It is hard to believe that 2016 is nearly over and we are fast heading into the Christmas festive season. This often brings along the perennial question to most us: What do I get as presents for kids and/or grandkids?
Well, this year, why don’t you give them a gift that keeps on giving, a subscription to a Tax-Free Savings Account! In South Africa, we can contribute a maximum of R30,000 a year to this type of investment vehicle. This biggest advantage of an investment into a Tax-Free Savings account is as the name suggests, all growth and proceeds from the investment are tax free! There is no income tax on interest earned, no dividend withholding tax on dividends declared and no capital gains tax when the proceeds are sold.
More importantly, you will also be teaching these young investors what Warren Buffet calls the 8th wonder of the world, the power of compound growth over time. The graph below assumes that an investor has contributed R1,000 per month in either the JSE or the international MSCI, for a period of the past 10 years. The cost of this investment would have been R120,000.
The JSE All Share investment would now be currently worth R219,270, and the international MSCI investment would be valued at R267,202. These investments would have endured all the trauma of the Financial Crisis in 2008 and 2009, and would have been fully exposed to equities over their full 10-year period. What better gift and legacy to leave your family with, than the first-hand experience that sound investments, given time, will always reward the investor.
It is true that the current local and global investment horizon is a clouded with uncertainty, doom and gloom, very much like 2009! But, the advantage of investing consistently over a period is that you are now buying into this stagnated period of uncertainty and will benefit from the Rand cost averaging effect of buying into the markets at or around these levels. This can only serve to benefit long term investors in the fullness of time.
So, instead of buying some toy or gadget that will have been broken, lost or forgotten about by New Year, buy a gift that keeps on giving, by subscribing for a Tax-Free Savings account for your child and/or grandchild. Subscriptions can start with as little as R500 a month, and can be varied over time. There is no fixed commitment to the investment and it can be cash in at any time with no detrimental tax effect. Contact Tony for more information in terms of implementing this idea for this festive season.