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Two birds. One stone

24 February 2020 Coronation

How to simultaneously maximise your tax-free benefits in South Africa AND diversify offshore.

It’s always of value to find ways to make your money work as hard as it can for you. With it being the end of the tax year on 29 February, it’s a chance to make the most of your annual tax-free savings allowance. But you may have also been considering investing offshore to diversify your savings internationally. Did you know that you can do both at the same time through one investment product?

How it’s possible to invest tax free

If you weren’t yet aware, in 2015 National Treasury passed legislation to encourage South Africans to save tax free. With tax-free investment products, you don’t pay any local tax on the income, dividends or capital gains generated, or when you withdraw your money.

You also have unrestricted access to your money. Just be mindful that all amounts invested count towards your annual (R33 000) and lifetime (R500 000) tax-free limits regardless of any withdrawals you make. In other words, you can’t ‘replace’ the money you withdraw with a new investment.

Tax free AND Offshore?

You can gain offshore exposure through a tax-free rand-denominated international unit trust fund. When choosing to invest offshore, we encourage investors to think about the long-term benefits of owning a balanced portfolio of both international and domestic assets. Once you have decided that investing in a rand-denominated international unit trust fund makes sense for your particular long-term financial needs, we believe that choosing a tax-free multi-asset international unit trust fund could be an efficient and sensible option.

How to get the best outcome when investing offshore tax free

The smart approach is to invest for the long-term. You want your money to work as hard as it can for as long as possible and be exposed to the best growth potential over time. When you invest with an investment manager in a unit trust (whether local or offshore), your money is invested in financial assets such as shares, bonds and property. These growth assets have the potential to not only protect your money from the erosion of inflation, but to grow your wealth over time.

Why choose a tax-free multi-asset international fund?

Anyone who has tried knows it’s hard to stay committed to long-term goals. The key to sticking to them over time is to take a simple, manageable approach. Investing offshore is no different. It’s easier to achieve your financial goals if you stay committed, because the longer you leave your money invested, the greater your investment manager’s potential is to provide better outcomes, as any short-term volatility smooths out and you reap the benefits of compound interest.

Many investors do not invest for long enough to experience the full benefit of staying the course. The average South African unit trust investor holds their investment for less than the recommended five-year minimum before withdrawing, achieving less than optimal results by consistently selling the most recent ‘losers’ and buying the most recent ‘winners’.

The one-stone solution

It’s easier to stay committed if you choose a tax-free multi-asset international unit trust fund that invests across different asset classes. Investors who make their own investment decisions may find that it is difficult to make consistently good decisions over time. But choosing a tax-free multi-asset international unit trust fund provides the comfort of knowing that you have tasked skilled professionals, who focus every day on identifying the best long-term opportunities available in global markets, with the responsibility of repositioning the portfolio as circumstances change. Giving your fund manager a broader mandate by way of this kind of fund also means they more tools at their disposal with which to achieve your desired result - two birds (offshore AND tax-free) with this one multi-asset stone.

Coronation has a range of tax-free rand-denominated international unit trust funds to suit most investor needs. You can invest via a monthly debit order from as little as R250 or up to a maximum of R2 750. The sooner you get started the harder your money will work for you.

 

Quick Polls

QUESTION

Can we really afford to ring-fence this cash for retirement when we have real 'life and death' money issues in the present? Should retirement fund assets be more accessible to members?

ANSWER

Yes
No
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