What Is Your Investment Goal?
Are you saving for a ‘rainy day’, a child’s education, an engagement ring, your retirement, a holiday, the deposit on a house?
How will this affect how much tax you pay?
You get tax you have paid back because you have made certain investments, such as saving for retirement, while growth on other investments will attract tax charges.
“In this world nothing can be said to be certain, except death and taxes.” So said US Founding Father Benjamin Franklin, but how much tax you pay is far from certain. It is basic good practice to take advantage of tax relief available to you via a retirement savings vehicle and a tax-free savings account.
If you are investing money and you haven’t used your tax allowances you are in effect saying ‘No thanks’ to the government’s offer to return some of the tax you have paid.
When Do You Need Your Money?
Money you have saved for retirement is locked up in an investment that is geared for long-term growth, removing temptation to spend it, and making it easier to make good choices.
If you are saving for something in the shorter term, unit trusts or tax-free savings accounts are good ways to invest discretionary income.
Unit trusts provide you with liquidity (access to your capital) and flexibility to choose how the money is invested. On the downside, the growth (income) can be taxed and there can be multiple fees involved. With unit trusts you can invest in a wide selection of assets at a relatively low cost. You can also invest a small sum of money (a minimum of only R500 with most investment companies).
How Much Will An Investment Cost You?
Cost is another very important factor that you should focus on. Costs include advisor/broker costs, administration/platform costs and investment management/fund management costs.
The average paid by South African investors is around 3% per annum, which is more than 2% above what 10X Investments charges for its high performing unit trust.
People often forfeit most of their investment growth – in other words their earnings – to high fees. Even an extra percent here and there will compound over the years to become a large hole. You can select the right investment vehicle and the right asset allocation, and it can all still go horribly wrong when there are high costs involved.
How To Invest R5000 In South Africa
R5000 is a significant amount of money, one that can be enough to earn you a noticeable interest over the course of your life.Investing depends largely on your goals; there are safer ways to invest and riskier ways to invest. More risk usually carries more reward.
Invest in an ETF
An ETF is a great way to invest in the stock market while keeping your money safe. 96% of traders don’t beat the stock market in the long run. An ETF is sort of like a basket that mirror the stock market. When you buy an ETF; you are automatically buying shares in the strongest companies.
You can always buy individual stocks but the risk is that the company shares might go down for a very long time and not recover just as easily. With an ETF, you will be investing in companies like Sasol, Absa, MTN and Nedbank. Getting started is easy, all you have to do is to open an EasyEquities account and you are good to go.
ETFs generally have good returns in the long term; you can get returns that are as much as 30% per year on certain EFTs. Especially US based ETFs like Vanguard.
Invest it in a bank
If the idea of investing your money in the stock market sounds intimidating to you; then you can just put your money in the bank and earn interest on it. You need more than R5000 in most banks in order to be able to make a fixed deposit. The best option is currently putting it in a savings account with TymeBank. You will get a yearly interest rate of 7% and up to 8% if you receive your salary through TymeBank.
