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I think there was a thread about this but cant find it again so apologies if repeating.
I recently have had cause to have a look at returns for cash deposits and 'fixed interest' securities, both because i am shortly going to need to park a decent chunk of cash somehwere for a while, and also because I am doing a 'foundation of financial planning' module and struggling to get my head round the asset allocation parts of a project, or in particluar struggling to see the point of the 'fixed interest' allocation.
'Australian Fixed interest' appears to include;
govt bonds, returns around 4%
some corporate bonds, only 3 are listed on the ASX website, returns around 8% but never heard of the companies backing them
and 'floating notes' - 20 or so listed by ASX, issued by the big name banks plus AMP , WOW etc
The CBA one has an effective return of 5.55% and the NAB one 7.56%. they go on up from there but only a higher risk
as a comparison there are savings accounts paying up to around 6% floating and around 5.8%fixed interest
queries;
why would an individual ever buy a govt bond which pays 4% v a saving account which pays 6% and is backed by the same govt?
Fixed interest is supposed to be slightly higher up the scale of both return and risk. I can see how it might be further up the scale of risk but not sure about the return. If both govt bonds and NAB notes were included, say 50% each , the return would be the average of 4% and 7.5% = 5.75%, which you can get in the bank. The risk side however would now be greater than the default risk of a deposit account with a bank (due to its govt guarantee), and fluctuation of capital risk has now been introduced. So a cash deposit would always dominate 'fixed interest'?
An inidividual might gain something by investing only in notes that pay more than 6%, but not in a portfolio that included govt bonds
I am further baffled by; why would an individual ever give his money to an institution which will charge him say 1.5% pa for investing at 4% or 6% return? thanks very much. In the case of a managed fund, in or out of super, a typical 'balanced' portfolio would have 40% in cash and fixed interest asset classes, which might as well be all in cash from what i can see, yet they charge their fees on the whole lot. that means that for 40% of the fund you would be donating 1.5% in fees for the same or less return than you could get in a bank.
An individual who wants 40% defensive assets would surely be better putting his cash in the bank himself at 6%, with no entry or exit fees, and then putting the other 60% in growth funds (if he was unwilling to do direct investments). that way at least he would only be paying 1.5% on 60% of his money. Just saving 1.5% on 40% is a .6% pa improvement in the overall portfolio perforamance.
any comments appreciated thanks
I recently have had cause to have a look at returns for cash deposits and 'fixed interest' securities, both because i am shortly going to need to park a decent chunk of cash somehwere for a while, and also because I am doing a 'foundation of financial planning' module and struggling to get my head round the asset allocation parts of a project, or in particluar struggling to see the point of the 'fixed interest' allocation.
'Australian Fixed interest' appears to include;
govt bonds, returns around 4%
some corporate bonds, only 3 are listed on the ASX website, returns around 8% but never heard of the companies backing them
and 'floating notes' - 20 or so listed by ASX, issued by the big name banks plus AMP , WOW etc
The CBA one has an effective return of 5.55% and the NAB one 7.56%. they go on up from there but only a higher risk
as a comparison there are savings accounts paying up to around 6% floating and around 5.8%fixed interest
queries;
why would an individual ever buy a govt bond which pays 4% v a saving account which pays 6% and is backed by the same govt?
Fixed interest is supposed to be slightly higher up the scale of both return and risk. I can see how it might be further up the scale of risk but not sure about the return. If both govt bonds and NAB notes were included, say 50% each , the return would be the average of 4% and 7.5% = 5.75%, which you can get in the bank. The risk side however would now be greater than the default risk of a deposit account with a bank (due to its govt guarantee), and fluctuation of capital risk has now been introduced. So a cash deposit would always dominate 'fixed interest'?
An inidividual might gain something by investing only in notes that pay more than 6%, but not in a portfolio that included govt bonds
I am further baffled by; why would an individual ever give his money to an institution which will charge him say 1.5% pa for investing at 4% or 6% return? thanks very much. In the case of a managed fund, in or out of super, a typical 'balanced' portfolio would have 40% in cash and fixed interest asset classes, which might as well be all in cash from what i can see, yet they charge their fees on the whole lot. that means that for 40% of the fund you would be donating 1.5% in fees for the same or less return than you could get in a bank.
An individual who wants 40% defensive assets would surely be better putting his cash in the bank himself at 6%, with no entry or exit fees, and then putting the other 60% in growth funds (if he was unwilling to do direct investments). that way at least he would only be paying 1.5% on 60% of his money. Just saving 1.5% on 40% is a .6% pa improvement in the overall portfolio perforamance.
any comments appreciated thanks