SOLID BONDS

Investment-grade bonds add stability to your portfolio, creating a regular income stream and helping to preserve your capital.

B onds are the Cinderella purchases of the investment world. While property and shares grab the headlines, bonds are quietly earning regular returns above deposit rates with less volatility than shares.

Let’s consider two ways to invest. You could deposit up to $250,000 in the bank for a return of around 2-3% per annum on a six-month term, with your capital guaranteed by the government. Alternatively, you could buy a corporate fixed-rate bond issued by an Australian investment-grade company paying 4-5% per annum. An even higher yield sub-investment grade will pay up to 10% per annum until maturity, when you can expect the face value of the bond to be returned to you.

The GFC was an important reminder of how local and international share markets are at the mercy of global shock waves. When shares plummeted in value and many companies suspended dividends, investment-grade bonds issued by Australian companies continued to pay out interest because, unlike share dividends, they are a legal obligation. In the unfortunate event of a company facing financial distress, bond holders rank above shareholders in the same company. In other words, all the equity in a corporation must be wiped out before the returns of bond holders are impacted.

Bond investing is not just for mature investors looking for low-risk, regular returns. Every portfolio should include a component of fixed-income investment. That’s because without the benefit of a crystal ball, smart investing is all about balancing risk and reward.

“SMART INVESTING IS ALL ABOUT BALANCING RISK AND REWARD.”

While large institutions from all over the world invest in the Australian bond market, it is just as accessible for individuals, small- and medium-sized businesses, not-forprofits and local government authorities looking to invest for good, steady returns and to preserve capital. FIIG can help you choose the right bond and guide you through a purchase via the over-the-counter market.

Bonds vary by type of return. Apart from fixed-rate bonds, there are also floating-rate bonds and bonds with inflationlinked returns, where benchmark rates determine the variable return. The company issuing the bond is obliged to pay interest in regular instalments, quarterly or semi-annually, and then, at the maturity of the bond, return its face value.

For a business looking to raise funds, bonds offer a means to borrow. While borrowing from banks is generally for terms of up to two years, bonds can provide longer terms of up to seven years, helping companies to diversify their funding sources. FIIG, which has been operating in the fixed-income sector for 17 years, has helped issue 29 bonds, raising more than $1 billion dollars since 2012.