Investing for five to 10 years

(Shutterstock)
(Shutterstock)
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:

Bank investments

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).

- Fin24

Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.


ZAR/USD
17.20
(-0.08)
ZAR/GBP
22.49
(-0.04)
ZAR/EUR
20.24
(-0.11)
ZAR/AUD
12.26
(-0.24)
ZAR/JPY
0.16
(+0.03)
Gold
1971.91
(-0.10)
Silver
24.28
(+0.29)
Platinum
917.51
(-0.01)
Brent Crude
43.86
(+1.45)
Palladium
2104.50
(+0.57)
All Share
56201.34
(+0.67)
Top 40
51914.82
(+0.67)
Financial 15
9900.98
(+0.98)
Industrial 25
75132.71
(+0.53)
Resource 10
56995.38
(+0.72)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Do you think it was a good idea for the government to approach the IMF for a $4.3 billion loan to fight Covid-19?
Please select an option Oops! Something went wrong, please try again later.
Results
Yes. We need the money.
11% - 831 votes
It depends on how the funds are used.
74% - 5492 votes
No. We should have gotten the loan elsewhere.
15% - 1098 votes
Vote