{"id":664941,"date":"2023-02-15T08:47:49","date_gmt":"2023-02-15T06:47:49","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=664941"},"modified":"2023-02-15T08:47:49","modified_gmt":"2023-02-15T06:47:49","slug":"heres-why-you-need-a-tax-free-investment","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/industry-news\/664941\/heres-why-you-need-a-tax-free-investment\/","title":{"rendered":"Here\u2019s why you need a tax-free investment"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">The perks of a tax-free investment make it a no-brainer, but you can maximise its value if you are strategic about managing it. With the tax year ending on 28 February 2023,\u00a0now is the time to invest\u00a0<\/span><span style=\"font-weight: 400;\">and<\/span><span style=\"font-weight: 400;\">\u00a0maximise your benefits.\u00a0<\/span><\/p>\n<ul>\n<li><strong><a href=\"https:\/\/www.coronation.com\/en-za\/personal\/invest-tax-free\/?utm_source=businesstech&amp;utm_medium=paid&amp;utm_campaign=tax-free2023&amp;utm_term=retail&amp;utm_content=-advertorial\" target=\"_blank\" rel=\"noopener\"><strong>Click here for more information about Coronation&#8217;s tax-free investments\u00a0<\/strong><\/a><\/strong><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The most obvious perk of a tax-free investment is that you\u00a0don\u2019t pay any local tax on your investment returns\u00a0\u2013 both while invested and when your investment pays out. That\u2019s zero <\/span><span style=\"font-weight: 400;\">local<\/span><span style=\"font-weight: 400;\"> tax on your interest income, dividends and capital gains.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">While this is a fantastic benefit made available to all South Africans by the government, we believe the real value lies in understanding how to make the most of your tax-free opportunity. Our analysis shows that four key strategies could help you\u00a0double the returns\u00a0from the same taxable investment over the long term.<\/span><\/p>\n<h3 class=\"my-4\"><strong>Strategy 1: Stick to the first-in\/last-out principle<\/strong><\/h3>\n<p><a  data-lightbox=\"post-image\" href=\"https:\/\/test.businesstech.co.za\/news\/wp-content\/uploads\/2023\/02\/Coronation-First-in-Last-out-Principal.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-348703 size-full\" src=\"https:\/\/test.businesstech.co.za\/news\/wp-content\/uploads\/2023\/02\/Coronation-First-in-Last-out-Principal.jpg\" alt=\"\" width=\"1200\" height=\"800\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400;\">By \u2018first-in\u2019,\u00a0we mean start by using your tax-free allowance before choosing any other form of investment. With Coronation, you can start\u00a0investing from as little as R250 per month\u00a0or a lump sum of R5 000 per year, up to the maximum contribution of R36 000 per year.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">By \u2018last-out\u2019, we imply\u00a0remain invested for the long term. The power of compounding means that your investment has the potential to grow exponentially for every additional decade that you remain invested. We believe you can harness the full power of tax-free investing by\u00a0resisting the temptation to access or withdraw\u00a0your money invested in a tax-free investment. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">In other words, don\u2019t use it as an emergency fund or a savings account for holidays and big-ticket items like a car.<\/span><\/p>\n<h3 class=\"my-4\"><strong>Strategy 2: Invest in a growth-oriented multi-asset fund<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">It\u2019s important to understand that geographical or asset class constraints do not bind tax-free investments, meaning that long-term investors could consider being fully invested in equities. This asset class provides the highest expected returns over time.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, for most investors, a\u00a0less volatile experience may be the preferred route\u00a0to navigating market ups and downs over multiple decades. As such, choosing a growth-oriented multi-asset fund such as\u00a0<\/span><strong><a href=\"https:\/\/www.coronation.com\/en-za\/personal\/funds\/market-plus\/#js-overview?utm_source=businesstech&amp;utm_medium=paid&amp;utm_campaign=tax-free2023&amp;utm_term=retail&amp;utm_content=-advertorial\" target=\"_blank\" rel=\"noopener\"><strong>Coronation Market Plus<\/strong><\/a><\/strong><span style=\"font-weight: 400;\">\u00a0is the most likely option to help you remain invested while achieving returns well in excess of inflation.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Since its inception in 2001,\u00a0Coronation Market Plus\u00a0has met the needs of aggressive investors aiming to build long-term capital outside of their retirement portfolios. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">As shown in the diagram below, Coronation Market Plus has\u00a0delivered an annualised return of 14.3%, well ahead of inflation at 5.7% per year. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Worth noting is that, over this period, despite never being fully invested in equities,\u00a0the Fund has outperformed the JSE All Share Index\u2019s performance of 13.7%.\u00a0(All performance figures quoted are as of 31 December 2022).<\/span><\/p>\n<p><a  data-lightbox=\"post-image\" href=\"https:\/\/test.businesstech.co.za\/news\/wp-content\/uploads\/2023\/02\/Coronation-Market-Plus-Fund-2023.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-348704 size-full\" src=\"https:\/\/test.businesstech.co.za\/news\/wp-content\/uploads\/2023\/02\/Coronation-Market-Plus-Fund-2023.jpg\" alt=\"\" width=\"1200\" height=\"800\" \/><\/a><\/p>\n<h3 class=\"my-4\"><strong>Strategy 3: Aim to reach your lifetime limit as soon as possible<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">A proven track record shows that you should\u00a0prioritise taking advantage of your annual tax-free investment allowance,\u00a0which is currently R36 000 per year and R500 000 per taxpayer in total, as early as possible. Doing this allows the taxes you save to remain invested for the long term so you can reap the benefits of compound growth over the longest possible period.