Treasury Bills vs. Buying Shares in Kenya: Which One Should I Choose? 

There are steps to getting wealthy. Step one is usually saving. Step two is investing. Saving is a personal process. As long as you can control your expenses against your earnings, you are in charge of how much you save. 

However, when it comes to investing, the return can vary. What you earn from your investments depends on the risk exposure you undertake and the market performance. Hence, you are not in full control. 

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Furthermore, there are varied ways to invest. Some investment instruments cater to risk-averse investors, while others cater to investors with a higher risk appetite. Before you invest, understand what the investment instrument is targeting. 

In this article, we shall understand Treasury bills and shares and which one suits you.

Read Also: Investing in T-Bills: What You Need to Know

Treasury Bills vs Shares

Treasury Bills

Treasury bills are short-term government securities. They are offered in 91 days, 182 days, or 364 days. Essentially, the longest T-Bill matures after a year, while the shortest T-Bill matures after three months. Additionally, instead of T-Bills earning interest over the invested period, they are sold at a discount and then paid in full after maturity.

To invest in T-Bills in Kenya, you need at least Ksh100,000. This means that if you buy a T-Bill worth Ksh100,000 and the bill is sold at a 10% interest rate, you will pay the Central Bank of Kenya (CBK) Ksh90,000, and after maturity, the CBK will deposit into your account Ksh100,000.

Shares

Shares, otherwise referred to as stocks, are investments where you buy a portion of companies traded on the Nairobi Securities Exchange. There are 62 companies listed in the NSE that span across multiple industries, including agriculture, banking, construction, energy, insurance, manufacturing, telecommunications, and many others.

To invest in shares, you need to buy at least 100 shares of the company. Hence, you can start investing with relatively less money. For instance, as of writing this article, the cheapest share price in the NSE was Uchumi, which traded at Ksh0.19. In order to buy 100 shares of Uchumi, you would only need Ksh19. On the other hand, the most expensive share was Limuru, which traded at Ksh380. Hence, to buy 100 shares of Limuru, you would need at least Ksh38,000.

Comparison Using Key Metrics

Deciding on what investment instrument to use is a very personal matter. It depends on what you are looking to gain from your investment. We shall look into some key decision pillars that you can use to determine which investment best suits you.

Passive Income

Passive income is income that you earn without actively working for it. Your employment is your active income because you have to show up every day to earn what you earn. However, with passive income, you do not have to attend to the investment every day.

Both the Treasury bill and the shares have passive income-earning capacity. T-Bills are essentially passive income investments. You deposit your money with the CBK, and after the end of the maturity period, your money earns you more money. 

Like in the example above, you deposit Ksh90,000 and after the maturity period, your bank account is credited with Ksh100,000. Hence, you have earned Ksh10,000 without actively working for it.

Shares, on the other hand, are not guaranteed passive income earners. The way to earn passive income from shares is by investing in dividend-paying shares. Dividends are monies paid out by companies to investors after a specified period. Most companies pay out dividends annually.

For instance, if you bought 100 shares of a company in the NSE and they paid dividends of Ksh5 for each share, you would earn Ksh500. 

Read Also: Frequently Asked Questions About Treasury Bonds

Potential for Capital Appreciation

As an investor, you want to grow your money. Hence, capital appreciation is key when investing. Capital appreciation refers to the capability of the value of the money you invested to grow. 

T-bills do not have capital appreciation since the money you invest at a discount will be paid back in full. What you earn is the discount. But the money you invest does not grow.

On the other hand, when you invest in shares, there is an upside to your invested capital. For instance, if you buy 100 Limuru shares, it will cost you Ksh38,000. If the share price of Limuru went up to Ksh400, your shares will now be worth Ksh40,000. Hence, your capital has grown by Ksh2,000.

The stock market provides the best opportunity for capital appreciation. However, you should understand that with the promise of a big upside, the tide can turn and the capital depreciates. But with a T-Bill, this is unlikely to happen since the investment and return are fixed.

Market Volatility

Market volatility affects both the shares and the T-Bills, albeit differently. Market volatility is the movement of prices up and down within a market.

Treasury bills are affected by market volatility, as the market dictates the discount offered on certain bills. As an investor, you want to invest your money where you can earn the most. Hence, when other parts of the market, such as shares, offer better returns, you might not want to lock in your capital in a T-Bill. Other times, the stock market is performing poorly and T-Bills are the best solution.

A similar case affects shares. With high market volatility, investors shun investing in the shares. 

As an investor, your engagement with a volatile market will depend on your risk tolerance. If you are risk-averse, the T-Bills might work for you since the volatility there is mitigated. If, however, you are comfortable with calculated risk, then you can invest in shares. 

Liquidity

Liquidity refers to the ease of converting an asset into cash. Both the T-Bills and shares have different liquidities.

T-Bills are not very liquid because you have to wait until the maturity period for you to get the money back. Hence, depending on the period invested, you cannot access your money until the period elapses.

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On the other hand, shares are very liquid since they are traded on the NSE. All you need to do is contact your stock broker and instruct them to liquidate your shares, and as soon as there is a buyer willing to buy your shares, you can access your money.

Read Also: Investing for Beginners: How to Get Started

Tax Implications

Both investment vehicles attract taxes. T-Bills are subject to a withholding tax, while shares are subject to a capital gains tax.

T-Bills are subject to a 15% withholding tax upon maturity, which is withheld by the CBK. The tax is applied to earnings and not to capital. Similarly, a 15% capital gains tax is applied to the earnings from the sale of shares.

Portfolio Diversification

The best phrase that explains diversification is “do not put all your eggs in one basket.” Both investments offer ways to diversify your investments. The government conducts weekly auctions of Treasury bills with different maturity periods and interest rates; hence, you can choose to spread your investment over several T-Bills.

On the other hand, there are 62 companies trading on the NSE. Hence, you do not have to invest in one company; you can buy shares of different companies in different industries to spread your risk.

Furthermore, you can choose to have a mixed portfolio, including both the T-Bills and the shares. In this way, you diversify even further. T-bills allow you to invest in government securities, while shares allow you to invest in private companies.

Read Also: 15 Investment Terms You Need to Know Before Investing

Treasury Bills vs. Shares: Which Way Do I Go?

Choosing between Treasury bills and shares comes down to your investment objectives. 

For instance, if you are looking to grow your passive income, T-Bills will serve your goal better, but if you are looking for capital appreciation, then shares might help you reach your goal better.

Secondly, the choice between T-Bills and shares will be determined by your investment horizon. The longest T-Bill offer is a year; hence, they are not long-term investment instruments. On the other hand, you can buy and hold shares for decades. Hence, if you are looking to invest long-term, shares might be your go-to.

In terms of liquidity, shares are more liquid than T-Bills.  

Lastly, investing in T-Bills is fairly straightforward, but shares, on the other hand, require some investment savviness to be able to spot and take advantage of market opportunities and maximise returns.