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Four benefits of investing in bonds and how to do it

by , 14 May 2015

Much of the emphasis of your investment portfolio may be on the stocks you pick. But there's a crucial asset class you should also include.

This asset class is bonds. As a fixed-interest investment, it comes with a number of benefits.

So what are these benefits? And how can you invest in bonds?

Read on to find out…


Why you should invest in bonds


By investing in bonds you can benefit from…

A high level of certainty
With bonds, you know from the outset what interest payments you’ll receive. Whilst there is some degree of risk from investing in bonds, it’s much less than investing in shares, especially if you opt for government bonds.

Investing for a certain period of time
As bonds have maturity dates, you can invest in bonds for a specific time period. For example, you’re saving up for school fees and you need the money in ten years’ time. You could invest in a new issue bond with a maturity of ten years.

An income from your investment
With the regular interest payments bonds pay, you can generate an income from your investment. The yield is likely to be higher than what you’d receive if your money was in the bank.

Reducing the overall risk of your portfolio
Investing in shares comes with higher risks than investing in bonds. So by holding a portion of your capital in bonds, you lower the risk of your portfolio.


How to invest in bonds


There are a number of ways you can invest in bonds. Here are some of your options:

RSA Retail Savings Bonds
You can buy these bonds directly from the government. It’s an easy way to invest and you can buy from as little as R1,000.

Bond unit trusts
Bond unit trusts concentrate on investing in bonds of different maturities. They also pay an income. You can invest in these through fund managers and your bank.

Bond ETFs
Bond exchange traded funds track government bond indices. You can invest in these through your stock broker.

Bonds
You can buy bonds directly from the Johannesburg Stock Exchange’s Debt Market through your stock broker.

So there you have it. Four benefits of investing in bonds and how to do it.

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Four benefits of investing in bonds and how to do it
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