What’s the best way to invest funds from a property sale?

Start by deciding on the period of your investment, then match it to the correct investment vehicle for your needs.

We recently sold a property and the cash of R2.2 million is just sitting in the bank (money market). We understand that this is not the best place to grow our retirement money.

We have a smaller Swissquote bank account (R500 000) with a few overseas investments (stocks) and a little currency cash (bad idea?) – with over a 20% drop due to the current economic situation as far as stocks are concerned. This account is also more expensive to trade.

Then we both have much smaller EasyEquities accounts that are also taking knocks, but not as bad as the Swissquote due to our steady ZAR account. We are self-employed and our kids will probably take over the business one day. We don’t have other retirement plans.

What would you suggest we do with the proceeds of the property we sold? Is it a bad plan to have two different investment accounts (one being offshore and one that we manage ourselves)? One is expensive and the other one is much cheaper with less loss since we do actively manage these. Also much talk about a big crash.

We do not have crypto yet, should we add those? Property is hard work, and with the current situation in SA, we don’t want to buy.

Can you assist, please?

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Dear reader,

Thanks for the question.

Let me start by saying it’s always a good idea to diversify your portfolio. Including various currencies and asset classes helps protect your total portfolio and gives you various avenues of growth.

When the crypto question comes up, I always try and be as diplomatic as possible. I’ve seen investors make enormous amounts of money and I’ve seen investors lose just as much. I don’t believe crypto has an underlying asset value and a lot of it is driven by hype, but in saying that, I do believe the technology behind crypto will shape the future and change the way transactions are done and the ownership of assets exchanged.

Let’s start with a few basic questions regarding the cash in the bank. How long do you have until you retire? Would you like access to the funds or are you ok with the funds being illiquid until retirement? What is your marginal tax rate? What are your risk appetite and risk capacity?

Firstly, let’s look at the period of the investment.

I will show you different funds, their volatility, and performance over time to illustrate the effect that time has on each one of them.

Choosing the correct fund is essential because you may be leaving cash on the table by choosing the wrong funds.

If you need the capital within the next one to three years, you probably don’t want to take unnecessary risks. You would probably need to invest in a mix of fixed income and money market funds. These funds suit investors who are looking for an intelligent alternative to cash or bank deposits over periods from 12 to 36 months and look to provide capital stability and aim to achieve a higher return than a traditional money market or pure income funds.

If you need access to the capital within a four- to seven-year period you will typically look at a balanced fund that mixes different asset classes (money market, fixed income, property, and equity). These funds are suitable for investors who look to build up long-term capital, requiring a moderate capital growth portfolio and looking to preserve the purchasing power of their capital over the long term, but are not prepared to accept the short-term turbulence of the equity market.

If you have a minimum period of seven years you should consider investing in local and international equity funds. An equity fund invests largely in the stocks of various companies to generate returns. Equity fund investments are linked to higher risk as compared to the funds mentioned above. These funds aim to generate long-term capital growth and real returns (returns minus inflation). These funds are volatile and there will be fluctuations in the value of your investment. You need to have a long-term view when investing in these funds and you must be able to stomach short-term pain. Again, these funds do not aim to provide capital protection, but long-term growth.

Below are some examples of money market and fixed-income funds that would typically be used for short-term goals.

You will see that both the funds delivered stable returns from 1 January 2019 to 15 June 2022. If you’re an investor who needed capital stability and stable growth you were exactly in the right funds to achieve these goals. The average fixed-income fund provided 7.33% over the past three years compared to money market funds that provided 5.04% over the same period.

Fixed income and money market performance – three years

Below are some examples of local balanced funds that would typically be used for medium-to-long-term goals.

Balanced fund performance – five years

You will find that these funds are more volatile than the fixed-income and money market funds. These funds introduce more equity and property exposure which creates these movements. The sector average for balanced funds over the past five years is 6.62%. Most of these funds have struggled over the past five years and have struggled to provide investors with real returns, but the picture does get better over 10 years as seen below. This just illustrates the fact that funds with riskier assets require time to provide real returns.

Balanced fund performance – 10 years

Below are some examples of local and international equity funds that would typically be used for long-term goals.

