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19 Dec 2014

INVESTING IN SA SAVINGS BONDS

Yesterday we tried to explain what savings bonds are. With my imbalanced portfolio, I find investing in SA savings bonds quite appealing. And though I hate to admit it, I am fast approaching the "cautious investor" age group. Risk aversion will soon be the name of the game. We need to start shifting some funds to the bonds in a laddered investment fashion. Bond laddering is actually my next post, I have not forgotten. It could be the last post in this series, at least for now.

The one advantage of savings bonds is that of securing your capital. They provide a safer haven for investors who need to preserve their capital, as opposed to the risk they would be exposed to in the stock market. I also have to mention that exposure to risk is not always bad. Especially when you are young enough to recover funds lost in case of a mishap. You can do with a lot of stock trading in your 20s and 30s. As you go towards your 40s, a balanced portfolio starts becoming essential. You will always do well with stocks but of a lower percentage to the total portfolio as you grow older. Forget about how passionate you are about a certain form of investment and look at your portfolio from the outside. Thats rich coming from me, I know. (We are at the portfolio balancing stage people, please don't judge). No one type of investment is good enough to be a portfolio on its own.

I will eventually get to the how part of investing in SA savings bonds, I promise. Let me give a few facts and opinions on the subject first. Savings bonds are one of a few investment options that offer totally passive income. Even though they earn smaller returns than most investment vehicles, they are very unlikely to renege on their promise. If you collect your interest on a certain date, it is coming. Other forms of investment earnings are not as certain. Dividend declarations depend on the performance of a particular company and property rentals depend on the willingness of the tenants to pay. Savings bonds are also made attractive by the fact that they have no fees. Please refer to the previous post for basics on South African savings bonds.

Please keep in mind that we are only looking at SA government savings bonds and not covering the ones that are issued by corporates. 

Investing in SA Savings Bonds. How to:

All South African post offices have information and brochures about SA retail savings bonds. Grab a pamphlet with all necessary information and application forms from there. You may also visit their website at www.rsaretailbonds.gov.za or visit the National Treasury offices near you. You may also call them at 012 315 5888. I also read from their website that one can apply from any branch of Pick 'n Pay.

After applying for the bond and getting registered (issued with some investor number) you can also make the payment in the places mentioned above. Please remember to state your investor reference number correctly. It is too easy to make errors when filling forms and sometimes costly to rectify them. The minimum investment is currently at R1000 and the maximum at R5 Million.
   
Investing in SA Savings Bonds Indirectly
One can also invest in savings bonds exchange traded funds (ETFs). The bond ETFs invest in different government bonds on your behalf for a set period. I am not so keen on bond ETFs because I find the process of investing directly in the SA Retail Savings Bonds simple enough. If you are like me, you have probably invested in the ETFs in various sectors already. I also have a suspicion that an ETF will earn less than the direct bond investment, because of the middle man factor.

Please give your views and experiences on governments savings bonds if you do have some. I love hearing from you. Next week is the long awaited bond laddering post. Have a lovely weekend.

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