53 min
Tax-free vs education (#140) The Fat Wallet Show from Just One Lap
-
- Education
The tax-free investment case is so appealing, it’s almost always a good idea to do your tax-free investing before anything else. Even fancy algorithms like this one finds that. Sadly, life happens to our money and a full tax-free allocation isn’t always possible.
This week, we help a father of four figure out how to balance his educational priorities with his tax-free allocations. The good news is there’s no one right answer. You have many options, including pausing your tax-free contributions and taking it up again later, as Njabulo pointed out in this podcast. The bad news is sometimes two options have more or less the same benefits and shortcomings. In that case, it’s time for the soft sciences.
I always talk about the importance of knowing what you want your money to do. Since Tinus chose to have four children, we can assume his family and children are his top priority. His finances should reflect that. Secondly, a great education will empower his children and offer them a greater likelihood of being financially secure themselves. Tax-free is important, but it’s not the be all and end all.
Tinus
I try to max the contributions for myself, my wife and my four kids every year, even if it means I need to sell from my existing portfolio to get the required cash.
I hope that I’ll be able to teach my children enough about finances that they’ll handle their TFSAs with care once they turn 18.
My initial idea was that they would pay for their own studies from the TFSA, but it would probably not be very smart to start withdrawing from the TFSA as the real opportunity of compound growth is just massive if they can keep the investment going.
Projecting the value of a maximum annual contribution up to the R500,000 level and 8% annual return, the account at age of 18 would sit at around R1.2m. This R1.2m becomes R31m by the age of 60, which should allow them a comfortable retirement from the TFSA alone.
Surely this “asset” in the child’s balance sheet would make getting a study loan much easier if required, especially if the TFSA is then moved to a provider that also give study loans (type of a soft security).
How do you balance the contributions made to your child’s TFSA and provide for their studies? I’m leaning towards maxing out the TFSA and face the music to pay for studies when the time comes.
I have always believed in choosing stocks with good momentum. For this reason, I initially chose the Satrix Momentum Unit Trust for two of my children’s TFSAs and I’ve been contributing to them all along with TFSAs at Satrix directly.
I noticed that there is now a Satrix Momentum ETF, that seems to be exactly the same as the unit trust, just lower cost. ABSA NewFunds also have a momentum-based ETF. I am considering moving these two kids TFSAs over to EasyEquities for easier admin and future flexibility, but would like to stick to a momentum type fund for now. How do these options compare (the methodologies are not the same as is evident from the current holdings in each fund).
For my two youngest children I chose the Sygnia 4th industrial fund (mainly because it sounded cool and I thought choosing technology for my 0 and two-year-old can’t be a bad idea).
Their investments have done very well (just lucky timing to be honest). From your recent podcast I could pick up that you are not a massive fan of this fund (it invests in guns etc) and I know that there are performance fees as well. What would be other options in the technology space, just a simple Nasdaq ETF?
Find our house view on tech ETFs here.
Subscribe to our RSS feed here.
Subscribe or rate us in iTunes. Sign up here to receive an email every time a new show goes live.
Win of the week is Hannes for sharing a great car financing tip.
For anyone interested in calculating car affordability (because some of us love cars and it’s also our hobby, not just a means of transport), Dave Ramsey has a cool rule stating that you can
The tax-free investment case is so appealing, it’s almost always a good idea to do your tax-free investing before anything else. Even fancy algorithms like this one finds that. Sadly, life happens to our money and a full tax-free allocation isn’t always possible.
This week, we help a father of four figure out how to balance his educational priorities with his tax-free allocations. The good news is there’s no one right answer. You have many options, including pausing your tax-free contributions and taking it up again later, as Njabulo pointed out in this podcast. The bad news is sometimes two options have more or less the same benefits and shortcomings. In that case, it’s time for the soft sciences.
I always talk about the importance of knowing what you want your money to do. Since Tinus chose to have four children, we can assume his family and children are his top priority. His finances should reflect that. Secondly, a great education will empower his children and offer them a greater likelihood of being financially secure themselves. Tax-free is important, but it’s not the be all and end all.
Tinus
I try to max the contributions for myself, my wife and my four kids every year, even if it means I need to sell from my existing portfolio to get the required cash.
I hope that I’ll be able to teach my children enough about finances that they’ll handle their TFSAs with care once they turn 18.
My initial idea was that they would pay for their own studies from the TFSA, but it would probably not be very smart to start withdrawing from the TFSA as the real opportunity of compound growth is just massive if they can keep the investment going.
Projecting the value of a maximum annual contribution up to the R500,000 level and 8% annual return, the account at age of 18 would sit at around R1.2m. This R1.2m becomes R31m by the age of 60, which should allow them a comfortable retirement from the TFSA alone.
Surely this “asset” in the child’s balance sheet would make getting a study loan much easier if required, especially if the TFSA is then moved to a provider that also give study loans (type of a soft security).
How do you balance the contributions made to your child’s TFSA and provide for their studies? I’m leaning towards maxing out the TFSA and face the music to pay for studies when the time comes.
I have always believed in choosing stocks with good momentum. For this reason, I initially chose the Satrix Momentum Unit Trust for two of my children’s TFSAs and I’ve been contributing to them all along with TFSAs at Satrix directly.
I noticed that there is now a Satrix Momentum ETF, that seems to be exactly the same as the unit trust, just lower cost. ABSA NewFunds also have a momentum-based ETF. I am considering moving these two kids TFSAs over to EasyEquities for easier admin and future flexibility, but would like to stick to a momentum type fund for now. How do these options compare (the methodologies are not the same as is evident from the current holdings in each fund).
For my two youngest children I chose the Sygnia 4th industrial fund (mainly because it sounded cool and I thought choosing technology for my 0 and two-year-old can’t be a bad idea).
Their investments have done very well (just lucky timing to be honest). From your recent podcast I could pick up that you are not a massive fan of this fund (it invests in guns etc) and I know that there are performance fees as well. What would be other options in the technology space, just a simple Nasdaq ETF?
Find our house view on tech ETFs here.
Subscribe to our RSS feed here.
Subscribe or rate us in iTunes. Sign up here to receive an email every time a new show goes live.
Win of the week is Hannes for sharing a great car financing tip.
For anyone interested in calculating car affordability (because some of us love cars and it’s also our hobby, not just a means of transport), Dave Ramsey has a cool rule stating that you can
53 min