There are quite a few EasyEquities whizz kids among you who’ve given yourself a massive leg up in the long term savings game by rocking your Tax Free Savings Accounts (TFSA), which you automatically get when you register with us. Now that we have ETF baskets available, using your TFSA to grow your wealth is even easier (just when you thought we had peaked on the easy-o-meter). If you’re one of those you-sers that has no clue what I’m talking about, then this is going to make your day. We summoned some of the members of Team Easy to tell you a bit more about TFSA’s as well as Exchange Traded Funds (ETF’s) and why they are the best thing since sliced bread AND the iPhone 7 combined.
Why this info is important now more than ever is because soon (like soon soon) legislation is due to be passed which will allow you to transfer your TFSA from one (less cool) provider to another (the cheapest and easiest). We’ll have a full report for you on that soon, but for now over to Team Easy to break it down!
If you are holding your money in a regular savings account or similar and have not yet opened a TFSA, you’re ultimately missing out on the triple whammy it offers!
When investing in a TFSA you are not taxed on:
Capital Gains Tax
Dividend Withholding Tax
Interest Income Tax
Let’s not forget that the interest offered in a savings account is usually less than the inflation rate. Yip, that’s right, you could be bleeding money… and nobody likes to bleed money!
The TFSA was put together by SA government as a way to encourage everyone to save. To make that easier and safer for South Africans, a few regulations were put in place to help investors. To reduce your risk exposure, you can only invest in certain Exchange Traded Funds in your TFSA. The ones that you are allowed to invest in may not have more than 10% exposed to any single share/commodity. Out of all available ETFs, you can invest in 43 of them in your TFSA and not the remaining 8 because they violate the previously mentioned regulation. Furthermore, with ETF’s you don’t only diversify your investments but they can also be freely purchased and sold throughout the trading day. They’re also the affordable option as they transact like a single share, offering you lower fees than if you had to invest in each individual equity.
If you are like me, a guy who likes hitting the road, exploring new places and traveling our beautiful country, then you’re also super concerned with saving as much money as possible, and by doing so, making your money go further. Well, the same applies to your investments! The EasyEquities TFSA offers me some very important and often overlooked parts of investing: Costs and choice.
Using the EasyEquities TFSA you are able to manage your own portfolio, have full access to all listed ETF’s, and the flexibility to trade within the account, whenever you want! There are no minimum deposits, and you can start with whatever amount you can afford! Some institutions only offer a more managed approach (this will always come with additional costs), require a minimum investment, carry a hefty brokerage fee and don’t give you access to all the ETF’s available.
One of the most popular questions we receive from clients is what shares to buy. Baskets provide an excellent option to someone who is maybe unsure as to what to purchase on the platform and they still provide the client with total control and flexibility. Our ETF baskets are not managed however they do introduce newbie clients to the idea of passive and active investing in either exchange traded funds or managed funds. In constructing baskets on the EasyEquities platform we have catered for all risk appetites and it’s important to remember that they’re available on both your TFSA and standard equity account.
Investing is all about exposing your funds to the areas of the market that will offer you diversity, growth and protection. With this in mind it makes sense to have a portion of your funds invested in global assets. The good news is it has never been easier for you to invest your hard earned Rands in Rand hedges or indirect offshore invests without the money physically leaving South Africa. The best example of this is the DB X-tracker ETF Funds on EasyEquities which provide access to index tracking portfolios of equities in major markets – with the db X-tracker MSCI World Index ETF being the most diversified of these funds.
Nkulie Gwala on why you should set up a TFSA for your kids
As a parent of 2 little girls who is investing for my children’s education, it was imperative for me to look at investments that carry a lot of benefits. As it stands I am looking at paying on average R220 000 per annum for them to pursue a BCom degree and around R180 000 in residence fees. So when the TFSA was introduced I didn’t even give it a second thought. I opened one for each of my kids and I make sure I contribute to them each month. Since you don’t pay any tax on the growth of your investment, TFSA’s are the most effective way to save for longer term goals like education, or even retirement.
RA investments are somewhat complicated things, and are subject to constraints outlined in Regulation 28, whilst a TFSA allows you to invest in any regulated Collective Investment Scheme. In a very simplistic world: The TFSA is for the lower tax payer who needs access to an investment in the medium term or is committed to the long term. The RA suits the higher tax payer for the long term where access to the investment is not a concern.
Some of the basic differentiators between the two:
Contributions to TFSA accounts are not tax deductible, like they are for RA contributions – what this means is that you would first be taxed on your salary, and then as a post-tax event you invest your money. In an RA, your investment is a pre-tax event – and it reduces your taxable income.
TFSA investments are also much more liquid and can be sold easily without explicit penalties whilst RA investments have a relatively certain horizon that is mandated by law and you would incur penalties if you withdrew your funds before retirement maturity.
Our CEO Charles Savage weighs in on TFSA’s in this article by SaveTaxFree.co.za, give it a read.