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I've spent a lot of painful hours filling out forms and submitting copies of my identification documents, passports, birth certificates, payslips, proof of residency, proof of citizenship and any other hair-brained bit of ID the compliance obsessed financial authorities across the globe need just for little old me to buy a share in Samsung, Tesla, Tencent or Alibaba. I Literally loath form filling of any kind but as a British citizen with permanent residence in South Africa with no job but a relatively unexplained pile of cash to invest, you can understand why people would went to check me out and make sure I'm not related to the late Pablo Escobar.
I'm not by the way, I've never been to Columbia. But I guess if i was Pablo's kin, I would say that!
Back to the point. After all of the hard miles of form filling, with a little effort, I can now buy stocks, funds forex and ETFs in most countries and currencies in the world. I generally don't, but I could.
Because of that super power, the lion's share of my investments are either in the Almighty US Dollar, the Great British Pound or The slightly-less-great-or-almighty-these-days South African Rand. It's not something I tried to do on purpose but I'm a great believer in buying as near to the source as you can get.
The more my life goes on, the more I realise the world, especially the finance world is made up of middle men working between you and your investment and charging just a little bit for the convenience. It's only when you really analyse your investments that you also start to realise there are a lot of middlemen between you and your investment and all the little bits they're charging add up to a big bit of your money and they, in most cases, do almost nothing to earn it.
They just know which form to fill out.
One of the most frequent questions I get asked is:
"How are you able to buy shares in company X or Y? My broker doesn't allow me"
My answer is usually pretty simple:
"Interactive Brokers allow you to set-up a trading account from pretty much anywhere in the world, they give you access to 135 markets in 33 countries and a choice of trading in 23 currencies"
Whilst there is some effort involved, it takes less than a week to get verified and trading and you only have to do it once. I'm on the high end of the WTAF scale of complex customer registrations and I pulled it off first time. Funding your account is obviously a little complicated as you have to send an international payment to the UK. Again, this was a bit fiddly (South Africa has strict rules about taking money out of the country) but once you've got the beneficiary set-up in your online banking, it's as easy as falling off a log.
As always, let me point out, I am not affiliated in any way with Interactive Brokers and I don't receive anything from them for writing about them (although if your reading IB, hook a brother up!). I can't even say I'd recommend them per se as although I find them good, I have never used a comparable alternative.
Once you have it set-up there's a pretty decent app for your phone and you can log on through the web.
The point of this post isn't to tell you who to trade with but to show you how that little bit of effort can make a material difference in your returns and in turn your wealth and in turn your opportunity to retire early (if that's your objective).
So with the how out of the way, let me tell you a cautionary tale about how my laziness and lack of effort to control my finances has affected my wealth over the last 5 years.
When we emigrated to South Africa to reduce our cost of living, we had to basically sell up all of our UK investments and re-buy them in South Africa to prevent us being in a super complicated tax position or end up paying tax twice etc. So when we got to South Africa, I found a company (who shall remain nameless) to do something with our UK pensions and then find us some SA pensions (You may know them as Retirement Annuities, RAs or IRAs). They were nice people and seemed to "get us" and we let them pretty much do all the work and we signed the papers. After all, we'd just arrived in a new country with a new life and new jobs, it was just another tick on the to-do list.
As we weren't allowed to pay any more in our British Pensions, we started maxing out our SA pensions and over the last 5 years paid in around R2,000,000 / $135,000 / £100,000. That may sound like a lot but don't forget we were fully into our FIRE journey, planned to retire within a few years and as 45% tax rate payers, this was by far the best place for money we could lock away until we reach 55.
I kept an eye on how it was doing and we met with the financial advisors every quarter who were always smiley and happy. There was a broad acknowledgment that the SA stock market was pretty flat and that a turnaround would come. On the offshore investments, we were advised to take out "Structured Products" which is basically an investment that pays you a dividend every year of around 6% for 5 years and then you get your money back at the end and do it all over again. Whenever I asked about costs, it was always a little vague but they were a big finance house and fully regulated so surely they would have our best interest at heart and charge a fair fee for setting the stuff up and managing it for us.
They wouldn't rip us off right?
Right?
When I retired at the end of April, I suddenly had time to do personal admin. It was a revelation! I had spent the last 6 years doing only the essentials like making sure the cars were insured and had up to date documentation, paying the bills on time, managing our SA visas. Anything that could be left got left. I even had a Personal Assistant at my job and in truth she did all of the paperwork and form filling (oh how I miss having a PA) so my involvement even then was minimal. You could have put a sheet of paper in front of me signing my first-born child over to you and I would have signed it, I just didn't have the time, the patience or the attention to detail.
But all that changed and I spent the first few months of my retirement in COVID-19 lockdown literally getting our house in order. And as much as my hatred for form filling runs deep it was one of the most cathartic experiences of my life. I had no idea the amount of stress I was carrying knowing I had important things that needed my attention but weren't quite life-threatening enough for me to get them to the top of the priority list.
Suddenly I could see what was going on, I was in control, it was like I had a new super power.
And guess what I found out about my finances?
There was a football team of those smiling middlemen slowly chipping away at my wealth and despite literally working myself into an early grave (read my first post, to read about that little episode), we were actually becoming more poor!
There were other examples but the pensions were the one I'm most annoyed with myself about as they're our biggest investment and Mrs H and I have worked a collective 60ish years to build up that money and my lack of attention has cost us around 10 years of collective returns.
In September this year I finally started to get concerned enough to ask for a full financial breakdown of our pensions for the last 5 years from the smiley ones and I spent over a week analysing the data, plus I got opinions from two Independent advisers and the unanimous view from all three of us was:
"Mr H, you're being ripped off!"
Allow me to show you how:
Offshore Pensions
2015 Starting Value - R5,600,000 / $373,000 / £287,000
2020 September Value - R6,600,000 / $439,000 / £338,000
5 Year Return - R1,000,000 / $66,600 / £51,300
5 Year Return Percentage - 17.85%
Annualised Return: 3.57%
Annual Fee Percentage: 2.25%
Total Fees: R700,000
Total Fee Percentage: 12.5%
Yes, you read it right, I paid the middlemen 12.5% of my life savings to give me an annual return of 3.57% I must have been off my rocker. And if I hadn't claimed my super power and taken control of my own destiny, they would have kept on doing that me for the rest of my life. And they'd have smiled doing it.
All of the investments were tracking indexes like the FTSE 100, Eurostoxx 50, S&P 500 and similar, there was no work involved, they only had to fill out the forms and download the performance reports and email them to me. I'm not restricted with my offshore pensions on where it gets invested, they could have invested in anything.
The S&P 500 in the last 5 years has delivered a 14.82% annual return
The SA pensions were even more scandalous. The last straw on that one was when I got the 2020 performance report for Mrs H's SA pension and decided to have a proper look at it for once. What I found was shocking:
Investment Value in January 2019 - R226,421
Total Additional Contributions - R305,033
Total invested - R531,454
Value in October 2020 - 541,900
Investment growth - R10,446
Growth percentage - 1.9%
Annualised Growth Percentage - 1%
Fees Charged - R23,527.58
Fee Percentage 4.4%
Yep, this guy, an actual bona-fide personal finance blogger, paid 4.4% for a 1% return. What the AF dude?
Just in case you missed that, I paid R23,500 for R10,500. Can you feel that? I can, and it hurts.
But whilst you may think I'm a putz of note (I am, it's true), that RA is one of the most popular in South Africa, from one of the biggest, most recognised and well regarded finance houses in the whole of Africa. If you have a pension in South Africa, there's probably around a 1 in 5 chance it's with this company and if it is, it's a bout a 50% chance it's the same one that we had.
And do you know what else? I spent a whole hour on their website trying to find where they published the fees for this pension. I could not find a bloody thing. I followed link after link from page to page trying to find somewhere they had written down that fee percentage. I went through all the documentation I had about the pension and nothing, not anywhere could I find the published fee for that Retirement Annuity.
So to try and bring this thing to a close before it turns into a novel. I have fired the financial advice company that got me into this mess, I've cancelled the pensions with the big finance house and I've taken control of the offshore pensions myself with no middlemen, just me and the company who administers the pension bit.
And the fees now:
Offshore Pensions: 0.35% + Trading fees of £100 per trade
SA Pensions: 0.23% if I hold funds from my RA provider. 0.46% if I choose another provider
I wasted 5 years but I won't waste another moment. Already it's made a difference. Since I claimed my superpower and took back control of our investments the performance has moved... a lot:
Offshore Pension: Annualised return up from 3.6% to 20.7%
SA Pension: Annualised return up from 1% to 36.6%
It's only 3 months but it doesn't take a genius to see that even if it stabilises at half of current performance it could be the best thing I've done for our future yet.
So the moral of the story is to claim you Super Power and take the time to go through your finances with a fine tooth-comb. Despite how complicated the finance world might seem, it's been made to seem that way by all of the middlemen that get rich from it. Get as close to the source as you can, there's nothing actually stopping you other than it being a priority. And if you don't know where to start, consider asking an Independent financial adviser to look at your current investments and pensions and ask him to simply tell you what the annual fee percentage your paying is and what the annual percentage return of those investments is. Then compare that to this example:
Any South African can buy the low-risk Sygnia Enhanced All Bond Fund for an annual fee of 0.39% which returned 10.08% in the last 12 months. I'm not suggesting this is the right place for you to invest your cash but use that as a pretty perfect benchmark for if you're getting a good deal from your current provider.
As you can see, I definitely wasn't.
As always, this is not financial advice, just sharing my personal experience, do your own research but do something if you haven't already.
Finally, I would love to hear your views in the comments below and if you want to keep up to my ranting about making cash and early retirement, the subscribe button is at the top.
Until next time, keep living.