The Fat Wallet Show with Kristia van Heerden

Podcast: Should you have money offshore?

In Latest, The Fat Walletby Kristia van Heerden

At what point did South Africans become so obsessed with having money offshore? For a while everyone was obsessed with gold, then something about Jacob Zuma and suddenly Magnus Heystek was a thing, like a bad dream.

Our friend Edwin has this ability to ask a question in a way that stretches my brain more than any answer ever could. This week, his question was simple, “What’s the point of taking money out of the country?” What, indeed!

P.S. If you wanted to catch a movie with us at the JSE, you can register here.


Clean beeped show is as below.


Edwin

I have little money offshore from a previous company share scheme. It is in an account managed by the company scheme and doesn’t cost me anything or grow. It just sits there.

It’s in pounds, so every time the Rand drops I feel richer. I also like the thought of having an emergency stash offshore should I need it one day.

I have thought of repatriating this money and it raised a whole lot of other questions. What is the point of sending money to another country when you can

1) Buy global shares and ETFs with Rands from SA

2) Buy currency if you need it quite easily through a number of platforms e.g. Standard Bank Shyft, Easy Equities.

Unless someone is buying a villa off the south coast of France, or planning to spend time overseas why do people bother “sending money offshore” when you can just as easily buy the Rand hedge in Rand in a locally sold ETF or in currency itself?

What am I missing? Is there an advantage to having your physical currency in another country or should I bring my pounds back home and just buy a low cost ETF?


Pierre

I’ve been contributing fairly regular lump sums to an offshore USD denominated Allan Gray unit trust since about 2016. According to Allan Gray the costs of this investment are as follows:

  1. Annual investment management fee = 1.16%
  2. Annual platform administration fee = 0.56%
  3. Annual financial advisor fee = 1.15%

I’m not sure if this total of 2.87% includes fees that the company who does to actual exchange from ZAR to USD charges every time I add to the investment.

Should I just stop contributing to this unit trust, hope for the best and continue contributing to my EasyEquities USD Vanguard S&P500 ETF? Should I try to close this investment, have the funds exchanged to ZAR and reinvest it into EasyEquities USD. I am not aware of a way to have the investment directly transferred from Allan Gray US to EasEquities USD, are you?


Mzwa

For all the noise that comes with it, BBBEE schemes in my opinion are not radical at all, and barely benefit the average black retail investor. Instead they largely benefit high net worth and these BBBEE connected folks and well-poised trusts and institutions.

I say this because mainly because of the complexity that it comes with. At times you don’t even get access to main shares. The company offering the BBBEE deal is basically just providing the loan, and and any dividends must first pay up the debt.

The discounted share price is countered by the debt that needs to be paid back, and missing out on dividends. Does not seem very worthwhile on paper for small time investors who likely do not have a tax free account, and are nowhere close to maxing their RA yet, and perhaps only trying to learn about the financial markets.

What’s different about the BarloWorld deal is that it’s a sale and lease back agreement, and with guaranteed cash flows, the debt might be paid up quicker and value realised perhaps around 5 to 10 years.

I just would like to hear you weigh-in, especially for people like me who could still put in money into Tax Free savings and/or RA. I am still young and not yet high earning, but I don’t have any debt. As much as my financial principles say first look at ETFs in Tax Free, the urge of not letting such an opportunity go is peeking my interest.

We reference Craig Gradidge’s excellent BBBEE Power Hour in this discussion.


Moya

This will sound clichéd, but you guys have totally altered the way I view money and financial advisors (sneaky little shits).

I’m a medic, recently qualified specialist at age 33. With all this education I was schooled in finance by my junior/minion at work. With the hierarchy in the medical fraternity you can imagine how this felt.

He introduced me to ETFs,TFSAs and the Fat Wallet podcast.

My mom recently retired when I came across all this new info. She was a professional nurse and her retirement fund was the government “dinosaur” pension fund. Her fund has paid out the ⅓ (she still refuses to disclose how much it is regardless of how much I flaunt this new knowledge) and the remaining 2/3 into a living annuity that pays her monthly.

She wants to invest a big bulk of that ⅓. She anticipates being around for more than 20 years, my gran died at 102, so it’s understandable. What products would you suggest for that money?


Gregg

Base – Emergency Fund – 40%

Next tier – ETFs and Bonds – 35%

Top tier – Equities – 25%

Do I need to sell some of my equities to free up cash to do the rebalancing – I could take some profits from some equities and also sell some of the losers? What would you advise?

