Sunday, June 17, 2007

Government bonds

Dear Mr Tan

You have recommended to invest in government bonds. It now earns less than 3% p.a. and you have to lock it for 5 years or more. I do not find it to be attractive. Is there a better return from other safe investments?

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REPLY:

If you wish to have a safe investment, it is better to buy government bonds to earn 3% p.a. for 5 years, or a total of 15%, instead of investing in a financial product that requires you to bet on the outcome of certain stocks.

Many people invested in the financial products during the past years, and obtained a poor return of less than 1% p.a. For example, the Swing fund gave a return of 2% for 5 years, or just 0.4% p.a.

If you do not wish to lock up your money to earn 3% for 5 years, you can invest in a money market fund and earn about 2% p.a. at the current rate. If interest rate goes up, your return will increase, and it changes with the money market.

2 comments:

Alexchum said...

Why there's a need to lock it for 5 years? The bonds can be sold off anytime, especially if the price moves up and make a tidy profit out of it.

Tan Kin Lian said...

You can sell the government bond at any time, based on its prevailing market price. The price may change due to change of interest rate.

If you hold to maturity, you will get 100% of the invested principal. You also receive the interest on the due dates.

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