How The Government Can Make You A Millionaire

Written by John Stuart on January 15th, 2016

How The Government Can Make You A Millionaire

What if I told you there was a certain investment out there that could make you a millionaire?

I’m not talking about a specific stock…

It’s not some dodgy Forex play…

I’m not talking about “the next big” small cap share…

And I definitely don’t mean some “amazing guru strategy” either.

In fact, this investment will only cost you 0.25% at the most.

And the best part?

It’ll get the government to help make you a millionaire!

Want to find out more?

 

The Profit-Sucking Costs You DON'T Have To Pay With This Investment

 

The cost of doing business when it comes to your investments is crucial.

Pay too much, and your growth & profits wither away…

Despite what you might’ve heard, that growth could end up being millions too.

And irrespective of how far we’ve come in the last few decades, the costs are still quite high when it comes to investing.

Taxes, fees, costs…

Before you’ve wiped the muck out of your eyes you’ve kissed away as much as 3% or 4% of your growth, every year, because of fees!

Your advisor takes a cut, you could be paying platform fees, and the investment funds take a little off the top as well.

It’s not hard to see why a few percent disappears so quickly.

It’s a lot of money that won’t make it into your pocket because you’re feeding the greedy middle men.

But the investment I want to introduce to you is another kettle of fish entirely.

Because with it, you pay less tax.

In fact, you only pay 0.25%!

And better yet, you get the control and access to your cash whenever you want.

And it all starts with as little as R2,750 a month…

 

The ‘Secret Sauce’ Behind This Millionaire Investment Maker

 

I’m referring to a Tax Free Savings Account (also known as a TFSA).

It was introduced by the treasury and the JSE (Johannesburg Stock Exchange) in March 2015 and if you haven’t opened yours yet, you really need to consider it!

As it says on the tin, it’s a vehicle that lets you invest tax free.

I’m sure you’re thinking, “But what about annuities, there are great tax incentives there - What makes this better?”

And yes, Retirement Annuities let you invest whilst getting back a nifty tax rebate every year, but the thing is, at some point in time you’ll need the money and you’ll get taxed on your returns.  

But Tax Free Savings Accounts are different, and they’ve changed the game for investors entirely!

You see, with a Tax Free Savings Account, there are a number of taxes you simply don’t pay.

Capital gains tax?

Gone.

Securities transfer tax?

Gone.

Dividend withholding tax?

Yes, you guessed it, also gone!

That means the usual 0.2% you'd have to fork over as securities transfer tax, get kissed goodbye.

The same goes for the 12%-13% you could pay on capital gains tax and the 15% tax on your dividends.

Poof!

All gone.

In fact, with a Tax Free Savings Account you even save as much as half your brokerage on run of the mill trading accounts.

The potential to save money, and reinvest it is huge.

That means the cash you normally would’ve handed over to your broker or the government comes straight back to you.

And because it never leaves your pocket, they’re allowing you to make more money than you normally would've made on your investments!

The Government and your broker are literally helping you to become a millionaireThey’re literally helping you to become a millionaire…

There is one catch though.

And don’t worry, it’s not a biggie.

You can’t invest more than R33,000 a year (or R2,750 a month).

You also can’t put in more than R500,000 over any period (this doesn’t include the growth on the initial R500,000).

So that means you have 15 years to invest R2,750 a month to make some investment magic happen.

 

The Way To Use A TFSA To Make You Your First Million (And More!)

 

So I’m sure by now you’re wondering how a measly R2,750 per month could make you millions.

Well that’s the beauty of long term investing.

Time is your ally and your friend.

Let’s use an example.

Say you only invest R2,500 per month using a TFSA and an index tracking ETF.

Say you receive an average 15.5% return a year (including dividends).

In a decade and a half, your investment will've grown to a little over R1,7million!

If you’d invested the exact same amount without using a TFSA, you’d be a little over R500,000 poorer and sitting on R1,19million.

Let’s take it one step further and say you’d kept investing R2,500 per month for 15 years.

Once you stopped contributing, you decide to keep your investments for another 4 years (making it 20 years in total, an investment term a lot of fianncial planners will talk about).

Now if you'd invested that money without a TFSA, you’d be sitting on over R1,6million.

However…

If you invested using a Tax Free Savings Account, your would be sitting on a healthy R3,5million after 20 years!

I think it’s pretty clear which route gives you better returns.

Also bear in mind these are calculated at a 12% return and a 3.5% dividend.

With some clever investing over your investment period you could achieve a higher return.

In fact, an 18% average annual return is enough to turn your R2,500 monthly contributions into just shy of R8million in 20 years’ time!

The potential for the returns you could make is exciting to say the least.


 

Kick Start Tax-Free Investing Today!

 

So what should you consider when opening your TFSA?

Well if you already have some money in ETFs, you really should open a Tax Free Savings Account if you haven’t already!

And if you feel you just don’t earn enough to put money into the market, but you can afford to put away a monthly amount of up to R2,750, then again, you really should open up a TFSA.

Another thing to consider is the knowledge it takes to tackle the market and build a profitable portfolio over the years.

If you're looking to avoid putting in the hours to learn all the nuances of the stock market, then a TFSA is a great option for you.

You see, TFSA’s at this point only let you invest in Exchange Traded Funds (ETFs), not to mention Retail Bonds and Unit Trusts .

That means at this point you simply can’t include ordinary stocks just yet.

Things could change in the future, but for the time being you’re limited to just those.

Personally I don’t think it’s a problem, because if you ask me ETFs let you profit from the stock market the lazy investors way.

Either way, I’d suggest you look at investing in ETFs anyway!

Tax Free Savings Accounts just offer you a fantastic way to pay less to the government and your broker, and keep those costs & fees for your own portfolio growth.

And in turn this allows them to help you become a millionaire if you put away the right amounts.

Sounds like a good deal if you ask me!

So if you havent put money into the markets just yet, or you're trying to find a way to pay less tax on your investments, TFSA’s are a great way to do so.

Most brokers and banks offer them, and it’s a simple process to get started.

 

How To Give Your Portfolio The 'TFSA Edge' 

 

I’m sure at this stage you’re wondering what exact ETFs you should be putting your money into with your TFSA?

We’ve been asked this question so often we decided to put together a TFSA ETF Cheat Sheet just for you!

In it we reveal all the best ETFs you can include in your TFSA, so you don’t have to spend hours researching, or spending time asking advisors and unnecessarily trawling the net for information.

All you need to do is tell us where to send your copy!

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So what are you waiting for?

Until then, here’s to tax free investing. 

John Stuart

John Stuart
Content Director
The Money Lab