Should I kill my RA?

[FlashSA]

I finally ran the numbers on my 10 year old Old Mutual RA. It was started in 2008 with what I could afford and has only increased by 10% per annum per the original agreement I signed back in '08. I wanted to see what total I would have got to if I had rather paid this monthly RA figure into my bond and ring-fenced it and its 10% interest "saved/earned" in the access bond.

I added up the 10 years of debit orders and then added 10% interest on the 12 months of debit orders per annum (so interest is low ball because it would be calculated monthly in the access bond and compounded, whereas my simple calculation does not - it only compounds on an annual basis).

The fund is currently valued at R140k. My repayments over the last 10 years add up to R112k, so it has grown by R28k in 10 years.
If I had saved via my access bond at a minimum of 10% per annum, compounded monthly, the investment would be worth over R175k now and would be ringfenced via a spreadsheet which keeps track of all extra payments into my access bond.

Now, considering how poor markets are behaving and have been and will for the foreseeable future, I am seriously considering switching this RA to the access bond saving method. Yes I will lose out on the small tax advantage of an RA, but the growth will way outperform the RA. Also note that I am a religious saver - the money saved and ringfenced in the Access Bond will NEVER be touched until retirement. I also understand that the current R140k value will still grow without continued repayments, but will not be accessible until retirement.

Why should I not switch to the Access Bond facility for this monthly repayment? I feel my financial advisor will not be straight with me were I to ask him because of commission and it is his livelihood...

Informed opinions and comments would be appreciated.

 

[Scooby_Doo]

I have mentioned before, due to the requirement to keep 70% of the money in your RA in SA equity it is far more effective to just pay the tax now and move what you can save internationally or invest in international ETFs. The growth on the JSE is dead and its not going to change any time soon.

Edit,

Here is an example: 2 investments I made on the 1st October 2015 and as of this morning the return is as follows.

Satrix Indi - 11.59% Growth
DBXUS (now called SYGUS) - 51.51% Growth.

 

[KleinBoontjie]

Ask Old Mutual if you can pause your RA. I know others, like 10X and Sygnia, where you can pause for years. Sanlam didn't want me to pause, so I moved away from them. Now I get better growth and I could pause when I really needed the money.

 

[Gaz{M}]

Have you maxed out your tax free interest per annum as well?

You can get good rates (10%+) on fixed deposits at the moment for 4+ year terms.

 

[FlashSA]

Have you maxed out your tax free interest per annum as well?

You can get good rates (10%+) on fixed deposits at the moment for 4+ year terms.

No TFSA's - I put every Rand of saving into my Access Bond and have it all in a very detailed spreadsheet. Current rate on the bond is 10.4% so that is effective earn rate on all extra Rands in the Access Bond

 

[Cius]

RA's in SA are evil. I am locked in one too and if I try stop it I will lose a large chunk of it. The growth has been so far below my pension which is also in SA markets mostly it is pathetic. RA's were created to enrich all the individuals taking fees on the side out of it. Stay away from them and rather put money in a decent pension fund.

 

[backstreetboy]

Move it over to Sygnia. Their fees are one of the lowest.

 

[jman]

I think the issue might be due to your crappy provider with heavy fees. Look into Nedgroup (core accelerated/diversified), Synia (skeleton 70), 10x. You're entitled to transfer those funds into another provider - section 14 transfer.

And perhaps split your current contribution between your bond and the aforementioned products

 

[supersunbird]

I finally ran the numbers on my 10 year old Old Mutual RA. It was started in 2008 with what I could afford and has only increased by 10% per annum per the original agreement I signed back in '08. I wanted to see what total I would have got to if I had rather paid this monthly RA figure into my bond and ring-fenced it and its 10% interest "saved/earned" in the access bond.

I added up the 10 years of debit orders and then added 10% interest on the 12 months of debit orders per annum (so interest is low ball because it would be calculated monthly in the access bond and compounded, whereas my simple calculation does not - it only compounds on an annual basis).

The fund is currently valued at R140k. My repayments over the last 10 years add up to R112k, so it has grown by R28k in 10 years.
If I had saved via my access bond at a minimum of 10% per annum, compounded monthly, the investment would be worth over R175k now and would be ringfenced via a spreadsheet which keeps track of all extra payments into my access bond.

Now, considering how poor markets are behaving and have been and will for the foreseeable future, I am seriously considering switching this RA to the access bond saving method. Yes I will lose out on the small tax advantage of an RA, but the growth will way outperform the RA. Also note that I am a religious saver - the money saved and ringfenced in the Access Bond will NEVER be touched until retirement. I also understand that the current R140k value will still grow without continued repayments, but will not be accessible until retirement.

