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Deacon and Associates CC give advice in the following financial areas: 

  • Investment 
  • Life Insurance and Benefits
  • Medical Aid
  • Short term Insurance (car & household cover)
  • Commercial insurance

This Record of Advice explains the various ways in which to Invest.

There are many avenues of investments one can take: Cash, Money Markets, Units Trusts, Endowments and Retirement Annuities. One can invest locally or offshore.


Cash is normally the safest way to invest. You will shop for the best interest rate you can get and sometimes if you fix the term, you will be able to get a slightly higher rate. The tax on Cash is calculated as follows:

  • The first R24,800 is normally tax-free and then the difference is taxed at your average tax rate. 
  • Many people will fix a rate but do not consider the tax on interest
  • Example: a fixed rate of 7%, e.g., R1,000,000 invested in a call account, earning 7% = R70,000 interest – R24,800 tax free (under age 65) = R45,200 x 40% tax = R27,120 tax. In this example, nett after-tax earnings is then R51,900.72 bringing the real rate to 5.2%.

Money Markets

Money Markets works the same way as Cash, but the rate can change as rates are shopped around from different banks and sometimes can earn more than the current interest rate from the bank. Tax works the same way as Cash. 

Listed Shares

Shares can be bought on the stock exchange either locally or internationally. Shares are bought because they generally perform better over a longer time period than Cash. Shares are bought at a listed value, which over time normally increases in value as the underlining company grows. There are usually two dividend payments in one calendar year. So, growth is twofold – 1) Dividends; plus 2) Share price growth. 

Shares do carry a risk of dropping in value because they may be sold for less than the purchase price. This means if you sell your Shares below the purchase price you will effectively get less out than what you originally invested. 

Tax on Shares fall under Capital Gains Tax (CGT). This as a general indication of CGT which works out to be between 12% to 18% of the capital growth as an example: R1,000,000 grows by 10%, then the fund is worth R1,100,000. Capital gain is R100,000 x e.g., 15% Capital Gain Tax (CGT) = R15,000 CGT tax paid. (Please know this is a very general example for illustration purposes only

As you can see the tax is almost half that of interest tax. A good blue-chip Share will almost always grow above the current interest rate but not all the time. In short term investing, Cash can outperform Shares under a three-year period and sometimes longer. One needs patience when investing in this type of structure. This is a multi-billion-dollar industry, and one has to wonder why, if one believes Cash is a better option. 

Investing in Shares should never have less than a three-year horizon.

Unit Trusts

Unit Trusts are similar to Shares but with more of a safety net and sometimes they can outperform Shares. A Unit Trust Fund is a basket of different Shares, Cash, Bonds and other investment instruments. You can tailor-make your Unit Trust basket to your risk appetite. The more Cash you have in your basket the less volatile the fund will perform (“volatile” is how much the value of your funds will rise or fall over a given period) A good balanced fund can and often does outperform Shares and Cash over certain time horizons. 

The tax will be charged the same as interest (Cash Bonds & Money Market) and CGT on the growth of the Share portion. There is no double tax on both interest and CGT. Dividends are also paid and are tax free. This does make for an attractive investment because there are Fund Managers that make the difficult decisions investing in the markets. 

One can pick a Unit Trust more to your risk appetite. A Fund Manager will charge a fee to manage these funds. Normally a good Fund Manager will charge a higher fee. A point to remember is a higher fee does not necessarily mean a lower return. In fact, on many occasions it is just the opposite. 

Unit Trusts, like Shares – can be bought and sold with no waiting periods. There is normally an upfront fee and a monthly management fee levied on the value of the funds invested. These are disclosed in the quotes generated be the service supplier and in the Record of Advice.


Endowments are similar to Unit Trusts however it has been structured to make it more tax efficient. Funds can be selected as you do in a Unit Trust, but Endowments normally do not have as many funds to choose. Some companies only offer a hand-full of funds to select. Most do have balanced funds. 

