Where to invest?

2014-06-30 08:00

Have some cash to stash? Here’s what to do: This month, we had several questions related to investing. When it comes to deciding how or where to invest, the key is to invest according to what you know you need from your investment rather than trying to guess which investment will outperform

Bahlakoana writes:

I have R25?000 and I would like to invest it wisely.

Boitumelo Mothoagae, a financial adviser at Liberty, replies:

Firstly, you should use this money to settle any short-term debt you have. Usually the debt with the highest interest rate, such as credit cards, should be paid off first.

Should you not have any debt, you can consider the following options:

.?If you won’t require the money in the near future, add it as a lump sum to your retirement plan. Since retirement annuity contributions are tax deductible to a particular limit, you could even get some of it back as a tax refund.

.?If you are a parent, another long-term option is to add the funds to your child’s education savings. You can also add it to any of your other savings. For example, saving for a deposit on a house or a car.

.?You could also reduce your bond with the amount. Remember that in the first three to five years of your bond, most of your repayment is going to interest. So the more you pay into the bond, the quicker you pay it off and the less you pay in the end.

.?If you will need the money in the near future (two to three years), you can put it into a savings account at the bank. For example, a fixed deposit or call account. The RSA Retail Bond is paying more than 7% per annum if you are prepared to leave the money for two to three years.

Should I cash in my investment?

Jonathan writes:

I have been saving for the past 15 years into an Allan Gray Balanced Fund. I am worried about the uncertainty in the stock market and am tempted to shift it into a money market until the uncertainty blows over.

City Press replies:

Most fund managers are warning that the stock market valuations are high and after experiencing a six-year bull run, we could see a correction in the market.

The problem is that they have been saying this for the past six months and the price of companies listed on the JSE keeps rising.

Market timing is never perfect and more often than not, one gets it wrong. Rather base your decisions on personal investment objectives.

If you don’t need the money in the next few years, you have time to recover from any market correction. The challenge of disinvesting is that it is difficult to know when to re-enter the market and one usually misses the recovery.

But if you will need the money within the next year, maybe now is a good time to take your profit and put it into a money market or income fund.

If you are saving via a monthly debit order, a market correction is good news. It means your monthly investment buys you more units in the Allan Gray fund as they become cheaper. It’s like being able to buy two pairs of shoes because they are on sale.

Remember that you invested in a balanced fund for the lower-risk profile to give you some resilience in a market correction. If you try to time the market, you would have been better off in a higher-risk fund that was fully invested in the equity market where your returns would have been higher. By selecting a low-risk fund with lower exposure to equities, you have already given up some return for that protection.

Should I consolidate my debt?

Michael writes:

I have a R55?000 loan with Capitec, a R35?000 revolving credit loan with Standard Bank and a credit card balance of R26?000. I am currently four months behind on payments as I was unemployed for some time. Standard Bank offered me a consolidation loan. Will this impact my credit record as I would like to either buy or rent property in November?

City Press replies:

Consolidation would not necessarily damage your credit record – nonpayment of loans is what affects your credit record. But if you consolidate and then continue to take on further debt, that would have a negative impact on your credit rating.

Before you consolidate, calculate if you will be better off.

.?What interest rate would Standard Bank offer compared with what you are currently paying? Your credit record may already be impaired due to your nonpayment. This means that the interest rate Standard Bank will charge you could be much higher as your risk rating has increased.

.?How much will you repay in total each month after consolidation compared with what your current repayments are? If you are close to paying off some of those loans, the costs of taking out a new loan may make it far more expensive. The only way Standard Bank could lower those monthly fees is

by increasing the length of the loans. This has other cost implications.

.?How much will you repay in total to Standard Bank after consolidation compared with what you would pay in total now? You may discover that owing

to fees and a longer repayment period, the total cost of the debt will be higher.

If you decide to consolidate, you must close all your credit facilities and structure a payment time frame that is realistic. In other words, you need to know that by a certain date you will be debt-free but also know that you can meet those monthly payments and won’t fall behind.

A good reason to consolidate is that you would close your revolving loan with Standard Bank and your credit card. Those will keep you permanently in debt as you can keep accessing more credit.

Debt consolidation only works if you stop taking on more debt. Become debt-free before buying a home.

Should I sell my BEE shares?

Mziwandile writes:

Seven years ago, I bought 430 Welkom Yizani shares at R10 a share and they are still R10 a share. I can now sell them to other BEE-compliant investors. Should I sell?

Craig Gradidge of Gradidge Mahura Investments replies:

Welkom Yizani (WY) has been a disappointment in that investors got no capital return although they did receive a small dividend payout during the seven years. WY is a reminder that these Broad-based BEE public share offers have some risk attached to them.

We saw that with African Bank’s two deals last year, and with Sasol a few years before that. But many – such as Phuthuma Nathi, MTN Asonge, MTN Zakhele, Telkom, Vodacom’s YeboYethu and Thembeka Capital – have all given investors really good returns.

Mziwandile needs to ask himself what the prospects of WY are going forward and compare those to the prospects of some of the other deals. It will not be

a useful exercise lamenting the lack of return. The question now is what action should he take.

The WY website has broker notes providing information on the shares and Mziwandile should start there and consider some of the other opportunities. What will become of WY we do not know, but I do prefer the prospects of Phuthuma Nathi, SOLBE1 and Thembeka Capital.

Mziwandile could consider moving his funds but he needs to consider his portfolio and see what the best decision for his portfolio is. If he has exposure to other investments, his best option may be to stay invested in the hope of a recovery sometime down the line – the same way that Sasol has since recovered.

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