Q&A - How do YOU keep up with a changing financial world?

Is your financial strategy keeping up with a changing world?

In this Q&A episode of Solving the Riddle, Andrew Whitewood and Alec Riddle break down the shifting rules of wealth creation, tax optimization, and asset protection in South Africa. From practical cybersecurity habits to a simple tax loophole that can boost your long-term wealth by 40%, we unpack the complex financial riddles shaping your future. 

 Key Takeaways From This Episode

• The R2 Million Discretionary Allowance: Moving money outside South Africa into hard currency is fluid and more accessible than ever, with entry points starting much lower than you think. 

• The RA + TFSA Multiplier Effect: Discover how high earners can take their annual retirement fund tax rebate and funnel it directly into a Tax-Free Savings Account to dramatically accelerate financial independence. 

• Defeating Concentration Risk: Why putting all your eggs in popular indices might expose you to hidden risks, and how active diversification protects your capital. 

• Securing Your Digital Wallet: Why you should use test transfers for large sums and transition to category-specific virtual cards. 

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Follow our personal accounts:@alecriddle @andrewwhitewood 
THE INFORMATION SHARED IN THIS PODCAST IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL ADVICE IN ANY WAY OR FORM. IT IS IMPORTANT TO CONSULT A FINANCIAL PLANNER TO RECEIVE FINANCIAL ADVICE BEFORE ACTING ON ANY INFORMATION SHARED.

Transcript

Introduction & Tax Season Engagement

SPEAKER_01 0:00

Hey everyone, welcome to Top in the Riddle, a pop cost that impacts the financial puzzles shaping your future. I'm Andrew Platmith, and together with Alec Riddle, we explore the ideas, behaviors, and strategies that help people make smarter financial decisions and wealth. Alec, I'm sure you're gonna hop in right now and uh agree with me that the session with Mariska was absolutely amazing. Obviously, we're in the thick of things now with tax season, um, but the questions, the comments, and the engagement from our audience was absolutely phenomenal.

SPEAKER_02 0:40

Yeah, very much so, and very educational. Uh in fact, you know, I'm sure you like like me, you'd probably learnt a lot too. So wonderful to have had Mariska on the show. And uh good news is we'll be having her back in a couple of months' time.

SPEAKER_01 0:53

Yeah, most definitely, Alec. I totally agree. Uh, the conversation was most definitely engaging, and she's a wealth of knowledge. I think the key thing to all our listeners and viewers today is we're gonna be having a QA, Alec, and some amazing questions have been coming through. I think the key thing that we're gonna

Introduction to Cybersecurity & Protecting Business Assets

SPEAKER_01 1:10

start with, Alec, is from a more IT or call it uh a cybersecurity point of view. I think the key thing for everyone out there to understand is that on a day-to-day basis, Alec, we are dealing with technology in general. But then when we speak about cybersecurity and us as a business in the financial services sector, Alec, um, we're dealing with clients' money, we're dealing with platforms, we're dealing with money being transferred locally, dealing with money obviously being transferred into hard currency offshore. So, as a starting point, Alec, what do we actually mean by that term cybersecurity? How are we helping clients? How are we holding their hand on a day-to-day basis? Educating them with regards to what's happening out there.

SPEAKER_02 1:50

Well, something quite simple, just to start off with, you know, we have guardrails in place and we have, you know, obviously firewalls and so forth. But just a simple example, if we're moving a million rand offshore for a client, we need them to move it into uh an account to for the forex, we will ask them to transfer a hundred Rand or a thousand Rand just to check it's going to the right, we know it's the right bank account, but to ensure it hasn't been intercepted. Once we get the okay, the hundred or thousand rand is is arrived, we say, right, transfer the rest. Something it's simple, but it is a nice precautionary measure. When it comes to personal, what we want to talk about now is try and give the listeners and the viewers some helpful hints that can help them avoid being caught in a scam.

The Psychology of Cyber Scams: How to Protect Your Money

SPEAKER_02 2:38

So the first thing is to remember that these uh criminals who we who are working on cybersecurity and trying to scam us out of our money, hard-earned money, is that they are well trained, they are professionals, they know psychology. They've had, you know, we spoke about it in how do how do people part with your money, get you to part with your money.

