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Community


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Online Share Trading

Engage and learn about markets and trading online

TFSA - ETF's

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Barend1206
Contributor
I have eventually managed to open a TFSA on the OST platform for my son. He is 9 and now have his General Equity trading account and TFSA on same platform. With his R30k limit I want to now buy some ETF's for him. I have seem Simon's recommendations in Finweek but am also looking at PREFTRAX. It seems the yield is basically double that of any other ETF's - even better then the PTXTEN. Though not much in capital gain. Am I missing something re pref shares?
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39 REPLIES 39
geordie1
Super Contributor
from what I have seen preference shares give a very good dividend but capital gain is minimal and can even be negative.my own view would be to seek a good eft that invests in property shares where u have a chance of good capital growth and distributions.avoiding tax on both these potential gains makes sense to me.
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partridge
Super Contributor
If your son is 9 then frankly if it were my decision I would be as aggressive as I could in my choice of investments as time is on your side - and even more so on his.
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Barend1206
Contributor
Thanks lots for the input. I have decided to split the R30k into equal parts of DBXEURO, DBXUS, BBET40 and PTXTEN. The Prefs are just not showing enough capital growth - basically debt instruments.
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kwagga
Super Contributor
Great. Didn't realize that OST offer the TFSA on this platform. This will make my life much easier, because frankly it's offers a huge benefit over conventional methods of savings. I will most definitely make use of this.
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Blik
Super Contributor
Its also available on the normal Standard Bank online accounts - same as Auto Share Invest - but with similar buy sell date restrictions. I have opened two accounts for my daughters - 1 and 3 - and am going to spread the 30K between some foreign currency trackers DBXUS or DBXEU and maybe the BettaBetta. They have time on their side.
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Barend1206
Contributor
The Online share trading platform is much better than the Internet banking site. You can buy immediately and it place all the investments for the child in one place - shares and TFSA. His share portfolio and TFSA are two separate accounts and I can keep an eye on his watch lists iso logging into internet banking where trades are only done once a month. Open up a bank account, then open a online share trading account and add an additional TFSA. Only limitation is that child must be older than 7. Why this age limitation I have no idea. My daughter has her TFSA on the internet site - she is 5, but that will change in 2 years.
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kwagga
Super Contributor
Let me see if I've got this right. You can only allocate R30k per year as a tax registered person to this account. I can't have one for myself, one for my child (6) separately and allocate R60k in total per year to my child (30k) and to my account (30k) ?
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kwagga
Super Contributor
Another question - What happens if I decide I want to only let my son get this money once he turns 50. That is 44 years from now. Are there any form of time expiration on this Tax free account ?
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Barend1206
Contributor
You have R30 per individual ie my family trust and business can't have an account. The R30k is thus for you and R30k for each child. So in my case I am investing R90k for the 2016 tax year for me and 2xchildren. They must have their own bank accounts to be able to open a TFSA for each. The R60k I will be investing on their behalf is a donation and under the tax limit of R100k per tax payer per year so no donations tax. So basically you can fund the TFSA for 3 and a bit children per year before donations tax come into play. That is if you have enough cash available!
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Barend1206
Contributor
I have not heard of any expiration date on the TFSA, though anything can happen! Not sure how you are going to limit your child from spending the cash the moment that he/she becomes entitled to the money as the account is effectively theirs ie in their name and not yours. That is my problem as well and am sure that in 15-20 years from now we will read about case law where children approached the courts to get access to the funds!!
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kwagga
Super Contributor
You can dictate entitlement age in your will, not ? My thought's are that this money could grow to a massive amount over that period, tax free and if God permits, actually even benefit the next unborn generation as well.
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Blik
Super Contributor
My local Standard Bank, told me that I have signing power over their accounts until they are 16. I am not sure if that is 100% correct, but that is what they told me. I am not going to open SFM trading accounts to hold the TFSA, for my 2 kiddies - well not at this stage. I want to keep costs down. So for the moment, their TFSA are just plugged into their online banking accounts. I will have to make sure I educate them properly as to the use of the accounts before they take control of them.
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kwagga
Super Contributor
By the sounds of this, you're going to have to do some very careful planning before rushing into this. On the surface the concept is simple, but you might end up severely constrained when it comes to decision making when you want to make the money available for your child. I would like to retain that right, even through a will. Also, 30k max per year and a limit of 500k - 16.6 years to reach that limit. That's a long time, and R30k in 16 years will probable be worth like R4 500 today.
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Barend1206
Contributor
My wife quoted Churchill the other night - Saving is a great thing, especially if your parents do it for you! I think any savings on behalf of your children is great as we all only want the best for them. However, there must be a process of education that accompanies their financial wellness. I have heard crazy estimates of what these TFSAs can be worth in years from now. My opinion is that the TFSA is a great tool for my children's future and I have to ensure that they understand the implications of this and also in time be exposed to the workings of the market, inflation, tax, interest, divvies and being trustees. You would not let your child drive your car unless you have shown them how it works.
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kwagga
Super Contributor
True words those
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Freelander
Occasional Contributor
What are you actualy saving with the TFSA? If you are earning 4% dividents with divident tax of 15%, it does not seem much on 30k.
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SimonPB
Valued Contributor
cgt/income tax, tax on interest .. over decades it is massive
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SimonPB
Valued Contributor
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geordie1
Super Contributor
if u are going to save the max over say 16 years and u gain on capital as well as dividends the potential returns compounded could be highly significant do the sums with any assumptions that u feel are reasonable and I think you will agree it is a no brainer.for me being over 60 I am not convinced it is worth it but for my children and grandchildren it sure is
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