When most South African investors think about growing their wealth, they immediately jump to equities – the Top 40, international stock markets, or dividend-paying shares. While equities certainly deserve a place in most portfolios, there’s another asset class that often gets overlooked: bonds.

Disclaimer: I am not a financial advisor. This information is for educational purposes only and should not be considered as financial advice. Always do your own research and consider seeking advice from a qualified financial professional before making any investment decisions.

If you’ve read about portfolio diversification or noticed that many retirement funds hold a mix of equities and bonds, you might be wondering what bonds actually are and whether they belong in your boring investment strategy. Today, we’re going to demystify bond investing and explore how you can easily access this asset class through JSE-listed bond ETFs.

What Are Bonds, Anyway?

Before we dive into bond ETFs, let’s start with the basics.

A bond is essentially an IOU. When you buy a bond, you’re lending money to an entity (usually a government or corporation) for a set period. In return, that entity promises to:

1. Pay you regular interest payments (called “coupons”)
2. Return your original investment (the “principal”) when the bond matures

Think of it like being the bank rather than the borrower. Instead of paying interest on a loan, you’re receiving interest on money you’ve lent out.

Government Bonds vs Corporate Bonds

Government bonds (also called “gilts” or “sovereigns”) are issued by national governments. In South Africa, these are issued by the National Treasury. They’re generally considered lower risk because governments can raise taxes or, in extreme cases, print money to repay debts (though this has other consequences).

Corporate bonds are issued by companies looking to raise capital. They typically offer higher interest rates than government bonds because there’s more risk – a company can go bankrupt, but a government is less likely to default (though it can happen, as we’ve seen in various countries over the years).

For South African investors focused on boring, stable investments, government bonds are usually the preferred choice.

Why Should Boring Investors Care About Bonds?

If you’re following a “get rich slow” philosophy, bonds offer several compelling benefits:

1. Portfolio Diversification

Bonds typically behave differently from equities. When stock markets crash, investors often flee to the relative safety of government bonds, which can actually increase in value during equity market downturns. This negative correlation (or at least low correlation) means bonds can help smooth out your portfolio’s returns over time.

2. Predictable Income

Unlike shares, which may or may not pay dividends, bonds provide regular, predictable coupon payments. This makes them particularly attractive for retirees or anyone seeking a steady income stream.

3. Lower Volatility

While bonds aren’t risk-free, they generally experience less dramatic price swings than equities. If you’re approaching retirement or simply prefer investments that let you sleep soundly at night, bonds can reduce your portfolio’s overall volatility.

4. Capital Preservation

If you hold a bond to maturity, you’ll receive your principal back (assuming the issuer doesn’t default). This makes bonds useful for goals with specific time horizons, like saving for a down payment or planning for retirement.

5. Inflation Protection (for Inflation-Linked Bonds)

South Africa offers inflation-linked bonds that adjust both their coupon payments and principal value based on CPI. These can help protect your purchasing power over time.

The Interest Rate Seesaw: Understanding Bond Price Movements

Here’s where bonds get a bit confusing for newcomers: bond prices and interest rates move in opposite directions.

Let me explain with a simple example:

Imagine you buy a government bond today that pays 9% interest per year. You paid R1,000 for it, so you’ll receive R90 per year in interest.

Now, a year later, interest rates in the economy rise, and new bonds being issued pay 11% interest. Your bond paying 9% suddenly looks less attractive. If you wanted to sell your bond, you’d have to offer it at a discount – say R900 – so that the new buyer effectively gets an 11% return (R90 interest on a R900 investment ≈ 10%, plus the R100 they’ll gain when the bond matures).

Conversely, if interest rates fall to 7%, your 9%-paying bond becomes more valuable, and you could sell it for more than R1,000.

This inverse relationship is crucial to understand:

• When interest rates rise → bond prices fall
• When interest rates fall → bond prices rise

For South African investors, this means bond ETF prices will fluctuate based on what the South African Reserve Bank (SARB) does with interest rates. When the SARB raises rates to fight inflation, bond prices typically drop. When they cut rates, bond prices usually rise.

Types of Bond ETFs Available on the JSE

The JSE offers several bond ETFs that give you easy, affordable access to South African government bonds. Here are the main options:

1. Satrix GOVI ETF (JSE Code: STXGVI)

What it tracks: The GOVI Index, consisting of bonds issued by the South African government

TER: Approximately 0.25%

Why consider it: This is the most straightforward way to invest in a diversified basket of SA government bonds. The GOVI index includes bonds that the Department of Finance requires primary dealers to make a market in, ensuring good liquidity.

