Question:
I have a 32-days notice investment account at one of the banks into which I'm paying R5000 each month. The money is used for my children's education and other emergencies.

Is this the best way of investing? My concern is the tax it might attract as it grows and also whether I am getting the right returns for my investment.

Can it grow faster with less risk if I invest it elsewhere?

Answer:
The actual habit of saving R5000 per month is a brilliant one and should be cultivated by everyone who wants to kick-start an investment plan. Not everyone can afford R5000 (and some can afford more), but the habit of saving some money every month is remarkably valuable.

What people look for in an investment is the return they need with the most acceptable level of risk.

There are numerous different types of investments in the market to choose from. Your understanding of how these investments work, the inherent riskiness involved in them and your level of comfort with those variables should direct your choice.

Most savings plans have a sliding scale of interest earned. Initially this is very low, increasing with larger capital amounts. A typical 32-day notice account currently pays 0.5 percent on amounts under R1000, but up to five percent on amounts of R50 000 and greater.

So it would make sense to move your money to a money market type of account once it’s above R20 000, where the interest rate is currently about 6.5 percent but the minimum entry amount is R20 000.

Let’s assume you have more than R20 000 saved and have moved to a maximum interest account such as the aforementioned one and you are earning 6.5 percent.

When will you be liable for tax on that investment as it grows and grows?

Currently the tax exemption is on the first R19 000 of interest earned per year (by a single person under 65). R295 000 at 6.5 percent will earn R19 175, so clearly any amount held in cash above R295 000 will start to attract tax. At this stage (if not before) it is advisable to start diversifying your assets, which means that you must increase your investment knowledge. After all, you are now a serious investor!

Learn more about unit trusts, property investments, share portfolios and insurance products as well as their tax benefits and costs. These are just a few basic investment types — which ones stir up your interest?

If you don’t have the time or the inclination to learn more about the many investment opportunities out there, then now is the time to consult a financial planner who can assist in putting together an investment strategy while taking your tax and risk concerns into account.

Enjoy the overall experience of being a wealth accumulator!

acsis Limited is an authorised financial services provider. The response to the question covers some of the issues in a general and factual manner and does not constitute advice. It is important to consult with a financial planner who, after an analysis of the individuals’ personal needs, goals and circumstances, will be able to provide comprehensive and appropriate advice.

If you would like acsis to put you in touch with an independent financial planner, click here!

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