Help me spread my savings into investments

[silbo]

Hi allI have about 610k in savings.I just maxed out my TFSA with 36k (went with Satrix S&P500 ETF)I will do another 36k next month for the next tax year.I also just bought Satrix S&P500 and Satrix S&P500 Tech stocks for 10k total.

I still have a lot in my savings and my 3-6 months of expenses is only like 120k (which is the minimum I will leave in my savings) alternatively I might leave 300k in savings as the interest I earn at 7.8% is decent, and at 300k I won't be taxed on the interest i make everry month .So in theory I have another +-300k to invest? Where should I put this, more ETFs? Possibly S&P500.Maybe diversify a bit? I do want to invest for mostly the long term.

My situation, i am mid 30s

I have no debt and can put away 20k into savings/investments per month. I do possibly want to buy a house in cash one day as i am still renting.

What would you guys do?

 

[joshbruh]

@silbo Bit of a brain dump, but here is how I would maximize my savings and minimize tax:

1. Contribute to RA to get tax benefits.
2. Max out TFSA again 1st of March 2024.
3. Keep emergency funds in a Money Market (7.9% is okay, but not great).
4. Use monthly savings to start opening Tymebank fixed deposits (1 year @ 11% p/a) or just open a fixed deposit that maximizes your remaining tax-free allowance on interest. The idea is to have 12 fixed deposits (one maturing every month) and if the rates remain high, roll the funds over into new fixed deposits as they mature. This is a bit more work than maximizing your tax-free interest in a Money Market.
5. Buy offshore stocks / ETFs (dollar-denominated). Hedge against the depreciating rand and realize R40 000 worth of capital gains every year after the first 3 years (to maximize tax allowance benefit). Need to invest about R250000 ($13000) at the current exchange rate for this strategy to work. Need to have a spreadsheet of when you buy and sell shares to ensure that you held the shares you are selling for at least 3 years. At some point, the growth on your 3-year stocks will start exceeding your capital gains tax allowance.
   
6. If your parents are trustworthy and have not maxed out their TFSA, speak to them and donate R36000 to each so that they can also max out their TFSA. Get them to understand that it should form part of their estate / they won't withdraw from the TFSA. Could also be seen as a way to save for their future upkeep in case it is necessary.
7. If you have a spouse, transfer what is left and repeat.
8. Time to probably start looking at leveraging your income with rental property.

 

[silbo]

@joshbruh Amazing feedback will properly analyze and think about tmrw tnx

 

[silbo]

@joshbruh Point 4 sounds good, but don't you think getting 10-15% on average on the S&P500 is better over the long run?

 

[joshbruh]

@silbo That is pretty much Point 5.

The guaranteed 11% tax-free is pretty good. If the interest rates decline, I would also rather go more for global ETFs.

The 1 year fixed deposits are a good blend of returns and liquidity. Remember that any growth on stocks that you keep for less than 3 years is taxed as income.

If only considering capital gains tax and the S&P500 averages 13% for the next three years, the two investments are equivalent (assuming your CGT allowance is used for Point 5).

(1 + 11%)^3 = (1 + x)^3 - ((1 + x)^3 - 1)×0.18

x ~= 13%

Edit: Chances that you would need to pay the 18% CGT is unlikely, as that is only if you are in the super tax income bracket. So 12.5% would be a fairer comparison.

 

[silbo]

@joshbruh Fair however if I have 12 fixed deposits. I would need to pay tax right? There is now way that 1M over 12 accounts for example would be tax free

 

[joshbruh]

@silbo Haha! No. After your emergency fund, you are looking at about R200 000 split over 12 deposits. So it is not a massive part of your portfolio in the long run.

The effort might not be worth it for some, but it is tax efficient

 

[jermaineman]

@joshbruh

realize R40 000 worth of capital gains every year after the first 3 years

To do what with though? If it's to reinvest in stocks then all you're doing is incurring transaction costs. If it's to spend on non-investment stuff, you might as well just skip on 2 months investments.

 

[pandu_dh]

@silbo Kudos to you for saving and not being in debt.

 

[silbo]

@pandu_dh Thanks, yeah its a habit I learned early by seeing how my parents spiraled into debt, my math is also pretty decent and i have a bit of a logical brain haha

 

[pragyana]

@silbo Can get better interest at Thyme bank

 

[ffriemann]

@silbo You can earn better interest on your savings with the FNB Money Maximiser account - 8.25%. It incurs zero fees when opened using the app.

 

[silbo]

@ffriemann Thanks. I will look into this

 

[gamefabrique]

@silbo You could legit retire. Why are you working bro?!

 

[silbo]

@gamefabrique Lol how would 1M if I add retirement last me 40 years it's only 2k pm. Which is the price of bread in 30 years lmao