Do Not Sleep On Retail Government Bonds

Investing in retail government bonds(RGBs) tends to only become a popular topic when the interest rates on offer are high. This leads to many people into mistakenly thinking that this is the only time to invest in them rather than investing in the stock/equity market.

Truth is, you need to consistently invest in RGBs in order to be in a position to fully take advantage of high interest rates when the opportunity presents itself.

The Chinese Proverb "The best time to plant a tree was 20 years ago. The second best time is now" rings true for RGBs as well

I will offer a practical example. For simplicity, I will focus only on the 5 year fixed investment. These are rates offered over the past 60 months:

If you were consistently investing R1 000 per month into the above RGB for the past 60 months, as of this month, you would be earning at least R 455 per month in interest. This would be made up of interest income shown in the below table:

RGBs have a restart feature, where you can reset your investment once it is at least 12 months old. This is a useful feature for when the current rates on offer are higher than the rates you invested at. If you look at the May 2023 rate(11.75%), it is the highest rate on offer over the past 60 months. Using the restart feature, you can reset investment any investment from July 2018 to June 2022, and get a better interest rate applied to your investment.

Using this, if you reset ALL qualifying investments, you would increase your earnings to R586.88 per month in interest, a whopping 29% higher than if you chose to not restart your investments. Sounds like a no-brainer to me.

Another person would need to invest a lumpsum of just under R60 000 to achieve the same or better result than R586.88 per month. In a country where the average monthly income is approximately R26 000 a month, not many people have easy access to that kind of capital.

Once Again, Do Not Sleep On Retail Government Bonds.....