SPEAKER_01 2:59

They work with psychologists, they play on your weaknesses.

SPEAKER_02 3:03

So here they do exactly the same. So what they do is they try and get you when you are distracted, they will try and get you uh to panic, they'll try and get you to have fear, and you act emotionally or irrationally. So the first thing to do is whenever you take a call or there's an email or something like that, is to slow down, to pause, to breathe, to look at this thing with great circumspect. Try and verify things. That's the first thing. If you can do that, you've won half of the battle. Okay. The second thing is very often you will get an email, but we call it a phishing email, P H I, as opposed to F-I-S. Phishing email where they are phishing through an email, they'll send you it, can it can be on the most amazing page, it can be a replica of any bank's page or any investment house's page, but there will be just one slight difference in the detail. You think it's legit, you press on the link, and suddenly they have access to your computer. Once they're in your computer, that becomes the big problem. So you've got to avoid pressing on unknown links. Then

Bulletproof Passwords & The Hourly Changing CVV Hack

SPEAKER_02 4:13

we come to passwords, and you know how pedantic I'm about passwords. Having attended uh great cybersecurity talks by Kevin Hogan of Investic, uh, you know, he talks about if you've got a password of four or six or even eight numbers, it takes nine seconds for a professional to access your phone. And I couldn't work this out and so forth. So I went and spoke to him and he explained it to me and what we need to do. So what I've done is I've got nine different letters, some capital, some small. I've got a symbol and I've got a number. So I've got 11. I said to him, right, how long would it take for a criminal to get into my phone? He said, probably about 285 days. Well, I'm happy with that. Okay.

SPEAKER_01 5:01

I hope so.

SPEAKER_02 5:02

So strengthen your password, that is very important, and then also very important, try and use a virtual card when you do online purchases. Okay, because what happens with a virtual card? The is it the CVV number on the back? Yep, that will change every hour. Three digits. So that immediately gives you some guardrails. Also, you can put limits, you can have a virtual card for uh air tickets, you can have a virtual card for online purchases, you can have a virtual card for restaurants, and you can when you know when you go to the restaurant, I've got five cards, five virtual cards. Oh, I'm at a restaurant today, I'll use that one. Boom. And I've got a limit on it. So, you know, that limit might be a thousand, it might be three thousand. But if you've got a big meal you've got to pay for because Andrew's joint, you know, and you need to raise it to five, you just go online and you and you raise it.

SPEAKER_01 5:51

And the key thing that you're speaking to now, Alec, and this is very pertinent, obviously, to the financial services sector, the financial planning sector that we work in. But I think the key tips out there that we are sharing with everyone are applicable to all walks of life. At the end of the day, I've actually been a victim of identity theft. Okay, I actually had to go up here in court and testify. So this stuff is real. Our information is being hacked, it's being shared. I think the key thing, Alec, is we need to be very aware. Like you say, these people unfortunately also prey on the elderly. Um, for example, my mom knows if anyone phones her by the investments, phones from the bank, she just puts the phone down, right? She doesn't speak to anyone. If there's an issue, she goes into a branch. And I think that's very important for people to understand. Also, if they're renting a property, for example, Alec, and you're paying a deposit, um, all the PDF banking details, all that sort of stuff should be password encrypted, right? I've seen many times clients come have a chat to us. They're now uh paying a deposit, they're buying a house, for example, or deposit, like I said, for renting. And the banking details are just included in the body of the email. That, in my opinion, that is a massive no-no in this day and age. And another thing also with the backing of private wealth management, Alec, that we've been exposed to and learnt is that call it our IT or cyber ecosystem. Okay, at PWM is really, really strong. Okay, on a monthly annual basis, we're spending a substantial amount of money to ensure that our ecosystem is rock solid, right? It's protected.

