TFSA Maths and Investments

TFSA questions answered

In this article we will answer the next TFSA questions as part of the WellSpent TFSA Q&A Series.

Q8: What is the maths? If I start a TFSA for my child at 15 and I contribute for 15 years (max per month) what would the expected value be?

Shaun Williams, Avior Wealth Services answers:-

The expected value depends on various factors such as whether you invest evenly on a monthly basis or the full R33,000 at once in beginning of each year, what investments you invest in within the investment vehicle and what the returns are for those investments etc.

However, when considering a scenario where:

  • One invests R2750 per month each year resulting in the R33,000 per year limit,
  • One invests consistently for 15 years, and
  • One invests in an investment product that has moderate risk providing a return of around 3% above inflation and a dividend yield of 2%,

The result would be R500,000 worth of contributions with an expected value of the contributions in the account at the end of 15 years and two months being R1,643,328. The tax saving on this would be estimated to be just around R200,000.

Q9: What investment risk-profile would be best for a TFSA (Conservative, moderate, high-risk)?

Shaun Williams, Avior Wealth Services answers:-

One needs to remember that not all TFSA’s are equal. The risk profile of a TFSA depends on the underlying investments invested in within the TFSA. These underlying investments will be determined by the risk profile of the specific investor. TFSA is an account created by the Treasury. The account is similar to a structured shell account created by the Treasury that would contain products as determined by an individual financial service provider. What financial service providers invest in within that account may differ from one TFSA to another.  As a result, risk profiles of the specific TFSAs differ from one another. Therefore, the investor must be aware of the underlying investments that are in the TFSA, what the risk profile of those underlying investments are and whether they align to the investor’s risk profile, objectives and needs.

Jan van der Merwe, head of Actuarial and Product at PSG Wealth answers:-

This would depend on risk profile and investment objective, and the answer would vary from one investor to the next. You should also consider how this fits into your overall investment portfolio. As mentioned, the benefits of TFSA’s really come to the fore the longer you remain invested for. Those who have a longer investment horizon, should therefore consider investments into growth assets like equities, even though these are considered to carry more short-term risk.

Remember, you can access all of the TFSA Questions and Answers here.

Please feel free to engage on our social-media pages if you have any TFSA-related questions or comments.

The Editors

Tax Free Savings Accounts – The Questions

Here are the TFSA questions we put to the experts:-

We trust that the information we have provided is helpful and we would encourage you to engage with us, through our social-media accounts or contact us here if you require any additional information.

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