CityPress - - Tenders -

Through the Show Your Money Who’s Boss cam­paign, we have demon­strated how to find money hid­den in your monthly ex­penses by bud­get­ing, but how do you start us­ing that money to cre­ate real wealth?

For­tu­nately, in March last year, tax-free sav­ings and in­vest­ment ac­counts were in­tro­duced. No tax is paid on your in­vest­ment – not on in­ter­est, div­i­dends or cap­i­tal gains. De­pend­ing on your tax rate, over a 20-year pe­riod you save about 36% in tax.

For ex­am­ple, if you saved R2 500 per month (the max­i­mum al­lowed in a tax-free sav­ings ac­count) for 20 years with a growth rate of 10% a year, it would be worth around R1.9 mil­lion. How­ever, be­cause of taxes, if you fall into the top tax bracket, you would only re­ceive a final pay­ment of R1.4 mil­lion. By in­vest­ing in a taxfree in­vest­ment ac­count, you would in ef­fect have saved R500 000 in tax.

A rel­a­tively small debit or­der de­duc­tion can, over time, be­come a sig­nif­i­cant amount of money. For ex­am­ple, a monthly debit or­der of just R500 (less than the cost of a meal out with the fam­ily) paid over 10 years will be worth more than R100 000 if the in­vest­ment grows at just 10% a year, thanks to the power of com­pound growth.

In­vest­ing via debit or­der is also a pow­er­ful risk man­age­ment tool. With a lump sum in­vest­ment in units or shares, the tim­ing of en­ter­ing the mar­ket has a sig­nif­i­cant ef­fect on the in­vest­ment re­turn. Our emo­tions in­crease the chance that we will in­vest at the wrong time. We tend to buy high and sell low as we get caught up in the emo­tions of in­vest­ing. By in­vest­ing via a monthly debit or­der, we are pro­tected from the risk of bad tim­ing be­cause we buy both when the mar­ket is up and when it is down. This kind of “phased-in” in­vest­ing is known as rand-cost av­er­ag­ing, be­cause it helps to av­er­age out the re­turn on your in­vest­ment. You buy more units or shares when prices are low, and fewer units when prices are high, which re­duces the over­all price you pay for the to­tal num­ber of units in your ac­count.

This week, 22seven added to its range of low-cost, tax-free sav­ings ac­counts, al­low­ing in­vestors to in­vest off­shore for as lit­tle as R350 a month. 22seven cur­rently of­fers two low-cost in­vest­ment op­tions that can be used for tax-free sav­ings, namely the Old Mu­tual Core Di­ver­si­fied Fund and the Old Mu­tual Top 40 Fund. There is no up­front fee and an an­nual cost of only 0.68% a year.

A new of­fer­ing, the Old Mu­tual Global FTSE RAFI All World In­dex Feeder Fund, al­lows you to in­vest 100% of your funds into a pure off­shore fund with ex­po­sure to 3 000 in­ter­na­tional com­pa­nies for the same an­nual cost of 0.68% a year. The fund is avail­able as a reg­u­lar in­vest­ment and as a tax-free sav­ings ac­count.

Show your money who’s boss and open that tax-free ac­count to­day – just make sure the debit or­der goes off be­fore you start spend­ing the money.

Do you think a Tax-Free Sav­ings ac­count will help you save more? Why?

SMS us at 35697 us­ing the key­word 22seven. Please in­clude your name. Each SMS costs R1.50 By par­tic­i­pat­ing, you give per­mis­sion to take part in mar­ket­ing op­por­tu­ni­ties

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