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Hi Paul
I watch a fair bit of Sky Business and follow your reports on Switzer with interest. With interest rates for term deposits falling I have taken an interest in the Bonds session on “your Money your call” on Sky Business. I recently went to a presentation by FIIG Securities and have since bought 2 fixed interest bonds they recommended which pay very good returns close to 7%.
Normally I am of the view that the higher the return the greater the risk but FIIG tell me these investments are more secure than equities and they have asset backing that makes them a safe investment. I have always been impressed by the people at FIIG but do you have a view whether I am better to buy shares with 5% dividend and franking rather than a fixed interest bond?
A: Thanks for the question.
In general terms, most experts will suggest that you need a balance between the asset classes – with a mix between equities, fixed interest, property, cash and potentially, some alternative assets. The mix will depend very much on your fund’s objectives, timeframe and risk appetite – with a broad division between the so called ‘growth assets’ and ‘income assets’.
Fixed income securities will usually be lower risk and more secure than equities because they rank higher. Debt gets paid out before equity. Accordingly, their expected returns are generally lower.
Without knowing the particular issues in mind, I can’t readily comment on whether you are better off buying a fixed interest security paying 7%, or investing in a share with a fully franked dividend of 5%, with the potential for capital appreciation or loss. As I said at the beginning, portfolio theory suggests you want a mix.
I may not have helped much with this answer – however I can’t see readily why you should be concerned.
