TFSAS AND RAS: WHY IT PAYS TO INVEST EARLY IN THE TAX YEAR

The earlier you invest, the longer you'll be invested

- STEVEN JONES

A NEW tax year has begun-and with it, the chance to make early use of your 2022/23 tax-free investment allowances.

Now you may be thinking: Why hurry, when there's the best part of a year still to go? However, the counterargument is, why delay when your chances of investment success are improved the more time you are invested? Or as the old saying goes: It's not about timing the market, but time in the market, that counts.

In fact, our calculations show that you could potentially lose up to just shy of R200 000 over 25 years by waiting until the end of each tax year to invest, rather than investing at the start.

Consider what would happen, for example, if on 1 March 2022 you were to invest the annual maximum of R36 000 that is currently allowed in a Tax-Free Savings Account (TFSA) and continue to invest R36 000 at the beginning of every tax year, earning a hypothetical annual investment return after costs of 9%.

Given that the lifetime investment limit for TFSAs is R500 000, you'd 'max-ouť your allowable contributions on 1 March 2036 (i.e. after 14 years, with your final contribution being R32 000 to take you up to the lifetime limit).

Fast-forward a further 11 years, and by 28 February 2047 you'd end up with more than R2,4 million in your TFSAR500 000 of invested capital, and another R1,9 million in growth. Wait until the end of this tax year and every subsequent tax year to invest the same amount of money, though, and you would end up with just R1,7 million in capital growth. That effective delay of just one year will end up costing you R200 000 in lost returns!

Early, and often