Best way to invest a monthly amount

A Fin24 user who has just become a father wants to invest between R500 and R1 000 per month for his baby girl. He writes:

What is the best option or way to invest between R500 and R1 000 a month, increasing yearly for inflation, over a period of between 18 and 21 years?

My wife and I have just had a baby girl. We would like to invest some money every month to give her a nice lump sum for her 21st birthday, so that she could use it towards a deposit on a house or car, for example.

Would there be any tax benefits to giving her the money before she turns 21 and is still a minor?

Chris van Wyk of PSG Hermanus Portfolio Management & Stockbroking responds:


Most investors agree that shares listed on for example the Johannesburg Stock Exchange generally outperform other asset classes over time horizons of 15 to 20 years.

The other asset classes mentioned could include property, money market investments, bank deposits and savings and top quality bonds.

In your case, you can therefore seriously consider investing in listed shares of first class companies.
                                                                        
How to go about it?

Investments of relatively smaller sums of money, such as those envisaged by you, are best done by buying units in equity unit trusts or by investing in exchange-traded funds (ETFs).

Investors in unit trusts are faced with different layers of costs  (commissions and fees).

In most cases, individual investors cannot negotiate these fees, so unit trusts may not be the most cost effective investment avenue for you.

A better option is probably to go for ETFs

ETFs are JSE-listed investment funds which track various indices or sectors, such as the All Share or the Top Forty Index of the JSE.

They offer a straightforward and very cost effective way for the smaller investor to invest in listed top class shares.

You could start with a monthly investment of as low as R300. It can be increased, decreased or stopped at any time and full access to the proceeds of the investment is also available at any time.

It would be best to find a qualified and impartial financial adviser to help you select the most appropriate ETF.

Tax implications

Current tax regulations allow donations to children of R100 000 per tax year without any tax liability for the receiver - in this case, your child.

What the tax situation will be 20 years from now is impossible to predict.

Consider doing the investment in your daughter's name from the outset and surprise her with its accumulated value when she becomes 21, in which case tax liability of whatever kind should not be an issue.

- Fin24

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