In their early eighties, FIIG clients of four years, Pem and Penny Gerner, are by no means ‘retired’ and continue to work as hard as their investments do.
With an impressive collection of eight published books between them and an additional two in the works, the couple are not only focused on making the most of their golden years, they’re also focused on making the most of their finances. Seeing their returns from bank term deposits start to decline several years ago, Pem and Penny looked to corporate bonds to secure the strong performance that they expected from their investments and bring predictability into their portfolio.
“Whilst we may have been seeing over 6.75 per cent returns on our term deposits at one time, this was steadily declining with no outlook of improving. We had served our time in property and didn’t wish to return to that and we wanted to avoid the roller coaster ride of equities,” they said.
“After doing our due diligence, corporate bonds seemed like the natural choice for us and we are pleased to see our portfolio bolstered with very healthy returns of up to 6.25 per cent.”
Compared to a common investment strategy of many Australians, which sees them overweight in both shares and property, this is a much lower risk approach. As the Gerner’s identified, bonds can also deliver greater returns than equities and property. Research from Deloitte Access Economics’ Corporate Bond Report 2018 shows that the average gross return of Australian bonds was 6.1% between 2006 and 2016 compared to 4.3% for Australian equities.
Bonds: a natural fit for short-term and long-term investment goals
Working with a FIIG Relationship Manager, Pem and Penny now have a broad spread of long-term and short-term corporate bonds in their investment portfolio, reflecting their varied investment goals.
No longer part of the day-to-day corporate world, the couple invest in the short-term to support a comfortable lifestyle, supplementing the income from their writing and Penny’s successful pastel painting. In an unpredictable political and economic climate, minimising their exposure to volatile market forces and preserving an income is particularly important.
For this reason, the predictable payment dates of bonds were a key selling point for the Gerners. Like 73 per cent of corporate bond holders, the couple were keen to move on from the disappointing returns of term deposits and the uncertainty of property and equities to secure a reliable income stream*:
“The superb ‘paperwork trail’ and the exactness of both the payment amounts and the dates of payments really drew us to corporate bonds. For us, no other investment sustains this precision and reliability.”
Looking to the longer term, the Gerners’ investment goals are focussed on building an inheritance for their children and grandchildren as well as helping out with those expensive life events like university fees and buying a first home, which are becoming increasingly challenging for the younger generations.
Bonds on the rise
Research shows that Australian retirees allocate more than a third (34 per cent) of their investment portfolio to shares*, an obsession that the Gerners rightly attribute to a historical lack of awareness among Australians of the various investment options available.
“In Australia, corporate bonds have been the lowest patronised investment form, and even worse, the least understood, even amongst modestly informed financially literate fellow Australians. It’s a shame that Australian investors seem to be hooked on shares and property,” the couple commented.
However, with the corporate bond market now around 70 per cent of the size of the ASX the tide has started to turn. More and more Australian investors are looking to bonds to deliver reliable returns and protect their portfolio in ways that shares and property cannot.
To this end, Pem and Penny have no plans to decrease their bond allocation any time soon.
“Corporate bonds have been the natural choice for both our short-term and long-term investment goals and, with FIIG’s guidance, we have never been disappointed.”
*Deloitte Access Economics’ Corporate Bond Report 2018