A retiree looks to invest an additional R300 000 over 60 months to supplement his monthly pension payout. Uncertain of which option would serve him best, he writes:
I'm retired and have no debt. My wife and I live a quiet and simple life, and we receive a monthly pension from Sanlam. We recently sold our property and bought a new property closer to our family.
After we did all the renovations and maintenance for our new house, we have R300 000 left that we would like to invest, and use the interest to supplement our monthly pension.
We are thinking of investing for periods of 60 months to get the best interest rate, but not sure if that's the best option. Currently, it looks like Nedbank has the best rates available, but we are not so updated on offerings from other financial institutions.
Schalk Louw, Wealth Manager at PSG Wealth responds:
It’s important to consider where we find ourselves in the interest rate cycle. Should you lock your funds in a 60-month fixed deposit and interest rates rise during this period, you may miss out on better returns during this time.
At the latest SARB MPC meeting, Reserve Bank governor Lesetja Kganyago said that "the implied policy rate path of the Quarterly Projection Model (QPM) indicates an increase of 25 basis points in the fourth quarter of 2021 (as in November 2021) and further increases in each quarter of 2022, 2023 and 2024. As usual, the repo rate projection from the QPM remains a broad policy guide, changing from meeting to meeting in response to new data and risks."
If the QPM forecast turns out to be correct, however, we are still facing a number of significant future interest rates hikes. Tying up your money for a prolonged period of time may therefore not necessarily be the best option.
Using the rates above (Investec Corporate Cash Manager as at 17 January 2022 and RSA Retail Bonds) as a guideline, it may be better to consider investing at a fixed rate for a shorter period of time, including a retail savings bond as an option, or to rather consider the rates offered by something like a 32-day notice deposit account for a shorter period.
This could free up your funds sooner if interest rates were to rise, possibly giving you the opportunity to reinvest at a higher rate later. Another alternative is a combination of either an RSA Retail Bond and/or a six-month fixed deposit and/or a 32-day notice deposit, or even combining any of those with an income fund, depending on your personal risk profile, of course.
Be sure to discuss your options with your financial adviser, who will be able to provide you with a more detailed analysis taking into account other providers as well.
Questions may be edited for brevity and clarity.
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