Hi all,
I have 30k to spare for investment. I have been putting my money in online saving and term deposit but would like to invest a bit more. Is government bond the way to go?
Is government bond worth investing?
Comments
Govt bonds are among the safest in assets and thus the returns are minimal.
It is good if you do not have an offset or do not plan to have one and only if any other investment is too risky for you.
What would be a higher return investment with moderate risk? I am just starting so my knowledge in this area is limited.
CheersIndex funds and ETFs. They are basically a collection of (for example) the world's largest stock indices, exchanges, or 200 tech companies, 100 top blue chips companies, etc. if one company goes bust, that will only slightly impact the total average value.
Vanguard has a range of attractive, popular ETFs.
At the moment shares are going down worldwide, but that happens every decade or so.
Personally I looked at my superannuation account and tried to mimick their investment options: part shares, part government bonds, part cash, part real estate, etc. Superannuation accounts usually go up anywhere between 5-12% per year, depending on your chosen investment options.
In that case should I let my super invest the money for me ? Or better off doing yourself?
Thanks a lot for your help so far
@Farmacist: Not sure of your age but if you put the money into your super you may not be able to get it out again until you retire!
@Farmacist: I will not put extra money into super if I were 25, the bastards in power just keep changing the rules when you will be able to access it.
I suggest ETFs, index funds etc. A term deposit with a decent interest rate would also be ok if you were going to access the money in 5 years or less for say a house.
Do you have parent's with a mortgage and an offset? Do you trust them with the money? Pump it in there and ask if they will give you the interest they would otherwise be paying. Easily a 3.6-4% return tax free
@pao2x: The superannuation scheme is simply a massive wealth grab by neoliberal maniacs who transfer money from everyone to the superwealthy and why the Washington Post calls Australia a plutocracy.
And that's before you get to the Government changing the rules.
If the aim genuinely was to fund people's retirements they wouldn't set up a system that allows fees. A 1% fee costs the average superannuation participant well over $500,000 over their life time.
If you wanted a system that genuinely funded people's retirements instead of transferring more than half a millon dollars away from the superannuant one fund would be setup where the people paying into the fund own the fund by paying into it. This isn't some crazy system, index funds already operate like this. There is no incentive to levy fees on the owners of the fund.
But as I said, the Government isn't interested in funding your retirement, it wants to remove your wealth and give it to a tiny number of people which has horrendous effects on the entire nation's economy.
@Diji1: Someone's got to pay the staff. Maybe you mean, they shouldn't allow a system that can be run for profit?
"A 1% fee costs the average superannuation participant well over $500,000 over their life time."
This seems a bit high given most people aren't even getting $500k into their super over their lifetime. 1% also seems pretty high for a fee. Mine is 1/10th of that.
I'll agree with you that the system has been heavily skewed in favour of tax minimisation for the wealthy, but there have been fairly substantial benefits for everyone else. The problem mostly is that people don't trust it, so don't take advantage of it, some retail funds are junk, and people who are young don't pay enough attention to their super.
If you're on a low income, the government gives away a decent co-contribution which is money for nothing, that will then compound until you retire. If you're on a higher income, there are good tax savings to be had from making contributions, again, which compound until you retire, so it benefits you more if you contribute when young.
As for 'when you can get access to it'. It's much of a muchness. If you end up at 58 and have $100,000 in debt but $900,000 in Super that you'll get in 2 years. That's better than being the same age and having $0 debt and $720,000 in Super. The caveat is that you have to be able to get access to that debt, and at a reasonable cost (eg a Mortgage Offset), which is something that requires planning.
@pao2x: They don't really you can access Super from 60. The pension age is the one they keep playing with, which makes Super more important.
The best financial decision I made in the last 10 years was to put money into super voluntarily (I was self-employed) when I was 25. It's outperformed everything else.
It depends a bit on your tax rate as to how much benefit you see, and you can only contribute concessionally $25k/year (including employer contributions).
Although you may be able to achieve better returns with more flexibility and similar risk profiles for smaller amounts through online savings with FCS-guaranteed accounts (i.e. government guaranteed deposits).
Your question is missing a sentence: "I've got a time frame of X months/years and have low/medium/high/insane amount of risk tolerance." Without knowing that, there is no answer to your question.
If you're not sure what your risk tolerance is, there are plenty of online questionnaires that will give you an idea.
This. The timeframe makes a difference. ETFs/Managed Funds are a much better bet over 15 years than over 5 (where you could go backward). If you're saving for the real long-term, and you don't need the money for a home deposit etc, Super is the best long-term bet, provided the tax benefits make sense for you.
[Artificially] low 'real' interest rates, mean that when they revert to historically (more reasonable) higher rates, your bonds will drop in value - just as homes are doing now!
Could chuck a bit into www.ratesetter.com.au for a low-moderate risk term deposit with higher interest rates.
Was going to suggest that too, but hesitated.
Rates with them have been very high the last couple of weeks, which suggests that investors are hesitant. 5-year rates jumped from 9% to 11%…
After all you're investing mostly in unsecured loans, and with the world economy slowing defaults might become more likely.
That said for me personally Ratesetter is a lot more attractive than an index fund. Just not sure I'd send a beginner that way.
ratesetter is high risk. The rate they're offering is representative of the risk. Think about the credit-worthiness of borrowers who are willing to pay so much more than they could get from a lender who only lends to reasonable risks. Now see that they only have enough in their fund to cover 17% of what's invested and… It's not unreasonable that half the fund could default in an economic downturn, and it's that new of a product that even their estimation could be off, significantly lowering long-term returns. In fact, it probably is, given they project higher returns for longer loans.
Yes they are very good for peace of mind.. I.e reliable when you want to cash them in and return will be a safe investment.. remember some investments lose money gov't bonds are always positive or very safe minimal drift from said return on investment.
Question on how you purchase bonds. Is it similar to opening a trading account and buying like shares traded in ASX?
If it is, considering the brokerage and account fee for the trading account which one is reliable and cheapest?
See: https://australiangovernmentbonds.gov.au/
Australia Government Bond 10Y
https://tradingeconomics.com/australia/government-bond-yieldI hope this is appropriate here (bond discussion).
Buying NAB, WBC, ANZ, BOQ and research other bluechips, will yield about 6.5 to 7% p/a. > 10% with franking, at the moment.
Equity prices will fluctuate but dividends are quite steady longterm. Risk of default with Bluechips is miniscule (with reasonable management).
Bonds are less % than Ubank, Rams I assume, so ffphf to that. And RBA rates are likely to rise soon.
Anyone see this as flawed thinking?
Equity prices will fluctuate but dividends are quite steady longterm. Risk of default with Bluechips is miniscule (with reasonable management).
Debt is guaranteed, it's price and value is based on pre-determined yield and the current risk-free rates.
Equity has two components to it, capital gains from people's perception of the price, which is realised on sale, and dividend component as taxable income, susceptible to market conditions localised to the business' operating environment.What you choose to be exposed to is up to you.
No risk, no gain.Debt can be defaulted - even Govts have done so.
The invidious 2 - 3%pa targetted inflation from the 1990's devalues debt - in 'real' terms :-(
Borrowers being additionally tax advantaged - while savers are lucky to have a 'real' [after inflation] interest return; then being taxed on notional [illusory] earnings.
Ditto for Gov beneficiaries.Monetary depreciation/creation a sign of global financial stress, & a cause of growing inequality :-(
Debt can be defaulted - even Govts have done so.
For a sovereign government such as Australia to default it would have to do it only because it chose to do so.
I didn't realise these were still available.
They are certainly safe, but from memory the interest rate was lower than commercial bank investments; is that still the case?