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Author Topic: RA or the other stuff  (Read 17925 times)

Hamster

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RA or the other stuff
« on: May 11, 2013, 11:01:27 am »
Since you guys generally know a bit more about money I was hoping I might get an "opinion" out of some of you.

I recently got a raise and have cleared up some debt. My only current debt is on my car which I paid a BIG deposit on. The monthly instalment is about R2000. I do not own property and not really wish to buy any time soon since I don't want to be "trapped" in JHB if I suddenly get a job opportunity in say CPT.

I've got an RA going but I contribute a minimal amount to it (just for the sake of having it). On top of that I have monthly payments into a coronation fund and recently started using FNB's share saver (which my fin advisor does not know about). The rest I keep in a money market which earns crap interest.

My financial advisor reckons I should push as much money as I can into the car and get it paid off and then up the other amounts I pay into the RA and fund. Does this make sense?

Would you rather push extra money into the car, RA, coronation fund or share saver?
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Johan

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Re: RA or the other stuff
« Reply #1 on: May 11, 2013, 12:00:32 pm »
Chris Moerdyk wrote a great article a couple of months back which I completely agree with.
Quote
I said at the time that having been a victim of retirement annuities and seeing others suffering the same fate over the years, I have told my children in no uncertain terms that if they buy a retirement annuity policy I will disown them.

I have suggested that they rather buy shares in the insurance companies because that way they will make a lot more money.

http://www.news24.com/columnists/chrismoerdyk/insurance-predators-stalking-consumers-20130325?mobile=true
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Hamster

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Re: RA or the other stuff
« Reply #2 on: May 11, 2013, 06:00:04 pm »
So it seems like the only person advising on the RA is the financial advisor because my parents are also advising against it (for now).

Is it worth dumping money into the car though and paying that off ASAP or should the next bonus rather be. Lump sum into some kind of investment account?
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AVM

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Re: RA or the other stuff
« Reply #3 on: May 12, 2013, 10:39:16 am »
It depends on a number of things. The interest rate on your car loan. Your expected return on investment, and your financial discipline.

If your car loan in at 10%, that would mean putting cash into it gives you a guaranteed 10% return. The only investment that may beat that is the stock market. But in a bear market it won't. On top of that you need to make sure your disciplined. If you don't put the money into the car, and only invest half and spend the other half you'd be at a big loss.

My opinion is to pay the car, house and especially any credit card debt you may have, then worry about investments, unless you've got one of those low interest or no interest deals.
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gcr

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Re: RA or the other stuff
« Reply #4 on: May 12, 2013, 10:34:01 pm »
I too have had bitter experiences with RA's, particularly when you come to extending its maturity date, the costs are horrendous. My Old Mutual RA gave me a 5.5% internal rate of return over some 22 years which was ludicrous. I cashed out and moved my funds into a Coronation Top 20 Fund - even with my minimum drawings of 2.5% quarterly ( +/- R 2000 per quarter) the fund has grown by over R 35,000 in 16 months.
I think it is important that you look at your debt and what interest rate you are paying - I for example have a better interest rate on my overdraft than on my bond so when I want to buy shares I fund it across my overdraft in preference to my bond account. Also keeping money on a money market account gives you such a poor return,maybe what you need to look at is how often you dip into your MM account and if you can take a large percentage out of the account and invest in say a 6 month FD. Current interest a rates are about 5% but if you have a parent over 60 get them to invest for you as you could get  1/2 % extra or take it to Capitec for a better interest rate. Personally I would never use an investment advisor unless you can find one over 55 who has experienced some financial difficulties in live and I don't mean debt, but experience in turbulent markets etc
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Not everything that counts, can be counted, and, not everything that can be counted counts - Albert Einstein

Hamster

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Re: RA or the other stuff
« Reply #5 on: May 13, 2013, 11:46:40 am »
Shot guys :)

My car is at about 10.5% I think. I will have a look at moving the money out of the MM and into an FD (Fixed deposit?) or investment accounts etc. and keep a small "emergency fund" there.

Thanks again.
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