A Fin24 reader seeks to find the best investment vehicle to invest in during Covid-19.
I have R10 000 to invest - What would be my best options now during Covid-19?
Asavela Gwele, Client Relationship Associate at 10X Investments, responds:
Saving is more important than ever during times of uncertainty. Big ups to you for not being short-sighted.
How you choose to invest your money should be based on your investment goal, for example: are you saving for a child’s education, a honeymoon, or retirement?
Below are some of the things you need to consider before deciding where to invest:
Costs: these include investment management, platform, and advice fees. Keeping your fees down will result in you ending up with more money. High fees deplete the value of your savings, and a small deficit will compound over the years to become a large hole.
Track record: It is important to look at the asset manager’s track record.
Investment style: The asset manager’s investment strategy – are they index trackers or active managers, for example – will have a bearing on how they perform, the risk involved and what they charge.
Simplicity and transparency: It is important to understand what you are getting yourself into as this may be a long-term commitment. Do you understand the investment strategy and the fee structure? Do you think you will be able to follow how your savings are performing?
Here are some investment options to consider:
A retirement annuity: An RA is an investment vehicle that is geared for long-term growth for people who are saving for retirement. Importantly, it allows investors to take advantage of the government’s tax breaks for retirement savers.
Money that you put into a retirement annuity is not taxed, up to 27.5% of your taxable income to a maximum of R350 000.
You also do not pay tax on RA investment returns, such as interest income, dividends, and capital gains.
You can take up to a third of your RA as a lump sum when you retire (or all of it if it’s worth less than R247 500), with the first R500 000 being tax-free.
In the event of death, a lump sum will be paid out to your nominated beneficiaries.
Money you have saved for retirement is usually locked up in an investment that is geared for long-term growth, removing temptation to spend it, and making it easier to make good choices.
A unit trust: A unit trust is a simple way for you to invest your discretionary income.
Flexibility: Your funds are easily accessible.
Affordability: You need a minimum of only R500 to invest (with most investment companies).
Reduced costs and access to asset classes.
Long-term maximum exposure. Because unit trusts are not regulated by Regulation 28, as RAs are, you can have maximum exposure to growth stocks.
Take time to find as much information as possible and to weigh the pros and the cons so that you can settle on the best investment for you. Whatever you decide, your future self will thank you for taking the time to choose the best investment vehicle for your circumstances and for putting money aside at a time when others are asking, what’s the point?
Questions may be edited for brevity and clarity.
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