The Fat Wallet Show with Kristia van Heerden

Podcast: To index or not

In Latest, The Fat Wallet by Kristia van Heerden

Clean swearing bleeped out show is below.


Dhiraj asks us to defend our index-tracking strategy in this episode. It’s hard to do when the theory works but the practice hasn’t delivered the goods in four years. At this point I can only cling to the success others have had with this strategy and hope.

Even index-tracking product providers are increasingly offering products that will give investors an opportunity to outperform the market. The index weighted by market capitalisation has turned into the ugly stepchild that nobody wants to talk about anymore.

Nobody ever knows WTF is going on in the stock market. Lots of people pretend they do, but since they all keep showing up for work instead of retiring in the Bahamas, we can assume they don’t. Maybe the market will do what it’s always done. Maybe we’ll look back at this period in our investment history, discover the yodelling goat formation and know this is when it all ended.

The index-tracking strategy makes sense to me for all the reasons Simon and I discuss in this podcast. However, when that stops being true, I will jump ship. I am not a salesperson for the ETF industry. I’m an investor, and I want to see my money grow above inflation after fees by any means at my disposal.

That said, I also know pivoting an investment strategy every time I don’t feel I’m making money is a surefire way to incur costs. When I got into investments, I knew anything less than five years is not an investment time horizon. Since I’m only at four years (and, to be fair, I’ve pivoted my strategy a few times already), I’ll hold out and see what shakes out.

Dhiraj shared a video.

You make a case for investing in a broad market index fund over the long term for cost effective wealth creation?

This Youtube video makes a case that one must study the intricate details of the share markets and invest in selected shares for best long-term risk/reward trade-offs.

It provides evidence that there have previously been extended periods where the S&P500 produced zero returns.

How would you counter his views on index fund investing?

Christiaan wants to know if it’s a good idea to have his entire portfolio, including his pension fund, in index-tracking funds.

I am a teacher. Through work we are forced to have a pension fund with the ‘Green Monster’. They have recently brought out a Balanced Index Fund with fees of just 0.30% p.a. It’s invested in the FTSE/JSE Capped SWIX Index Fund, which I have never heard of, as well as the expected bonds, cash and property.

Is it a good idea to have all my retirement assets in these, including my company pension fund?

Lady Kabelo isn’t sure what is passive and what is active in unit trusts.

I have an Allan Gray unit trust, and I’m looking to shift towards ETFs. When we talk about actively v passively managed funds, I think of ETFs as passive and unit trusts as active.

In episode 75 Simon talked about being invested in passively-managed unit trusts. I’m no longer certain that my understanding of the distinction is correct. Could you explain the difference between an ETF and a unit trust, and how a unit trust can be passively managed?

Lloyd has a three-month old daughter and would like to know where to save for her education.

TFSAs don’t seem a clever instrument for education investment because it erodes the potential before the real savings kick-in from long term holdings.

What is a better vehicle for me to save for my 3 month old daughter’s education. I am more worried about high school and tertiary so perhaps the investment time could be 10 years or more.

I am thinking the right ETF portfolio. How should I set this up to be best positioned from a tax perspective?


Wins of the week: Dan Gobble wrote a word of encouragement for Mpho and Rinaldo.

We turned the corner at just about three-quarters of R1m in useless debt – not car or home loans. I am talking revolving loans, credit card debt and overdrafts from living expenses and starting a business, which promptly failed. Rinaldo is only dipping into it with his 140k 🙂 We swallowed our pride and went to family for help, now all the debt is consolidated with my in-laws at a ridiculously low interest rate. And we are on track to have it sorted in two years.

Also Mbasa, who is FINALLY starting their TFSA journey in July!

What ETFs would you recommend?

I have a provident fund (unit trust) and an RA (10x) at the moment.

I’d like to invest in aggressive ones. Was considering the Satrix Nasdaq 100, Satrix MSCI emerging markets and the ABSA New funds Momentum – a combo of the 3.

What are your thoughts?

I recommend reading Six Questions to Answer Before Buying an ETF: https://justonelap.com/etf-six-questions-to-answer-before-buying-an-etf/


Christoff Gouws has a book recommendation.

There’s one book that I’m busy going through a second time, because it’s one of the best books I’ve read on the topic of wealth building:

The Simple Path to Wealth – J. L. Collins 

Like you (Kris), I’m not one for active investing and trying to beat the market.

I like my Index Tracking ETFs and the amount of effort it takes to invest this way – nearly zero!

Jim Collins makes a great case for keeping your investment strategy very simple.

He proposes a one-index-fund strategy during your wealth accumulation phase of your life and a two-index-fund strategy during your wealth preservation phase.  I like that – as simple as you possibly can make it.

The book also shares a lot of fundamentals about how wealth gets built and destroyed (compounding working for or against you, opportunity cost, etc), explained in very easy to follow layman’s terms.

Edwin is able to answer Ross’ question about what would happen if we turned into Zimbabwe from personal experience.

My Dad worked over 30 years in Zimbabwe and did very well in his career. Company and personal retirement contributions were paid directly into Old Mutual in those days. With his retirement savings and various assets he was able to retire at age 45 with 3 children still to complete University…and he did! My parents had succeeded in giving us a wonderful upbringing, while planning frugally for the future.

Then hyperinflation arrived…

His life savings which, in a normal economy, would have been sufficient to sustain him forever diminished in value as the Zimbabwe dollar devalued.

When the economy moved to adopt the US dollar as legal tender in 2009, my Dad was paid the princely sum of USD250 by Old Mutual. Equivalent today to R3400. Still 3 kids to put through University and still needing to sustain oneself till death. This was a crisis and he had to come out of retirement and rebuild his financial well-being at age 50. It was heartbreaking.

My advice to Fat Wallet Show listeners with regards to financial apocalypse is as follows:

  1. Make sure you diversify some of your liquid assets outside of South Africa. When a loaf of bread costs 1 quadrillion Rand, it is handy to be able to bring USD$10/month back into the country so you know you can eat
  2. If the economy starts to deteriorate very rapidly e.g. Rand goes from R13/$ to R130/$ in 12 months, get into cash very quickly
  3. Convert that cash into hard currency very quickly
  4. Find ways to limit your liquid cash outlay e.g. consider growing your own vegetables, reading news for free rather than buying a paper, using cards to transact etc
  5. Get out of paper “products” as soon as you can and get into save haven currencies as soon as you can

The Zimbo’s experienced the apocalypse first hand. When it comes along it doesn’t matter how good you look on paper. All that matters is how much of a stable currency you have access to on a day to day basis. 


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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