The behavioural mistakes tax-free savings account investors make

It is common for investors to focus solely on the performance of their tax-free savings account without considering the importance of investor behaviour. Investor behaviour can also have a significant impact on the long-term performance of your tax-free savings account, so this should also be carefully managed.

Decision-making should always focus on the long term, and emotional decision-making should be avoided. In this article, we will take a deeper look at some of the behavioural aspects that are important to be aware of and that you would ideally look to avoid when it comes to managing your tax-free savings account.

What is a tax-free savings account?

A tax-free savings account (TFSA) is a long-term investment savings account introduced in South Africa to encourage long-term saving through tax benefits. The growth within your tax-free savings account is tax-free, allowing more of your returns to be reinvested and potentially compounded over the long term.

There are, however, contribution limits that you will need to adhere to. Current contribution limits, as of the 1st of March 2026, are as follows: R46,000 per annum and R500,000 for life. If you exceed these limits, a 40% penalty will be applied to the excess contribution amount. There are also no restrictions on withdrawals. These should be avoided, if at all possible.

Why investor behaviour matters so much

Investing is not only about strong returns, but also about your behaviour as an investor. When it comes to the decisions you make as an investor, the focus should be on the long term, while less emphasis should be placed on day-to-day conditions, where short-term market volatility may occur.

The long-term view requires patience as an investor. How you behave as an investor can be seen in different ways, such as consistency, discipline and emotional reactivity. Small decisions that you may make in these areas can have a long-term effect and potentially impact the growth of your tax-free savings account.

Common investor mistakes

Treating a TFSA like a short-term savings account

A tax-free savings account should not be treated as a short-term savings account to be regularly dipped into; rather, it should be viewed as a long-term investment account that can potentially compound and grow over time. When your tax-free savings account is viewed as a short-term savings account, you may lean too heavily on cash, which could affect the long-term growth of your investments. It is important to include growth assets, such as equities, in your portfolio to target long-term growth.

10X offers you a TFSA calculator that can be used to do your TFSA contribution scenarios. This is a free online tool available on our website.

Withdrawing unnecessarily

As there are no restrictions on withdrawals from your TFSA, it can be tempting to withdraw for possibly unnecessary short-term needs. However, you should generally avoid withdrawing money from your TFSA, as if you do, you cannot add these contributions back later, since the contribution room has now been used up. You’re also missing out on potential compound growth, which can affect long-term outcomes.

If your investment focus is on the short-term, at the expense of long-term investing, you may feel more tempted to withdraw from your tax-free savings account. As mentioned, there can be significant costs to making withdrawals from your TFSA, such as losing your contribution room and missing out on potential compound growth that might otherwise have accrued.

Chasing performance

Investors may also find it tempting to chase returns in their portfolio. This may look like switching funds to move into those that have previously performed well or out of those that have not performed as well. It’s important to remember that market cycles will always occur, but that your focus should always remain on the long term. You should avoid being affected by short-term market volatility and reacting emotionally to it.

Being too conservative

It is common for investors to experience fear around market volatility that may occur within normal short-term cycles. This may result in you investing too heavily in cash in order to avoid this potential volatility. Investing heavily in cash could lead to low returns, and your portfolio may struggle to keep up with inflation. You would, therefore, want to invest in some growth assets, such as equities, in order to target growth in your portfolio over the long term.

Ignoring fees

It’s important to keep a close eye on the fees you are being charged. Fees can reduce the returns you have available to reinvest, which may affect the overall growth of your TFSA over the long term. Here are some of the fees that may be deducted from your tax-free savings account:

• Administration fees: There will be administration fees charged for admin-related tasks like compliance, reporting, tax and similar.
• Management fees: There are fees charged for the running and management of the fund.
• Advisor fees: An advisor will offer advice and other services, and in return, they will charge fees.

There may be both an initial and an ongoing fee charged. Let’s look at an example of 1% in fees vs 3% in fees. We will assume the following information:

Monthly contribution: R3,833

TFSA lifetime limit: R500,000

Investment term: 30 years

Annual return: 12%

Annual inflation: 6%

Contributions will stop once the limit is reached to avoid any penalties, but the money remains invested for the full 30 years. The returns are compounded monthly and adjusted for inflation to determine the final values.

Example 1 (1% in fees): After 30 years, the final investment value is approximately R1,4M

Example 2 (3% in fees): After 30 years, the final investment value is approximately R816,000

As this example shows, a difference of only 2% in fees can significantly impact the final investment value of your TFSA. This example is for illustrative purposes only, and actual results may vary. Find out more about how fees impact long-term outcomes here.

The Effective Annual Cost (EAC) is an important metric for comparing and evaluating the fees you are being charged. This standardised metric was introduced by ASISA in 2015. It will show you the total costs and fees that are associated with owning an investment product over one year. This percentage can usually be found on your investment statement - or if not, you can request it from your service provider. All factors being equal, a higher EAC may mean there are fewer returns to reinvest and potentially grow over time. Conversely, a lower EAC may mean there are more returns to reinvest, potentially compounding over the long term. Of course, the EAC would be just one factor to consider when comparing service providers.