SPEAKER_02 7:20

I think we're spending three times more than we were spending five years ago just on

Public Wi-Fi Dangers & Spooked Caller IDs

SPEAKER_02 7:25

that protection. Also, another thing, also remember everybody believes that caller ID is the way to go. Kevin says the caller ID is the greatest way for a professional to get to you because when they phone, they will come up as the bank because they've captured that number as well. So you've got to be very careful. Another area to be careful is restaurants or airports, you know. So you don't go on to a public Wi-Fi because there are con artists sitting there in the coffee shop at the airport waiting for you to go on to the general Wi-Fi and they will infiltrate. So ideally, what you want to do is you either want to have a VPN or you want to have your you know your private uh hotspot or or something. But anyway, um, we're gonna try and get Kevin on the show because he's a wealth of knowledge. We've just tipped touched the tip of the iceberg. But if we can help the general public as well as investors and our clients to be aware of a few more things, I think that's that's great.

SPEAKER_01 8:25

Totally agree, Alec. Totally, totally agree. So the next question, Alec, do you want to hop in? Do you want me to follow you?

Investing Offshore: Navigating the New R2 Million Allowance

SPEAKER_02 8:31

I want to I want to ask you. Um, you know, we had a question the other day, the person's got 500,000 Rand. How does he invest offshore?

SPEAKER_01 8:38

Sure. Alec, that's a great question. And I think that's quite a broad question. I think the key thing and starting point for me is it's really easy these days to invest offshore. And what do I mean by easy is that the world is flat, it's easy to take money out of South Africa. We've all got as taxpayers a 2 million Rand discretionary allowance. Obviously, that was increased very recently in the most recent budget speech from a million to two million. So moving money outside of South Africa and investing in hard currency is quite easy. So all those doomsday uh sayers and individuals that are speaking very badly about South Africa, I think the the local um landscape from an investment point of view is a lot more fluid. It's a lot easier to invest offshore. And Alec, we don't want to mention product providers or solutions, but we've got partners, if I can put it that way, with regards to where we can move money into solutions that are flexible, liquid, etc., for as low as $10,000, Alec. Um, so you need a lump sum, okay? And Jeremy, who's obviously sitting on the show and helping us record today. We had many conversations with regards to investment vehicles. I don't necessarily want to go into too much detail, but you have very flexible and liquid investments, like I just said, and you can call it a life wrapper, for example. And you can also invest offshore on a monthly basis.

SPEAKER_02 9:58

Yeah, I was just gonna say that's something that's fairly recent. Yeah, and we have access to 10,000 rand a month.

SPEAKER_01 10:03

That debit order is super low, okay? Um, with regards to investing offshore. Previously, if you go back when I first joined the industry, Alec, and started working with you when we spoke to people about investing offshore, they needed millions, for example, to invest offshore. You needed that critical mass, where these days there's many different solutions and providers out there. I think the key thing, Alec, is just to be aware of when investing offshore. Um, there is a thing that we will unpack, or certain things that we will unpack in future podcasts like CITES tax, grant approbate, et cetera, that investors just need to be aware of when investing in jurisdictions like the UK and investing in jurisdictions like the US. You've just got to be aware of certain inheritance taxes. Um, but plain and simply speaking to the point, if you've got 500,000 liquid cash, it is really easy these days to invest offshore. You can obtain uh amazing diversification and inflexible um products or solutions out there, Alec.

SPEAKER_02 11:01

And I just want to say when we talk about this, please do not construe this as advice. It is very important, particularly with offshore investing, that you get professional advice. Go and see a professional financial planner, preferably with the CFP designate, and you know, get the right advice because that makes a big difference. You know, we're going to talk just now about the RA versus tax-free savings account, and that will illustrate the value of planning. So these are important things. But before we

Understanding Market Concentration Risk (S&P 500 vs. JSE)

SPEAKER_02 11:28

go into that, what about concentration risk?

