Focusing on doing the best we can with what we have, and to plan ahead as best we can to secure our futures, is something we can all do to regain control of our lives. And investing your hard-earned money tax free is an opportunity to do just that. 

Now is the time to take advantage of tax-free investing

The tax year ends on 28 February 2021. So, you still have time to ensure that you take full advantage of the valuable perk offered to us by government every year to encourage us to save – an annual allowance of R36,000 that can be invested tax free. 

In your tax-free investment, you pay no income, dividend or capital gains tax on your investment gains, which boosts your realised investment return. 

In this low interest environment, it’s better to invest tax free than to save tax free

You could choose to just save tax free through a bank, but then your money can only ever earn a predictable level of interest. And given how low interest rates are currently, you have a better chance at beating inflation and growing your money over time through investing in a market-linked option such as a Coronation Tax-Free Investment. This way your money will not only be managed by experts, but it will be exposed to assets with a higher expected rate of return, such as shares, bonds and listed property. These growth assets have the potential to not only protect your money from the eroding effect of inflation, but to grow your wealth over time through the power of compounding. While returns are not guaranteed, history has shown that long-term investors are better off investing in the stock market than saving in a bank account. 

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. Investing over multiple decades, and leaving your money invested, enables it to comfortably withstand the effects of the occasional periods of market volatility that is typical of the financial markets. Over the long term, the bumps smooth out and the overall trend is for your money to grow more over time than it would if it were just earning interest in a bank. 

But looking beyond the challenges of today to keep thinking long term is easier said than done, especially during a global crisis. It’s sometimes hard to stay committed to future goals and many investors do not invest for long enough to experience the full benefit of staying the course. Many South African unit trust investors hold 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’.

It’s easier to stay committed if you choose a tax-free multi-asset unit trust fund

Investors who make their own investment decisions may find that it is difficult to make consistently good decisions over time. The key to sticking to your financial goals over time is to take a simple, manageable approach.

A solution is to choose a tax-free multi-asset unit trust fund, such as the Coronation Market Plus Fund or the Coronation Global Managed Fund, which are managed by skilled investment professionals on your behalf. They identify the best long-term opportunities available for you across different asset classes and reposition the portfolio as circumstances change. There is comfort in investing in a multi-asset fund, as it has a broader mandate and more tools at its disposal with which to achieve your desired result. 

Unrestricted access to your money

Another benefit of tax-free investing is that you can withdraw your cash whenever you like. But you can’t put it back – so just be mindful that all amounts invested count towards your annual (R36 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.

So, take control of your future in 2021 and invest tax free

You can start investing via a monthly debit order (from as little as R250 with Coronation) or you can make lump-sum investments from R5 000 to R36 000. If you have an existing tax-free savings account with a bank, you can switch it to a tax-free investment at no cost.    

To find a tax-free investment fund that is suitable to your needs, speak to your financial adviser if you have one, or just click and follow Coronation’s simple online investment process. DM/BM

Coronation is an authorised financial services provider.