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Diversified Bonds

Discussion in 'General Investing Discussion' started by Statesman, 15th Oct, 2019.

  1. Statesman

    Statesman New Member

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    As I am getting ever closer to retirement, I have shifted my portfolio to include Diversified Bonds (QSuper) QSuper says Diversified Bonds aim for 40% Australian and 60% international diversified bonds index (hedged in $AUD)

    My question is, I have been googling diversified bonds, kind of understand what they are, but what global events, or economic events would cause a fall in the yield?

    Conversely, what global or economic events would cause a gain in the yield.

    I understand that this option is a low to moderate risk profile, but I have been unable, through google, to see examples of what events/conditions might boost yield or cause a loss.

    Hoping a forum member who is economy savvy many be able to shed some light for me and possibly others
     
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  2. twisted strategies

    twisted strategies Well-Known Member

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    welcome to InvestChat ,

    there is more to 'diversitied bonds ' than merely Australian or International

    there are corporate bonds, Treasury ( or Sovereign ) bonds and government bonds ( state government entities and councils ) to name a few

    THEN you have credit rating levels from AAA ( allegedly no risk of going bad .. but the GFC ruined that theory ) down to BBB barely worth the term 'investment grade , and below that is 'junk ' where there is a high risk of things ; going bad '

    ' going bad ' includes delays in interest payments , missing interest payment completely in times of stress 'haircuts ' a reduction in the capital you get back at maturity , OR a long term reduction in interest paid ( or BOTH ) , 100% capital loss , also possible is the maturity date is extended ( so your capital is locked up fot longer .)

    then there is security , some are secured' against an asset , but if the asset is say essential electricity infrastructure you can bet that government will sell that to pay your bonds ( sarcasm )

    to be honest 'bonds is a whole investment area of it's own and you SHOULD really study all the quirks and traps before even consulting a financial adviser ( worldwide the bond market is a multi-trillion dollar industry ) having a reasonable knowledge first ( about the risks and jargon ) will increase you chances of a happy outcome

    here is one place to start

    Understanding Bonds

    yes it is complex i often take over a week to decide if i will invest in a spectic bond ( or other interest-bearing equity )
     
  3. Statesman

    Statesman New Member

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  4. twisted strategies

    twisted strategies Well-Known Member

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    poke around on this web-site he tries to be proffessional , without burning sponsors

    Tag: Fixed Interest

    see if industry proffessionals ( several other members are ) jump into this thread

    personally i am very biased against bundles on interest-bearing assets ( imo you are putting a LOT of trust in the fund manager )

    buying each ( after researching them personally ) sure i did that between 2011 and 2015 with overall success , but not now , imo , the risk v. reward balance is no lohger in my favour ( all the grear ones got redeemed early in 2014 and 2015 , so they could sell the new ones at reduced interset-rates )
     
  5. twisted strategies

    twisted strategies Well-Known Member

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  6. Statesman

    Statesman New Member

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    Thanks again twisted, I will have a poke around tha site too A bit more context here. I have just decided to come off an aggressive growth profile, which did quite well last FY, but am feeling uneasy about the state of the global economy and the stock market and housing market here in Au and dont want to lose what little super I have (only around 80k) so I figured that bonds are supposed to be better than cash, in yield terms but relativly low risk, around 3%

    Any loss with my measily balance is not good

    I did hear someone says that if they keep reducing interest rates, that bonds will perform better, but as I know jack about 'economics" I dont know if this is true or not
     
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  7. twisted strategies

    twisted strategies Well-Known Member

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    if interest-rates drop ( for both borrower AND lender and in this case you are the lender )

    how are you better off now with low interest rates ( especially in a global economy that shows big hints of being fragile )

    MBLHB MACQUARIE BANK LIMITED HYBRID 3-BBSW+1.70% PERP SUB NON-CUM

    in 2011 i bought a hybrid ( sort of like a variable rate bond ) MBLHB ( with a $100 face value .. that is sold at $100 at issue ) but i bought mine on the stock market at $62.50 ( plus brokerage )

    they were cheap then because the market was fearful for MacQuarie bank and it's strength AND the interest rates on $100 weren't very good at the time compared to other offerings

    jump forward 8 years and the unit price is noq $93+ on the very same hybrid , because rival interest rates have fallen from early times and the MacQuarie Bank LOOKS less likely to fold or get caught in severe financial distress

    please note the BBSW ( 90 day bank bill swap rate HAS fallen in the last 8 years but the +1.7% now looks slightly competitive

    currently this hybrid pays about $2.80 per annum ( which still isn't great if you paid $100 for it , BUT at my buying price ( lass than $63 ) still better than a term deposit

    so the problem is do you count 'yield' as interest rate return on your investment OR ( as some funds do ) count interest + any potential increase in resale price

    ( i coumt interest return on the cash i have outlayed ) the other increase may or may not happen in my lifetime .

    i primarily invest for income ( not strictly to turn $100,000 into $200,000 if that happens it is a nice surpeise )

    remember bonds are DEBT , very few can get blood out of a stone
     
  8. Statesman

    Statesman New Member

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    Thanks twisted for your valuable input...am doing more research!
     
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  9. twisted strategies

    twisted strategies Well-Known Member

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    it is just these are very unusual times not only are bonds being offered at incredibly low rates , but some are being offered for very long term as much as 100 years is being talked about ( theoretically never repaying the capital in your lifetime and quite possibly turned into minor change by inflation over 30 to 100 yeaars )

    of course there are the odd rumours of a' currency reset 'and that could be more than trimming one or two zeroes off and renaming the currency ... something like pre-WW2 Germany ( although several other nations have done similar since )