SPEAKER_01 11:30

Sure, Alec, that's also another great question. Um, and once again, Jeremy and I the other day were unpacking this. And when you speak about concentration risk, okay, let's just think about the US markets, for example. Very, very topical. Um, SpaceX, for example, Elon Musk, very recently listed. Um, call it a 2 trillion US dollar valuation. And that kind of speaks a little bit or very much to concentration risk, right? So let's just think of you have a hundred Rand, okay, and our one free lunch in investing is diversification. So you don't want to take that hundred bucks and invest it in five companies, for example. But if you look at concentration risk with regards to the SP 500 in America, 25 Rand, give or take of that hundred bucks will go into five companies currently. Now say currently, because obviously that's changing on a daily basis. So concentration risk is the opposite of diversification, okay? And you've got to be very aware that there's concentration risk present throughout the world. Alec, if you look at South Africa, for example, and you look at the top five companies in the JSE, that makes up about 50% of the JSE, give or take, once again, that ebbs and flows based on their market capitalization. But the key thing is you've got to be very aware of concentration risk. Alec, you just spoke, we just mentioned now investing offshore, which is we primarily do that for clients taking into consideration diversification, investing in number one in hard currency, but also investing outside of it uh South Africa to obtain diversification. But then you've got to be very aware that you have this concentration risk throughout the world, be it in Europe, be it in America, different indices, be it the SP 500, be it the NASDAQ, NASDAQ, be it in the East, for example, and also Australia. Okay, some people or a lot of South Africans they're immigrating to Australia, but if you look at their local exchange in uh in Australia, it's very similar to South Africa in that it has a lot of big big companies that are focused on resources. So big thing, Alec, is concentration risk.

SPEAKER_02 13:35

So you know, I had a conversation with a client yesterday. We were talking about a two million rand offshore investment, and we spoke about concentration risk. And one of the things we also spoke about, and we we we were going through the fund fact sheet of a company that he's or a fund he's he's currently invested in offshore, and the two that we're introducing, and we went through each of these. Now, first of all, significance. The top ten holdings tells you a lot, tells you about concentration risk, there isn't much, because the top ten holdings generally hold about 20 to 25 percent of the portfolio. Okay, whereas earlier you were saying, you know, it could be five companies. Yeah. What is also important when we went through the top 10 holdings of three different fund managers, all who've done exceptionally well over the last year, three or five. There is no overlap. So each fund manager is like ch uh pursuing growth in a different sector or different companies. So you've your top ten holdings of three funds means you've got 30 different companies. There's no overlapping. There will be sometimes, but to me, that creates more diversification, it's important. So one of the funds is very big on tech. But what happens if the tech bubble comes? Well, that fund will retract, but the other two may not, because they're not they they're not really in tech, but they're still getting great returns for clients. And I think that's important.

SPEAKER_01 14:56

I totally agree, Alec. And things are always moving, they're shifting, and in this day and age, they are shifting very quickly. And the term or the acronym that was used for software companies just the other day were your FANG stocks, right? Now the new acronym are these AI companies, and now they're called the Mango stocks. And now, if you include SpaceX, it's Mango's.

SPEAKER_02 15:14

I thought Mango Airlines was grounded.

SPEAKER_01 15:16

Very much so in South Africa. But I think the point, like you say, Alec, is you've got also active management, you've got passive management, you've got smart beta, and we're we're going to unpack all of these terms in a lot more detail in the future. But

The Tax Hack: Turning an RA Rebate into R8 Million with a TFSA

SPEAKER_01 15:29

also, Alec, another question that came through from a listener and a viewer, and I think this actually came from a potential client, Alec, is they're a high net worth individual in the 45% marginal tax bracket or tax rate. Um, they're contributing to their work retirement fund, okay? They're contributing 300,000 Rand per annum, 25,000 Rand a month, but they've got an additional 100,000 Rand to invest, Alec. And the question that we get asked a lot of the time, and this also filters into the conversations we had with Mariska, a lot of people are fixated on tax and tax alone. So, Alec, just taking into consideration that context and that 100,000 Rand available cash that the client has to invest, how do you think, and once again, this is not advice, how do we approach that advice process when engaging with clients?

SPEAKER_02 16:19

Yeah, well, so remember if he's contributing 300,000 to his work fund, previously that the the limit was 350, it's now 430. So he would have a capacity of 130, but he's only got 100,000 available.

SPEAKER_00 16:33

Which is tax deductible, the 430, yeah.