You will find that these funds are more volatile than the fixed-income, money market, and balanced funds. These funds introduce almost full equity and property exposure which creates even more volatility. The sector average for local equity funds (red graph) over the past five years is 7.33% while offshore equity funds (black graph) managed to provide 10.35%. As above, most of these funds have struggled over the past five years and have struggled to provide investors with real returns, but the illustration below shows these funds need time to provide investors with real returns and reward them for the risk they took. In saying that, you had to stay patient and invested during the periods where the fund had downward movements.

Offshore and local equity performance – 10 years

Money market and balanced vs local and offshore equity – 10 years

The above illustration shows international equity (black), and local equity (red) outperforming the balanced (purple) and money market (grey) by quite some margin. If you had a long-term view on your capital and invested in a money market fund you would’ve been rewarded with 86% over the period whereas the balanced fund provided 148%, local equity 276%, and international equity 347%.


Let’s look at the various taxes payable on investments.

There are numerous taxes investors will have to pay when they earn money on their unit trusts, of which the most notable is a tax on income (whether this is income from interest, dividends, or listed property) and capital gains tax (CGT). The impact of these taxes will differ according to each investor’s circumstances and the underlying assets being invested in.

The actual tax you pay is dependent on a combination of factors, the main two beings: your own marginal income tax rate; and the type and amount of income and capital gains you earn in your selected unit trust funds. The higher your marginal income tax rate, the more tax you will pay.

Interest income

If you own bonds or cash in your unit trust, you will incur tax on the interest income they pay out. This interest income is subject to income tax and is taxed at your marginal tax rate. Individual taxpayers enjoy an annual exemption on all South African interest income they earn, set by Sars every year. Interest from a South African source, earned by any natural person under 65 years of age, up to R23 800 per annum, and persons 65 and older, up to R34 500 per annum, is exempt from income tax.

Dividend income

For equities (excluding listed property companies), you will incur dividend-withholding tax (DWT) on the dividend income they pay out. DWT of 20% is withheld from your dividends before they are paid out or reinvested. Note the DWT is payable only on dividends paid out by the companies and is payable after the company has already paid 28% corporate tax on its net profits.

CGT is another tax associated with investing in unit trusts. A capital gains event is triggered only when you decide to sell (part or all of) your investments. If the price of the units has risen since you invested, this increase in value is known as a capital gain. Currently, only an amount of 40% of this capital gain (not the total gain) is included in your annual income; this makes the maximum CGT rate for individuals paying the maximum 45% marginal tax rate 18%. An annual exclusion of R40 000 capital gain or capital loss is granted to individuals and special trusts.

Investment vehicles and tax

Now that we know our investment period and the funds we are going to use, we need to choose the correct investment vehicle. These vehicles have different rules attached to them and understanding these rules is important in choosing the appropriate vehicle.

Retirement Annuity:

Tax on interest: No

Tax on dividends: No

Capital gains tax: No

Tax deduction for contributions made: Yes, up to 27.5% of the greater of remuneration or taxable income, subject to an annual cap of R350 000. Contributions over R350 000 will roll over to the next tax year.

Period of investment: To the investor’s age of 55 or older.

Withdrawals: The capital will only be available at retirement. One-third can be withdrawn as a lump sum and the other two-thirds need to be invested in a living/life annuity.

Offshore limits: Yes. Maximum offshore exposure of 30%, with an additional 10% for Africa.

Flexible investment:

Tax on interest: Yes

Tax on dividends: Yes

Capital gains tax: Yes (Maximum of 18%)

Tax deduction for contributions made: No

Period of investment: Open-ended.

Withdrawals: The money is freely accessible at any stage. You can make withdrawals or lump sum investments at any stage.

Offshore limits: None.


The income tax rate in an endowment is fixed at 30%, which means that if your income tax rate is more than 30%, your returns will be taxed at a lower rate.

Tax on interest: Yes

Tax on dividends: Yes

Capital gains tax: Yes (Maximum of 12%)

Tax deduction for contributions made: No

Period of investment: Five years

Withdrawals: Restricted. You may only withdraw money once during a restriction period but could be subject to penalties.

Offshore limits: None.

In conclusion …

Knowing the period of your investment and choosing the correct investment vehicle for your needs need to be matched. All these factors influence the type of funds you will need and the investment vehicle you need to utilise to make sure you are being taxed efficiently.

When investing long-term you need to have time on your side, and you must be willing to soldier through tough market conditions.

Feel free to contact me or speak to a reputable financial advisor.

Good luck and happy investing.

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