RA vs. ETFs.

[ThinusMaritz]

I am considering to rather invest my monthly RA contribution in ETFs (such as Satrix40), as i believe the returns on ETFs are better.

Although, i have not been able to confirm to average annual return on a typical RA.

Can anyone perhaps confirm the average annual return on a typical RA.

Please also share your thoughts on whether one should rather invest in ETFs than RAs.

Thanks.

 

[SauRoNZA]

I am considering to rather invest my monthly RA contribution in ETFs (such as Satrix40), as i believe the returns on ETFs are better.

Although, i have not been able to confirm to average annual return on a typical RA.

Can anyone perhaps confirm the average annual return on a typical RA.

Please also share your thoughts on whether one should rather invest in ETFs than RAs.

Thanks.

I wouldn't consider this as the tax return benefits will far outweigh the possible non-guaranteed returns on the RA.

So unless you've maxed out your 15% RA return values (and I think 24% in the new Tax year) and want to invest the additional sum above and beyond that threshold in ETF's I wouldn't go there.


At least that's what I've done.

15% towards RA's...everyone above and beyond is additionally paid into my bond with a little bit on the side for Satrix Divi.

 

[SauRoNZA]

I am considering to rather invest my monthly RA contribution in ETFs (such as Satrix40), as i believe the returns on ETFs are better.

Although, i have not been able to confirm to average annual return on a typical RA.

Can anyone perhaps confirm the average annual return on a typical RA.

Please also share your thoughts on whether one should rather invest in ETFs than RAs.

Thanks.

I wouldn't consider this as the tax return benefits will far outweigh the possible non-guaranteed returns on the RA.

So unless you've maxed out your 15% RA return values (and I think 24% in the new Tax year) and want to invest the additional sum above and beyond that threshold in ETF's I wouldn't go there.


At least that's what I've done.

15% towards RA's...everyone above and beyond is additionally paid into my bond with a little bit on the side for Satrix Divi.

 

[supersunbird]

I wouldn't consider this as the tax return benefits will far outweigh the possible non-guaranteed returns on the RA.

So unless you've maxed out your 15% RA return values (and I think 24% in the new Tax year) and want to invest the additional sum above and beyond that threshold in ETF's I wouldn't go there.


At least that's what I've done.

15% towards RA's...everyone above and beyond is additionally paid into my bond with a little bit on the side for Satrix Divi.

Thats 15% tax deductable it not a trainsmash and should not stop anyone from putting extra above that into an RA (except if the are other considerations, like higher interest debt or homeloan and such as per personal needs). Its carries over to later years or retirement tax free lumpsum can be bigger, and the returns in the fund are also not taxed.

Will answer OP now, give me a few minutes to formulate response.

 

[lucifir]

I think there are now ETF RAs, so I would rather look at this option if I were you, as you get the best of both

 

[supersunbird]

I am considering to rather invest my monthly RA contribution in ETFs (such as Satrix40), as i believe the returns on ETFs are better.

Although, i have not been able to confirm to average annual return on a typical RA.

Can anyone perhaps confirm the average annual return on a typical RA.

Please also share your thoughts on whether one should rather invest in ETFs than RAs.

Thanks.

A unit trust RAs performance depends totally on the underlying funds choosen and the charges. Old-school inflexible life assurance RAs I pay no attention to, they are not worth it due to their restrictive nature and penalties.

Anyway, these days there are ETF RAs:

EFTSA RA - http://www.etfsara.co.za/ (3 options based on risk profile, well diversified,max 1.35% cost)

itransact RA- https://www.itransact.co.za/Pages/Guest/DynamicViewer.aspx?pid=8 (look to bottom of page, 3 options based on risk profile, one can only access these throught financial advisors, unable to find costs easily, no international exposure/diversifcation)

Read their fact sheets for more info. There might others in the market I am unaware of.

Another fund (Not a ETF one but still a index tracker fund) I personally like is the 10x fund - www.10x.co.za - well diversified, annual costs of 0.9%, basically only one option until 9 years or less from retirement.

