No one lends money to someone who can’t pay it back. That’s called giving. When you decide to lend money to the government, you’re probably looking for an income bearing investment with low risk. You definitely want to bank more than just capital profits on your investments.
This is a form of investing most investors fail to recognize. Getting an investment back with interest on the stock market is not always possible. If you buy shares in a company, your returns largely depend on how the company performs. Returns are good when the company performs well and bad when the company performs badly.
However, lending money to government is definitely a safer investment option because the borrower (government) gives you a certificate promising to pay you back 100% of your money with interest. However, you have buy bonds with your eyes wide open. You need to consider to what extent you think there is a risk of South Africa seeing multiple downgrades. And this is very dependent on politics. Before I tell you how to lend money to the government, let’s first look at some of the benefits.
1. Certainty so
When you lend money to the government, you know what interest payments you’ll receive from the outset.
2. Time factor
Loans to the government have maturity dates. Therefore, you can invest in them for a specific period of time.
3. Regular interest payments
You’ll receive regular interest payments which you can consider as another source of income from your investment. This return is likely to be higher than what you’d receive if your money was in the bank.
4. Lower risk
It’s good to diversify your portfolio as an investor. So, if you hold a portion of your capital in a government loan, you lower the risk of your portfolio.
5. If you die your family can claim your returns
You can nominate one or more beneficiaries to receive the repayments. It won’t get tied up with the administration of estate.
How to lend money to government
All you have to do is invest in bonds. Here are four bonds you can invest in:
RSA Retail Savings Bonds which you can buy directly from the government. You can buy from as little as R1,000.
Bond unit trusts which you can invest through fund managers and your bank. They have different maturities and also pay you an income.
Bond exchange traded funds which you can invest through your stock broker.They track government bond indices.
Bonds: which you can buy directly from the JSE’s Debt Market through your stock broker.
You can also call National Treasury on 012 315 5888, visit your local post offices or ask for them at any Pick ‘n Pay store in South Africa.