TAKING ADVANTAGE OF THE NUMBERS: LADDERING FGN SAVINGS BOND

Investing in the FGN savings bond (FSB) might prove challenging to some speculators trying to put their tuppence to work because of the inconsistency in the rate that is being offered monthly. To invest equal amount of Naira in an investment such as FSB at equal time intervals is a prudent investment strategy that results to Naira cost averaging and help to increase the benefit of investing in bond by reducing reinvestment risk.

By laddering you construct your bond buying by staggering the quarterly payment dates. for example if you buy six bonds at equal intervals, you will be paid twenty four times a year, that is twice a month, but if you buy twelve bonds at equal interval, say every month for twelve months, you will be paid forty eight times in a year i.e. four times in a month or every week.   Receiving your money back to reinvest during different monthly interest rate will help reduce reinvestment risk. The table below shows the different interest rate on FGN savings bond in 2017. 

The FGN savings bond two years tenor was introduced in March 2017 and the three year tenor was added in April.

	2 YEAR INTEREST RATE (%)	3 YEARS INTEREST RATE (%)
MARCH	13.01	-
APRIL	12.794	13.794
MAY	13.189	14.189
JUNE	13.189	14.189
JULY	13.386	14.386
AUGUST	13.535	14.535
SEPTEMBER	13.817	14.817
OCTOBER	12.059	13.059
NOVEMBER	12.091	13.091
DECEMBER	11.738	12.738
AVERAGE	12.88	13.87

Those who plan to live off the income generated from their bond portfolio should ladder their bond because it lowers reinvestment risk (the potential possibility of getting principal back after the bond matures and having to reinvest it in a lower paying bond).

If you have been buying the 2 years and the 3 years FSB since when it was introduced up till the last auction on December 8^th 2017, you should expect to net an average of 12.88% on 2years and 13.87% on the 3 years tenor without the burden of taxation. The only down side is inflation which averaged 16%, but if you are a passive investor, it’s actually not a bad return on investment when compare to between 3% to 4% on savings deposit and 7.5% to 9.5% on fixed deposit exclusive of tax.