Congratulations on starting your own business.

So, what to do depends where you are financially in terms of your retirement saving and other goals. Since I do not have enough information about you my response is limited to the following:

Depending on how long you have to go to retirement and whether or not you have saved enough for retirement I would suggest that you put this money back to work for the purpose of providing for your golden years.  What we know is that only 6% of South Africans can afford to retire without having to depend on other sources of financial support.  You may choose to invest the money into a retirement annuity since you are currently not contributing to a retirement fund.  This will be very tax efficient in terms of what you can claim in your tax return as well as the growth on the investment portfolio.  You will not be taxed on the growth in this investment structure unlike unit trust, cash or shares in discretionary investments.

Example of retirement annuity deduction on retirement contributions

• Let’s say you earn an income of R750 000 per year, you would qualify for a deduction on the R206 250 (R750 000 X27.5%) contribution into a retirement annuity fund for the year.
• At the current tax rate, you would qualify for a refund of R84 562.50 from SARS.

• That means that you would save R84 562.50 in tax in the current tax year and you would be out of pocket R121 687.50 (R206 750 – R84 562.50).

If you prefer to have access to the funds, then you can look at unit trust investments or choose from the many other discretionary options available.  Be sure to check the terms of the investment so that you avoid being locked in for five years and the having to pay penalties for accessing the funds.

When you look at the growth options of the various investment options, you need to consider how long you plan to invest for.  If this investment is for the shorter term, then taking on risk in an equity investment is not advisable.  Bear in mind that keeping your money in cash erodes the buying power over time as the growth will not keep up with inflation.  Depending on what your shopping basket looks like your inflation rate will most probably be higher than the government’s inflation band.

You mention that your bond rate is 0.25% over prime, which is currently 7.00%.; that makes the interest rate 7.25%.  By putting your money into the home loan account, you’re effectively earning a 7.25% return on your investment (at very little risk). Furthermore, if it’s a flexible home loan, you can withdraw funds when you need them (say if the business needs emergency cash/liquidity).

The smart thing to do is to speak to a certified financial advisor who will look at your current situation and advise the most appropriate course of action for your needs.

Backed by a wealth of knowledge and experience, our professionals will help you to make rational, informed decisions and to stick to your personal financial plan. Contact us to find your Private Wealth Manager.