One of the major tax benefits of investing in an RA is that all returns within this vehicle are tax free. Over time this builds up to quite a substantial saving, which translates into better returns.
The reason one receives tax incentives on RAs is to encourage people to save more for their retirement.
Because the funds are being saved specifically for retirement a withdrawal restriction has been placed on them (i.e. you can’t have access to those funds unless you emigrate, become disabled or turn 55). The restrictions to the access of their savings prevent people from spending their money on holidays, new cars and other non-essential items, ensuring that at retirement the funds are still there.
But what if you need money for emergencies, such as medical expenses or a retrenchment? Ideally one should have short-term investments as well as long term ones. It’s a good policy to have a contingency fund (of about three to six months’ salary) in cash for unforeseen expenses and, once that fund is established, then start investing for your short and long term needs. It is important to have both.
The SATRIX is an easy (and relatively cheap) way to invest in the stock market if you have the stomach for riding out the lows and the discipline to stay invested. It’s also fairly liquid should you need access (over and above the contingency cash) in an emergency.
As always, the advice from a qualified financial planner is invaluable when helping one make investment decisions that suit one personally and allows you to achieve your goals.
Jillian Howard is a financial coach for smart people. She also coaches financial planners.