Endowments

[Worskos]

Hi All

I'm looking for some insight regarding Endowment policies.
I don't quite understand the "tax efficiency"

Is it true that the tax is paid during the investment period that when I withdraw from the policy after 5 years, it's tax free?

Which portion of my investment is taxed? Is my capital taxed or is my interest earned taxed?
Is it really taxed at 30%?

Any insight regarding this will be appreciated

Thanks

 

[Hendrix]

I personally won't touch an endowment, I read somewhere a while back they are being phased out.
You will be taxed at a flat rate of 30% on the gains while invested for the period, and receive a lump sum when it matures, so it depends on your personal tax rate whether an endowment will suit you.
So if your personal average tax rate is below 30% (most people are), then it makes little sense, but if your tax rate is say 40%, it makes a some sense.
I don't like the fact that it you are bound to pay for a set period (like the old RA's), and if you break the contract, you will be penalized.

Basically, they have too many drawbacks and too little advantages, but life companies love them as they make a lot of money off these products.

What are your reasons for considering an endowment? What do you want to achieve?

 

[Worskos]

Thanks

Basically, I've started opening various investment accounts. I've got some unit trusts with my bank, I'm opening a Satrix INDI fund and opening a Coronation Top 20 Fund account. Also, I've started looking at the various RA options.

Someone told me about Endowments and the fact that you are not allowed to touch the money. Just thought I'd look into it.

Basically I just want to build up capital. And also have something whereby I put money into it every month and have no access to it until the term is over.

 

[mercurial]

Thought this thread was about penis size.

 

[Tman*]

If you opt for an endowment make sure its "open ended" and not set for a fixed term. That way you will have access to your money without penalties.

Some brokers will try and sell you an endowment for a certain term (for example 5 years). Do not under any circumstance do it. The only reason the broker will push for this is because he will get more commission from the deal.

Also, look at the fees attached to an endowment. IMO they are quite high, you have inception fees, monthly admin fees, fund fees, performance fees etc. If you are investing a small amount fees will eat up any possible return.

 

[Gaz{M}]

Add some ETF's to your portfolio

BBET40 is recommended.

 

[R13...]

If you opt for an endowment make sure its "open ended" and not set for a fixed term. That way you will have access to your money without penalties.

Some brokers will try and sell you an endowment for a certain term (for example 5 years). Do not under any circumstance do it. The only reason the broker will push for this is because he will get more commission from the deal.

Also, look at the fees attached to an endowment. IMO they are quite high, you have inception fees, monthly admin fees, fund fees, performance fees etc. If you are investing a small amount fees will eat up any possible return.

A shady relative made my financially illiterate uncle buy a fixed term endowment with some of his pension fund because he could get a commission. When my uncle showed it to me I pointed out he's locked for a period, but my uncle wanted his money and in the end got back less than the capital paid in due to penalties. They charge the full commission and some fees upfront on some of these things, so early withdrawal is guaranteed loss of capital.

 

[Worskos]

If you opt for an endowment make sure its "open ended" and not set for a fixed term. That way you will have access to your money without penalties.

Some brokers will try and sell you an endowment for a certain term (for example 5 years). Do not under any circumstance do it. The only reason the broker will push for this is because he will get more commission from the deal.

Also, look at the fees attached to an endowment. IMO they are quite high, you have inception fees, monthly admin fees, fund fees, performance fees etc. If you are investing a small amount fees will eat up any possible return.

Thanks for the info

What other investment vehicle should I look at for what I want? I want to have a monthly premium and no access to the money until the term is over, 5yrs.

 

[Hendrix]

You just gotta learn self control... Invest your money and forget about it for 5 years.
If you can't control yourself to just leave the money, then go for an endowment, but be fully aware of the fees and penalties associated with this product.

You could also look at a fixed deposit with a bank, but the interest rates are not good, equities should out perform these quite easily over 5 years...

 

[Worskos]

You just gotta learn self control... Invest your money and forget about it for 5 years.
If you can't control yourself to just leave the money, then go for an endowment, but be fully aware of the fees and penalties associated with this product.

You could also look at a fixed deposit with a bank, but the interest rates are not good, equities should out perform these quite easily over 5 years...

Thanks
I have a few unit trusts with my bank and with Coronation and a Satrix ETF and I'm fairly certain I won't touch it as I have no need for it.
So, perhaps I should just leave it at that, for now.
Looking at opening a share trading account as well. Looking that the FNB share builder.