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Want your bond investments to at least keep up with inflation? Consider inflation-linked bonds…

by , 09 February 2015

If you want to have low-risk investments in bonds, one thing you need to consider is whether your investment returns are at least keeping up with inflation.

If they aren't, then you're actually losing money.

So if you want to invest in inflation-linked bonds, what are your options?

Let's take a closer look at two of them…


Keep up with inflation with inflation-linked RSA Retail Savings Bonds


Retail savings bonds are an easy and accessible way to invest in bonds.

With these bonds, you’re lending money to the government so there’s practically no risk involved.

As well as RSA Retail Savings Bonds offering a fixed-rate option, there are also inflation-linked bonds. These aim to perform slightly better than inflation.

The inflation-linked bonds have longer maturities than the fixed-rate RSA Retail Savings Bonds. Instead of maturities of two-, three- and five-years, inflation-linked bonds come with maturities of three-, five- and ten-years.

With inflation-linked RSA Retail Savings Bonds, your invested capital amount is adjusted for inflation for the term of the bond and a floating interest rate is payable every six-months.

You can invest in these bonds from as little as R1,000.


Or look to inflation-linked bond ETFs


If you’d rather not invest in RSA Retail Savings Bonds, you could look to one of the inflation-linked exchange traded funds (ETFs).

To invest in this type of product, you go through your stock broker.

These funds can perform slightly better than the shorter term inflation-linked RSA Retail Savings Bonds, but you have no guarantee of return. And with ETFs, there’s also a small annual management fee to consider.

With ETFs, you can sell them at any time, unlike RSA Retail Savings Bonds, which you need to hold until maturity. If you sell your RSA Retail Savings Bonds early, you will incur a penalty.

So there you have it. Why you should consider inflation-linked bonds if you want your bond investments to at least keep up with inflation.

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Want your bond investments to at least keep up with inflation? Consider inflation-linked bonds…
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