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My wife and I are sole trustees of our SMSF. We are retired with about $1,150,000 in the fund, about $100,000 cash and balance in LICs with small amount in some bank shares. I am interested in a corporate trustee. How does one go about this? We are spending a considerable amount of time overseas as our youngest is continuing her studies in Canada. She is finishing medicine this year but will be doing another 5 years of surgical residency. Would a corporate trustee help with residency requirements?
A: Thanks for the question.
Corporate bonds are suitable for an SMSF – however they carry risk, and hence you may want to think about establishing a diversified portfolio of bonds.
The interest rate depends on the market benchmark (the government bond rate for the term), and the risk rating of the corporate issuing the bond. The higher the risk of the corporate being able to repay the bond, the higher the interest rate.
Credit ratings are one way to express this risk. The higher the rating, the lower the risk of default, and conversely, the lower rating, the higher the risk of default.
Buying corporate bonds is not that easy for a small investor – some bonds are only available in parcels of $500,000. FIIG is a specialist bond dealer that offers a service that has parcel sizes starting from $10,000 (minimum portfolio of $50,000).
Another option is to invest in a corporate bond fund. For example, see AMP Capital’s Corporate Bond Fund.
