PSG answers your savings and property questions.
I am planning to use a Tax-free savings account to save for my short-term goals, but I am aware that drawing from it impacts the compounding effect. Should I use this investment vehicle for a five-year savings goal, or are there other options I should consider? Chrisley Botha, Wealth Adviser, PSG Wealth, Paarl, Cecilia Square Stockbroking.
Firstly, well done on having a tax-free savings account (TFSA), which I believe every person should maximise as part of a holistic savings plan. The real value comes from allowing the investment to remain untouched for as long as possible so that the compounding effect can fully work in your favour. Withdrawing funds from a TFSA impacts the long-term compounding benefit and your lifetime contribution limit. In addition, if you exceed the annual contribution limit, there are tax implications, which is counterintuitive.
When saving for a five-year goal or less, consider alternatives such as a flexible unit trust account with a conservative to moderate risk profile. With such a strategy, you are able to access diverse asset classes but within a managed risk approach. These options are generally better aligned to shorter investment horizons where preserving capital and maintaining accessibility are important.