SPEAKER_02 16:35

Yeah. Okay. Uh, yes, you can contribute a whole lot more. Okay, section 10c will apply. But 100,000 and his secondary question was should I put in an RA or should I put in a tax-free savings account? Now, here's where the magic happens. Because if you do it yourself, you're going to put it into a retirement EOT and over 20 years at a 10% return net of fees, that money is going to grow to about that uh $100,000 a year for 20 years is going to be about $5.7 million. But if you've got a client who is serious about financial independence and who is disciplined, you take the $100,000 and invest into the retirement unity in this tax year. In the next tax year, he gets a $45,000 Rand rebate. He takes that $45,000, he puts that into a tax-free savings account instead of just blowing it. Okay? The difference is after 20 years, he will have $8 million versus $5.7 million. It's 40% more because of proper planning and because of understanding how these things work. Obviously, what we need to just point out when you're putting $45,000 into tax-free savings account, after 11 or into the 12th year, you are going to hit the 500,000 ceiling. Hopefully, it would have been raised by 11 years' time.

SPEAKER_01 17:53

But you could also shift it to a spouse, for example, Alex.

SPEAKER_02 17:56

Yeah, shift it to a spouse or put into a unit trust. There'll be a little bit of tax drag on a unit trust versus a tax-free savings account, but the principle is still the same. You will get so much wealth, you will accelerate your financial independence, and that's key.

Beating Longevity Risk: Guaranteed Income vs. Cash Accounts

SPEAKER_01 18:10

And just building on that, Alex, another question that's been posed to us, for example, um I've got an elderly father, um, his retirement plan is a little bit tight. Say he's got about a million rand um sitting in a cash investment. Obviously, interest rates have dropped off. So let's say his mid-70s. Um, and the thing for him is that he does have a bit of a challenge from a longevity point of view, and we have unpacked that with Bjorn from just before is that people are living longer and longer. So, what sort of options are available to a I would call pretty much a middle-aged person these days? Alex75 isn't old, okay, it's getting elderly, but with call it their million, two, five million rand, interest rates have dropped off at the bank. How would we kind of unpack that with a client?

SPEAKER_02 18:55

So mentioned getting just under 6,000 Rand a month. So that equates to set rounded off 72,000 Rand a year, so an interest rate of about 7.2%, which is probably very close to current money market rates. What that means is number one, he's probably been getting a similar amount for a number of years, and therefore cost of living is catching up with him because there's no capital growth and there's no escalations. That is the challenge. If you take a 75-year-old, and we we we we've established that uh his wife has passed, so it's just him, we could get a guaranteed rate for him of 9%, which means 90,000 Rand a year or 7.5,000 Rand a month. So it's an extra one and a half thousand, which is quite substantial, it's 25% increase. But importantly, that seven and a half thousand rand a month would increase every year. So escalations are included. It is for the rest of his life, so even he lives to a hundred or a hundred and twenty would continue to get it. And we've also put a 10-year guarantee into the equation as well. So if he dies in the first couple of months, which is what people are worried about, I take a million rand, I bar I get guaranteed income, and suddenly um somebody passes and the million's lost. Well, with a 10-year guarantee, that income will pay out to the beneficiaries for 10 years. So he will get more than the million rand, or or his beneficiary will get more than a million rand out. So you protect the capital, you get increases, you get more income. That is one way. Going back to episode five with Bjorn, obviously a blended annuity might be an option, maybe not for this client, but for somebody in a similar position with slightly more assets, one could look at that as an example. But there are tremendous ways of making a million rand go further than the person sitting at home thinks. And then he becomes a prisoner of his own home because he's only got 6,000 rand. He can't do anything. But we can get more money, we can get increases to counter because if you don't have any increases going forward, in five years' time, that 6,000 rand is only going to buy what four can today.

SPEAKER_01 20:59

Yeah, the power inflation at the end of the day, Alec, obviously it's just eroding uh our clients and our buying buying power on a day-to-day basis. I think the key thing, like you said, Alec, is people need to to make informed decisions. Things are changing, things are evolving in our industry on a day-to-day basis, on a weekly, monthly basis. So we mustn't once again fall asleep at the wheel of retirement and just get caught up in this doom and gloom, Alec.

