Adding money to a bond

[whatwhat]

Oh the irony...

The only way paying off the bond is not a better option is if you can get guaranteed returns higher than your interest rate. (Or expected returns if you are risk seeking and prepared to gamble)

People that blindly believe bond first and there is no way to beat the very low interest rate on it is a bit like when you walk past a man standing on a soapbox and shouting that the world is flat. No one ever argues with him because they know that if he honestly believes that then waving evidence at him is a waste of time.

 

[Jehosefat]

People that blindly believe bond first and there is no way to beat the very low interest rate on it is a bit like when you walk past a man standing on a soapbox and shouting that the world is flat. No one ever argues with him because they know that if he honestly believes that then waving evidence at him is a waste of time.

Ok, so where can I get guaranteed returns of 9.5%?

Can you beat 9.5%? Sure, but you have to take on more risk (quite a lot more given how sideways the equity market has been over the last 18 months or so)

 

[Other Pineapple Smurf]

I would suggest looking at inflation, and what the value of the repayment will be in the grand scheme of things in 10/15 years from now. Then look at compound interest, and make sure you understand it completely.

If done correctly, all the pieces will fall into place and you will see why this is usually the tip given by people that really don't know how to work smart with their money.

Yes, I do agree and I've tried to keep my comment basic.

It can become a rather interesting discussion and I find the solution needs to be tailored for each person when considering the opportunity cost of putting more into the bond. Age, education, income stability and investment plans are all a factor.

The advice given to a 60 year old couple with 10 years left on their bond is not the same given to a 30 year old single mom with 20 years left.

 

[Thor]

Some valuable advice/information in this thread.

/bookmarked

 

[Other Pineapple Smurf]

People that blindly believe bond first and there is no way to beat the very low interest rate on it is a bit like when you walk past a man standing on a soapbox and shouting that the world is flat. No one ever argues with him because they know that if he honestly believes that then waving evidence at him is a waste of time.

+1

We have the opportunity to reduce the outstanding capital of our bond by 15% or invest it in our business to reduce costs. The return on this investment is 18 months from direct savings. This investment will benefit us for at least 20 years (longer than the 15 years still left on our bond).

Reducing the capital on my bond by 15% will result in a saving of R700-R1000 per month (as bond rates increase).

The savings the investment gives us will be about R5K per month and this amount will increase each year at a rate of 10%. The investment is a fixed asset with appreciation.

 

[Pegging]

People that blindly believe bond first and there is no way to beat the very low interest rate on it is a bit like when you walk past a man standing on a soapbox and shouting that the world is flat. No one ever argues with him because they know that if he honestly believes that then waving evidence at him is a waste of time.

10.5% is a pretty good return.

If your investing in other assets suck as Equities, or Bonds you're paying txn costs, cgt, and dividends tax or tax on interest.
You're going to have to some pretty decent returns above that 10.5%, to compensate.