The Fat Wallet Show from Just One Lap

#124: Should we care about the bear?

Oct. 28, 2018

The world has gone mad with talk of a bear market. As someone whose experience of a bull market has to do with how much bullshit it is that the market makes money, facing a bear market seems especially unfair. In this episode we discuss what a bear market is, what it would look like in my portfolio and what I can possibly do about it.

Win of the week is Kay, for being a Fat Wallet Community superstar and for taking charge big time.

I'm stuck on tax. I don't understand it, I'm terrified of it. I'm a freelance artist in the film industry. I'm supposed to pay provisionally.

I've never managed to save for my tax contribution, but I am earning more each year and I'm trying to keep money aside for tax.

I'm mentally budgeting the amount to be about 25% of everything I earn (which seems an enormous amount to catch up to at this stage, but not impossible). 25% also might be too much or too little consideration depending on the earning category I fall into that year.

I heard Kris say that she puts 12% aside for provisional tax - how does that work? Why is there a tax category for 0-195 850 but I apparently don't pay anything if I earn under 350k? How the flip?

I don't mind saving too much since whatever I don't pay in tax will go to topping up other savings goals anyway, but I'd rather just know the workable percentage so it's not a big black hole of devil-math in my budget.

Can I actually reduce my tax liability by contributing to my TFSA? As in, does making that money tax-free potentially put me in a different income tax bracket, like contributing to an RA would?

Also Jonathan for sharing a great hack for emergency funds.

I've been a bit insecure with my investment strategy in my relatively short investment journey but the show has reassured me that I'm heading in the right direction. You can't imagine how encouraging that has been to me.  But I've also have much to learn, so I'm definitely gonna be listening on!

In episode 122 you discussed the balance between paying down debt and starting an emergency fund.  

A potential first step is to build up a mini emergency fund, perhaps R5,000 to R10,000 before contributing more than the minimum towards the debt

That gives you a buffer to cover small emergencies while you're paying down the debt. At some point you will have to grow the emergency fund to 3-6 months of living expenses as you rightly advocate, but it may be helpful to have a small emergency fund before you start to attack the debt. I'd like to hear your views on that.

Alec has saved up a nice nest egg and is getting ready to make a move from Durban to Jozi. He wants to know what he should be doing about his ETFs.

I’ve managed to accumulate just over R1m in investment savings through various actively-managed funds like Coronation and Sygnia in approximately 10 years.

I recently started investing in a passive strategy through ABSA stockbrokers, before they changed their platform fees.

  • CSEW40
  • ASHT40

I also have a tax-free savings with Satrix, and an RA with Liberty (which I am in the process of moving to a more cost effective fund).

  1. Should I continue investing some of my money in my actively managed funds?
  2. Should I wait to see what the market returns are, or should I just continuously buy? For e.g. should I buy 100K of NFENOM ETFs and wait to see the returns before I continue investing in that fund, or should I trust the market value will be higher at a much later date?
  3. Are there any other investment strategies I should be spending my money on (rental property, gold coins, or starting a side business)?

Fried and his partner have R3m debt between them, including a buy-to-let property and some cars.

  1. How do I go about moving my Sanlam stuff away from them? I'm considering moving our RAs and my wife's TFSA to EasyEquities to manage it myself (only platform I care to know).
  1. Life insurance and income protector - I'm thinking of leaving it at Sanlam just because I don't know if I can move it? And if I do, are they going to take my blood again?
  1. I'm selling my "investment" house. Not sure if I should use the money to pay off my wife's car (interest rate of 11.15%) or use all to buy ETFs. The car's settlement amount is around 50% the pre-CGT money I'll get for the house.

Trishen’s family is growing too big for their home.

I have a two bed, two bath apartment in Sandton. As my family expands I’m looking to get something bigger. I am unsure whether to rent out my current place and potentially have an additional income in the future or sell it use the money as a deposit, lower my bond repayment then use the extra cash every month to invest in ETF REITS /shares.

Johannes is getting a gift.

I recently turned 21 and received R10,000 from my dad. I want to use this money to help cover my overseas trip (December 2019). I’ll be needing this money to buy a ticket/accommodation.

I’ll probably buy my ticket in the second half of 2019. Where is a good place to "save" this money? I don't want it hanging in my bank account as I know I’ll use some of it. I also don't really want to invest in shares, as the volatility might cause a surprisingly loss in my capital at the time the money is needed. (8 months from now).

I have seen some serious losses in my investment account this past year, including my South African ETFs. So I am a bit afraid of that.

I’m considering putting it in an fixed deposit account at African Bank, seeing that they have great rates OR the ABSA NewFunds TRACI three-month ETF.

What are your opinions and suggestions?

Marc is worried that the CoreShares Dividend Aristocrat ETF’s returns are very unpredictable.

  1. The goal of the ETF is to provide a relatively stable income that should rise with inflation as the underlying companies earnings grow.
  2. If you had to buy this in your TFSA, how would the dividends of the international companies be taxed?

Rui’s mom retired. Her adviser put her savings into unit trusts instead of a pension fund or RA. She has quite a bit of money due to the sale of her house, as well as a TFSA, which is only a small portion of her savings.

Moving any of the funds will incur capital gains, which is tricky - she may save on fees, but it will hurt in the short-term. How does one proceed from here? Leave it as is, and just liquidate the funds as one needs to in order to live? Sell, move them all to EasyEquities, do something intelligent with them there?

I'm beginning to think the only strategy that makes sense is to have a large cash buffer that you replenish via the income from the investments (whether it be dividend, selling some of the funds, or a combination of both.) neither hosts nor alters podcast files. All content © its respective owners.