The age of heavy consumerism is fading as more women are looking at investment options to grow their wealth and net worth.
After a disastrous 2020, now more than ever, almost everyone understands the importance of saving for the future. And while some people are focused on saving a good chunk of money for emergencies or building a nest egg, some want to see their money grow, and what better way than through investing?
Why invest
The world of investments can be confusing and quite complex at times but it doesn’t need to be too daunting.
“When it comes to investing, you have to understand your goals, and that you need to do this for yourself. Just as you know you have to have a flu vaccination to avoid getting sick, you also have to nurture your money matters. Understanding your ‘why’ will help you stick to the journey,” says Aneesa Razack, CEO of FNB Share Investing.
A good financial advisor can help you take stock of your finances and help you come up with a plan that meets your goals.
Here’s what to know about the different types of investments:
ETFs
The name Exchange-Traded Funds (ETFs) means these funds can be traded on an exchange like a stock. ETFs invest in a basket of securities that’s listed like a stock and can be bought and sold daily.
ETFs are designed to track the performance of the underlying indices. The fund can give you, as an investor, exposure to multiple stocks across various industries. To invest in ETFs, you can open an investment plan with an ETF provider where you can simply buy ETFs with a monthly debit order or open a brokerage account with an authorised JSE stockbroker.
Endowment
Endowments are policy contracts that require a minimum commitment of a period of five years.
“If your marginal tax rate is higher than 30 percent, you can generally save from a tax point of view, as endowments are taxed in the hands of the life company at a tax rate of 30 percent,” says Dikana.
“Endowments help you to save in a disciplined way, as the minimum investment term is five years. After the initial investment term, you can make tax-free withdrawals at any time.”
Endowments can also be useful for estate planning because you can appoint beneficiaries. Upon your death, your beneficiaries can access the funds without the need for paying an executor.
Money market funds
These are open-ended mutual funds that invest in short-term instruments (cash or cash equivalent) that mature in less than a year.
Money market funds offer great liquidity, so you can access your money whenever you need it. They also offer higher returns than your typical bank deposit. Linked investment: These come with great flexibility and liquidity, as you have access to your funds as and when you need them. Linked investments can be used for short-, medium- or long-term goals.
“However, these are not tax efficient if your marginal tax rate is higher than 30 percent. All taxable returns are added to your taxable income, and you will be taxed at your marginal tax rate. And each withdrawal may also attract Capital Gains Tax,” explains Dikana.
Offshore investments
These can give you access to different economies and a broader range of investment opportunities, which can help diversify your portfolio and earn you great returns.
You can choose a rand-denominated option, which means you invest in rand and get paid out in rand. But your investment and currency exposure remain foreign. You can also choose to invest directly offshore, which means moving your money offshore and converting it to your chosen currency.
When taking money offshore, you can use the annual discretionary allowance of R1 million or apply for a SARS tax clearance certificate for amounts of up to R10 million.
Tax-free savings account
This is an investment option that allows you to grow your money without paying tax on your capital gains, the interest, or dividends. You can invest up to R36 000 per tax year, and R500 000 in your lifetime.
“All growth is tax-free, contributions are flexible, and you have access to your funds at all times,” says Dikana.
Property Investing in property opens up many opportunities other than just buying property. You can invest in real estate ETFs, or Real Estate Investment Trusts (REITs), and even buy shares in a property company and other property-focused entities. Investing in an income-producing property, such as a building that you rent out to tenants, or flipping houses, could give you great returns as an investment.
Unit trusts
A unit trust works by pooling together money of many investors and investing it in various underlying assets such as bonds, equities, property, etc. The returns are then shared among the investors. Unit trust investments can be used for short-term or long-term goals.
“Unit trusts are great for investments that are longer than five years. This helps you be at inflation and earn good interest,” says Razack.
You can make monthly contributions or you can choose to invest a lump sum.