The tax advantage is if the investment runs for 5 years or more, there will be no tax for you to pay. This is because tax is paid at source, and usually a lower rate than that of a high tax paying individual. This includes CGT tax, so what is paid out, you keep. 

Endowments do have certain restrictions because of the tax advantage. Once invested (monthly or lump sum) you cannot make a withdraw in 1st year. If you do so, you could pay a high penalty. Endowments do allow for one loan to be paid to you (from your own funds) and you can pay it back without incurring any fees. Or/and you can do one partial withdrawal in year two, three, four and five. After five years you can do as many withdraws as you like or cash in the policy all being tax free in your hands. Some companies will only allow one withdrawal in the 1st 5-year term. 

Endowments are more expensive to invest in because of the tax structure and therefore grow slower than Shares or Unit Trusts. They can however have a beneficiary listed with allows the funds to be paid to a nominated beneficiary directly. This can make for a good education policy. Endowments can also be ceded as collateral to a bank against a loan.

Retirement Annuities

Retirement Annuities (RA) are used solely for the purpose of saving for retirement. They are not short-term investments. Like Endowments and Unit Trusts, investment funds can be chosen. Pre-retirement Annuities may only use the “Regulation 28” funds. What this basically means is the funds must be low risk and approved as a “Regulation 28” fund. High risk funds are not usually allowed to be selected. 

However, there are some major advantages to a Retirement Annuity especially if you are a high earner and your tax rate is over 25% of earnings. Advantages are as follows: 

  1. Tax deduction on contributions i.e., if your tax rate is 25% and you contribute – as an example: R1,000 p/m into a RA then you will, assuming you are in good standing with SARS, get back approximately R250 of that contribution. That is already a 25% return on investment. 
  2. The Retirement Annuity can be fairly tax efficient at retirement because some of the cash you can draw (normally a third of capital) is tax-free. The formula is as follows on the one third and applies to all Pension Funds. (Provident, Pension, Preservers and Ras)

The formula currently is:

  • The first R500,000 drawn is 0% taxed
  • The next R200,000 drawn is tax at 18%
  • The next R350,000 drawn is taxed at 27%
  • And the balance (if any) is taxed at 36%
  • If your RA is less than R247,000, you can draw the full amount out subject to the above tax tables
  • If the amount is more than R247,000 then you may draw a third out, and the remaining two thirds must be used to buy a compulsory annuity. 

How annuities work is covered later. An RA can be an excellent way to build capital for retirement because you can get a tax break on up to 27% of taxable income (capped at R350,000) per year. 

An example would be: Salary R500,000 (42% taxable income) 27% of taxable income (R500,000) is R135,000 you can contribute to pension funding. The tax refund on R135,000 x 42% = R56,700 refund. An investment into an RA of R135,000 has only cost you R78,300. Growth is pension funding is tax free. (no CGT, interest or dividend tax)

Property Investing

Property Investing is when an investor will buy a property such as a flat, townhouse, house or a commercial building such as a factory, warehouse etc. This was considered a relatively low risk investment until the 2008 credit crisis hit and suddenly property investing took a whole new meaning. One would typically borrow from the bank and buy a property and rent it out. You would use the rent to pay the bond, and normally you would subsidize the difference between the bond payments and the rental received. 

The risks include the following 

  1. Pirate tenants, these are people that will move in and then pay no rent and can normally stall for a minimum of 6 months to a year before you can evict. If you force evict you will be breaking the law and be levied very stiff fines. 
  2. You will be responsible of maintenance and upkeep, incurring a potential loss up to 6 months or more rent, just to repair after a tenant has moved out (yes even after keeping the deposit).
  3. Unable to find a reliable tenant. 
  4. Nett rental is fully taxed. 
  5. Investment is a five-year or more investment horizon and non-liquid. 
  6. Properties bought with no bond normally only give between 4% to 6% nett return. However, many investors have done very well with property investing.

These are the basic types of investing. There are many more but not a main steam to what I have highlighted. Each type of investment has pros and cons, and all carry some risk. Yes, even Cash in the bank as Africa Bank and VBS can testify to.

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