Top holdings typically include:

• R2048 (8.75% maturing 2048)
• R2035 (8.875% maturing 2035)
• R2032 (8.25% maturing 2032)
• R2030 (8.00% maturing 2030)

These bonds offer various maturity dates, giving you exposure across the yield curve.

2. Satrix ILBI ETF (JSE Code: STXILB)

What it tracks: The FTSE/JSE Inflation-Linked Government Index

TER: Approximately 0.25%

Why consider it: Inflation-linked bonds (ILBs) provide protection against rising prices. Both the bond’s principal and coupon payments are adjusted based on South African CPI. If you’re worried about inflation eroding your purchasing power over the long term, ILBs are specifically designed to address this concern.

Important note: These bonds provide a real return above inflation if held to maturity. Their market prices can still fluctuate with interest rate changes, but the inflation-adjustment feature makes them particularly attractive for long-term, inflation-conscious investors.

3. Satrix SA Bond ETF (JSE Code: STXGOV)

What it tracks: S&P South Africa Sovereign Bond 1+Year Index

TER: Approximately 0.25%

Why consider it: This ETF provides exposure to SA government bonds with at least one year to maturity, offering another diversified approach to bond investing.

4. NewFunds GOVI (JSE Code: NFGOVI)

What it tracks: GOVI Index

TER: Competitive with Satrix offerings

Why consider it: This is an alternative to the Satrix GOVI with similar holdings and performance characteristics. Competition is healthy, and having multiple providers keeps fees low.

5. NewFunds ILBI (JSE Code: NFILBI)

What it tracks: Inflation-Linked Bond Index

TER: Approximately 0.25%

Why consider it: Another option for inflation-linked bond exposure, similar to the Satrix ILBI.

6. Ashburton Inflation ETF (JSE Code: ASHINF)

What it tracks: Government Inflation-Linked bonds

TER: Competitive

Why consider it: Yet another choice for inflation protection through ILBs, providing a real rate of return linked to CPI.

Bond ETF Performance: What to Expect

Unlike equity investments where you’re hoping for dramatic price appreciation, bond investments are about steady, predictable returns. Let’s look at typical performance characteristics:

Historical returns for SA bond ETFs have generally ranged between 6-10% per year over medium to long periods, though this varies significantly based on interest rate movements and economic conditions.

For example, looking at the Satrix ILBI:

• Since inception (March 2017): ~4.9% annualized return
• This has beaten CPI inflation (~4.6%) over the same period
• 5-year return: ~9% annualized
• 1-year return: ~8.7%

These returns might seem modest compared to equity markets during bull runs, but remember:

1. Bonds provide downside protection when equities crash
2. Returns are more predictable and consistent
3. The primary purpose is diversification and risk reduction

How Much Should You Allocate to Bonds?

The classic rule of thumb suggests your bond allocation should equal your age (so a 35-year-old might hold 35% bonds, 65% equities). However, this is quite conservative for South African investors who need growth to combat our relatively high inflation.

A more modern approach for boring investors might be:

In your 20s and 30s:

• 75-85% equities (local and international)
• 10-15% bonds
• 5-10% cash/money market

In your 40s:

• 60-70% equities
• 20-30% bonds
• 5-10% cash/money market

In your 50s:

• 45-60% equities
• 30-40% bonds
• 10-15% cash/money market

At retirement (60+):

• 30-50% equities (you’ll likely live 20-30 more years, so you still need some growth)
• 40-50% bonds
• 10-20% cash/money market

These are general guidelines. Your specific circumstances, risk tolerance, and time horizon should dictate your actual allocation.

Building a Simple Three-Fund Portfolio with Bonds

One of the beauties of modern ETF investing is that you can build a complete, diversified portfolio with just three or four ETFs:

Option 1: Conservative Growth

• 40% Satrix 40 or Satrix SWIX (local equity)
• 30% Satrix MSCI World (international equity)
• 20% Satrix GOVI (government bonds)
• 10% Satrix ILBI (inflation-linked bonds)

Option 2: Moderate Growth

• 50% Satrix 40 or Satrix SWIX (local equity)
• 30% Satrix MSCI World (international equity)
• 15% Satrix GOVI (government bonds)
• 5% Satrix ILBI (inflation-linked bonds)

Option 3: Aggressive Growth (Younger Investors)

• 60% Satrix MSCI World (international equity)
• 25% Satrix 40 or Satrix SWIX (local equity)
• 10% Satrix GOVI (government bonds)
• 5% Satrix ILBI (inflation-linked bonds)

The inclusion of both regular government bonds and inflation-linked bonds gives you a nice balance – predictable income from regular bonds and inflation protection from ILBs.

