Read Part I of this post here.
A bond, of no relation to the popular character in the British movie series, is an agreement between two parties — in this case for one to lend the other money and for the other to pay it back with some interest after an agreed period. Usually big companies and governments use bonds as a way to raise money from a large set of people (and institutions) to fund major projects. Bonds sold by companies are often called corporates bonds while those sold by governments are called government or treasury bonds. Some of these bonds may be named according to the currency they’re floated in e.g. eurobonds which are bonds issued in a currency other than the home country’s currency. If you think I am smarter than you for knowing that, rest assured I Googled it just seconds ago.
For you, the investor, bonds are one of the safest investments as it is generally assumed that the company (or government) doing a bond sale is sound enough to pay back. Your returns are also defined from the get go and, ideally, aren’t influenced by the whims of the market, as is the case with shares. Of course this is not the always the case, governments go broke too sometimes.
Another cool thing about bonds is that you can shop for different maturity dates, thus making them both short and long term investments. Common time frames include: 90 days, 6 months, 1 year, 3 years, 10 years, 25 years, 50 years and even 100 years. Of course the longer the time—or tenor, as fancy suits will call it—, the higher the rate of return. The downsides to bonds include: most of them require large sums of money to buy (thus privileging the wealthy and corporates) and also due to the low risk, the rates of returns are considerably lower. Moreover, there has been little innovation in bonds and often you need to file a lot of literal paperwork before you buy bonds. I know, that kinda sucks…there’s an app that changes your screen to a mug of beer that you can tilt to pretend to be drinking from but you can’t find an app to buy bonds in most places. But you dealing with governments and large corporates, dumbass, it’s not like you expect them to be agile.
The exception to this is an interesting project by the Kenyan government called M-Akiba that sought to raise funds from ordinary Kenyans through the mobile phone. Any Kenyan could register on their phone, even a flip phone, and invest at least 3000 shillings ($30, the lowest minimum for government bonds in Kenya before was 50,000, i.e. $500). The interest rate was 10%, higher than the highest interest rate from a savings account, over three years. Of course being the serial experimenter, I had to get in on the world’s first mobile-only government bond. The process was rather simple and I got a few bucks as interest on my MPESA a few months back! The window to purchase M-Akiba bonds is closed at the moment but you can buy the bonds from individuals who own them (in what’s called the secondary market). Maybe you can give me a deal I can’t refuse, huh?
It’s a rather natural urge to want to retire early when every corner of this adulting world keeps serving you lemons. In fact, more people in our generation want to retire early, myself included (even though I am never retiring from writing. Woe unto you if you hate my writing, you gonna be seeing it around for another kindu, eehh, 70 years. And it’ll outlive me, so you your great grandchildren will read me too. Sooo, sorry not sorry?). Problem is, not that many of us are putting in place plans for retirement — leave alone early retirement. I was watching Jamie Foxx (who I now realize I’ve cited twice in this series. Yep, just what you expected from a series on finances) tell a story about how he was deejaying in a club with plenty of young ones. They’d go, “I am 22, I’m 23…she’s 27, she’s so ancient.” Then Jamie told them he was 49 and damn, them kids was shook. Looked at the dude like he had some terminal illness. Can’t you, like, eermahgaah, die from forty nine! Poor Jamie.
On the real tho, we need to talk retirement finances. Of course there are multiple ways to go about creating revenue streams that can sustain you when your hair is all grey, if you happen to have any. Ewww. But if you’re like Jamie Foxx, you’re gonna be alright. But why doesn’t black don’t crack work for every black person? Have you seen my hairline lately? Which BTW if you bring up I’ll get really mad about so please keep your observations to yourself. Thank you. On the low though, anyone got Lebron’s digits? We could have a heart-to-heart with that brotha on some, uhm, hairy matters.
With retirement planning, your long term thinking is put to the test; this is where that 50-year-tenor bond comes in handy and them real estate rents keep you ballin. So as much as talk of retirement usually zeroes in on pension schemes, don’t think that they are the only way of securing your finances in your old age. All the other asset classes we’ve talked about are just as important, this article is still about diversification.
But retirement (or pension) schemes are really important to consider as a young person. For one, they have better returns than keeping your money in the bank. They also help keep your money away from yourself, you gluttonous monster, because in most cases the money doesn’t even make it to your bank account at the end of the month. Now, I’ve been in several companies where some folks get a little grumpy when asked to contribute to a pension fund. The worry is legit coz it means your net salary on your paycheck goes down a few bucks, but I feel it’s also short-sighted. I realized that when I decided to contribute a bit higher than the required amount to a pension scheme at work, I wrote off the amount from my salary (and my mind) and could budget just as well with what was left. True, not everyone has that luxury, but I don’t think I’d have put those extra dollars into good use if they came into my pockets. Also, as the contributions are regular, they build up over time and given that you have 120 months in just 10 years, it could add up to a tidy sum in the long term, especially when you add interest. Gains from retirement fund accounts are also usually taxed less but inflation can poop on your parade though, so think about that.
If you’re switching jobs, there’s a chance that you’ll get a chance to withdraw from your employer’s pension plan (usually a fraction of the amount you contributed as an employee). Unless you 100% can’t do without the money, resist this temptation. Roll over the funds to a new pension plan (if your new employer provides that) or leave them at the same pension fund. Also, when negotiating or comparing job offers, check to see (and ask) if they offer pension plan benefits. Some employers may even offer to match your contributions if you contribute more.
Now, if you ain’t all about reading The Wall Street Journal or those glossy-ass annual reports from companies to know what bonds or shares you should buy or sell, then unit trusts are perfect for you. I only learnt of unit trusts in details recently so I’ll let this SataFrikan video do the explaining:
So yeah, pool money together with some folks you don’t even know. Have some fancy suits follow the trends and manage the pool for you. The fancy suits build a portfolio of stocks or bonds or other fancy-ass asset types that only they know about or a mix of all these. You just sit yo lazy ass at home, play PS or slide into DMs all day, but then those suits owe you a check at the end of the day. Pretty cool, huh. The things these suits be hiding from us, smh. We gonna expose them like Ghafla! Today today-oh! 10 Things You Didn’t Know About The Luscious Bootylicious Unit Trusts, Number 5 Will Shock You!
With unit trusts, it’s important to know where they will be putting your money. If the fund buys bonds, chances are that your returns will be in interest payments. If the fund mostly buys stocks, chances are that your returns will be in the appreciation of your unit due to dividends and growth in stock prices. Because what the fund invests in determines the risks, it also determines the returns. So you’re more likely to earn more from a fund that invests in shares than one that invests in bonds or short term financial assets like money markets.
Unit trusts are also quite affordable and easy to buy and sell. Thankfully, this field is competitive and so there’s been some innovation. You can buy units for a few hundred shillings in Kenya using your mobile phone. The downside is that the fund managers charge you extra fees to manage your funds. Oh, so you thought yo lazy ass was gonna get away with it. Some companies offering unit trusts in Kenya include: Old Mutual, Sanlam, CBA, Genghis Capital and Zimele.
Oya, I’ve been checking out this luscious, bootylicious brochure from Zimele for a minute, and who knows, a brotha might just, as my boi Pouchy would say, tap dat booty.
Part III of this post is coming soon. BTW, if you like the stories, like, comment, share, subscribe. Spread the love.