Let’s approach the issue of investing in government bonds from an unexpected side – from the point of view of your benefit, and truthful coverage of the issue, with honestly placed accents.
Investments in government bonds. What do they “forget” to tell you at the beginning?
Let’s get straight to the point.
- Firstly, the difference in terms of income, compared to a bank deposit, is minimal. But the application of efforts is different at times. If we take the prices of 2019, then it is 10% against 11%. And this is without taking into account the risks! Admit it honestly: will you try too hard to earn one percent, and even if there is no guarantee of receiving it? It is unlikely that investments in government securities are such a fundamental issue for you.
- Potential investors are asked not to remember 1998, and are convinced that the state is the most reliable issuer, because the probability of default is extremely low. But if there have already been similar cases in history, then no one is immune from the recurrence of such situations in the future. Take the state’s attempts to lull your vigilance with a certain degree of detachment.
- Initially, the financial instrument was difficult to introduce to the masses. Investing in government bonds was difficult to implement, due to the difficulty of buying. The tool did not become available – the plans were not implemented at the end of 2016. But in 2017 and 2018, the “people’s” version of securities was released. The cost of 30 thousand rubles and the low activity of banks in promoting this service did not contribute to increasing the popularity of the financial instrument.
Has the situation improved now?
You can’t be too optimistic:
- If you need increased profitability, you will have to choose riskier instruments. For example, corporate bonds. Or work with shares on the stock market, independently or through the trust capital management service. Even investments in US bonds will not bring the expected financial result.
- The risks remain the same: crisis, uncertainty, the likelihood of a change in the value of quotes. The longer the holding period of securities, the more the client risks.
- Income when investing in bonds is formed from the face value (its value is returned at the end of the period for which you lent your own money to the state – this is the internal meaning of the financial transaction), and coupon payments for the duration of the agreement between the parties. Global savings (in our context, it turns into earnings) are possible thanks to the opening of an IIA, the owner of which can receive a tax deduction equal to 13%.
- The most passive strategy for investing in government bonds is to receive coupons and wait for the par value to be due. The transfer of funds can take place at the end of a certain period – for example, every 6 months.
- The purpose of investing in government bonds is portfolio diversification. Keep in mind in advance: you will not be able to generate earnings above the inflation rate.
Some unusual varieties
If we consider such a rare phenomenon as floating income bonds, then the income is tied to inflation (the nominal price is recalculated every day, and depends on the value of monthly inflation), or to the money market rate. If you are waiting for an increase in the key rate from the Central Bank, you can earn an additional interest on the amount of the increase. The tool is suitable for those who manage assets at a professional level and closely monitor the events taking place on the exchange.
Municipal and regional debt securities are a product of city or regional authorities. They need financial resources to implement budget projects. They have reduced reliability in comparison with federal ones, and, as a result, a more stable profit. However, the risks of drawdown at the moment are higher here. It is necessary to take into account the credit rating of the issuing region, the level of subsidies, and specialization in terms of economics. Often, it is easier for the issuer to divide payments into several parts in order to reduce the burden on the budget.
Key nuance
In order for investing money in government bonds to bring profit, you need to be able to work with this financial instrument. Speculation, as a type of response to market movements, should be conscious and based on rich practical experience. Otherwise, you may not earn money, but lose it.
