Have You Considered Bonds as an Asset Class?

by Dominique Schuh

The Australian share market has ended marginally higher as investors piled into the big miners. The recent inflation data shows Australian inflation figures are at a 17-year low point, indicating a rate cut by the RBA in August may now be even more likely. If this happens, the mining companies may well be the biggest beneficiaries of such a cut. Australia has joined a large number of advanced economies where inflation is miles away from official targets and with global oil prices declining once again and China depreciating its exchange rate, it is hard to envisage this situation reversing any time soon.

What does this mean for you?
After a very weak start to the year in the share market, Australian shares may now continue to recover as investors look for better investments than term deposits and savings accounts. This may be a good time to consider bonds as an asset class. Bonds are defensive in nature, and traditionally return around 2% better than term deposits. This means if you're earning 2% on your cash, bonds should be getting around 4%, and can easily be added to a portfolio as a safe investment that earns a premium.
With the real potential for interest rates to drop again, you may need to revisit your borrowing arrangements. We'd suggest you don't go for a fixed rate on your loans, because you may want the flexibility to renegotiate your interest rate with your lending provider if another rate cut comes in.

If you would like to review your current structures, contact us today on 5482 2855.