Practical Considerations for South African Bond Investors

Tax Treatment

Bond ETFs are tax-efficient in South Africa. Here’s what you need to know:

Capital gains: When you sell bond ETFs at a profit, you’ll pay capital gains tax (40% of the gain is included in your taxable income if you’re an individual).

Dividends/distributions: Bond ETFs pay regular distributions (from coupon payments). These are taxed as income at your marginal tax rate.

TFSA eligibility: YES! All the bond ETFs mentioned are available in Tax-Free Savings Accounts. Given your R36,000 annual and R500,000 lifetime contribution limits, holding bonds in a TFSA means all those distributions and any capital gains grow completely tax-free. This is huge for long-term wealth building.

Where to Buy Bond ETFs

You can purchase bond ETFs through any JSE stockbroker or investment platform, including:

• EasyEquities/Satrix NOW: Zero brokerage fees on ETFs, making it ideal for regular monthly investments
• Standard Bank Securities
• Sanlam iTrade
• ABSA Stockbrokers
• Any other JSE broker

For boring investors making regular contributions, EasyEquities is hard to beat due to the zero-fee structure.

When to Buy: Market Timing vs Regular Investing

Here’s the good news: trying to time bond markets is just as futile as timing equity markets.

The boring approach is simple:

1. Decide on your target bond allocation (say, 25% of your portfolio)
2. Set up a regular monthly investment that maintains this allocation
3. Rebalance annually or when your allocation drifts significantly from target

If you have a lump sum to invest, dollar-cost averaging over 6-12 months can help smooth out any interest rate volatility.

Interest Rate Outlook: What Does It Mean for Bond Investors?

As of 2026, South African interest rates remain relatively elevated as the SARB continues its fight against inflation. This presents both challenges and opportunities:

The challenge: If you’re already holding bond ETFs and rates rise further, you’ll see temporary price declines.

The opportunity: Higher yields mean bonds are actually more attractive now than they’ve been in years. An 8-9% yield on government bonds is historically quite attractive, especially when you can access it through a low-cost ETF.

The boring investor perspective: Don’t try to predict interest rate movements. If bonds fit your asset allocation strategy, buy them regardless of the interest rate cycle. Over time, as you reinvest distributions and maintain your allocation, you’ll average out the ups and downs.

Risks You Should Understand

Bonds are less risky than equities, but they’re not risk-free. Here are the main risks:

1. Interest Rate Risk

As we discussed, bond prices fall when interest rates rise. If you need to sell during a rate-hiking cycle, you could face losses.

2. Inflation Risk (for Regular Bonds)

If inflation runs hotter than expected, the real purchasing power of your bond returns erodes. This is why holding some inflation-linked bonds makes sense.

3. Credit Risk

While SA government bonds are considered relatively low risk, there is always the possibility (however small) of a sovereign default. This risk increases if South Africa’s credit rating is downgraded further.

4. Currency Risk

For bond investments, there’s no direct currency risk since these are rand-denominated. However, a weakening rand relative to other currencies means your purchasing power for imported goods declines.

5. Liquidity Risk

Bond ETFs listed on the JSE are generally liquid, but during extreme market stress, spreads can widen. The ETFs we’ve discussed are among the most liquid, so this is less of a concern than it would be with individual bond holdings.

Bond ETFs vs Individual Bonds: Why ETFs Win for Most Investors

You might wonder: why buy a bond ETF instead of individual bonds?

ETFs win for several reasons:

1. Diversification: One ETF gives you exposure to multiple bonds, reducing single-bond risk
2. Low minimum investment: You can buy bond ETFs for as little as R100, while individual bonds typically require much larger minimums
3. Liquidity: ETFs trade throughout the day at transparent prices
4. No reinvestment hassle: ETFs automatically reinvest coupon payments (or you can take distributions)
5. Professional management: The ETF provider handles all the complexity of bond investing
6. Constant maturity: As individual bonds mature, new ones are added, maintaining your desired duration exposure

The only advantage of individual bonds is the certainty of return if held to maturity. But for most boring investors, the benefits of ETFs far outweigh this single advantage.

Rebalancing Your Portfolio with Bonds

Bonds play a crucial role in portfolio rebalancing – a key strategy for long-term success.

