Tuesday 04 December 2018 by Guest Contributor Opinion

Going against the grain: How one retiree protects her portfolio with bonds

American-Australian retiree, Beth Buchanan doesn’t invest in shares – none whatsoever. She tells us why bonds are a stress-free investment solution at her age

beth-buchanon
Pictured: Beth Buchanan

American-Australian retiree, Beth Buchanan made the move down under from the US 12 years ago, choosing to settle with her family in the Tweed Region of Northern NSW.

Like most her age, Beth enjoys spending time with her grandchildren and indulging in her favourite hobbies, such as gardening and making art. When it comes to money, though, Beth does things a little differently to the majority of her Australian peers: she doesn’t invest in shares – none whatsoever.

Australians have long had an obsession with equities. Research from Deloitte Access Economics Corporate Bond Report 2018 shows that Australian retirees allocate more than a third (34%) of their investment portfolio to shares. It’s a love affair that US-born Beth doesn’t understand, particularly in light of recent market volatility and catastrophic events like the GFC.

Instead, Beth follows the US approach to investing, where fixed income assets such as bonds play a more prominent role in portfolios. For many Americans, this allocation to fixed income typically reflects one’s age and so increases as they get older.

Compared to the investment strategies of Australian retirees – many of which are overweight shares - this approach is much lower risk. No longer working, Beth has limited capacity to generate the income needed to recover in the event of a market downturn, so minimising her exposure to these forces makes a lot of sense.

 “At my age – I’m going to be 75 next year – I feel it would be financially irresponsible to invest in the stock market,” said Beth.

 “For my partner and I, bonds are a stress-free investment solution. At this point in our lives we don’t really want to go up and down with the stock market – it’s so uncertain. We also don’t want to be spending our time taking care of rental properties and things like that, so we choose to keep things simple.”

Beth currently has two-thirds of her investment portfolio weighted to bonds, while the other third sits in property that she owns.

“I think you have to be smart and sensible about your investments. We have a steady and reliable income with the diversity of investments that we have and we’re in a place where we have the stability we need to enjoy our retirement without too much worry,” she added.

Liquidity is also a key selling point for Beth and her partner.

“One of the advantages is you can always sell a bond. When my son-in-law needed to buy a new car I was able to sell a bond to help him out – it’s great to be able to do this, to be able to help my children and their families. The FIIG team is excellent at supporting us in this respect.”

Now in her mid-70s, Beth prefers to buy short-dated bonds and hold onto most of these to maturity.

“For me, I’m getting more back than I would if I had my cash in term deposits. The banks might pay me three per cent, even less, but with my bond portfolio I track an average of between four and six per cent, she said.

“With my bond investments and FIIG’s guidance, I can live my life without being overloaded with financial stress. I can live comfortably and I’m really pleased about that.”



Get your free copy of The Benefits of Corporate Bonds eBook

Get a copy of The Benefits of Corporate Bonds eBook

Subscribe to The WIRE newsletter

Sign up to a free weekly newsletter to get the latest investment news.