3 ETFs to Start Your TFSA on Easy Equities

It is no secret that as a nation, collectively speaking, we South Africans are poor. There are many reasons that have caused this situation. Low economic growth which causes "low household income and thus little savings" is one of the main culprits. However, as much as we might not be entirely to blame for our own economic situations, we still must be the ones who address our own personal financial issues (no matter the cause). So, in this week's blog post, I want to give you a simple solution that you can implement to save money using your Tax-Free-Savings-Account. This blog post will not focus on cutting down expenses to save but rather what to do with the little that you might be saving. So, if you are looking to start investing using your Tax-Free Savings Account (TFSA) on Easy Equities, then look no further!

Let's go...

Yes, as the title says, I will list 3 ETFs that you can use to start your TFSA, that is simple to do but before you go through that list, let us first understand why it is important to save and grow your money.

Why start saving money?

Saving money is crucial for several reasons. Firstly, having a savings safety net can protect you from financial shocks, such as losing your job or unexpected medical expenses. Secondly, saving allows you to achieve long-term goals, like buying a house, starting a business, or funding your education. Furthermore, when individuals save, it contributes to the country's economic growth, as savings can be invested in projects that create jobs and stimulate innovation. In South Africa's case, improving our low savings rate is vital for boosting economic growth, reducing unemployment, and reducing our reliance on foreign investment.

In other words, when you save (and invest your money), you not only improve your own personal financial situation but also indirectly contribute to the nation's economy. Pretty cool stuff. The TFSA is one vehicle that you can use to save and invest. So let us quickly understand what the TFSA is...

What is a TFSA account?

A Tax-Free Savings Account (TFSA) is a type of savings account offered by the South African government, designed to encourage individuals to save and invest for their future. Introduced in 2015, a TFSA allows South African residents to contribute a portion of their income to a savings account, with the earnings and withdrawals being tax-free. The annual contribution limit is R36,000, and the lifetime contribution limit is R500,000. TFSAs can be used to save for various goals, such as retirement, education, or big-ticket purchases, and can be invested in a range of assets, including unit trusts, exchange-traded funds (ETFs), and stocks. By providing a tax-free environment for savings growth, TFSA accounts offer an attractive way for South Africans to build wealth over time.

But how does the money in your TFSA contribute to South Africa's economy?

It depends on a few factors. The system is not perfect (no system is) and you are not obligated to use your money to directly contribute to the local economy but here are a few ways that it can.

1. An Increase in Your Networth. If the value of the assets you own rises overtime, then you are potentially one less problem that our society has to worry about. Why? Because you would potentially have enough money to address any of your own financial difficulties without turning to the taxpayer for assistance.

2. Your spending power growing. If your assets generate an income for you then you can use that income to well, spend and buy stuff. Your spending activity directly puts money in somebody else's pocket which contributes to job growth via service/product demand.

3. Capital Market contribution. The money in your savings account can be used to contribute to South Africa's capital markets, it can be lent out to people, it can be used to purchase local assets and make financing available in the financial markets. And yes, this money can be used to enrich other countries as well depending on the assets you buy. (in the list below, I will give you 3 Pro South Africa ETFs and 3 Other ETFs that meet the needs of the selfish investor lol just kidding)

My pro South Africa ETFs in the TFSA:

This was a difficult list to create as there are no really "pure South Africa ETFs". Most mid and large cap companies that are found in ETFs have some exposure to international economies. Eg: a South African company like NASPERS (found on the JSE Top 40) has a significant portion of its value derived from a Chinese company known as Tencent. It is also a similar case for other companies. So, the ETFs I will list below will feature South African companies that contribute to the local economy, but they are not purely reliant on the local economy and thus have business activities offshore (overseas). Let's start here.

1. Satrix Capped All Share ETF

The fancy decription of this ETF is:

The Satrix Capped All Share ETF is a cost-effective investment option that tracks the FTSE/JSE Capped All Share Index, providing broad exposure to 140 JSE-listed companies. Key benefits include capped individual shares, a diversified portfolio, low costs (0.25% total expense ratio), and semi-annual dividend distributions. This ETF offers a unique combination of broad market exposure, diversification, and low costs, making it an attractive option for investing in the South African market.

In other words, this ETF gives you the ability to buy a large amount of South African shares that come from different sectors and industries in the country. Most of these shares include some of South Africa's top companies. It is the simplest and most direct way to buy a list of South African assets.

Why I love this ETF? Besides the dividend that it pays, the ETF can serve as a foundation to a portfolio that is diversified but has a focus on the local market. You can buy this ETF and then build on top of it by adding other ETFs that do not overlap with this one (overlap means to have the same assets).

Other potential options:

Satrix INDI ETF, Satrix RAFI 40 and Satrix Quality ETF are other ETFs that are worth considering when it comes to getting exposure to the South African market. However, there is risk of overlap as our local market does not have a lengthily list of shares, most ETFs end up sharing the same combination of shares but with different themes and reasoning.

2. 10x South African Property Income ETF

The 10X South African Property Income ETF is a diversified exchange-traded fund that tracks the South African Property Index, providing exposure to listed property companies and real estate investment trusts (REITs). Designed to generate regular income, it's suitable for income-seeking investors. With a competitive total expense ratio, this ETF offers a cost-effective investment option, providing diversification benefits across various property sectors, including office, retail, industrial, and residential properties.

Why I love this ETF? Listed property has had a difficult time in the past 8 years, a significant portion of South African property companies are undervalued which potentially gives investors the opportunity to pick up some decent assets at a discount. Eg: Imagine buying a house worth R1 Million for R700 000 simply because the current owner is pessimistic about the future. Listed property is in that state, with good reasons of course as some companies have been complete dog poop. Looking forward though, there does seem to be some opportunities to take advantage of and this ETF enables us to capture the opportunity with a broad investment... and yes, the dividend is not bad as well.

