As you’ve probably seen in our monthly net worth updates, we own exactly $20 worth of Bonus Bonds. But, I hear you say, Bonus Bonds aren’t a good investment! And you’re right. In fact Bonus Bonds aren’t an investment at all. You can read this post to see why we hold exactly $20 of them and not a penny more. But, as the Bonus Bond scheme is being wound up, mercifully no further unsuspecting souls will be able to purchase them thinking they are somehow an investment in the future 🙂
But that begs the question, what are we doing about ours now? As you may have read, there are two options. We can either cash out now and get back our $20. Or, we can stay in the game for the September prize draw and a possible October prize draw, then hang in there for 12 months while the scheme is being wrapped up, during which time our bonds will be frozen. At the end of the wrap-up period any remaining funds will be divvied up between the remaining bondholders, which would give everyone an estimated 1.8% return on their bondholding if they hang in there.
Immediately, you can see that the return will be greater than 1.8% because not everyone will hang in there, thus pushing up the return for everyone else as there will be fewer people to divide it between. Nonetheless, it’s still a pitiful return.
As you may have surmised by now, we’re going to hang in there for the long haul. By leaving our paltry $20 in the scheme, we get a possible two more shots at winning $1 million, and better (though still awful) odds thanks to those who have already withdrawn their Bonus Bonds. And in a year’s time we can get our cents on the dollar for our trouble.
The real question, of course, is what is everyone else going to do with their money? An estimated $3.3 billion will be dumped back into the economy over the next 12 months. I would hope that they will invest it in the stockmarket, but somehow I doubt it. Bonus Bonds seem to largely be held by a generation that was burned by the stockmarket in the 80s so I anticipate most of this money will probably go into term deposits or similar avenues to earn terrible returns that are still somehow better than the return they were earning as Bonus Bonds.
Overall, despite the fact $3.3 billion in potential investments will be largely wasted, this is a positive thing for NZ. One less bad place for people to put their hard-earned cash, and with investing in the stockmarket through platforms like Sharesies being easier than ever, the timing is perfect. It’ll be interesting to see how it plays out!
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