Here’s how it works:

Imagine you start the year with:

• 60% equities (R600,000)
• 30% bonds (R300,000)
• 10% cash (R100,000)
• Total: R1,000,000

The equity market has a great year and rises 25%, while bonds return 8%:

At year-end:

• Equities: R750,000 (now 70.8% of portfolio)
• Bonds: R324,000 (now 30.6%)
• Cash: R100,000 (now 9.4%)
• Total: R1,060,000 (after adding R10k to cash)

To rebalance back to your target allocation:

• Sell R114,000 of equities
• Buy R7,000 of bonds
• Add R107,000 to cash (to reach R106,000 target)

This forces you to sell high (equities after a great year) and buy low (adding to bonds which underperformed). This is the boring way to generate excess returns without trying to time markets.

Bonds are essential for this strategy because they provide a relatively stable asset to trade against more volatile equities.

Getting Started: Your Action Plan

Ready to add bonds to your boring investment portfolio? Here’s your step-by-step plan:

Step 1: Determine your target asset allocation based on your age, risk tolerance, and time horizon.

Step 2: Decide which bond ETFs suit your needs:

• Want broad government bond exposure? → Satrix GOVI or NewFunds GOVI
• Concerned about inflation? → Satrix ILBI or NewFunds ILBI
• Want both? → Split your bond allocation between the two types

Step 3: Open an investment account (EasyEquities is a great starting point with zero ETF fees).

Step 4: Make your first purchase. Start with whatever you can afford – even R500 is a valid starting point.

Step 5: Set up a monthly debit order to maintain your target allocation. Even R250-R500 per month adds up significantly over time.

Step 6: Review your portfolio annually and rebalance if your allocation has drifted more than 5% from your targets.

Step 7: Stay the course. Boring investing means ignoring market noise and sticking to your plan for decades.

Common Questions About Bond ETFs

Q: Can I lose money in a bond ETF?

Yes, bond ETF prices fluctuate with interest rate movements. However, if you hold for the long term and reinvest distributions, your returns should be positive and relatively predictable.

Q: Should I invest in bonds when interest rates are rising?

Higher rates eventually lead to higher yields on bonds, which is good for long-term investors. Don’t try to time the interest rate cycle – if bonds fit your allocation, buy them.

Q: Are bond ETFs better in a TFSA or RA?

Both are tax-advantaged accounts, so bonds work well in either. RAs offer upfront tax deductions, while TFSAs offer tax-free growth. If you’re maxing out your TFSA, consider bonds in your RA for diversification.

Q: What’s the difference between regular bonds and inflation-linked bonds?

Regular bonds pay a fixed coupon and return a fixed principal. Inflation-linked bonds adjust both the coupon and principal based on CPI, protecting your purchasing power.

Q: How often do bond ETFs pay distributions?

Most SA bond ETFs pay distributions quarterly, providing regular income.

Q: Should I choose GOVI or ILBI?

Ideally, hold both. GOVI provides higher current income, while ILBI protects against inflation. A 60/40 or 70/30 split in favor of GOVI is common.

Final Thoughts: Bonds and the Boring Philosophy

Bonds might not be as exciting as picking the next hot stock or speculating on cryptocurrency. They won’t double your money in a year or make for interesting dinner party conversation.

But that’s exactly why they’re perfect for boring investors.

Bonds provide:

• Ballast during equity market storms
• Predictable income
• A tool for systematic rebalancing
• Lower overall portfolio volatility
• Better sleep-at-night comfort

The most successful long-term investors aren’t those who take the biggest risks or chase the highest returns. They’re the ones who build sensible, diversified portfolios and stick with them through all market conditions.

Bond ETFs make it incredibly easy and affordable for South African investors to access this crucial asset class. With TERs around 0.25% and the ability to buy them commission-free on platforms like EasyEquities, there’s never been a better time to add bonds to your boring investment strategy.

So take a look at your current portfolio. If you’re 100% in equities, consider whether adding some bond exposure might help you achieve your long-term goals with less stress and better risk-adjusted returns.

After all, getting rich slowly is a lot more reliable than trying to get rich quickly.

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Remember: This article is for educational purposes only and should not be considered financial advice. Your investment decisions should be based on your personal circumstances, goals, and risk tolerance. Consider consulting with a qualified financial advisor before making significant investment changes.

Want to learn more? Check out our other articles on building a diversified ETF portfolio, understanding risk, and maximizing your Tax-Free Savings Account.