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">What makes a tax-free investment so much more powerful than an investment in a taxable unit trust is that the compound growth on your tax-free investment is higher. Over the longest possible period of time, this can double the value of your investment nest egg as described in Strategy 4 below.<\/span><\/p>\n<h3 class=\"my-4\"><strong>Strategy 4: Build wealth on behalf of your minor children<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">The best way to understand the life-changing effect a tax-free investment can have on your child\u2019s lifetime is through a theoretical example (see figure below) that illustrates its potential if harnessed on their behalf as early in life as possible.\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Imagine that you invest the maximum annual amount (R36 000) in a tax-free investment for your child from birth. If you continue doing so, you will reach the lifetime limit of R500 000 before your child turns 14.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Our analysis, based on certain assumptions, shows that if you keep the money in the tax-free investment until your child turns 18, the value of the tax-free investment will be 22% greater than the equivalent taxable unit trust investment. By age 30, this difference widens to 42%, and\u00a0by age 65, the investment would be more than double the value of the same taxable unit trust investment.\u00a0<\/span><\/p>\n<p><a  data-lightbox=\"post-image\" href=\"https:\/\/test.businesstech.co.za\/news\/wp-content\/uploads\/2023\/02\/The-Power-of-Compounding-Tax-Free-Coronation.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-348706 size-full\" src=\"https:\/\/test.businesstech.co.za\/news\/wp-content\/uploads\/2023\/02\/The-Power-of-Compounding-Tax-Free-Coronation.jpg\" alt=\"\" width=\"1200\" height=\"800\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400;\">These results show that by resisting the temptation to disinvest from a tax-free investment, their nest egg is built up and would keep your child in good stead by either financing tertiary education, buying a first home or, ideally, investing in their retirement, depending on when your child decides to disinvest.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This theoretical exercise also shows the incredible power of compounding over long periods. For example, investing R500 000 spread out over 14 years and then doing nothing for 41 years can result in an investment worth R17 million in today\u2019s money by age 65.<\/span><\/p>\n<h3 class=\"my-4\"><strong>If you don\u2019t have a tax-free investment, start your journey with Coronation today<\/strong><\/h3>\n<p><span style=\"font-weight: 400;\">We can see that a tax-free investment comes with a long list of perks. But what really matters\u00a0is that you consider the above strategies to make the most of your investment. So why choose Coronation?<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">There are no initial or admin costs attached to opening a tax-free investment with Coronation.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">You can start investing with us from as little as R250 via a monthly debit order, or you can make lump-sum investments from R5 000 to R36\u00a0000 per year.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">To select the funds that suit your needs, speak to your financial adviser if you have one, or go to our\u00a0<\/span><strong><a href=\"https:\/\/www.coronation.com\/en-za\/personal\/invest-tax-free\/?utm_source=businesstech&amp;utm_medium=paid&amp;utm_campaign=tax-free2023&amp;utm_term=retail&amp;utm_content=-advertorial\" target=\"_blank\" rel=\"noopener\"><strong>tax-free investment page<\/strong><\/a><\/strong><span style=\"font-weight: 400;\">\u00a0before the end of February 2023.<\/span><\/p>\n<p><a  data-lightbox=\"post-image\" href=\"https:\/\/test.businesstech.co.za\/news\/wp-content\/uploads\/2023\/02\/TFI-Table-updated-Coronation-February-2023.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-348717 size-full\" src=\"https:\/\/test.businesstech.co.za\/news\/wp-content\/uploads\/2023\/02\/TFI-Table-updated-Coronation-February-2023.jpg\" alt=\"\" width=\"1200\" height=\"800\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400;\">Coronation is an authorised financial services provider.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The perks of a tax-free investment make it a no-brainer, but you can maximise its value if you are strategic about managing it.<\/p>\n","protected":false},"author":57,"featured_media":664943,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10459],"tags":[10917],"class_list":["post-664941","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-industry-news","tag-coronation"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/664941","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/57"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=664941"}],"version-history":[{"count":3,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/664941\/revisions"}],"predecessor-version":[{"id":664947,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/664941\/revisions\/664947"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/664943"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=664941"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=664941"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=664941"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}