You are currently viewing our desktop site, do you want to download our app instead?
Moneyweb Android App Moneyweb iOS App Moneyweb Mobile Web App

NEW SENS search and JSE share prices

More about the app

Is it a good time to exchange dollars to rand to pay off debt?

Or would it be better to invest the dollars offshore longer term?

Is it a good time to exchange dollars to rand to pay off a bond considering the lower rand at present – or is it better to invest the dollars offshore longer term?

Trevor Lee - Rosebank Wealth Group (Pty) Ltd

This is the ‘Million Dollar’ question!

The Covid-19 crisis has seen emerging market currencies in general fall against the US dollar. On top of this, South Africa also suffered a recent downgrade and our interest rates have been substantially reduced. So the South African rand is currently undervalued and all things remaining equal, should strengthen when things get back to normal.

Remember, however, that being able to know what will happen to our currency is unpredictable. Some professionals have developed structures/processes/thinking skills that have stood them in good stead in the past, but these tools are fallible, and not reliable under every scenario. After the Covid-19 crisis has abated, it is likely that we will continue to have underlying obstacles with respect to growth in South Africa and we will need to increase our borrowing substantially to get our economy back on its feet. This could keep our currency undervalued for longer than expected.

Back to the question. In general, it is always a good idea to be debt-free and now would be a great time to be bringing money back into the country. Exchange rates are clearly favourable. Paying off a bond tends to free up capital which could be used for investment purposes.

On the other hand, with our interest rates being lowered your bond repayments will also have fallen and the question remains as to whether you can get a better return with your investment capital than the cost of your bond. You have also touched on whether it is better to invest your capital offshore rather than in South Africa which is an important consideration.

To answer this question you should take into account the interest rate that you are currently paying for your bond as well as possible/likely returns (measured after fees and administration expenses) that might accrue from any investment you may make.

There are a few considerations that need to be identified before any firm decisions can be made.

You need to take into account things like:

  • Emotion (being debt-free as opposed to owing the bank money);
  • How you would allocate the additional monthly capital you would have if you paid off your bond;
  • Your attitude to risk;
  • Your time horizon (it appears to be long term, which is extremely important); and
  • The percentage of your overall portfolio that you have in South Africa as opposed to offshore.

We would suggest that you have a discussion with a financial advisor in order to assist you to rank and weigh these priorities before you make the best decision for your circumstances. Both courses of action have pros and cons. We believe clients should have investments wherever they live as well as offshore.

Do you have any questions you would like answered by registered financial planners?

SUBMIT YOUR QUESTION SIGN UP AS AN ADVISOR
Moneyweb Insider INSIDERGOLD

Subscribe for full access to all our share and unit trust data tools, our award-winning articles, and support quality journalism in the process.

Choose an option:

R63 per month
R630 per year SAVE R126

You will be redirected to a checkout page.
To view all features and options, click here.

A monthly subscription is charged pro rata, based on the day of purchase. This is non-refundable and includes a R5 once-off sign-up fee.
A yearly subscription is refundable within 14 days of purchase and includes a 365-day membership.

Click here for more information.

COMMENTS   0

You must be signed in to comment.

SIGN IN SIGN UP

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Podcasts

INSIDER SUBSCRIPTIONS APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING PORTFOLIO TOOL CPD HUB

Follow us:

Search Articles:
Click a Company: