UT fund classes? I understand MDDs, TER & TIC, but per Board Notice 92 not all MDDs are published.


The Fat Wallet Show with Kristia van HeerdenThe 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 ask@justonelap.com.

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