Overcomplicating the investment strategy

It can be tempting to overcomplicate your investment strategy, which may involve constantly making changes to your TFSA, such as switching funds. This may lead to emotional decision-making, especially during periods of market volatility. It is generally beneficial to take a simple approach to investing that focuses on long-term, consistent results for investors.

An index-tracking investment strategy aims to keep things simple while targeting consistent returns and long-term growth for investors. With this kind of investment approach, you will see a benchmark index, such as the S&P 500, mimicked to try to achieve the same returns as that index. This kind of strategy involves fewer activities, so this may mean lower costs - and ultimately lower fees passed onto you, as the investor.

An active management strategy, on the other hand, is when a fund manager actively looks for stocks he believes will perform best and deliver the highest returns. This kind of strategy involves research, analysis and also trading costs. This may result in higher overall costs, which may then be passed onto you as the investor in the form of higher fees.

This approach may not always work as intended, either, as data from the SPIVA Scorecards suggest. The S&P Indices Versus Active (SPIVA) Scorecards track the performance of actively managed funds against their benchmarks globally. According to the latest SPIVA South Africa Scorecard (as of June 2025), 67.61% of South African actively managed equity funds underperformed the S&P South Africa DSW Capped Index over the ten-year period ending June 30, 2025.

The role of asset allocation in long-term TFSA success

The asset allocation that you select can be a big factor in determining the long-term growth of your TFSA. Asset allocation refers to the mix of asset classes in which your savings are invested. This will usually be a mix of equities, real estate, bonds and cash.

At 10X, you can adjust your underlying portfolio by choosing from a selection of carefully curated investment funds. Each of these funds has a different mix of assets and is geared towards different investor profiles, making it easier for you to set up a well-diversified portfolio.

Equities are likely to generate the strongest returns over time, although they may also be the most volatile of the asset classes. Equities have historically produced returns above inflation, by around 7% annually over the long term (based on JSE All Share Index performance versus CPI from 1960-2020); however, past performance does not guarantee future results. Real estate will provide you with some strong returns while serving as a hedge against inflation.

Bonds may produce some lower returns, but they will add some stability to your portfolio. Even though bonds are seen as more conservative, they may still outperform expectations. Cash is the most stable of the asset classes, while it is also likely to generate the lowest returns in the long term.

You may also wish to diversify your portfolio further by investing offshore. Investing offshore may give you greater access to a wider range of industries and companies. It may also be a good hedge against any local market instability in South Africa and subsequent depreciation of the Rand.

Your asset allocation should be aligned with your overall long-term goals and objectives. You would also want to consider your risk profile and your investment timelines. Together, these factors are referred to as your ‘investor profile’. At 10X, our well-diversified range of funds means that investors are able to select a fund or funds that best align with their investor profile and long-term financial plan and goals. Please visit our funds page for the most up-to-date fund information.

How to build better TFSA investing habits

There are a few practical strategies you may wish to use for your TFSA investing. Let’s have a look at some of these:

1. Ensure that you focus on the long-term when it comes to making decisions regarding your TFSA.
2. Keep your savings invested and try to avoid making withdrawals.
3. Ensure you are aware of the fees that you are paying and keep them low.
4. Review your TFSA each year, but do not obsessively overanalyse your portfolio.
5. Look to maximise your annual contributions in order to take advantage of the tax benefits on offer.
6. Take a disciplined, consistent and patient approach to your investing behaviour.

Remember, the decisions you make should align with your investor profile and be based on personal circumstances. Not everyone should necessarily take the same approach. You can always get in touch with our investment consultants at no charge should you have any queries.

How 10X supports disciplined TFSA investing

At 10X, we like to help support you with a disciplined approach to your TFSA investing. Here are a few ways in which we help you with this:

• We offer you low fees and low-cost investing.
• We make use of an index tracking investment strategy, which supports disciplined investing and helps to keep costs down.
• Our fees are simple and transparent, so there are no hidden surprises.
• We offer you a range of well-diversified funds, offering access to a range of asset classes, including both local and offshore assets.
• Our focus is on long-term growth and excellent returns for investors.

Final thoughts: Behaviour can shape long-term investment outcomes

Your behaviour, when it comes to investing, can have a significant impact on your TFSA in the long game. For this reason, it’s important that you are disciplined when it comes to the investment decisions that you make. Your focus should remain on the long term while taking a consistent and disciplined approach to contributions. This may result in better long-term growth for your tax-free savings account.

A TFSA can be a powerful investment vehicle when managed correctly. Please speak to our experienced and knowledgeable investment consultants at 10X if you have any questions surrounding your TFSA. At 10X, our track record of low-cost investing and long-term growth allows you to retain tax advantages and build your savings while maintaining full control!