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Where can I stash my cash?

A Fin24 user writes:

I have R1m sitting in my current account. I will use some of it to purchase a new vehicle in the next month or so. The rest will be used for living expenses over the next year.

I do not have a home loan.

Where can I put this money to obtain the maximum return?

Lynton Welby-Solomon, an accredited financial adviser with PSG Konsult in Houghton, responds:


It is not clear how much the motor vehicle will cost, therefore I do not know how much this person wishes to invest.

The amount invested is crucial when it comes to short-term investments of 18 months or less, as this will impact the interest earned and the tax paid on the interest. It is also not clear whether he is over 65 years old or not. I would presume he is going to draw all the money out over the next year, so this would be his investment time frame.
 
Given the extremely short investment period and the withdrawals needed, equity investments and preference shares would not be an option. I would therefore advise him to look to either at a money market fund or an income unit trust.
 
The money market fund is more conservative (they use money market instruments only) and is cheaper with low costs. The yields here will be determined by the amount invested. Most banks have yields of just on 5% to 5.5% per annum after costs on balances of more than R250 000.

If we assume he spends R350 000 on his car, he would invest R650 000 in the money market. He would therefore earn in the region of R35 000 in interest. If the client is under 65, R22 800 would be exempt from tax. If he is over 65, R33 000 would be exempt.
 
Income unit trusts are managed by professional managers and the funds use money market instruments as well as bonds to enhance the yields on the funds. As a result, there is more risk than money market funds as you will be exposed to interest rate fluctuations, and the costs are also higher.

In general, the yields are higher than money markets, with most funds returning between 7.4% to 7.8% over the last 12 months.

Moving forward, these yields will be slightly slower (6% to 6.6%), given the current low interest rates. The same tax considerations apply as detailed above for money market funds.
 
Please note that the above is merely a guide. He should talk to his financial adviser before making a decision as more information is needed about his personal circumstances. Factors like age, earnings, assets and liabilities and risk tolerance must be taken into account before making an investment decision.

 - Fin24
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