SPEAKER_02 21:24

Yeah,

How Entrepreneurs Structure Personal & Business Wealth

SPEAKER_02 21:25

and so what I'd like to close with today is I'd like to ask you that because we often get this question how do we structure things? How do you structure for personal wealth? You've had a lot of personal experience of late, we've had experience from a business point of view, you know, you've been engaging a lot with with uh Reese at uh FinTax. So perhaps you can just give an overview for the people out there. You know, we've met a lot of young professionals or entrepreneurs of late, and you know, they're looking at ways and means of you know, how do I structure you know my personal wealth for the long term?

SPEAKER_01 21:58

Yeah, Alec, and that is a great. Question, right? And I think the key thing is we also did unpack some of this with Mariska. Um, so we spoke about like section 42 of the Income Tax Act, but I'm not going to go into too much detail on that again. I think the key thing up front is that we we live living in a a different generation, a different era. We are thinking differently, Alec, and and we've obviously um joined and entered into a partnership, for example, in our own PTY, and and we're shareholders in that PTY, but where does that shareholding sit? Does that sit in Andrew Whitewood's personal capacity? Does that sit in Alec Riddle's personal capacity? And that's what we're speaking about from a structuring point of view. And like you mentioned, Reese, we've had many uh conversations with Reese. Does that shareholding actually sit in another PTY, commonly known as a holding company, for example? And then where does that ultimate wealth at the end of the day sit? Does that sit in a trust? Okay, and yes, these um structures can seem quite complicated, but I think if you partner with the right type of um people from a financial planning point of view and an accounting tax point of view, like Mariska, like Reese, we can work together as a team. I think that's the key thing uh recently in engagements uh with business owners along the coast, for example, and we promote ourselves as being the center of one's ecosystem from a financial point of view, a financial planning point of view. Then we pull in the likes of a Reese, for example, and other partners that we have along the coast, be it in Cape Town, be it in PE, also a fiduciary, a legal point of view. We've worked a lot, obviously, with Dean Walker. And I think

Shareholders Agreements & Key Person Insurance

SPEAKER_01 23:33

a key thing, I don't want to digress too much, Alec, but also a shareholders agreement, for example. We speak about structuring. We I mentioned our partnership, but we focused a lot of time on our shareholders agreement. That is fundamentally important when going into a partnership, Alec.

SPEAKER_02 23:48

Yeah, and a few other things. Like, for example, we've identified you as a key person in our business, and we've taken our key person cover on Andrew Whitewood's life. So that if something happens to Andrew, this business is still going to be sailing full steam ahead because we'll be able to use that capital to attract somebody. We've also got things like buy and sell agreements, maybe informal or formal, where if somebody uh something happens to somebody, um, you know, somebody else can can come into to to that seat, which I think is very important. You know, I was saying to a client this morning or to a friend who was preparing for a trustees meeting, and I was giving him some inputs and advice and so forth, and I said to him, you know, he said, just amazing, you know, the contact you've got and the information you've managed to garner for me. And I said to him, you know, one thing I always say, and Andrew always says, is we may not have all the answers, but we're a phone call away from every answer that you need. Exactly. So seeking professional advice from people we've built relationships with, like Morisco, like Reese, etc. And that's that's key. So I don't know, anything from you from a closing perspective?

SPEAKER_01 24:55

No, I think the key thing from our side, Alec, is that financial planning is complex, it's diversified, right? It's not all just about investments and about returns. I think where we are adding an immense amount of value is also outside of just returns and investments. It's these sort of conversations we're having now about succession planning, structuring, tax planning, etc. And like you say, we most definitely do not have all the answers. But the thing is we have this network, this ecosystem that I like to call it, that we've built up and we've fleshed out, and we can bring those partners into the conversation on a day-to-day basis.

SPEAKER_02 25:30

Yeah, so I think to everybody out there, you'll probably have worked out by now that uh financial planning arena is very different from 30 years ago where it was all just about selling a product or so forth. It's about selling professional advice. That's the way I like to term it. And um, yeah, just thanks very much for joining us. Hope you found some value. Please uh you know, like it if you do like it, send us a comment or ask us a question, and most of all, we'd really uh be grateful if you would subscribe because that helps us uh you know to grow our region to get to more people.