Money Angles

By Andrew Tobias

I AM IN AN OPEN LAND ROVER, AT NIGHT, HUNGRY LIONS TO MY RIGHT AND left, worried. Not about the lions; about them I'm merely terrified, which is different. (We are told they regard Land Rovers as harmless six-headed animals that smell bad and make funny noises. Just don't stand up, we are told, lest you break the Land Rover silhouette they're used to seeing. I am glued to my seat.) What has me worried -- and excited -- is the South African utility bonds I've just bought. I am excited by their 20% yield, worried about South Africa's future and about the morality of investing there.

But with U.S. stocks high and interest rates low, one looks for alternatives. Let me suggest a few more prosaic ones, then return to South Africa.

1) You can't be as sick of hearing this as I am of saying it, yet two-thirds of you still haven't done it, so: Pay off your credit cards! Not having to pay 12% or 20% in credit-card interest is exactly the same as earning 12% or 20% risk free and tax free. A fantastic return.

2) Pay off your car loan. Yes! You can do this! Many Americans don't realize it, but it is actually legal to buy a car for cash. Not having to pay 10% on a car loan is as good as getting 10% -- again, risk free and tax free. And don't lease cars, either. With a lease, you're essentially borrowing the full cost of the car.

3) Pay down your mortgage -- maybe. Mortgage interest is tax deductible, so paying down a 10% mortgage is equivalent to getting a risk-free, but taxable, 10% return. Depending on how low your rate is, sending the bank a separate check each month, clearly marked PAY-DOWN OF PRINCIPAL, can be a good way to "invest."

4) Buy staples in bulk when they're on sale. Not staple-gun staples -- staples! Like shaving cream and sweat socks. Consider a family that buys one bottle of wine each week. With the 10% discount many stores offer on wine by the case, they would be saving 10% every 12 weeks -- more than 40% a year, tax free and largely risk free. (One risk: that having so much wine around would lead to increased consumption. This is less a consideration with sweat socks.)

5) Set up a self-insurance account. It would be like any other small savings account, only it would be reserved for small catastrophes that you'd no longer have to pay others to "protect" you against -- the occasional cracked windshield or stolen stereo. By giving you the cushion you need to feel comfortable taking high auto- and homeowners-insurance deductibles -- $1,000, say, instead of $100 or $250 -- it would cut your insurance bill and spare you the hassle of filing small claims.

So what about my South African Eskom 13.5% bonds? They actually yield more than 13.5%, because you get to buy them with the "financial rand," which sells at a discount, but get your interest in "commercial rands," which do not. There are risks, such as a collapse in the value of the rand or nationalization of private businesses and repudiation of their debt. But I'm an optimist. Most U.S. brokers won't take orders for South African investments. (One that will, in amounts of $25,000 or more: Noyes Partners, in New York City.) Personally, I see little moral harm in buying them. But to hedge my bet, I donate the interest to a worthy outfit called Medical Education for South African Blacks, in Washington.

But if I were you, I'd stick with tips 1 through 5. To venture much further these days could be like standing up in an open Land Rover.