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Pay off my bond or invest?

Nov 15, 2021

Stephen Katzenellenbogen and Brendon Wright of NFB Private Wealth Management address a common dilemma faced by many: should I put all of my spare cash into my bond, or invest it instead?

Pay off my bond or invest?Many people are working towards the goal of being free of all debt, including paying off their bond. In the current environment of low interest rates, it makes sense to take advantage of the opportunity to reduce your debt as quickly as possible.

Investing in assets such as stocks, unit trusts or real estate is designed to help you achieve your long-term financial goals by putting your money to work for you. It has a long-term reward potential, the ability to outperform inflation and can be tailored to your needs. If managed correctly it could even be a source of income when you retire.

If your investment is able to outperform inflation, then a case could be made to do a bit of both. It makes sense to invest if you can earn more interest on your investment than your debts are costing you.

In principle, the ideal is to consistently contribute to paying off debt while at the same time investing for the long term and if possible, to contribute to an emergency fund that can be quickly and easily accessed.

Pros and cons

Transferring all your available funds into your bond has some advantages, as well as some disadvantages.

The advantages include:

  • Paying more than your bond repayment reduces the interest charged by the bank.
  • You can take advantage of the current low interest rates.
  • You can allocate funds towards other investments sooner, once you have paid off your bond.
  • If you have an access bond, this can provide liquidity or act as an emergency fund.

The disadvantages include:

  • Having all of you money tied up in your home means you are overexposed to a single asset class (property).
  • You are not able to take advantage of the age-old saying of “time in the market versus timing the market”.
  • You miss out on the tax benefits that come with investing in certain investment products.
  • You have a lack of liquidity if you don’t have an access bond.

You need to decide whether you can achieve a greater return by investing in growth funds versus the rate of interest charged on your debt, while ensuring you have a diversified portfolio unique to your own needs.

A hybrid approach

There are three different strategies you could employ.

The first strategy is to continue paying the minimum contribution into your bond and simultaneously invest into a retirement annuity, tax-free savings account, and/or unit trust investment.

The second is to settle the outstanding bond amount as quickly as possible, and thereafter invest into a retirement annuity, tax-free savings account and/or unit trust investment.

The third is a hybrid approach, where you contribute more than the minimum payment into your bond, while investing surplus funds into other investments. Once the bond has been settled, you can then allocate that repayment towards a retirement annuity, tax-free savings account, and/or unit trust investment.

The strategy you decide on is dependent on your unique circumstances, earnings, disposable income, living expenses, and of course personal choice.

There are a variety of advantages of investing in different investment products rather than limiting your selection to just one.

Within a retirement annuity your contributions are tax deductible to a maximum of 27.5%. This means you pay less tax and returns on your investment are tax free.

While investing in a unit trust may not have the same tax advantages as a retirement annuity, there are no restrictions on how much you can invest in specific asset classes and geographies.

Your personal circumstances are unique

It’s important to note that your age and position in life affects how you might pay off debt or invest. For example, a 30-year-old might have more opportunity to hold an overweight position in an asset class where the risk-return profile is higher, such as an overweight position in global equities.

The reality is that asset allocations drive returns in a well-diversified portfolio, and by having the majority of your portfolio allocated only to property, you risk losing out on investing in the market.

One disadvantage of using the first strategy is the length of time it would take to pay off your bond compared with strategies two and three. When it comes to paying off debt, the situation is different for everybody.

Financial advisers analyse each scenario on a case-by-case basis. For example, a young individual with the time and means to pay off a bond over its term and simultaneously save for retirement, versus that of an individual nearing retirement who needs to get debt free as soon as possible, will have very different approaches to their debt.

The role of the financial adviser is to gather the relevant information and guide the individual on the best path for them. A tailored investment plan should provide for both immediate and future financial means.

The key is to find a strategy that works for you and get started as soon as possible.

This post was based on a press release issued on behalf of NFB Private Wealth Management.


  1. Left me more confused

    • probably because it all depends on your own situation. Personally I have a dual strategy of paying a bit extra into my bond but also making sure I am investing enough for retirement

  2. So profound.


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Maya Fisher-French author of Money Questions Answered

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