Johannesburg – Just as early risers – or the famed 5am Club – are able to make the most of their day, those who start early with tax-free investing can reap the benefits of compound returns.
The new tax year begins on March 1.
Each tax year, the public gets a valuable perk from the government to encourage saving through an annual allowance of R36 000 that they can invest tax free.
Tax-free investors pay no income, dividend or capital gains tax on their investment returns, which boosts future value.
“If you want your money to work as hard as it can for as long as possible, an optimal solution is to invest in a market-linked option such as a Coronation Tax Free Investment [TFI]. Your money is exposed to growth assets such as shares, bonds and listed property, which can protect it from the eroding effect of inflation and grow it over time through the power of compounding,” said Pieter Koekemoer, head of personal investments at Coronation Fund Managers.
Thinking long-term is easier said than done and many investors are not patient enough to experience the full benefit of staying the course.
But, wise investors know that the more patient they are, the harder compounding will work for them, said Koekemoer.
It’s easier to stay committed to tax-free investing long term if you choose a multi-asset class fund.
For most people, when they make their own investment decisions, they may find it difficult to make consistently good decisions over time.
“A simple, manageable solution is to invest tax-free in a multi- asset class unit trust fund,” said Koekemoer. Multi-asset class funds are managed by skilled investment professionals who identify the best longterm opportunities for investors across di¡erent asset classes. Investors can access their money in TFIs, but it’s a pot of savings best left invested.
Tax-free investors can withdraw their money any time, but also need to be aware that they can’t replace it with a new investment. Investors have to be mindful that all amounts they invest count towards their annual (R36 000) and lifetime (R500 000) tax-free limits, regardless of withdrawals.
“A TFI is money you ideally want to leave invested for as long as possible because it is one of the best ways for South Africans who have extra money to save outside of their retirement fund to build up a nest egg for the future,” said Koekemoer.
He added that anyone can start investing via a monthly debit order from as little as R250 with Coronation or make lumpsum investments from R5 000 to R36 000.
Those with an existing tax-free savings account with a bank can switch to a long-term TFI at no cost.
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