“naye nfaa ki?” – the case for treasury bonds

Anyone who has invested in a small business knows the trials and tribulations you have to go through to make any meaningful profits. Sometime in 2018, I decided to invest in a small manufacturing business that makes fruit juices, ketchups, and laundry bar soap.

I burned my fingers properly in trying to squeeze a profit out of this venture. The problems were endless, from machine breakdowns to sabotage to theft. Every day, there was a fire to fix. So, like any reasonable Ugandan, I asked myself, “naye nfaa ki?” which loosely translates to “but why am I suffering?”

In frustration, I did more research on safer investment options with meaningful returns. To say that I found a treasure trove is an understatement. I landed on unit trusts and treasury bonds. So, I started diverting some of my capital into treasury bonds. I would save some money every month through my unit trusts, and when I got a meaningful amount saved up, I would purchase a treasury bond through the monthly bond auction by the Bank of Uganda.

Today, I have a small portfolio of bonds that pays me a coupon every other month without any additional stress or hustle. I have laddered my portfolio with different long-term bonds of different yields and maturities. I earn a net return of about 15% per annum on these bonds. My strategy is simple since I am still gainfully employed. Simply reinvest all coupons and top up some additional cash every year.

I look at my bond portfolio like a small business that is paying me regular profits without fail. This small business of bonds has no employees, tenants, or customers to deal with. It only has commissioned agents in the form of brokers and banks. It is very low maintenance and has no operational costs. It only pays a 10% Withholding tax on interest earned. It doesn’t need a trading certificate, nor does it file other statutory documents.

In other words, it is the perfect side business for a busy professional like me. Of course, I still continue to tease out my entrepreneurial urge with other ventures, but the idea is to build a critical mass with my bond portfolio and then use the coupons to invest in different enterprises.