10x asset allocations are (cant find a link on their website, got this from portal):
SA Equity - 53%
International Equity - 20%
SA Bond - 13%
International Currency - 5%
SA Property - 5%
SA Cash - 5%

 

[AlmightyBender]

There is of course the option to invest in an RA made up only of ETF's. In this way you would get the best of both worlds.

http://www.10x.co.za/

EDIT: beaten to it by supersunbird (as always )

 

[ThinusMaritz]

I think there are now ETF RAs, so I would rather look at this option if I were you, as you get the best of both

Thanks - could you please provide more information on ETF RAs?

 

[ThinusMaritz]

I am considering to rather invest my monthly RA contribution in ETFs (such as Satrix40), as i believe the returns on ETFs are better.

Although, i have not been able to confirm to average annual return on a typical RA.

Can anyone perhaps confirm the average annual return on a typical RA.



Please also share your thoughts on whether one should rather invest in ETFs than RAs.

Thanks.

Thanks to all for your contributions.

What are your opinions on ETFs vs. Provident Funds?

 

[supersunbird]

Thanks to all for your contributions.

What are your opinions on ETFs vs. Provident Funds?

A bit confused by the question, a provident fund is similar to a pension fund and something offered as part of your employment (and the are many providers of provident funds).

The difference between a pension fund and a provident fund is:
pension fund - 66.6% must be used to by a pension on retirement, up to a maximum of 33.3% can be taken in a lumpsum
provident fund - you can take 100% lumpsum on retirement.

Government is working on making them both like pension funds after 1 March 2015. A RA is almost like a personal pension fund not going through an employer.

ETF can be compared to Unit Trusts, both which are Collective Investment Schemes and have good regulatory protection.

 

[lucifir]

Thanks - could you please provide more information on ETF RAs?

http://www.moneyweb.co.za/moneyweb-investment-insights/how-much-does-that-etf-ra-cost
for one example ... but I am sure there are more ....

http://lmgtfy.com/?q=ETF+RA

 

[Verde]

This piece of info on EtfRA’s website speaks volumes about their integrity:

‘Low "clean" costs (1,35% per annum "all-in" - no other hidden charges or fees, includes asset management fees, brokerage/JSE charges, debit orders, full administration of accounts, benefits, reporting and compliance, Trustees fees and RA management).’

What they fail to mention is that the 1.35% is excluding VAT. So it is actually 1.54%. Typical of these scumbag brokers.

Same with 10X. The 0.9% is actually 1.03% VAT incl.

To my knowledge the cheapest way for an SA investor to get the advantages of an RA with low cost passive index funds is through Old Mutual. Now I hate Old Mutual for their exploitative legacy and their pathetic service levels, and they will never see my money. However investors should look at their offering before they commit to any of the passive RA options mentioned because Old Mutual is cheaper and service wise these new operators are unproven. Also these offerings are very inflexible with very little choice. You cannot build your own portfolio in the way Old Mutual allows you to.
The Old Mutual unit trust RA fund charges zero admin fees for direct investors (no financial adviser middleman). The only costs are the underlying fund management fees.

https://www.oldmutual.co.za/persona...s/retirement-products/retirement-annuity.aspx

For eg. You can build the following portfolio:
Fund name: Fee: Allocation
RAFI SA fund: 0.86% :25%
Top40 fund: 0.68% :25%
Bond fund: 0.86% :15%
Property fund: 1.43% :10%
Global RAFI fund: 0.8% :25%
Total cost 0.86%(vat incl)

Contrast that with EtfSA RA 1.54%(vat incl), 10X 1.03%(vat incl) , itransact RA 1.88 (vat incl).

I personally have my RA with Allan Gray since Jan 2002 and just dump everything in their balanced fund which has returned 20.7% per year since that date. They have no admin or platform or wrap fees, only the underlying fund management fee. You can go direct without an adviser – see their website. The balanced fund costs 1.14% per year + a performance fee of 10% of the outperformance achieved over the benchmark. So the cost is about the same as for these passive alternatives if this fund only achieves in line with the index funds or less. The performance fee only comes into play for outperformance, I keep 90% they take 10%. If a passively managed RA costs me the same as an actively managed one with a top manager, I prefer the active management and the risk that goes with it. If I can find a passive RA for less than 0.3% all in cost I will move.