Why should I not switch to the Access Bond facility for this monthly repayment? I feel my financial advisor will not be straight with me were I to ask him because of commission and it is his livelihood...

Informed opinions and comments would be appreciated.

I started an RA with the first contribution 1 March 2013 at R1000pm at the time. In May 2016 I increased that to R3000pm:
Total contributions: R120 000
Current fund value: R138 210

Here is what has happened to a static RA (no contributions) of mine that started at end Sept 2014:
Original contribution: R243 000
Current fund value: R310 000

Work fund since 1 Jan 2013:
Total contributions: R213 618
Current fund value: R265 694

The reason yours has grew "so little" is because your monthly amount is low. In 2013 the general market grew over 20%. Now, I only started then with that RA and the work fund, so I didn't benefit much either. If your total had been bigger then and the preceding years, it would have grown nicely.

You could always stop/freeze the RA. Contribute to the homeloan and then start the RA again later. You could also stop the RA and transfer the RA over to a index provider like Syngia or 10X if you want, I'm sure the Old Mutual RA is a bit expensive.

 

[supersunbird]

Old school RA's in SA are evil. I am locked in one too and if I try stop it I will lose a large chunk of it. The growth has been so far below my pension which is also in SA markets mostly it is pathetic. Old school RA's were created to enrich all the individuals taking fees on the side out of it. Stay away from them and rather put money in a decent pension fund.

FTFY.

Is all your advice on everything else in life also pre-smartphone?

Unit Trust RAs can be stopped and started and changed at will without any penalties. My decent 10X pension fund can easily be replicated with a 10X RA.

 

[beefymoocow]

RA's in SA are evil. I am locked in one too and if I try stop it I will lose a large chunk of it. The growth has been so far below my pension which is also in SA markets mostly it is pathetic. RA's were created to enrich all the individuals taking fees on the side out of it. Stay away from them and rather put money in a decent pension fund.

It depends. Clients need to understand their products to fully benefit. I started my RA in march contributing 5k a month. I have contributed about 25k its grown to 40k since now although most of its because of bonuses.

 

[Jehosefat]

But would you be able to put the same amount into your access bond? Anything that you stopped putting into the RA would become taxable so you would pay more tax...

 

[FlashSA]

But would you be able to put the same amount into your access bond? Anything that you stopped putting into the RA would become taxable so you would pay more tax...

Yes, I would take the same R1500 monthly amount and divert to the Access Bond, increased by 10%pa. The loss of tax rebate must surely be negligible on this small amount?

 

[beefymoocow]

Yes, I would take the same R1500 monthly amount and divert to the Access Bond, increased by 10%pa. The loss of tax rebate must surely be negligible on this small amount?

Depends on how much you getting taxed so you will be losing out on about 18k in deductions a year. If you getting taxed 40 that's abour 7.5k a year in increase in taxes.

 

[Jehosefat]

Yes, I would take the same R1500 monthly amount and divert to the Access Bond, increased by 10%pa. The loss of tax rebate must surely be negligible on this small amount?

It will be whatever your marginal tax rate is so it could be as high as 45% of that R1500. So the relative return on the access bond would look even worse because you would only be putting in R825 a month rather than the R1500 you're putting in to the RA.

 

[supersunbird]

Yes, I would take the same R1500 monthly amount and divert to the Access Bond, increased by 10%pa. The loss of tax rebate must surely be negligible on this small amount?

Depends on your income tax bracket. Could easily be 30% to 45% of the R1500. So you won't get that back efiling time.

 

[Pitbull]

I added up the 10 years of debit orders and then added 10% interest on the 12 months of debit orders per annum (so interest is low ball because it would be calculated monthly in the access bond and compounded, whereas my simple calculation does not - it only compounds on an annual basis).

Did you also include your tax break on those contributions into your equation?

 

[TofuMofu]

Ask Old Mutual if you can pause your RA. I know others, like 10X and Sygnia, where you can pause for years. Sanlam didn't want me to pause, so I moved away from them. Now I get better growth and I could pause when I really needed the money.

Sanlam paused mine for about 3 years, but had to pay a massive amount to do so and then I moved it to 10x.

 

[FlashSA]

Did you also include your tax break on those contributions into your equation?

No, I didn't. How does one work out RA tax breaks on the R1500 per month, or is it linked to salary and hence tax bracket?

 

[beefymoocow]

And remember if you renting out the property or will rent out the property you should/could include the opportunity cost of a lower interest deduction. Because if you are renting the property out and paying extra on the bond. The opportunity cost will be lower interest expense deduction you will receive.