Investments to consider in a TFSA in 2024

Written by RISE | Feb 16, 2024 8:45:34 AM

Vikash Shiba, an investment analyst at Rise EasyRetire, explores various investment options in 2024 that are suitable for a TFSA to help you make informed decisions and build a tax-free nest egg.

Rise EasyRetire is a pension fund administrator and asset manager that is a fully-owned subsidiary of EasyEquities. Rise EasyRetire currently manages assets in excess of R11.5bn, amongst its clients are local and foreign authorities, parastatals and the retirement funds of many South African leading companies.

While TFSAs are versatile, it's crucial to choose the right investment products to maximise the potential benefits.

The financial markets can be tricky to navigate, especially during uncertain times. The truth is, none of us have a crystal ball that can accurately predict where the market is heading, that is why it is crucial to ensure your TFSA is well diversified. A well-diversified TFSA portfolio is key to help mitigate risk, enhance potential returns, and safeguard your financial future during all market cycles

Before we dive into potential investment products for 2024, certain considerations needs to be made before making your investment:

Risk tolerance: Assess your risk tolerance before investing in any product for your TFSA. Higher-risk investments like specific equity ETFs offer the potential for higher returns but come with greater volatility. Lower-risk investments such as income funds provide lower returns with lesser volatility.
Time horizon: Determine your investment time horizon, whether short-term or long-term, as it will influence your asset allocation and investment strategy.
Investment fees: Pay close attention to the fees associated with the investment products you select for your TFSA. High fees can eat into your investment returns over time, so opt for low-cost options such as ETFs and Bundles whenever possible.
Contribution room: Monitor your TFSA contribution room to avoid over-contributing, as excess contributions may incur penalties. Currently, a TFSA has a lifetime limit of R500,000. The annual contribution maximum to a TFSA is R36,000. SARS will penalise you if your contributions per year total more than R36,000.

Let’s now have a look at some of the potential investment products available for your TFSA for 2024:

Exchange Traded Funds (ETFs)

ETFs are an excellent option for TFSA investors seeking diversification at a lower cost. These funds pool investors' money to buy a diversified portfolio of assets such as stocks, bonds, income or commodities. ETFs offer flexibility, liquidity, and transparency. Below is a list of examples (not limited to) that an investor could explore for 2024:

Category	Risk Tolerance	Description	ETF Examples
SA Equity	Aggressive	These products provide broad based exposure to the overall SA stock market	FNB Top40 Satrix SWIX Top 40 Satrix Capped All Share 1nvest SWIX 40
SA Equity Specialised/Sector	Aggressive	These products provide exposure to factor based strategies, thematic themes and sector specific indexes	FNB MidCap Satrix Capped INDI Satrix FINI Satrix Equity Momentum Satrix Inclusion and Diversity Satrix DIVI Satrix Low Volatility Satrix RESI Satrix Quality
SA Bonds	Moderate	These products provide investors exposure to the bond market. These ETFs track the performance of the JSE ALBI and CILI benchmarks	10X Wealth GOVI Bond 10X Yield Selected Bond Satrix SA Bond Portfolio Satrix ILBI Portfolio FNB Government Inflation Linked Bond 1nvest SA Bond
SA property	Aggressive	Investors seeking exposure to the overall SA property stock market	1nvest SA Property Satrix Property Portfolio 10X South African Property Income
Money Market/Income	Conservative	An index consisting of 3-month South African money market deposit rates. This product is suitable for investors seeking low-cost convenient alternatives to traditional non-listed products	Satrix TRACI 3 Month
USDCash	Conservative	Investors seeking exposure to US Dollar denominated short term government bonds issued by the US Treasury. Since duration is relatively short, majority of the performance is driven by the USDZAR exchange rate.	1nvest ICE US Treasury Short Bond Index
Global Equity	Aggressive	These products provide broad based exposure to the overall US and global stock market, including Asia.	1nvest MSCI World Satrix MSCI China Feeder Satrix MSCI Emerging Markets Satrix MSCI India Satrix Nasdaq 100 10X S&P 500
Global Equity Specialised/Sector	Aggressive	These products provide global exposure to factor based strategies, thematic themes and sector specific indexes	Satrix Global Infrastructure Feeder Satrix MSCI Emerging Markets ESG Enhanced Satrix Healthcare Innovation Satrix Smart City Infrastructure 1nvest Global REIT Index
Global Bonds	Moderate	These products provide global bond exposure by tracking the G7 bond index	Satrix Global Aggregate Bond Feeder 1nvest Global Government Bond Index

SA Government Bonds

Government bonds are effectively you (the investor) lending money to the government to support government fiscal spending. Government bonds then pay you periodic interest payments (usually semi-annually) which are called coupons, and your initial capital back at maturity date of the bond.

Let’s look at an example, if you have to buy a bond for R100 at a coupon rate of 10% for 10 years, you will receive coupons of R5 every 6 months for 10 years and at maturity of the bond you will receive the coupon plus your initial capital back.

Bonds are a cost-effective way of getting yield. Government bonds are generally considered less volatile compared to stocks but offer lower returns. The primary risk to a government bond is default risk, however SA government bonds have never defaulted in the past and are considered the highest rated type of bond according to rating agencies.

Below is a list of all SA Government bonds available:

Bond Type	Maturity Date	Yield to Maturity
SAGB R186	21 December 2026	8.74%
SAGB R2030	31 January 2030	9.85%
SAGB R2035	28 February 2035	11.48%
SAGB R2040	31 January 2040	12.27%
SAGB R2048	28 February 2048	12.31%

Bundles

If you are an investor that would rather opt for investment professionals to manage all the leg- work when deciding asset allocation, risk tolerance and diversification, then bundles are for you.

Bundles in a nutshell are actively managed investment vehicles that uses a combination of active asset allocation and passive investing to achieve a specified investment time horizon goal. Bundles typically come with higher fees compared to ETFs, however this is understandable because they offer professional management and diversification.

Below is a list of the Rise EasyRetire bundles that are available on EasyEquities:

Product	Risk Tolerance	Investment Approach
RISE CPI +3 TFSA	Conservative	The bundle is a multi-asset, low-equity balanced solution that targets CPI +3% over a rolling 3-year period.
RISE CPI +5 TFSA	Moderate	The bundle is a multi-asset, medium-equity balanced solution that targets CPI +5% over a rolling 5-year period.
RISE CPI +7 TFSA	Aggressive	The bundle is a multi-asset, high-equity balanced solution that targets CPI +7% over a rolling 7-year period

When exploring investment products for your TFSA, it's essential to consider your financial goals, risk tolerance, and time horizon. Diversification is key to building a resilient portfolio that can weather market fluctuations. Whether you choose ETFs, bundles or bonds, maximising the tax benefits of your TFSA can help accelerate your saving pot.

Remember, with EasyEquities no amount is too small to save in your TFSA, what is important is to remain consistent and disciplined with your investment objective and approach.

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