A Fin24 user wants an investment that will pay out every five to ten years. He writes:
I have recently graduated from University and am currently working.
I have realised that life is becoming more and more expensive and would like to invest in something that will pay out every five to ten years.
I am still fairly new to investing and also feel lost, because the options are endless.
I want to do as much research as I can before making my choice as this is my future and I would like to have certain things in place.
Access to the money is also important. As you very well know, anything can happen in this economy.
Can you assist me?
Gustav Potgieter of Aurum Trust responds:
You have just started working and as an employee of (company name withheld) you most probably belong to their retirement fund(s).
Your requirements for an investment are as follow:
* A 5-10 year term;
* Availability (liquidity) of funds.
Some options available are:
They almost never beat inflation.
An endowment policy
These policies have a minimum period of 5 years and pays out tax free.
Please keep in mind that you are paying tax on the policy at a flat rate of 28%. I presume it is higher than your existing rate.
For example, a person earning R500 000 per year, pays an average rate lower than the 28%.
Endowments also have limited flexibility (premium increases and ad hoc payments, for instance) and liquidity.
The costs of an endowment policy are relatively high.
A unit trust investment probably suits your needs best
- It is flexible - you can stop at any time without any penalties;
- You can make ad hoc payments at any time;
- You can increase the premium by more than 20% at any time;
- You have access to your funds, within 5-10 working days;
- You can choose funds that suits your appetite towards risk and term;
- You are liable for the capital gains tax (CGT) and income tax on interest income, but that would surely be lower than the 28%.
CGT only becomes payable when you switch funds or disinvestment. As an individual you also have a CGT exemption.
The value of your investment is available daily and you can make minimum investments from as little as R500 (depending on the company).
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