Podcast: The first lockdown money challenge ~ Wills and Estates

It’s a nutty time to be alive, isn’t it? A market crash is bad enough. Adding a national lockdown to the mix is bound to provoke some anxiety. Our strategy in this time is not dissimilar from our usual strategy: focus on what you can control.

To that end, our podcast this week is the first of three money challenges. We are starting with wills and estates and then moving on to short-term and long-term insurance. We all know what a drag it is to wade through the fine print of these documents when there are more exciting things to do. Unluckily for the insurance industry, we are all now confined to our homes with nothing but time on our hands. We might as well save some money in the process.

We also think this is a fine time to speak to your family members about your will and segue to money in general. If you’ve been wondering how to broach the topic, the madness in the world has solved this problem for you.

We’ll be doing some live video interviews with members of the Just One Lap community over the next three weeks to get you through the lockdown. These will be broadcast live on our Fat Wallet Community Group. If you’re not a member yet, now’s the time.

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Beeped show is below.

Win of the week: Cyril Ramaphosa for being epic at his job.

Today we’re only going to deal with your estate and your insurance.

Will and Estate

Review your will and make sure it’s still relevant to your life.
Make a spreadsheet of documents and passwords your family need to have if something happens to you.
When you die, normally everything goes to your spouse. There’s no taxes payable if that happens.
If you don’t have a spouse, estate duty is 20%, and you have to pay and executor’s fee. Sometimes, to pay this, they have to liquidate some of your assets. If you don’t want this to happen, you can look at a baby life insurance policy that pays out to your estate to cover these fees and the cost of your funeral. Think about whether you want to do that.

Insurance:

Short-term
- Start a spreadsheet of all the insurance policies you have, including what is covered, your excesses, as well as when the policy was taken out. You can use this as a starting point every year when you renegotiate your insurance.
- Check what is covered and ensure that you have proof of ownership for specified items. Make a list of things you no longer have or can self-insure.
- Create a spreadsheet of previous claims, including dates and settlement amounts. When you lodge a claim or take out new cover, you have to disclose this as it affects your premiums. If you claim and they find out there’s something you haven’t declared, they can reject your claim on that basis. This is going to save you a lot of time in the future.
Long-term
- Look at the terms of your dread disease and disability cover. You can decide if you want to reduce cover because your asset base can take care of you if something should happen, or increase cover if your family situation has changed.
- Make a spreadsheet of the terms of your cover in terms that you can understand. You don’t want to be wading through an insurance document if you should need this.
- See if you’re covered if you can’t work because you contracted corona.
- Make sure that you are covered for your own occupation, not own or similar.
- If you have life insurance, make sure you still need it. Be careful of hanging on to these policies just because you contributed a lot to them over the years.
- Similarly, if you don’t have life insurance but you have dependents, make sure they are covered if you pass away. Life insurance pays out directly to the beneficiaries in cash. These policies don’t form part of the estate and aren’t taxed. To know how much you need, look at what your dependents would need to survive for about a year until your estate wraps up and cover any shortfall you might have in your current circumstances.

Mike has decided to go for five regional ETFs instead of one world-wide ETF in his portfolio.

He buys Sygnia S&P 500, Sygnia FTSE100, Sygnia Eurostoxx 50, Sygnia Japan, Satrix Emerging Markets.

He’s comparing his 5 ETF strategy to the single, global ETF strategy across seven areas: Currency spread, dividends, emerging market access, regional exposure, sector exposure, rebalancing and TER.

Currency spread:

Regional Amounts other than USD are first converted to USD for the underlying index and then converted again to ZAR for the Tracking index.Do we lose twice on currency spread every time we buy, sell or receive distributions?

Dividends

Sygnia MSCI World Gross Dividend

Yield = 1.11%

Ashburton 12 Gross Dividend yield =

1.51%

JP + US + UK + EU Average Gross

Dividend Yield = 1.81%

(I didn’t include Emerging Markets (Satrix automatically re-invest)

Emerging market access

Since he’s buying the EM ETF, he can control how much exposure he has.

Regional exposure

+-60% of the global index is exposed to US (which also has the highest foreign

dividend witholding tax of 30% compared to Japan/Britain 20%, Europe 26%).

Sector exposure

World: Heavily exposed to IT

Japan’s no.1 exposure is to Industrials. FTSE, EUROSTOXX and Emerging Markets no 1 Exposure is Financials. Energy is also no.2 on the FTSE but is only no.7 on the MSCI World.

Rebalancing

World: Done every +-3 months. When you top up account you are topping up both the winners and the losers of all regions

Done every +-3 months though you have the opportunity to top up only the regions doing the worst

TER

Low TER of 0.35% (Satrix MSCI)

Low TER of 0.45% (Ashburton 1200)

Average TER is high at 0.63%.

It’s looking rather scary considering EU & Uk’s big drop! Portfolio is 16.83% down.

I can still contribute R27k for this year (R36k limit) so was thinking of doing +-R6k per month until limit is used up and sticking to strategy as I don’t know if it has already or when it will bottom out.

I do like the idea of Dividend paying ETFs within a TFSA. Once I have reached my lifetime limit I can still use the dividends to purchase new shares without having to sell my current shares. I’m sure better/cheaper ETFs will come out in the future. I also then won’t be forced to sell shares (and pay more fees) should I wish to take a small drawdown in retirement. I can just withdraw the dividends.

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 [email protected].