From goods and services inflation to surging energy costs, a retiring couple today needs more than $70,000 a year to live comfortably, while an individual needs just over $50,000 a year, according to the Association of Superannuation Funds Australia (ASFA).
For investment advisers, this underscores the critical importance of structuring and managing multi-asset portfolios which can deliver optimal outcomes for their clients in challenging economic conditions.
Why Corporate Bonds?
Most of your clients will undoubtedly be familiar with savings accounts and term deposits, especially given they are now paying interest rates of around of 4.5% p.a. and 5% p.a. respectively. While these rates might seem attractive now given the ultra-low interest rate environment of the past, considering Australian inflation is running at 6%, albeit declining, the real return on these investments is actually negative.
Some corporate bonds on the other hand are paying coupons of more than 7.0% p.a., providing your client with a guaranteed income and a positive real return. In some cases, corporate bonds are inflation-linked, meaning they will pay your clients a guaranteed rate of return above the inflation rate.
It’s important to point out however that while there are many similarities between corporate bonds, term deposits and savings accounts, corporate bonds aren’t entirely risk free. This is why it’s critical to understand the idiosyncrasies of each bond before you invest on behalf of your clients.
From interest rate risk to credit and market risk, there are many complex aspects to consider when it comes to asset allocation, and this is partly why so many advisers overlook the asset class.
While it’s still imperative to conduct your own due diligence, we help to abstract away some of this complexity by allowing only the highest quality corporate bonds onto our platform.
We adopt a strict risk management framework and undertake rigorous screening which considers various features including coupon payments, maturity, covenants, which assets are backing the bond, and more.
Get in Touch Today
If you’re interested in knowing more about how corporate bonds can benefit your clients’ portfolios, then reach out to an adviser at the Australian Bond Exchange today.
We will work closely with you to explain any and all of the technicalities, ensuring you are both well positioned and informed to provide your clients with the best fixed income portfolio possible.
Disclaimer: Australian Bond Exchange Pty Ltd ACN 605 038 935 AFSL 484453 (ABE). This article is intended to provide general information of an educational nature only. It does not constitute the provision of personal advice and does not take into account your personal objectives, financial situation or needs. Before investing with ABE, you should consider the appropriateness of the investment to your particular financial and taxation situation and consider obtaining independent advice before making an investment. Examples in this article are for illustration purposes only and are not a recommendation to buy, sell or hold a particular investment. ABE makes no representation or guarantee as to the availability of a bond with the characteristics described in this article or that an investment made by you will generate the returns in the illustration. Past performance is not an indication of future performance. Investing with ABE is subject to our Client Services and Custody Agreement Terms and Conditions and Financial Services Guide.