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Question:
I am 65 years old and need advice on what the best options are for investing R1.5-million with monthly interest. It's currently earning 6.9 percent in a money market account.

Answer:
When considering the best place to invest your hard earned capital you should first be very clear on two things. Firstly, what is the money destined for and, secondly, what is it that you are requiring these funds to achieve for you. In other words, what kind of return you may require. Remember, the higher the desired return the higher the potential volatility (and vice versa).

In essence the answer to the first question will predominantly fall into either the category of capital appreciation for a future need (education, special goal, etc.) or income generation (current or future).

This discernment of the expected time horizon will not only play a role in which asset class(es) one should be exposed to, but also into which investment vehicle one should 'house' this money. However, your time horizon cannot be the only determining factor when considering asset class exposure.

Before we get too carried away, let us consider the current scenario:

A capital amount of R1.5-million attracting a current rate of 6.9 percent will yield an income of R103 500.

If this is your only income there probably won't be any tax liabilities. If, however, one has additional income, this interest amount would be added to one’s gross income and taxed accordingly. Of course there are certain income tax exemptions that apply to interest that is accrued and for someone 65 or older, this amount would be R30 000. This means that R73 500 may then be taxed, therefore, dragging your overall yield down.

The real danger is inflation

As daunting as this may sound, the real danger is inflation.

Now, this is no stranger to the average consumer. It seldom seems that we see food prices remain static for any worthwhile period before the little black number on the tag continues its upward trend. However, this principle is often ignored when people arrange their investments and in the process investors run the inadvertent risk of losing their buying power.

Article continues on page two: the safest investment decision you can make...

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