Make your money work
HOW TO NAVIGATE YOUR INVESTMENTS FOR THE REST OF 2024 Ensure you have a sound knowledge of the tax implications of your portfolio.
With the tax yearend approaching fast, ensure you are optimising your annual tax benefits. You can invest R36 000 per annum in a tax-free investment, up to a maximum of R500 000 in your lifetime (limits only apply to contributions, not growth). While there is no limit to your contributions to retirement products, limits apply to the tax relief you may qualify for.
You can contribute up to 27.5% of your taxable income annually to retirement products and claim these contributions back from the South African Revenue Service (Sars) or deduct them from your taxable income.
Here are more ways to help you navigate your investments for the rest of the year:
Review your investment strategy from the get-go. Ensure you define your short-term and longer-term (retirement) goals and devise a strategy with your advisor to reach them.
Review your risk portfolio. As our incomes increase and our families and commitments expand, our protection must also be adjusted. Ensure you have sufficient life cover, severe illness and disability cover and income protection for yourself and your family.
Estate planning – ensure you do a holistic review of your estate plan and that you have an updated will in place. Doing so can ensure that unwanted taxes are avoided through improving structures in the portfolio and that your family is taken care of by not having to wait for an estate to be wound up 12 to 24 months after your death, if not longer.
Have a will drafted and ensure it is signed.
Review your benefits at work. Many of us start at a new company with the lowest contribution to a retirement fund (e.g. 5%) and never review this again. Ensure you are saving enough.
If your portfolio is mainly cash- or bondbased and you earn interest, ensure you understand the tax implications. You have a small annual interest exemption – anything over and above this in interest will be taxed at your marginal rate. This is something to be wary of in a high interest-rate environment.
Diversify offshore – directly. This will allow you to benefit from a different currency and have exposure to other economies, sectors and jurisdictions,
hedging against the impact of rand weakness and a shrinking JSE.
Ensure your offshore portfolios are in the appropriate vehicles. Probate and situs tax in different jurisdictions can cause big headaches. UK and US inheritance tax is levied at as much as 40%. A sliding scale applies, but the impact needs to be considered carefully for high-net-worth individuals. You can opt for more appropriate vehicles where tax is managed and estate planning is considered. Structure an emergency fund, something purely for short-term needs – an emergency or a holiday. You don’t want to dip into your savings whenever an unforeseen expense occurs. Involve your spouse/part
ner in your financial planning discussions. One of the greatest struggles we deal with as advisors is a spouse falling ill or passing away and the spouse/ family is left with no idea of what portfolio was in place – or not in place.
Give equal priority to your home loan and your investment portfolio. It won’t help much to retire without any debt but not have a substantial portfolio to live from. Ensure you know what you need to replace your income needs. It’s more than you think if we consider inflation and tax.
There are no quick fixes with investment portfolios. Stay away from products or schemes that seem too good to be true – they are. As American economist Paul Samuelson said: “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
Remember that there are no quick fixes with investment portfolios