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Author Topic: More Advice and Direction  (Read 9308 times)

Junz

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More Advice and Direction
« on: July 16, 2014, 04:19:39 pm »
Hi Guys,

I would like some advice and perhaps some pointing to the right direction, this is my scenario  -

(1)I have a Corsa Bakkie 2010 1.4 with 110k on the clock - I owe the bank 69k(capital only) and 90K(capital + interest) and my interest is 8% - my current installment is 2300+
(2) I have 70K cash that I want to invest in shares/JSE. No need for the money right now .

Should l use the money and pay off my vehicle and save 2.3k p/m and use that the saving to purchase shares in the JSE ?

or

Just purchase shares on the JSE and continue my current installments - I must admit it would be nice not to have a vehicle installment
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gcr

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Re: More Advice and Direction
« Reply #1 on: July 16, 2014, 06:11:09 pm »
This is my personal opinion so you need to read it as such:-
When you pay capital away it is very difficult to build it up again as one always finds an excuse not to have the discipline of refunding the capital.
You have been paying off your bakkie since 2010 so you are pretty used to making this commitment every month, and your interest rate is below prime so you are alright there.
I would invest the R 70k in the stock exchange but maybe into a satrix type investment but not all of the funds in one hit unless you believe the market is going to go only in an upward direction( brave if you believe this as the market is very volatile), maybe what you need to do is pick 2 satrix investments and then enter the market and any dips below this figure you buy more (suggest initially R 10 k per fund).
You can address you bakkies debt differently as well - you could ramp up you monthly repayments to pay the debt off sooner, and once settled use this monthly commitment to enter the stock exchange but potentially buying shares as opposed to satrix type instruments. Whilst this is going on in the background, familiarise yourself with the mechanics of the stock exchange, attend free seminars, and courses if you can and broader your knowledge of our exchange.
There could be an issue with your installment credit in the sense that some institutions want you to renegotiate the deal if you want to change the monthly premium or pay off a balloon payment early but you would need to have a conversation with them to see whether they will waive the cost of changing/amending the terms and conditions. I am about to buy a new car and I have gained the institutions agreement that when I have spare cash I can address the early repayment of the balloon payment, or have the monthly premium adjusted downwards by introducing a cash payment or can address both items simultaneously should I so wish with no additional costs by redrawing the installment agreement.
As I said at the beginning this is my opinion, and, how I would address your situation, as I am a strong believer in not diverting capital to pay off debt especially where you have become acclimatised to monthly commitments         
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jaDEB

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Re: More Advice and Direction
« Reply #2 on: July 17, 2014, 08:51:13 am »
gcr wrote "When you pay capital away it is very difficult to build it up again as one always finds an excuse not to have the discipline of refunding the capital.
You have been paying off your bakkie since 2010 so you are pretty used to making this commitment every month, and your interest rate is below prime so you are alright there."

I cannot agree more, people decide to pay off items using cash, then use the "free" instalmant extra money on other items, if I can have a NPN share for everytime some1 asked me for advise , how to start investing, then later you hear they did something else, bought a bee farm or something.

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jaDEB

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Nios

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Re: More Advice and Direction
« Reply #3 on: July 17, 2014, 08:11:55 pm »
Both very valid points. But I would pay it off if you were an extremely disciplined person. saves you 30k in interest to put towards your investments.

How long did it take you to save that 70k?

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Junz

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Re: More Advice and Direction
« Reply #4 on: July 18, 2014, 08:18:27 am »
Thanks for the information guys, It is much appreciated,

It took me about 1 year to build up the 70k ,but im concerned that the value of my vehicle drops too quick and the 70K invested to pay my vehicle will be worth nothing later....dont know just a thought I had,


I have about 5.7k spare , I was using that to save for a holiday but perhaps I should use that to pay off my vehicle ?
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Patrick

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Re: More Advice and Direction
« Reply #5 on: July 18, 2014, 08:34:31 am »
Financially, you're most likely better off investing the capital and continuing to make your car payments. If it was my cash I would bet that the market was going to beat 8% p.a. in the next few years.

The next best option in my opinion, and only do this if being in debt bothers you, would be to pay the car off and set up a debit order with Satrix to the same (or more) value as the car loan. Just don't pay it off and try "save" to put it in the market. You'll be amazed at how quickly extra cash vanishes when it's available!
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Junz

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Re: More Advice and Direction
« Reply #6 on: August 29, 2014, 11:41:54 am »
HI Guys,

I dont know how I was under the impression that my interest rate on my vehicle was 8.25% , It its actually 10.25 %

So im still in two minds, because @ this interest rate is it wiser to pay the debt, assuming I will be keeping the vehicle for the next 3 years
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Nios

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Re: More Advice and Direction
« Reply #7 on: August 29, 2014, 09:25:36 pm »
if you can put away 70k p year that equates to 5833.33 pm and I have used that figure in my assumptions below

don't pay the car off http://www.investorchallenge.co.za/calc_compound.php?initial_deposit=70000&monthly_deposit=5833.33&yield=8&years=3&inflation= R325 159,34 does not factor interest rate rises in monthly car payments taking more savings out your pocket to contribute to investments so this total may be lower. the interest rate will continue rising over the next 3 years so don't try fool yourself.

pay the car off and put the monthly car payment towards investing http://www.investorchallenge.co.za/calc_compound.php?initial_deposit=&monthly_deposit=8133.33&yield=8&years=3&inflation R330 417,19

either way you need to remain disciplined and crack on. I would pay the car off as you will end paying off 90k+ over the next 3 years.
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