This one overlooked investment instrument can give you guaranteed returns

Gavin Fourie, 14 Nov. 2012

Tags: investing, bonds, etf

This one investment instrument can deliver guaranteed returns for your portfolio during times of economic uncertainty, recessions, bear markets and even financial crises.

It’s outperformed the stock market and delivered positive returns while everything else was crashing during the Great Depression, 1987 and the 2008 financial crisis to name just a few instances.

What’s this ‘magical instrument’?

If you guessed bonds… You’re right.

Even though many investors think, bonds are boring and offer lower returns.

That’s not true, here’s why…

Bonds provide a worry-free stream of income.

And used properly, bonds can really improve your wealth. They’re among the most valuable tools in your investment kit.

Here are some of the benefits they provide…

These four major benefits of bonds make them an essential part of your portfolio

  1. Diversification: The stock market has delivered greater returns than bonds over the long-term but with great volatility.  By combining bonds with stocks, you’ll have a more stable portfolio. Just look back at the 2008 crash, while the stock market fell over 40% bonds continued to deliver positive returns. Having bonds in your portfolio would’ve prevented it from taking a massive hit.
  2. Income: Because bonds pay interest regularly, they’re a good choice for investors, like retirees – who need a steady stream of income.
  3. Security: Next to cash, government bonds are the safest, most liquid investments on the planet. Short-term bonds are a good place to park any emergency money you'll need relatively soon like, to buy a house or send a child to varsity.
  4. Tax savings: You can currently earn tax-free interest income up to R22,800 a year. So investors in high tax brackets can benefit greatly from earning these tax free returns.

These four benefits make investing in bonds essential.

So how can you invest in bonds?

Three simple ways for you to buy bonds

Right now, you can invest in bonds in three easy ways.

  1. Exchange Traded Funds (ETF): You can invest in ETFs that invest in bonds like the New funds GOVI and ILBI ETFs and the zShares Govi ETF. Visit to buy a bond ETF.
  2. Bond funds: These are unit trust funds that invest in various types of bonds. Visit for the various bond funds available.
  3. RSA Retail Savings Bonds: These are government bonds for retail investors that can be bought in denominations of R1,000. You can learn more about the various bonds offered by visiting

Personally, my favourite way is RSA Retail Savings Bonds. This is because they’re the easiest hassle free way to buy bonds.

In fact, in a recent issue of my Unconventional Millionaire newsletter, I revealed a simple strategy that can compound your wealth by making retail savings bonds work for you. It’s what I call my Bond Ladder Strategy. To find out more about this strategy follow this link.

Make sure you include bonds as part of your portfolio today, and take advantage of the benefits they offer.

Until next week,

Gavin Fourie

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