How do I invest directly into Inflation-linked Government Bonds where the maturity period of that bond is in line with when I want to retire – for example a Govt Bond that matures in 20 years time?

Is this a wise investment as part of diversification?

Is it better to invest into a bond ETF as opposed to directly into the bond – what is the difference?


Darren

I want to plan for certain savings goals, like yearly veterinary council fees, car maintenance, local holiday trips and overseas holidays.

Let’s say I would like to save R1000/month in total for all of the above savings goals together. Do I buy different ETFs for each different goals or do I take the R1000 and split it between different ETFs. I feel it is quite overwhelming choosing them?


Boitomelo

I will most likely continue with the Ashburton 1200 only or maybe add a local one as well and have only 2 ETFs. In my current EE normal account, I have the Ashburton 1200 and the Satrix Divi Plus. What do you guys think of that ETF? I have been wondering if I should swap it for the Satrix Top 40 or just leave the Ashburton and sell out the DIVI.


Pierre

Over the last year I’ve closed unnecessary bank accounts, halved my monthly contribution to a managed collective investment scheme, run by my financial advisor, and I am now investing it myself in an ETF portfolio via Easy Equities.

I’ve also moved my TFSA from my financial advisor’s product to Easy Equities. I manage my tax better and I have a hands-on approach when it comes to my personal and business affairs, instead of just leaving it to “the professionals”.

I’ve been thinking about moving my RA from Discovery to 10X to decrease fees. I raised the issue with my advisor and received a response that I couldn’t make head or tail of, except that I shouldn’t move. Armed with the knowledge from the Fat Wallet Show, I scrutinised my policy documents and came up with the following:

I actually have 2 RAs! (never knew that)

The first is called the Discovery Retirement Optimiser RA. I started contributing in March 2017 when I was 34 (please don’t freak out, I built up a sizeable GEPF pension while I was doing in-service training).

Discovery reports that the Internal rate of return with their built-in benefits since I started contributing has been 5.21%. Without their benefits has been 4.08%.

The TER on this investment is 1.92% and transaction costs are 0.18%, so total investment charge is 2.1%. I suspect my financial advisor must also take a fee, but he’s been beating around the bush to tell me.

The gimmicks: if I match my monthly RA contribution to my monthly Discovery Life insurance policy premium, then Discovery say they’ll pay me back an Accrued Life Plan Optimiser which is equal to my insurance premiums paid up to 65. This will be paid back in 10 annual payments over 10 years after retirement. So far, I stand to get just under R50 000 back over 10 years after 65 (if I purchase a Discovery Retirement Income Plan at retirement). Discovery reports that an early exit fee will be just under R15 000, and of course you lose the Accrued Life Plan Optimiser.

The second RA is called the Discovery Core RA. I invested a lump sum of R100,000 in Feb 2017. The policy is now worth just under R110,000. The Discovery reported internal rates of return with and without benefits are similar to the first RA, as are the fees.

The bells and whistles: Discovery “gives” you a Boost Accelerator of 20% of your investment to use to pay your administration fees. This Boost Accelerator diminishes by R2 for every R1 admin fees paid. When the policy reaches 10 years, Discovery will pay you what’s left. I have just over R14 000 at the moment left after 3 years of admin fees — by my reckoning Discovery and I will be “quits” in 10 years, so I won’t see a cent of the Boost Accelerator, but I would have scored on fees. Again, I’m sure my financial advisor is claiming some kind of fee, but I don’t know what.

Kristia will understand my feeling of “Is die kool die sous werd?” If I take the knock and move the Discovery Retirement Optimiser RA to 10X, I’ll be able to catch up the losses in fees before retirement and don’t have to worry about matching my life insurance premium, blah blah.

I’ll keep the Discovery Core RA, because I don’t pay fees, and threaten my financial advisor to take my business elsewhere if he doesn’t tell me exactly what his fee for this policy is. Would you agree?


Brecht

Would it maybe be better to make the policy paid up and just leave it and then open up a new one or is it still worth moving it?

“Shareholder fee is calculated as 10% of gross investment growth (before management fee and tax).

Although it is called a shareholder fee, these days we refer to it as a growth fee, calculated on the growth of the portfolio.

Below are the ongoing fees on the policy:

Policy Fee = R26.82 pm

Allocation charge = 10.25% of each premium”  


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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