Bond investing is a fundamental part of the fixed-income securities market.
It involves purchasing debt instruments issued by governments, municipalities, and corporations.
Bond investing involves buying bonds to earn interest income and, potentially, to achieve capital appreciation.
A bond is essentially a loan made by an investor to a borrower (the issuer), who promises to pay back the principal amount at a specified maturity date, along with periodic interest payments, known as coupon payments.
There are several types of bonds, including:
The three main features of Bond investing are:
There are four main risks of Bond investing:
Investors can evaluate Bonds using several criteria:
Investors can invest in Bonds through various avenues:
It varies by bond type; some can be purchased for as little as $1,000.
Bond funds can be less risky than individual bonds due to their diversification benefits, but they can also be affected by market volatility.
Many brokerage platforms allow for the automatic reinvestment of interest payments.
Bond ratings are assessments of the creditworthiness of a bond issuer, ranging from AAA (highest quality) to D (default).
Higher-rated Bonds are generally considered safer, while lower-rated bonds may offer higher yields but come with increased risk.
Yield is the income return on an investment, typically expressed as a percentage.
For Bond investors, yield can refer to the coupon yield, current yield, or yield to maturity (YTM), which considers total returns if the bond is held to maturity.
Diversification in Bond investing can be achieved by investing in bonds with different maturities, credit qualities, and types (government, municipal, corporate).
This helps spread risk and can moderate the impact of interest rate fluctuations.
Inflation erodes purchasing power, which can negatively impact upon the real returns on bonds.
To mitigate this risk, Bond investors may look for inflation-protected securities, like TIPS (Treasury Inflation-Protected Securities).
A Bond’s face value (or par value) is the amount paid back to the bondholder at maturity, whereas a Bond’s market value is the current price at which the Bond can be bought or sold in the market, which can fluctuate based on interest rates and issuer credit quality.
In summary, Bond investing provides a relatively stable income source with a lower level of risk compared to equities.
Understanding the types, features, and risks of Bond investing is essential for making informed investment decisions.
By comparing key metrics such as yield, credit ratings, and utilising diversified strategies like Bond funds, investors can optimise their bond portfolios effectively.
As market conditions evolve, staying informed and adapting investment strategies is crucial for successful Bond investing.
The Fortlake Real-Higher Income Fund provides diversified exposure to a variety of return sources to deliver consistent returns above cash.
Consistent returns aiming for cash + 3.50%.
The Fund invests in Australian government bonds, State (semi) government bonds, supranational bonds, investment grade corporate bonds, and other fixed income securities.
Providing easy access to Investment Grade Bonds and higher than average yield - 7% YTM
Consistent returns aiming for cash + 1.50%
The Fund’s purpose is to invest in green, sustainable, and social bonds with the primary aim of targeting investments that contribute to lowering carbon emissions.
The Fund will invest in a diversified portfolio of liquid, investment grade fixed and floating rate green, sustainable and social corporate bonds (For Wholesale Investors Only)
An actively managed portfolio that provides access to global high grade securities with geographical exposure primarily to developed G7 defined countries.
The Fund invests in a diversified portfolio of liquid, investment grade fixed and floating rate AUD corporate bonds (For Wholesale Investors Only)
An active portfolio comprising Australian Government, semi-Government and supranational bonds that are AAA or AA rated securities issued in Australian dollars.
An absolute return fixed income fund that aims to deliver stable and consistent returns over time irrespective of share and bond market movements.
