Join our investing community

Investing in bonds?

Discussion in 'Investing Strategies' started by ashwright, 9th Sep, 2008.

  1. ashwright

    ashwright Well-Known Member

    Joined:
    30th Nov, 2007
    Posts:
    116
    Location:
    Brisbane, Qld
    Hi,

    Just wondering how you would go about investing in Bonds, particularly corporate bonds. Investing in Equity is easy, you either buy off the prospectus or off the secondary market (ASX, NSX etc). You can buy government bonds though the RBA, but the federal government is in surplus, and does not really need to issue bonds (Although they still do, to keep the market open).

    I have also noticed a lot of bank issuing hybrid/preference shares, which pay a coupon like a bond, and have a fixed face value like a bond. But are actually classed as equity, so if the company decides not to pay a dividend, you get nothing. So these would be more risky then a bond.

    So how would you buy bonds issued by state or local government?
    And how would you buy bonds issued by corporations?

    I am mostly interested in the Australian market, but an happy to here how it works overseas.
     
  2. Mark Laszczuk

    Mark Laszczuk Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    793
    Location:
    Brisbane
    ashwright,

    Why do you want to purchase bonds?

    Mark
     
  3. Tropo

    Tropo Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    3,396
    Location:
    NSW
  4. ashwright

    ashwright Well-Known Member

    Joined:
    30th Nov, 2007
    Posts:
    116
    Location:
    Brisbane, Qld
    Diversification is the biggest reason. If you can get 7-10% return from bonds, that beats a bank account, and it is a lot safer then shares.
    Also if interest rates are falling, then bond prices will be going up, so you will get "capital growth" as well. (You do not get this on hybrids, as the interest rate is not fixed.)

    The main reason for asking the question is not on the "why" but on the "how".

    Maybe for the climate we are in at the moment, bonds would be a better investment then share? Maybe have some bonds in my portfolio would reduce the volatility? However, I do not know how to invest in Bonds, so how can I answer these questions for myself?
     
    Last edited by a moderator: 9th Sep, 2008
  5. Mark Laszczuk

    Mark Laszczuk Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    793
    Location:
    Brisbane
    Hi ashwright,

    I can't comment on investing in bonds as I have not done this. I personally don't see holding cash/fixed interest as a sound long term investment strategy *unless* you are holding cash waiting for opportunities to come along.

    Can I suggest you read the introduction in the book "Beating The Street" by Peter Lynch. This will give you what I believe to be a good overall view of bonds compared to stocks. Also, depending on your level of understanding, you might want to read Ben Graham's thoughts on bond investment in The Intelligent Investor.

    Mark

    Edit: in relation to how to invest in bonds, you can do so through a fixed interest fund. Investing in bonds directly is rare for retail investors, as bonds are usually issued in high denominations, say $50,000 or $100,000 each.
     
  6. ashwright

    ashwright Well-Known Member

    Joined:
    30th Nov, 2007
    Posts:
    116
    Location:
    Brisbane, Qld
    I did start reading Ben Graham's The Intelligent Investor, unfortunately I only got to chapter 3/4 before it got recalled to the library. At that point in the book, however he was recommending 50% Shares/Equity and 50% Bonds/Debt.

    Will have to get the book out again, once the semester has quieten down.
     
    Last edited by a moderator: 9th Sep, 2008
  7. ashwright

    ashwright Well-Known Member

    Joined:
    30th Nov, 2007
    Posts:
    116
    Location:
    Brisbane, Qld
    Hi Tropo,
    Those links were a good read, still reading the first one. Just wondering what your point was? That they are not a good investment?

    Also found this on the ASX ASX Interest Rate and Hybrid Security prices which seems to cover what I was looking for.

    Is there any other secondary markets on which bonds trade, in Australia?
     
  8. Tropo

    Tropo Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    3,396
    Location:
    NSW
    Ashwright

    I am not in bonds at all (can not help), but if you are looking for a more info on this subject Edna Carew in her “Fast Money 4” will give you an answer ($35).
    Also – ‘One Up on Wall Street’ by Peter Lynch is a good source of information (part 1).