COVID bonds (#197)

With the markets in a flat spin, even the bond market is looking a bit peaky. How can it be when bonds are supposed to give us stability and predictable income? It turns out not all bonds are created equal. In this week's episode we revisit how bonds work and what they're supposed to do in your portfolio. 

If you are as intrigued by retail bonds as I am, you can buy some here.

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Win of the week: Tee

I am happy to report that the only debt I currently have is my monthly car payment. I still have 2 years to pay off my car, but would like to try and push in more every month to bring the time period down (as well as the interest).

Because of this approach I have taken, I now have no RA funds yet and no other savings to my name. I would like to build up an emergency fund, start an RA and open a TFSA account within the next year or two.

1. Would you still recommend 10x for an RA? Or someplace else? 10X and Sygnia to start off, OUTvest once you have upwards of R500k.
2. How do I go about knowing which TFSA is best for me and where is the best to open up a TFSA account in your opinion?
3. Should I start doing all three these steps at once so they overlap, or take it one by one?

Matthew

I was listening to the latest video from Just One Lap on "Creating Wealth in a Low Growth World"  and was once again reminded by a finance expert that I require bonds in my portfolio.

I identify as a DIY investor and Simon did cover this topic in an article of Fin24 where he recommends that DIY investors stay away from bonds due to the tax implications.

My understanding is that bonds can complicate your tax return as the interest (or coupons) are added to your income for the year and taxed at your marginal tax rate. This occurs even if the ETF reinvest the funds.[6] Then when you sell the ETF, you realize a capital gain and pay tax on that [6]. This means you can pay tax twice.

So as a DIY investor who is no where near retirement, what should I do with regards to bonds? Possible ideas are:

Substitute bonds requirement with cash in a bank savings account.

Find bonds that do not incur this tax problem. (I do not believe there are ETFs in SA that can do that.)

Take bonds and manage the tax implications. (any advice?)

Leonora

Momentum replied to say that Nedgroup are reviewing fees and I should get an answer (I asked for lower fees) in the next 2-6 weeks. 

My LA is with Momentum. They were the only provider we could find four years ago that would allow our own choice of funds. 

If I transfer to Sygnia admin is 0.4% if I leave it in Coreshares, 0.2% if I have it moved to Sygnia's own S&P 500 ETF.  

I am planning for the next 30 years (if I die sooner, so be it). From all accounts it seems the route to take. Anything I have missed in this 2-step process? 

(I have contacted Momentum to ask for reduction in fees, waiting for an answer. Their person did not sound hopeful. For interest: I take minimal withdrawal of 2.5%. Admin monthly is equivalent to 12% of what I receive after PAYE!  And this for the next 30 years!!!!)

Wesley

I was under the impression that if there was a written agreement in place, it can be structured so that the interest on the loan when not paid, is deemed interest. That deemed interest can be attributed to your annual donation allowance, and the balance of the allowance can be written off against the capital amount of the loan.