If you’ve been reading my net worth posts, you’ve probably noticed we have $20 in something called Bonus Bonds. For the uninitiated, or those outside New Zealand, Bonus Bonds are not really bonds, at least not in the traditional sense. I’ll give a quick run down and then explain why we’ve decided to have $20 in Bonus Bonds but do not consider them an investment.

Originally set up by the New Zealand Government, Bonus Bonds are now managed by ANZ bank. Rather than paying returns to bondholders in proportion to the size of their holding, instead prizes are awarded each month of amounts up to $1,000,000 from a random draw. It’s essentially a lottery but with one key difference: You don’t have to pay again each month to be in the running. Once you purchase a bond holding you are in the draw every single month until you sell that holding.

Most personal finance articles you read that mention Bonus Bonds will rightly criticise them as not being a real investment, although the reasoning they give is a bit odd. The logic is that with returns of between 2-3%, Bonus Bonds don’t compare well with other investment products. This is strange because the return across the whole fund means nothing. Each year, most bond holders will have a return of 0%, having not won any prizes. And a small selection of bondholders who won prizes of $1,000,000 or even just $50,000 will have a ridiculously high return.

So if Bonus Bonds are not a real investment, why do we keep $20 in them? Well, because we could win a lot of money! We’ve had Bonus Bonds for around five years and have never won anything and may never win anything. When the time comes to carry out our plan to move to the Philippines we will have to review whether we would even be eligible to win if resident overseas. But with a lifetime price of $20 (which we’ll get back when we eventually withdraw it), no fees and 12 chances a year to win a crapload of money, it seems foolish to not have a tiny bit of skin in the game.

And I mean a tiny bit! The minimum bond holding is $20 and that’s what we’ve done. Please, please, PLEASE invest 99.99% of your money in tried and true investment products. Bonus Bonds are not the place to be putting large chunks of money. Most people will never win anything. A one-off $20 is money we know we won’t miss. If it were $20 a week, we wouldn’t do it and neither should you. But with the simple, cheap way the scheme is set up, it’s worth considering putting a very small amount of money into Bonus Bonds.

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