 

[bromster]

Some really smart people on this forum. Very interesting reading, thanks. I am definitely going to have a look at these ETF RAs.

Is the tax deductible threshold for RAs really increasing to 24% of non-retirement funding income?

 

[Verde]

I forgot to mention Allan Gray's service - as a long time client of theirs I can attest that it is the best I have experienced in this country in any industry.

 

[supersunbird]

Some really smart people on this forum. Very interesting reading, thanks. I am definitely going to have a look at these ETF RAs.

Is the tax deductible threshold for RAs really increasing to 24% of non-retirement funding income?

Actually it will be increasing to 27.5% in March 2015 or 2016

 

[bromster]

Actually it will be increasing to 27.5% in March 2015 or 2016

Awesome. Thank You.

 

[supersunbird]

lots of good stuff

Thanks I forgot about the VAT thing. I am personally not a fan of the ETF RAs either.

I have money in 10x and the performance after costs is 9.1% (Year to date), which is decent. I also have a Coronation RA (good service). I like a 50% mix of active managed and index tracking.

 

[ThinusMaritz]

A bit confused by the question, a provident fund is similar to a pension fund and something offered as part of your employment (and the are many providers of provident funds).

The difference between a pension fund and a provident fund is:
pension fund - 66.6% must be used to by a pension on retirement, up to a maximum of 33.3% can be taken in a lumpsum
provident fund - you can take 100% lumpsum on retirement.

Government is working on making them both like pension funds after 1 March 2015. A RA is almost like a personal pension fund not going through an employer.

ETF can be compared to Unit Trusts, both which are Collective Investment Schemes and have good regulatory protection.

The thing is, i used to be part of a PF at my previous employer. I also have a couple of smaller RAs at the moment, of which my monthly contribution increases annually.

The reason why i am considering ETFs rather than another RA or again being part of a PF, is that i am looking for a bit more growth on my monthly investment. I am quite indifferent on risk, as i believe that equity will yield good returns over time (10+ years).

 

[supersunbird]

The thing is, i used to be part of a PF at my previous employer. I also have a couple of smaller RAs at the moment, of which my monthly contribution increases annually.

The reason why i am considering ETFs rather than another RA or again being part of a PF, is that i am looking for a bit more growth on my monthly investment. I am quite indifferent on risk, as i believe that equity will yield good returns over time (10+ years).

OK, you cant go ETF vs this and ETF vs that, there are many ETFs, just look here - http://www.etfsa.co.za/ETF_factsheet.htm.

For example, my 2 EFTs and 2 Unit Trusts since the start if the year have stayed pretty level while my Coronation RA (underlying funds are unit trusts I chose from different asset classes) has done 10% since the start of the year and my work provident fund (that's with 10x) has grown by 9.1% since the start of the year. Also, because of tax incentives new style RAs are pretty good (firstly you don't pay 15% dividend withholding tax or capital gains tax and you can claim tax back and if you cant now, it carries over.)

What you need to do is decide what the investment is for. Do you want to be able to access it whenever required (then discretionary EFTs and/or Unit Trusts) or only when you are 55 or older (RA, but benefit from the tax incentives)?

Say you are already saving more than 15% (20% or more is better) of your income in retirements funds that are performing OK for you, then having accessible money is important (make a 6-months-of-income emergency fund). If you already have that big emergency fund, then use half the funds you have extra now to make it bigger, while investing the rest into you retirement fund of choice. Also, you can always pay off any high interest debt you might have, that gives a guaranteed return basically of whatever the interest rate was. Then after its paid of invest the money you have left over extra.

 

[Dolby]

I've had my RA for about 4 years and contributed R21k in the time - and worth R40k now ... So quite happy with the return. I do not know anything of it though ... Wasn't huge contributions at the time and just signed