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Why you should lend the government money

by , 15 June 2016
Why you should lend the government money
It's simple, lending money to government is a guaranteed income bearing investment.

Most investors fail to recognise the value in this form of investing. Yet, it's hugely important if you want to bank more than just capital profits on your investments.

If you lend money to someone, you want to know that you're lending it to a person who can pay it back, along with the interest you charge.

But this isn't always the case on the stock market.

You invest your money into a company in the form of a share, and your returns largely depend on the company's performance in that year. If the company does well, your returns are good. But if the company does badly, your returns are negative.

So, unless you buy the right shares in the right company at the right time, your returns are not guaranteed.

By lending money to government, your contract is guaranteed to give you returns in terms of the agreement you make. It's a much safer investment because you hold a certificate where the borrower (government) promises to pay you back 100% of your money with interest.
 

Five benefits of lending money to government 

 
As a fixed-interest investment, lending cash to government comes with a number of benefits:
 
A high level of certainty – With this government loan you know from the outset what interest payments you’ll receive back. While there’s some degree of risk from investing this way, it’s much less than investing in shares.

Investing for a certain period of time – These government loans have maturity dates, so you can invest in them 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 lend money on terms with a maturity of ten years.

An income from your investments – With the regular interest payments you receive, 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 loaning money to government. So by holding a portion of your capital in a government loan, you lower the risk of your portfolio.
 
If you die your family can claim your returns – You can nominate one or more beneficiaries to receive the repayments on your government loan. It won’t be tied up with the administration of estate. But you must nominate a beneficiary.  
 
 
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So, how do you lend money to government and get guaranteed returns?


The simple answer is, invest in bonds. There are four ways you can invest in bonds:

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 you 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.
 
If you’d like to lend government money and get your cash back with interest, then call the National Treasury on 012 315 5888, visit your local post offices or ask for them at any Pick ‘n Pay store in South Africa.
 
It’s that easy.
 
Let’s build your wealth together,
 

Aiden Sookdin
Contributing Editor
Real Wealth
 
P.S. If you have no idea where to start your investment journey, then check out Joshua Benton’s Real Wealth newsletter. He’s looking for 300 private investors to test a professional investment strategy that helped some of the best investors in history succeed…
 
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