If you’ve followed serious discussions on social media, you’ve probably seen heated debates about whether to invest in treasury bonds or buy land. In these discussions, it often feels like everyone has a valid point, and there’s no clear right or wrong answer.
But what does the math have to say about this? Which is the better and more cautious investment: buying land or putting money into bonds, ensuring good returns while managing some risk?
People who prefer treasury bonds often say they’re safe, easy to liquidate and provide steady income. They argue that real estate is capital intensive, is hard to sell quickly and involves a lot of price speculation.
On the other hand, those who prefer land argue that real estate is a physical asset that increases in value over time. They also point out that, if developed properly, it can provide a good income from activities such as farming, renting etc.
They argue that treasury bonds are more vulnerable to inflation and are paper assets that can lose value over time.
This is why there is a never-ending debate on this topic. Each side tries to convince the other, and often, people’s trains of thought are fixed and the conversation easily spirals into heated disagreements.
Such discussions present what is commonly known as the fallacy of false dichotomy. Also known as a binary dilemma, this is a type of paralogism that presents only two options or sides when in reality there are more.
The basic structure of this debate is often ‘Either A is true or B is true. But A will never be true or B will never be true’. It overlooks the possibility that both A and B could be true or false, or that there might be a third option, C, which could also be true.
In the case of the question presented in the title, ‘Bonds vs Lands investments’, we can clearly see that this question presents the fallacy of false dichotomy. So which is the better option?
To contemplate the matter further, a conversation was shared on the 52-Weeks Savings Challenge group, seeking to address this question. Here’s a scenario example given by one of the group’s members:
“Scenario 1: Land Investment (Ruiru Plot)
Initial Investment: Sh. 2.52 million (50 by 100) (paid over the first year).
Annual Appreciation Rate: 7%.
Future Value of Land After 10 Years: Sh. 4.917 million.
Profit: Sh. 2.397 million.
Key Metrics:
ROI: 95.1% over 10 years. Given 7% compounded appreciation per year.
Annualized Return:
Using the compound annual growth rate (CAGR) formula: Sh. 4.917M
Scenario 2: Treasury Bonds (Reinvested Interest)
Initial Investment: Sh. 2.52 million (paid over the first year).
Annual Interest Rate: 16%.
Future Value After 10 Years (with reinvested interest): Sh. 9.558 million.
Profit: Sh. 7.038 million.
Key Metrics:
ROI = 279.2% of Initial Investment over 10 years.
Annualized Return (CAGR) = 12.3%
Final Comparison:
Metric: Land Investment vs Treasury Bonds
Initial Investment: Sh. 2.52 million vs Sh. 2.52 million
Future Value After 10 Years: Sh. 4.917 million vs Sh. 9.558 million
Profit: Sh. 2.397 million vs Sh. 7.038 million
ROI: 95.1% vs 279.2%
Annualized Return (CAGR): 7.1% vs 12.3%”
From this example, it’s clear that the recommendation leans towards treasury bonds because of their benefits from compound interest and reinvestment. Land is left out due to its speculative growth potential.
Many users, however, opined that land is a better investment due to its potential for long-term wealth preservation. Different people hold different hammers to hit the same nail; how to make money.
Honestly, the real answer to the debate isn’t so much about the math of profitability or returns. It is not a case of a one-size shoe fits all. The simplest and most accurate response is that it depends on a person’s unique circumstances and goals.
On one hand, someone seeking passive income with minimal hassle will likely prefer treasury bonds. On the other hand, someone aiming for long-term wealth and who has reasonable capital might choose prime real estate.
If you earn Sh. 60,000 net, how long should it take you to save Sh. 60,000?
Someone with resources to spare might choose to invest in both; diversity is key. It’s also worth noting that many people are thriving without investing in either real estate or bonds. This makes the debate seem somewhat superfluous and based on flawed assumptions.
From the books, we have been taught that money is a medium of exchange, store of value and excetra. Off the books, we have come to learn that money is an idea with an aura whose allure is to reproduce the social conditions for the creation of more money.
For this reason, the best answer to the question posed in this article can only come from a clear understanding of yourself, your current situation, goals, the economic outlook of your country, and most importantly, your risk tolerance.
You can also choose an investment mix that works best for you. At the end of the day, the main point is diversified investment vehicles and have the money work for you rather than you working for it.