The tax-free performance you deserve

Few things in life are sure bets and that’s as true in the world of cycling as it is in the world of investments.

Ask sprint champion, Mark Cavendish, who spectacularly crashed out of the Tour de France in 2021, just as he was about to overtake Eddie Merckx’s legendary record of 34 stage wins. (Ouch.)

That said, there are rare instances in which the golden goose does lay a golden egg (or yellow jersey) and the government’s R500 000 tax-free savings allowance is one of them.

Introduced in 2015 to help stimulate a savings culture, it provides South Africans with an opportunity to invest up to R36 000 a year in a Tax-Free Savings product up to a lifetime maximum of half a million rand.

Since helping investors to achieve financial security is what gets the Fedgroup team up in the morning, we’re big fans of any initiative that incentivises South Africans to save. Especially one that carries no tax. Yet oddly, the Tax-Free Savings Account (TFSA) seems to be perceived as a starter product for novice investors or young professionals rather than the gift it is for anyone with an investment portfolio.

Investment gold

However, let’s be clear: a golden egg is not necessarily a golden ticket to awesome returns.

Not all tax-free products are created equal, and, like all investments, it takes some homework to understand the different structures and costs associated with the different TFSAs out there.

If the objective is to achieve the highest net return, then an investor’s challenge is to find the sweet spot between higher-risk equity products that are susceptible to market volatility and fixed-rate TFSAs that offer lower, but more stable, returns.

They also need to be watchful that their tax savings aren’t being eaten (in some cases, devoured) by product fees, which can have a significant cumulative impact on a TFSA’s value over time.

It’s the climb

Time is one of the many things we think about differently at Fedgroup. Most TFSAs are marketed as stand-alone investments to fund some of life’s short and medium-term expenses, like that big fat Plett wedding or mid-life Harley Davidson. And, though they certainly can do that, we’d argue there are more suitable investment products out there to meet those milestone moments.

To realise the full potential of a TFSA, it needs to be viewed as a long-term investment, as the government presumably intended. Particularly since even those who can put away the full R36 000 every year will take at least 13-odd years to reach the R500 000 threshold. And, more likely, it’ll take a couple of decades or more to hit the max. So, it makes sense for investors to recognise they’re in it for the long haul and sit back to enjoy the full tax break and benefits of compounding returns.

That’s why we developed a TFSA that’s geared, not for rainy days, but to grow wealth over the long term – as part of a properly diverse portfolio – and give our investors financial peace of mind for life.

Pushing the envelope

Stability is always our North Star and, in this instance, we opted for a specialist endowment-based product with zero fees, that has a couple of significant advantages.

• First, because its underlying assets are not tied to market sentiment, it is counter-cyclical and able to deliver consistent, market-beating returns. (In fact, current returns on our product don’t just beat the prevailing bear market, they have delivered over 11% net of everything over the past year.)

• Second, we’ve developed a product that charges no investor fees as we believe there should be no unnecessary erosion of either the tax-free benefits or investor returns.

To simplify things further, thanks to its endowment structure, our TFSA doesn’t form part of an investor’s estate so, if the worst happens, beneficiaries receive the proceeds faster. This will give them access to funds to cover costs and ongoing expenses much quicker in the immediate aftermath.

Just as Tour de France fans have their favourite cycle legends, investors have their preferred TFSAs. In both cases, they are free to back a different winner at any time, particularly as they see advances in performance.

So, whether you already have a TFSA in your portfolio, or are thinking about investing in one, you might want to check which ones are sprinting ahead.

For more information, visit the Fedgroup website.

Fedgroup is a specialist financial services provider with a legacy of putting people before short-term profit. For over 30 years, we’ve delivered market-leading financial solutions that not only enhance value for our clients, but remain straightforward, transparent and easy to understand.