Hello all,
a simple question :- what's the best way to invest a 100k in a safe fixed income product? Will appreciate your views and thoughts on this. FWIW I might look at buying a property in one year or so … Hence don't want to take any risks. Is it possible to get 5% to 7% or even more on a fixed income product? Thanks in advance !
Thanks baysew, I had some kinda corp or gov bonds in mind when I wrote that. Not sure how to get to those, if they exist that is ..
Government bonds pay less than that, less than 3% unless you choose a government forced to pay above that because they are risky (Turkey, Venezuela for example).
Corporate bonds can pay over 5% for reasonably safe companies, but you run the risk of them going broke in a GFC style crisis.
While you could buy a bond on issue for its issue price, and get the quoted interest payment each year until maturity, most bonds are traded during their life so their price fluctuates depending on prevailing market conditions.
For example, if a corporate bond was issued for $100 paying 10% interest in one year it would trade at about $100 now, $101 next month, $102 the month after, and close to $110 in 11 months. But if in that time government bond interest rates rose from 2.5% to, for example, 5% in that time, the early values of the bond would be lower (because some investors would prefer the safe government 5% over the risky 10% corporate bond).
The upshot, is unless you find a bond that matches the timeframe you want to maturity, the bond may be trading lower than you expect, so you could lose money.
I don't invest in bonds, I don't have the patience to do the calculations to assess value, or the interest in that market to be well informed.
I would suggest that for the possible slight increase in investment return you are looking at, it would be a fair bit of work to get up to speed so you could make a wise decision.
A government guaranteed high interest saver pays about 3% with no more effort than going to Canstar or Finder to look up the current best.
Thanks for this awesome explanation mskeggs. Thumbs up
The best way to get them is at IPO, coz you get them for $100 and no brokerage charges.
But I bought for super, with the intent of holding them until paid out which could be 70 years.
Apart from that, what mskeggs said…. except you can simply use an online Yield To Maturity calculator to determine what rate you're getting based on current price.
(But there are 2 potential maturity dates - the company usually has an option to buy bak on a particular date.)
Thanks slickmick.
I will give you a tip, Bitcoin! Forget about it for 5 years, come back to ozbargain find supatight & slip me something for making you rich!
LOL… tell that to the folks who dropped money on it at $19K 8 months ago
so what ? on average every year bitcoin is up 150% and its way down now. Crypto is volatile yes but nothing to worry about, bitcoin in the end is only going 1 way and that is up That is the way its going to be for a long time.
@ supatight
Do you offer everyone here full repayment of losses incurred due to your misleading assertion?
Financial experts can only get predictions right half the time, you're much better eh?
One day you will grow up and see you're just guessing.
Agree with Benny, www.ratesetter.com.au would be a very good option for you, but also diversify. And the $75 referral bonus is nice too. If you go to the deal page for ratesetter, and click the referral link, then it will pick at random one lucky ozbargainer to get the other $75. https://www.ozbargain.com.au/node/391632
On the 3 year and 5 year platforms you can set it to return the capital and interest to your bank account monthly - satisfying your fixed income requirement. Of course you are better off to set it to reinvest it automatically to maximise your return, however it is nice to have the option, and gives you a little bit more liquidity on those longer 3 and 5 year options.
Ratesetter is an excellent product, but OP asked for a "safe" investment. Despite the Provision Fund, they make clear that there is no guarantee that your capital will be returned.
DYOR
Safer than shares. To date, no lender has ever lost money on the ratesetter platform in Australia (according to them). If this is not safe enough then stick with bank interest i guess…
Curious as to the negs… Do people think it is NOT safer than shares?? If so please elaborate? Or was it because i suggested bank interest as the only next logical "safer" investment? I'm always happy to be educated.
My understanding is that you will likely lose a proportion of your investment when the next GFC swings around as ratesetters provision fund isnt going to cover a significant economy downturn. But in a downturn like that your shares and super and other non government backed investments will all be taking a hit as well anyway so it seems the higher returns of ratesetter still make it a better option than most other non government backed investments..?
@Riczter:
The share market is valued on the expected income of the underlying businesses.
So in a GFC event, businesses like Woolies and Coles dip a bit, but don't lose too much value because people might spend a bit less, but still need groceries. Businesses like Bell Potter (a share broker) depend very much on people having plenty of money around for investments and "playing the market". Their share price got smashed in the GFC. So it isn't just the case of share price declines.
