There are only a few days until the end of tax season, but there is still time to ensure that you have taken advantage of the R33,000 that you can invest tax free every year – a nice perk offered to us by National Treasury to encourage us to save – although it is capped at R500,000 for your lifetime.
Just to be crystal clear – you will pay no income, dividend or capital gains tax within your tax-free investment. The one catch is that it is up to you to ensure that you don’t exceed the annual limit, as any amount in excess of R33,000 that you invest in your tax-free portfolio will be taxed at 40%.
While you can use a tax-free investment account with a bank to take advantage of this, when you save with a bank, your money earns a predictable level of interest, which puts your money at risk if inflation starts to outpace the interest rate.
If you want to beat inflation as well as ensure that the value of your capital grows overtime, it really makes more sense to invest in a unit trust-based account such as a Coronation Tax-Free Investment.
This way your money will not only be managed by experts, but it will be exposed to the growth potential of assets such as shares, bonds and listed property.
Investing over multiple decades in the years before retirement, and leaving your money invested, allows it to comfortably withstand the effects of short-term market volatility that is typical of the financial markets.
Over the long term, history shows that the bumps smooth out and the overall trend is for your money to grow more over time than it would if it were earning interest in a bank. The key to investing is to really think longer term.
To make the point: If you had invested R1 in the money market via a bank 90 years ago, you would only be able to purchase R1.15 worth of goods today. But, if you had invested it in shares, you would be able to purchase R538 worth of goods today – just think about that for a while.
Other benefits are that you can withdraw your cash whenever you like but you can’t put it back, once you have invested your maximum amount that’s it, whether you leave in invested or have made withdrawals.
How to go about it
If you decide to invest via a monthly debit order, you can start from as little as R250 with Coronation or you can make lump-sum investments from R5,000 to R33,000. If you have an existing tax-free savings account, you can switch it to a Coronation Tax-Free Investment at no cost.
Investing tax-free with Coronation
The Coronation Tax-Free Investment offers access to a range of their flagship domestic and rand- denominated international unit trust funds. To find a fund that is suitable to your needs, Click here, speak to your financial adviser (if you have one) or email [email protected].
Coronation Fund Managers is an authorised financial services provider. Terms and Conditions apply.
This article was published in partnership with Coronation.