Make sure your retirement investments are tax effective


Started working towards your early retirement? You know, the sit and chill, while the dollars or Rands do the work.

As investors prepare for the tax season in South Africa, we had an opportunity to speak to one of our INVSTRs who's passionate about the topic of investing for your retirement and a member of the Freedom to F.I.R.E movement – cooking up a combo to combat tax and inflation in order to retire early.

Describing herself as a financial literacy enthusiast, Mpho Hottie is involved in the financial industry through her profession as a charted accountant and general practitioner. She is also furthering her studies at the University of Cape Town as a PhD candidate.

"I am an avid investor with my fingers in different cookie jars (shares, property and crypto), and I run a financial education page," Mpho explains.

On social media, Mpho uses #MrsTax to reach out to the community, educating and sharing some insights on tax content and investing in your retirement.

As a planner for long term financial security and early retirement, both retirement annuities (RAs) and tax-free savings accounts (TFSAs) offer tax-efficient vehicles for her investment goals.

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"They are a great complement to my discretionary investment account,” says Mpho. “I have consistently used my tax refund from the RA to fund my TFSA. Both are an important part of that action plan to ensure that I continue building an investment portfolio to sustain my life and lifestyle post early retirement.

"The fact that there is something in this world I can make profits from – and SARS will not get a share of those profits – makes the TFSA a no-brainer for me."

Part of her retirement investments is the Coreshares Total World ETF, an ETF that exposes her over 9 000 companies in both developed and emerging markets (an easy way to diversify), and the CoreShares South African Property Income ETF – diversification into another asset class that may perform well over long-term.

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Explaining briefly on RAs, Mpho said, "My RA needs change based on who can offer the most competitive costing and growth (given the regulations). However, my favourite is low cost and fixed fee type of RA investments.”

Unpacking her investment strategy she says "Firstly, it must align with my goals and financial plan. I am in my early 30s and investing for the long term. I give my money the best possible chance of growing through aggressive-growth ETFs.

"I like the composition of the ETF. I do not want to duplicate efforts and costs, and so I keep track of the indexes my ETFs to avoid buying too many ETFs that do the same thing," Mpho explains.

"It's not a one size fits all.”

Assessment on the potential yield benefits is one of the important aspects Mpho looks at when choosing an ETF.

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"There is lots of information out there. You need to figure out your own financial goals and shut out the noise to determine which type of investments align with your values and give you the best chance to reach your goals," Mpho said, sharing her words of wisdom to new and young investors.

"The best investment you will ever make is in yourself. Spend time understanding what you want to buy and why you want to buy it."

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