One day, my mother and her chama of six swanky 50-something-year-olds (who I found out are referred to as quinquagenarian) will want to cast their investment net wider.
She will ask me what options are available to her girls. I will remind her about the financial market.
That it is a market for trading financial instruments such as shares, fixed deposit, forex, commercial papers, corporate, and treasury bonds and bills (t-bills).
Considering her age and their risk profile, I will tell her, “Mummy, the features of treasury bonds and t-bills work well for you and your girls. If you invest a good chunk, something close to Sh1 million, you’ll get some steady passive income over the next several years.”
Investing in a Treasury bond and t-bill is like lending money to the government. You are investing in the government of Kenya.
They pay you a fixed interest rate – coupon rate – for the money ‘lent’. The duration of the ‘lending’ period is what differentiates one instrument from the other.
Treasury bonds run from one to 30 years. T-bills for less than 12 months. The government settles your interest every six months without fail.
When the bond or bill matures, they will settle the final interest rate plus the face value of the bond.
I am looking at the Business Daily for market data. Say, you invested in a 10-year-bond – FX 1/2010/10Yr. You invested on the same day it was issued, on April 26, 2010.
The bond matures next year, on April 13, 2020, Inshallah. (Investors never use the word ‘Inshallah’ or ‘God willing’ when referring to future maturity dates. You know why?)
The coupon rate for the bond, as published today in the Business Daily, is 8.79 per cent, per annum.
If your chama invested, say, in a bond of face value Sh100,000, you will earn every six months Sh4,395 (Sh8,790/2 payouts).
The government frequently auctions the bonds and bills so there is always a window to invest.
Some investors sometimes cash out their bonds and bills before maturity date. As is expected for any investment product.
Folk are constantly looking for an exit plan. What the government does is to punish such investors with a much lower interest rate. Like a whip across your back.
The government berates you like an irate schoolteacher: “Why,” whip “would you” whip “commit to investing for 10 years” whip, whip, “then pull out in the fourth year?” whip, whip “Eh?” whip. “Do you realise” whip “how much you’ve messed up my financial planning?”
As you can pick up from what I would tell my mother, Treasury bonds and bills are a secure investment option.
Investors are drawn to this security. Yet it is this endearing feature that makes them unattractive to me.
Bonds and bills are not just secure – they are too secure, too passive, too unexciting.
Look, I will not be coy about this – I would not invest in a government bond or bill.
Not when I am 34 and have such a large risk appetite. My mother is retired to our shagz in Kaplong.
She and my Ol’Man are dairy farmers who also grow some of their own crop for food. Her girls in her chama fall within that retirement bracket. She can invest in bonds.
I imagine you and I are cut from the same urban cloth. I am young and restless. Mostly adventurous, rarely cautious.
I have the investment risk appetite of an ogre. I have the energy to run around this town looking under rocks and wherever else the money is, to satisfy this appetite.
When I consider an investment option, I want to crunch numbers on Excel and wake at 3am asking, “Ghai, will this really project work?”
In the event I lose all my money, I know I can make it back again. I can bounce back in a bang and in style.
Bounce back as a shrewder investor. My mother no longer can. I think you can too. I think you can take your adventurous spirit to a place where it will be dance to the rhythm of your investment tune. Just not in treasury bonds and bills.
Bett Kinyatti is a certified accountant with ACCA and a former financial auditor. She runs a personal finance column with Daily Nation online