A great place to save in the short term is your home access bond. With home loans around 10% by saving extra in your bond you effectively get this rate as a return on your money.
Why? Well because the bank calculates the interest owed from the average balance in your bond during the month. It then takes the interest from your monthly installment and allocates what is left behind to paying off your loan. The higher your balance the less interest you pay and the more is allocated.
When assessing an investment you need to consider the following:
Risk – the possibility of losing capital
Return – the yield of the investment over time. This could be interest from cash deposits or bonds, rental income from property or dividends from shares.
Liquidity – how freely are the funds available?
Costs – the charges applied to the investment. Mainly the fund manager, the administrator and the advisor.
Tax – taxes are applied to the various returns as well as capital gains tax when you sell the investment.
When taking all these aspects into account it becomes obvious that the access bond is by far the most effective vehicle in the short term. Especially while interest rates are on the up.
In this cycle shares and property and bonds tend to fall while interest bearing accounts tend to rise.
Where can you currently get 10% tax free return without risk or costs and your money is immediately available to you? Some may argue that the other assets are more effective over the long term.
However, for the foreseeable future it is difficult to find an investment which can yield a net 10% return. Your access bond is a worthwhile place to save your hard earned money.
Listen to the audio below for more information...
Read more from Paul Roelofse at www.investforlife.co.za