3. Satrix SA Bond Portfolio ETF

Lending out money and earning some interest is usually a good idea when the borrower has means of paying back. This ETF enables you to do exactly that.

The Satrix SA Bond Portfolio ETF provides investors with exposure to a diversified portfolio of South African bonds. This ETF tracks the S&P South Africa Sovereign Bond 1+ Year Index, which comprises bonds issued by the South African government.

Side note: A bond is simply a loan contract with pre-determined conditions, when purchasing a bond, an investor is lending out money to the issuer of the contract. Contracts issued a government are called "Government Bonds". This ETF has a bunch of those contracts that are issued by the South African government.

Why I love this ETF? The first reason I love this ETF is that it gives us exposure to a different asset class which is bonds, thus it adds asset class diversification to our TFSA portfolios. The second reason I love this ETF is that it pays a decent dividend and lastly, the ETF has the potential to appreciate in value (the price can go up thus increasing the value of our investment).

Global ETF list

1. 10x World ETF

The 10x World ETF provides investors with exposure to a diversified portfolio of global equities. This ETF tracks the FTSE All-World Index, which comprises over 3,900 stocks from 47 countries.

Why buy this ETF? This ETF basically tracks the whole global stock market and is a great way to benefit from the overall growth of the global economy. It serves as a solid foundation for immediately diversifying your portfolio.

2. S&P 500 ETF by Satrix or NASDAQ100 by Satrix

The S&P 500 ETF by Sygnia offers investors exposure to the US equity market by tracking the S&P 500 Index. This ETF provides a low-cost way to invest in some of the world's largest and most successful companies. Simply put, when you buy this ETF, you are purchasing the top 500 companies in the USA. Most of these companies have global reach and are considered multinational corporations.

Alternatively, you can buy the NASDAQ 100 by Satrix, this ETF is a basket of the top 100 companies listed on the NASDAQ Stock Exchange. The top 100 mainly features technology heavyweights such as Facebook (META), Apple, Google (Alphabet), Netflix, Tesla, Nvidia, Microsoft etc.

My personal favorite between the S&P 500 and NASDAQ100 is the NASDAQ100, why? Because I already get exposure of the top 500 US companies through the 10x World ETF and would prefer to concentrate my capital a little more in technology stocks because of the AI boom and technology related developments in the world. Companies that are in the NASDAQ100 have their hands in many pies around the world and are leading the development of new technologies.

3. 1nvest MSCI Emerging Markets Asia Index Feeder ETF

This ETF offers a convenient way to tap into the growth potential of emerging markets in Asia, with the added benefit of diversification across various countries and sectors. The ETF includes large and mid-cap representation across various Asian emerging markets.

Why invest in this ETF? Simple, besides the US Market, Asia has been one of the key growth areas for the past 10 years. The region has had a rapid rise in manufacturing, technological development and a growing consumer base. It is also one of the few regions that has companies that directly compete with US giants, thus having some of your money in the Asian markets is a good idea. India is also a place to consider via the Satrix MSCI India ETF.

How to grow your TFSA account?

I have simple approach to my TFSA, I have 7 ETFs in it and every month I deposit money into my TFSA and then re-buy more of these ETFs. The reason I love this approach is because I do not have to think about what I am buying because the portfolio is already designed. My job is just to feed it capital so it can accelerate the growth of my money.

How does this look like in practice?

Step 01: You deposit R100 in your TFSA.

Step 02: You design a 7, 10 or 12 fund portfolios.

Step 03: You use your R100 to purchase these ETFs.

Step 04: You deposit more money and re-buy the same ETFs.

Step 05: Every month you deposit any amount of money you can and buy more of the same ETFs.

Step 06: Repeat step 05 for 12 months.

One of the benefits of investing in ETFs is that you can start small and grow your investment over time. With Easy Equities, you can invest as little as R1 per month in your TFSA. (obviously invest more than R1). Consider setting up an automated deposit into your TFSA account. This will help you build wealth over time and make the most of your tax-free savings' account. I use a reminder to transfer money at the start of each month and then purchase the ETFs, this works for me as my income fluctuates and so I use a percentage level of whatever money I make to save. Eg: my savings percent for my TFSA is 5% of whatever income I make, so if I make R30 000 net income, I put away R1500 in my TFSA. The rule is always to put away 5% of my net income until I max out my TFSA, if I max it out then I put the money in Retirement Annuity account.

Alternative Investment Options

If you're not comfortable selecting individual ETFs, don't worry! Easy Equities also offers a range of managed funds, including unit trusts and bundles. These funds are managed by professional investment managers who will handle the investment decisions for you. Simply choose a fund that aligns with your investment goals and risk tolerance, and let the experts do the rest.

Final thoughts: Starting Your TFSA Journey with Ease

Investing in a Tax-Free Savings Account (TFSA) on Easy Equities is a great way to grow your wealth over time while minimizing your tax liability. By incorporating ETFs into your TFSA portfolio, you can gain diversified exposure to various asset classes and markets.

The ETFs highlighted in this post offer a solid foundation for your TFSA portfolio. They provide a mix of local and international exposure, as well as diversification across different asset classes.

Remember, investing in a TFSA is a long-term game. It's essential to be patient, disciplined, and informed to make the most of your investments. By starting with these three ETFs and continually monitoring and adjusting your portfolio, you'll be well on your way to achieving your financial goals.

Happy Investing

-Omega

Remember: Opinions expressed in this article do not and never will constitute financial advice. Every person's financial situation is different, I recommend you speak to a financial adviser about yours