After some thought, this is my opinion on investing in bonds...... it is not worth the effort from an investment perspective for an individual. It is only worth it if you are retired, have a pile of cash and want a regular steady income. Even then, the return gets gradually diminished every year due to effect of inflation.

The only way to really get rich in this world are

1. Own a successful business
2. Have a high paying job.
3. Inherit loads of cash.
4. Get extremely lucky in stock investing.


Bonds are a waste of time and money to the individual investor. They can only be used to park money to prevent inflation from eating into it as you decide what to do with it. Downside is that you could lose money upon selling early. This prospect is very real in the current situation in KE. I suspect those buying bonds now risk being trapped in by future increases in interest rates. Buy and hold will also erode your long term value especially if inflation goes up. Its a lose-lose scenario.

Infact, I now agree with @mugundaman. Real estate will give you ever increasing returns on your investment because the investment is fixed (initial cost of the property) while the returns ( rental income or sale price) will be inflation adjusted + a premium going forward. ( assuming no major catastrophes e.g demolitions, land degradation etc.)

Eti inherit loads of cash.
Nkt

From rough math, an investment of 1m in a 12% coupon bond over 10yrs with interest invested at 12% compounding annually and assumed inflation at 6% , will yield an inflation adjusted sh 2.2m. That is 120% growth after 10yrs.

This is assuming you can re invest interest at 12% compounding yr on yr. If you only manage 10% investment on interest, then your return drops to 100% in 10yrs.

This is least return compared to stocks and real estate. The danger of bonds is that if you are forced to sell before maturity, there is very real risk of losing money, going forward. I dont think the current low interest rates will hold but thats just me dreaming.

My conclusion would be if one has some cash and just wants regular dependable income, go for bonds. If hoping to grow your money into a sizeable kitty in the next 10 to fifteen yrs, work hard at your daily job and invest in stocks and earth.

Compare this with buying land. A plot bought at 1m, assume same inflation of 6% applied to the land and it will be worth 2.8m in 10yrs. I have seen land values go up much faster than this.

If you have more cash and buy and develop for rental income, you can see how the rental income will compound and far outdo bonds.

Botton line, in bond investing, your principle loses valUe over time. What you do with the interest is what will help you gain value.

Permanent and pensionable citizen!

I think that bonds of any sort are the best sort of investment for you. There are many other great investments but bonds are the most safe way. There are so many great bonds available for you. What do you think are the best sort of bonds for people on a stable income?

Aka Kirima...at 80 plus and failing health,he was still building plots for rent.

People want to toil their entire active life and invest in plots which will make them billionaires 60 years from today...they are doing all these because of their children,and children's children.

Hapo kweli, balance is what is needed. Balance is determined by your own personal goals.

I think all investments are good depending on your goal and time horizon. At 60yrs, there is a good chance you will still be alive for another 15yrs to 20yrs. I believe thats the time to liquidate non cashflow real estate and stocks and buy into bonds. This gives regular income and hopefully your kitty is such that it will outlive you. If I have cash earning real estate, I may decide to keep it.

At less than 50yrs and especially in 30s and 40s, I would bulk up on real estate and stocks. Granted, I may die at 55 without enjoying my cash, but statistically, this is the outlier rather than the norm for a kenyan mido krass

Over the last 10 years, the NSE has been a net capital destroyer with the NSE Index going from 3000 to 2819.

CBK bills and bonds would have returned at least 10% annual interest which compounded over 10 years would have returned more than 250% return.

Lending to GOK is as safe as safe gets while beating the NSE over a 10 year period which for most people is very long term.

Don't look down on slow and steady returns from CBK, the secret is compounding.

Not to mention the ease of liquidating your position in case you suddenly need money. Also there is a lot of peace of mind as you won't wake up to some other guy holding a title to the land you supposedly own. The risk of GOK not paying you is pretty much almost non-existent. No sane govt will risk defaulting on bills and bonds and hasn't happened in Kenya's history.

I don't worry about inflation because that equally affects the return whether you get it from T-Bills or from Real Estate or NSE. It's a constant factor. So if I know what the NSE returned I can compare directly with the return from the CBK T-Bills and such.

You do risk a loss if you sell on secondary market for bonds but the CBK will still provide a way for you to liquidate your position on any T-bill via discounting.

The NSE has performed even worse than the index suggests because of the practice of replacing poor performing companies that were previously in the index with new ones. That hides a lot of losses e.g. Mumias, KQ and such were removed and replaced with better performers.

This is similar to the practice of private schools registering high performing students who were previously in public school as their candidates and registering weak students in public schools during national exams in a bid to artificially improve their performance.