How best to invest R915 000 for education

A Moneyweb reader asks:

I have R915 000 to invest for 18 months, when my son will attend a tertiary institution. What’s the best vehicle to use?

GCI Wealth’s answers:

The following information is based on an 18-month investment horizon, before the first withdrawal from the portfolio is required. Other considerations or assets aren’t taken into account. We’ll also assume the full amount will be required during the studies.

A time-frame of under two years is considered a short-term investment horizon. The longer the investment period, the more time the portfolio will have to recover from negative market movements. Therefore, this investment can’t be exposed to too much volatility, as this could result in a negative return over the short term.

A short-time horizon means a conservative portfolio, which means lower return. Given the information above, an income fund will be best suited for you.

When selecting the fund in which to invest, consult a certified financial planner to make an informed decision.

This type of portfolio is a prime investment for the short term (18 months), while maintaining the investor’s capital and generating an income. With these funds the focus is normally to place the investment in interest-bearing assets. The goal in the 18-month period is capital preservation while achieving a higher return than that of traditional money markets

Natasja Hart and to beat inflation.

Unit trusts:

A unit trust would be best suited. This is a flexible savings investment that allows you to accumulate funds through a range of investment strategies and make withdrawals when you need the funds.

They’re well regulated, investors aren’t tied to a fixed investment term and there no penalties/ fees on withdrawing.

The value of your investment is directly linked to the market value of your investment strategy. This isn’t guaranteed and will fluctuate in line with market movements. Your contributions and positive investment returns increase your investment’s value. Negative investment returns, fees and charges may reduce your investment’s value.

Tax:

As this is a conservative portfolio, a big portion of the growth on the income fund will be interest: this can have a tax impact, especially if you have other investments earning interest.

Currently, taxpayers under 65 are entitled to a R23 800 interest exemption per year. Unit trusts allow investors to use this exemption. Unit trusts investors are allowed to use the annual capital gains tax. – Moneyweb