While many professional women earn impressive salaries and contribute towards corporate pension requirements, Citadel Advisory Partner Kirsten Smit says that it’s important to build wealth outside your job.

Many women believe they can only become as wealthy as their corporate salary allows them to be. But making your corporate salary work for you, instead of only enabling a good lifestyle, can build wealth.

Here are four considerations:

1. Understand your timeline

It is important to take your investment horizon into account before investing. Different asset classes experience varying levels of volatility and all are subject to inflation.

When investing your surplus capital for a short period of time (up to two years), focus on asset classes that are not subject to high levels of volatility. Your obvious choice is a money-market-type fund. Shop around for the best rate, but keep expenses in mind; it’s no good finding a fund that offers a superior interest rate but then charges a higher fee than its peers. Alternatively, simply pay it into your home’s access bond.

For investments with a medium-term horizon (two to six years), bonds and fixed-interest investments are a good option. Their returns generally exceed inflation, but they are not usually subject to the same level of volatility as equities and property. Also consider preference shares or a low- to moderate-risk fixed-income unit trust fund.

For the long term (seven years and more), equities and property are a win. Ensure, however, that you manage risk with sufficient diversification. Spread your equity investments across different geographical regions and different sectors; this will ensure they are not all affected by currency fluctuations in the same way and are not entirely subject to country-specific economic and political risk. To achieve this level of diversification within the property sector, the easiest way is to invest in a listed property fund that offers exposure to a variety of property investments.

2. Create a passive income

Ways to create passive income are by renting out an investment property or through dividends from a share portfolio. In both instances it is important to consider tax and costs. Property investments can offer a great yield through the rental achieved, but the associated taxes (income tax paid on rental income, capital gains tax paid on disposal income, as well as transfer duty) and costs (property-related expenses, levies and municipal rates; financing costs; agent commission, as well as personal time and energy in maintaining the property) can add up very quickly.

Conversely, you can construct a share portfolio to provide a dividend yield well above the index average. These dividends will be subject to dividends tax (15%) but this is usually substantially less than the income tax you would pay on a rental property.

That said, an advantage of property investment is the ability to make use of leverage, in other words, taking out a bond on the property to fund part of the investment.

3. Develop a business outside your corporate job

Depending on the spare time you have at your disposal, and your employment guidelines, a second job can either be tied to an existing skill-set, or to a passion or hobby. Generally it is advisable to look for business opportunities that due not require extensive time commitments.

It is also important not to overcapitalise on a business that plays second fiddle to your existing work. The risk is simply too high. Rather, start slowly and build up the business over time. Utilise shortcuts and technology wherever you can. For example, if you are keen to capitalise on an interest in selling imported luxury goods, then set up an online store and manage your marketing via social media.

4. Take advantage of investment opportunities

All investments should be viewed holistically and overall tax efficiency is essential. As of 2015, it is now possible to invest in the new tax-free investments which are available in South Africa. The tax advantages are incomparable to anything else currently available in the market. You can either contribute R30 000 outright (the annual investment limit for these new investment vehicles) or set up a monthly debit of R2500 (or less).

Also ensure that you contribute the maximum to a provident fund if you’re working in a corporate set-up; this is particularly relevant if your company also makes contributions. Besides the immediate tax benefits, your investment will also be subject to tax advantages within the retirement structure.

If you’re an entrepreneur, or your company doesn’t offer retirement benefits, it is vital that you contribute the maximum allowable (15% of non-pensionable income) to a retirement annuity.

Those in a corporate set-up who are already contributing to a provident or pension fund can also make contributions to a retirement annuity. These will be tax-deductible if they are sourced from non-pensionable income, for example, an annual bonus that isn’t part of your remuneration package, rental income or commission.

Citadel is a specialist wealth manager with over 20 years’ experience in providing bespoke solutions for high net worth individuals.