Question:
I'm 31 yrs old, and I have R100 000 which has been cashed up from my provident fund when I moved companies. I need to invest this for at least five years. I do have an online trading account and would like to know if it is wise to invest this money in the Satrix 40. I also thought about putting the money into my bond. What is your advice?

Answer:
If I can be brutally honest, you should not have cashed in the money from your provident plan in the first place. You should have transferred the money into a preservation plan. As soon as you cash in retirement funds of this nature you are charged tax at your marginal tax rate.

In other words, if you were due to get R100 000 and your tax rate was 30 percent, you would have relinquished R30 000.

The next best plan

However it’s no use crying over spilt milk, so now your best plan is to invest it into your bond.

Investing in the stock market is a good long term goal, but you should not have any debt when you start investing in the JSE. You said that you need to invest it for at least five years. The bottom line is that the money should be untouched and retained for retirement.

If this money was accumulated over, say, a five year period, and you spend it, you will effectively be spending five years of your retirement money, plus throwing away the growth potential of the capital.

Many people make this mistake. They view a pension plan payout as a windfall, they spend it on luxuries and then wonder why they fall short when they retire. An individual needs to save between 10 and 15 percent of their salary for 25 years in order to have sufficient funds in retirement.

If you are not on track, then this R100 000 must remain invested. The good news is that retirement income will now only attract a nine percent tax, thanks to Mr Manuel's generous budget.