Another factor is when things are falling, many people need access to quick cash to cover their sudden obligations, so even good investments get sold down as everyone stampedes for the door. It is a great time to have liquid cash to buy things.
As for Ratesetter? Nobody knows how they will perform in a serious correction. We know there will be borrowers on that platform who will default - would you rather cover the mortgage payment or your Ratesetter repayment when somebody in your house just lost their job and you have to choose? Would you rather pay the electricity bill or the Ratesetter payment? I think there is a substantial risk that if there is a GFC style event, that the bad debts will increase. It looks like they have about 3% of bad debt now. If that doubled it would wipe out their provisions, anything more and you would start to lose money and interest payments.
It looks like their interest charges for borrowers are around what you can pay for a regular personal loan or low rate credit card - so you have to figure their customers are below best risk. What we don't know is if unemployment doubled, would ratesetter defaults grow to 6% or 12% or 24%.
so it seems the higher returns of ratesetter still make it a better option than most other non government backed investments..?
An ASX 100 ETF returned 13% in the last 12 months. Ratesetter paid 4.6%. A zero risk bank paid 3%. Historically, shares have returned around 7%. It looks like ratesetter offers returns like that over longer horizons. It will be interesting to see how they weather the next downturn.
Cheers for the explanation, and I agree with most of what you have said. I was basing my comments on comparing the 5 year ratesetter rates of 8.5-9% to the sharemarket on average which you say is around 7% return. But I see OP wants to use the money in a years time so the longer term offers from ratesetter may not be suitable for him, that's my mistake. I still think for the average person who is happy to put their money away for 5+ years that ratesetter is better than getting into shares if you dont know what you are doing. I've had shares and had companies go into receivership and lose all those shares, prices on others drop 80-90% etc. It's much easier to lose money on the sharemarket than it is on ratesetter in my experience. A well diversified portfolio and a good knowledge of what you are doing would most likely yield better results, but for ease of use ratesetter wins it for me. Also i think people think that they will definitely lose all their money if a GFC comes around and ratesetters provisional fund gets maxed out. But that's not likely, your loan is shared among many people, and not all of them are going to refuse to pay. Your only going to lose a percentage of your capital similar to ratesetters percentage of bad debt during the downturn, which is similar to what you will lose if you have shares. A well balanced portfolio may perform better but I wouldn't be surprised if there isn't much in it. All speculation of course, we've never seen ratesetter during a downturn so who knows.
ETFs is another good one that gets recommended often and seems to have good returns. I don't have any personal experience with these so cant comment. To update OPs question, i would probably go a mix of ratesetter, ETFs and bank interest if I had 100k and was waiting to buy a house.
@Riczter:
I don't see ETFs as a safe way to invest for 1 year. The difference between buy and sell prices on asx indicate you're going to lose a chunk on exiting, so would want to have made more than 1 year's increase to cover that. If it happened to be a bad year, I'd say it would be a very good way to lose a good portion of your investment.
Thanks Riczter .. I'll look into it.
High yield investments are around the $80k mark..
Come with steering wheel :)) .. this one will never get old on Ozb :)
$20k left for a 28Degrees card to purchase on bikies armed with Xiaomi powerbanks powered by eneloops and dominos pizzas, and ofcourse with cashrewards!!
lol I was about to argue until "I got it" :)
If you're planning to use the money within a year, then look at getting a RAMS saver account.
You'll get 3% p.a ($250 per month) as long as you don't withdraw and add $200+ per month. Low yield (in terms of other options) but safe. You would also have access to the money should you need it.
Thanks camm90. Like this idea, think this works for my situation.
No idea about investment.
But was hearing a friend who did intensive research that SILVER will have potential to go up by 10 to 20x current value in 5 or so years.
It's a gamble, but even if it does drop in value, you are looking at most 10_20% decrease. So if you loose, you loose 20k. But if win in five years, you will be a millionaire.
I will keep dreaming…..But the guy sounds pretty into it, so I am throwing some money 7nto it
Good luck :)
Yeh. I keep hearing that during last week's 50 mil powerball
Bank
5-7% No.
3% Yes, Term deposit.
No, the rate you are looking for is higher that what the banks will lend out on.