Podcast: The cost of moving retirement products

In Latest, The Fat Wallet by Kristia van Heerden

It has always been the philosophy of this show that a good question is more valuable than a good answer. It’s incredible what you can learn from a really good question, both about the topic and about the person asking the question.

This week, Frank had an excellent question about moving retirement funds. This question reveals, first and foremost, just how much Frank already knows about the market. It also reveals a thoughtful person who has found a balance between taking calculated risks and doing whatever he can to protect his assets.

In this episode, we address issues around the ethics of retirement product providers, loss aversion and rand cost averaging. All of that, from a single question!


The bleeped show is below.


Frank

I have been contemplating transferring my retirement funds to OUTvest. I have some money with Allan Gray, some with Sygnia and most recently with EasyEquities. Combining all with Outvest will qualify me for the R4,500 fixed fee.

My concern is switching providers too frequently and whether the risk associated with the potential savings is too high. The time out of the market between the exit and the re-entry may result in losses. Is it worth considering? What happens if someone cheaper comes along next year and I’m tempted to switch again? My other concern is the potential manipulation by the provider that I’m transferring away from, the amount that went to Allan Gray from Old Mutual was significantly lower than the balance showing on the investment platform around the time of the transfer.

I had no control over what day the selling of the units happened and had no way of verifying whether the sale actually happened on the day they said. A number of weeks pass from the day you notify a provider of your intention to move away to when the move actually happens.

What prevents them from selling on day two after I notify them, but selecting the lowest unit price in the following days and reporting that to me as the day on which they sold my units? They could sell on 1st of the month for R50, but the transaction is only finalised at the end of the month (31st) – they could then see that the unit price on the 12th was R46 and report to me that my units were sold for R46 – giving them the profit (is this a kind of arbitrage?).

I’m conflicted about whether I should move to Outvest now and whether the benefit would be substantial or whether I should just leave the money where it is to grow and perhaps consider Outvest the next time I change jobs. With the bulk being in a Preservation Fund, what are the considerations I should take into account when combining it into my RA?

Sygnia had allowed me, at the time, to change the allocation of my provident fund to 75% SYGWD (MSCI World ETF) and 25% SYGP (Global Property ETF). My concern is that with the uncertainty around the changes, the online platform is now reporting that my investment is not reg 28 compliant. What are the risks? Whose responsibility is it to ensure that the provident fund is compliant (me or Sygnia). What happens in reg 28 compliant providence where there is “drift” in allocation (ie I may have had the correct percentage in equities during January, but price changes in asset classes may have resulted in “drift” where the asset value in that class is now outside the allowed percentage?)

In a previous episode Simon briefly mentioned that there may be scope to use available funds from a bond to invest in the market for returns that neat the interest. My current bond interest rate is 6.55% and I have a substantial amount available in the access bond portion. Could you discuss whether I should use those funds to buy ASHEQF? Am I correct in stating that 6.55% per annum is 0.55% per month? My logic says that as long as ASHEQF returns more than 6.55% per annum I should get out ahead. Thoughts?


Win of the week: Shumi

I am 33 years old, single, female with no dependents. I am not a cat, engineer or doctor. I studied Philosophy, Politics and Economics and ended up in finance but not the math side. I found the Fat Wallet in late 2018 after a financial awakening when I found FIRE and Stealthy’s blog. Since then my net worth has grown from -R660 000 in June 2018 (I bought a house before I found FIRE 😓) to over half a million in March 2021 (technically over a million if you include the house but I know that although it is an asset it is not an investment). This is attributable to two main factors, my standard of living remained the same as my income increased allowing me to save and invest the difference.

Kristia once posted a hand written note of the Fat Wallet manifesto on twitter and I followed it to the letter. I live on less than 40% of my income, no debt except for my bond, have a 12 month emergency fund, max out my RA and TFSA and also have ETFs in a local and offshore discretionary accounts. I also save and invest any increases and bonuses (Simon’s rule of thirds really helped me). So far I’ve stayed away from bitcoin, bees, gold and Tesla. Precovid travel was my money dial and I happily spent on frugal and extravagant local and international trips. Most of that has been diverted to chuckles & diy during the pandemic. This simple plan has worked well for me.

My income is relatively high (2 promotions in 3 years) so a lot of this success is because I earn enough to have a gap between what I make and what I spend. But without the Fat Wallet, lifestyle inflation would have creeped in and I wouldn’t have known how to grow my money. From the outside nothing much has changed, I live in the same house and drive the same car (pushing 8 years now) as when I was in debt but I sleep much better knowing I have a solid financial base.

Thank you for all you do. Good luck on your new journey Kristia. Simon I listen to you 8 times a week so I will still be learning.

Feedback from Kris about contributing to a bond vs investing in the market

A good approach could be to use asset allocation.

E. G. If you already have a lot (or some) home equity but now want to start investing then why not aim for a certain ratio e. G. 50% each. So over time contribute to each such that you reach equal amounts in home loan equity as in stock market investments. Once you reach this equilibrium just maintain it going forward. It’s diversification.


Itshekeng

I was swamped with debts and could not repay them all at the same time. I sold my house and have a lump sum which I would like to invest. On the other hand, I wish I could use some of it to reduce my debt repayment period. I am still working and would really like to get out of debt and be able to save up for a house and a car and retirement, and take out policies for my child.
What is most important and where to invest with good returns over 5 years?


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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