When it comes to investing, returns often get the most attention. But what many investors overlook is the impact tax can have on long-term outcomes. Tax is one of the few aspects of investing that can be planned for in advance, and managing it well can make a meaningful difference to the value of your portfolio over time.

At Schonberg Wealth, tax efficiency is viewed as an integral part of sound financial planning – not an afterthought.

Why Tax Matters in Long-Term Investing

Every investment decision has potential tax consequences. Interest, dividends and capital gains are all taxed differently, and over time these costs can compound just as returns do. While markets fluctuate and returns cannot be guaranteed, effective tax planning helps reduce unnecessary leakage from your portfolio, allowing more of your capital to remain invested and working for you.

Tax efficiency is not about avoiding tax; it is about structuring investments appropriately within the framework of existing legislation.

Understanding Tax Across Different Investment Types

Different investment vehicles attract different forms of taxation. Cash and income-producing assets are typically taxed at your marginal income tax rate, while dividends and capital gains are taxed separately at prescribed rates.

Understanding how your investments are taxed – and when tax is triggered – is essential. For example, frequent switching between investments can result in unintended capital gains tax, while holding assets unnecessarily in taxable structures may reduce net returns over time.

Capital Gains, Dividends and Interest Explained

Capital gains tax is generally only triggered when an investment is sold, which makes long-term investing particularly tax efficient when combined with disciplined portfolio management. Dividends and interest income, on the other hand, may be taxed annually, depending on the structure used.

Balancing these elements within a portfolio requires careful planning to ensure income needs are met without creating avoidable tax inefficiencies.

Using Tax-Efficient Structures Appropriately

South African investors have access to a range of tax-efficient investment structures, including retirement funds and tax-free investment accounts. When used correctly, these vehicles can play a powerful role in long-term planning.

However, these structures work best when aligned to clear objectives, time horizons and overall financial circumstances. Using them without a broader plan can limit flexibility or create mismatches between short-term needs and long-term goals.

The Importance of Ongoing Review

Tax legislation, personal circumstances and financial goals all change over time. What was appropriate five years ago may no longer be optimal today. Regular reviews ensure that your investment strategy remains aligned to both your objectives and the prevailing tax environment.

A proactive approach allows adjustments to be made gradually and thoughtfully, rather than reactively in response to life events or regulatory changes.

A Smarter, More Intentional Approach

Tax-efficient investing is not about complexity for its own sake. It is about clarity, structure and intentional decision-making. By understanding how tax interacts with your investments, you place yourself in a stronger position to preserve wealth and support long-term financial goals.

With the right guidance, tax becomes a planned variable – not an unwelcome surprise.pe.