Bond or dividend?

[agape1111]

Hi all, I recently received a large sum of money it is enough to settle my bond immediately however I’ve also been looking at other investment options and so far I found one that would cover most of my bond repayment in dividends I would just have to pay about 2k out of pocket each month, if I do the fixed deposit it would take around 12 years to settle the bond using the dividends then afterwards I still have the principal , it would free up a lot of cash to be used elsewhere. Would you recommend I settle the bond or invest the money?

 

[arynna]

@agape1111 Make sure that you take into account the tax you’d pay on the interest/dividends. Also, there’s no telling which way interest rates will eventually go. Personally I’d pay off the bond early, and invest the excess cash you have each month going forward.

 

[beerus]

@agape1111 It's important to know that with bond repayments, quite a large proportion is interest that you pay.
You need to look at the interest rate of the bond in comparison to the dividends you were to receive.
You didn't provide us with details, so it's impossible to say.

 

[carolvdmerwe]

@agape1111 Don't close the bond but pay it off as much as possible.

Not paying rent or mortgage really frees you up financially.

 

[agape1111]

Investec has a 12.12% p.a fixed deposit at 60months

 

[breeb]

@agape1111 What is the investment amount? Is the 12.12% nominal or effective?

 

[agape1111]

@breeb Period effective

 

[breeb]

@agape1111 That's a misleading rate.

 

[ethan46]

@breeb Classic.

 

[ryryxd2221111]

@breeb Following the link in another response I see the nominal is at 9.51%. Would this basically be the rate that you'd compare with the bond interest rate? So if bond rate is higher than nominal, paying off the bond is better

 

[breeb]

@ryryxd2221111 Yes and that's not accounting for the tax on the amount above R23 800.

 

[leemills]

@agape1111 You'll pay tax at your marginal tax rate on the interest earned above R23,800 pa.

 

[nancy700]

@agape1111 Anything more than 12 -15% return per year and I would take a good hard look. Sounds like your investment are promising 12-15% return per month. Def not possible getting 130% return on an investment per year. So please just add what the investment name is. Sure people will be able to give you feedback if the returns are possible or not.

 

[agape1111]

@nancy700 https://www.investec.com/en_za/savings-accounts/daily-rates.html I might be interpreting it wrong.

 

[nancy700]

@agape1111 No problem with investec. Just remember that's what you get per year on your investment and if you have a salary income you will pay tax as well. So might be a better idea if you can put it in someone's name that doesn't earn a salary. But you need know the person won't disappear with your money or can get in financial trouble money gets taken. Maybe a kids name that's underage but make yourself the only signatory.

 

[sdb]

@agape1111 Pay off your bond first!

 

[ttowngirl]

@agape1111 Care to share which investment you’re considering?

 

[guns4activists]

@agape1111 Diversify

 

[whitworth]

@agape1111 Without further details I would say look at the AFTER tax rate of the investment and compare to your bond rate.

In all likelihood your bond interest rate is higher so it should be settled first.

 

[ecclossians]

@whitworth Agreed, depending on the terms of the bond the interest could increase/ decrease depending on the economy.
I would settle the bond, take the current payments and put those into a fixed call account to slowly build up the interest