Tuesday 06 September 2016 by FIIG Securities bushwalking At FIIG

Ray’s high risk bond strategy pays off

Director of Research and Education, Elizabeth Moran interviews Sydney client, Ray

EM – Tell me a bit about yourself?

Ray – I retired a few years ago, somewhat over the age of 65. I used to work in computer software, systems analysis and computer programming. Towards the end of my career, I was helping customers to move onto other systems that took a long time to switch over, so it took me longer to reach retirement than I originally thought.

I’ve had an SMSF since 2002, and built it up over time as much as I could. I’m now drawing a pension from those funds.

EM – Do you have any goals or specific targets for your savings?

Ray – I’m just trying to do the best I can with what I’ve got. I don’t have a big family and just one grandchild so I haven’t got any goals as such.

I guess one strategy I have is to avoid any sudden and unexpected changes to my capital that might change the portfolio’s trajectory.

I’d classify myself as a better saver than a spender. I think investors should ask themselves “What return are you getting with your capital?”

EM – Do you know your asset allocation?

Ray – It’s roughly 55% in bonds, 37% equities and about 8 or 9% cash, which I use to buy more bonds or shares or to spend.

EM – How did you start in bonds?

Ray – About six or seven years ago, I started subscribing to the Eureka Report. After reading your articles for a couple of years, I contacted FIIG in 2012 and joined up. At the time, I did it all remotely and for some years didn’t meet anyone from the company even though I only lived about half an hour out of the Sydney office. Now I have a new dealer Ben Taylor, and last time I was in the office I met Grant MaCorquodale and the CEO Mark Paton. I didn't expect that!

To start, I invested in a lot of the FIIG new issue bonds suggested by my advisor, such as Mackay Sugar and G8 Education. They suggested that if I could get wholesale status that this would allow greater diversification, so I got a letter from my accountant and qualified as wholesale. My SMSF is quite big, over $2 million, and last year I earned $105,981 in Australian dollars plus US46,364 from my USD investments.

My US portfolio includes: Barminco, BlueScope, Broadspectrum, FMG 2022 with the high 9.75% coupon, Newcastle Coal, Virgin also the same but also some extra ones.

I’ve mainly invested in high yield bonds, so I have quite a lot different bonds in Australian dollars: Ansett, Adani, Capitol Health, CBL, Cash Converters, CML, Dicker Data, the recent new FIIG issue Eric, G8 FRN, IMF Bentham, Impact, IPG, MacPhersons, MSL, MyState, Plenary, RWH, SCT, Sunland, Sydney Airport 20s, and two residential mortgage backed securities – Sapphire and Liberty.

My biggest exposure is Newcastle Coal as you need a minimum USD100,000 to invest. A lot of the others are much less, and many at $50,000 as that is the minimum for new FIIG bonds. With Barminco, I started in USD10,000 but have added about USD30,000 in both accounts as the story kept getting better. Initially it started paying 15%, and as it improved I bought some more.

Ray – Liz, I think my personal account is more interesting.

About two years ago I opened another account in my own name. Term deposit rates were coming down, I'd had quite a good experience with my super fund. I didn’t have a lot of money outside super, somewhere between $300,000 and $400,000 and I wanted to earn more income than what TDs would provide. As a result, I invested in my own name in USD and AUD.

This is the part of my story I really want to share – to make others aware of what you can achieve. Even though it’s smaller than my SMSF, I get a really good income from my personal holdings.

This financial year I have $374,000 invested in bonds and my projected income will be $41,525. That income is a little distorted by two amortising bonds, WS Stockland and Impact.

Bonds I hold include: Adani, CBL, Eric, Impact and WA Stockwell.

About USD11,000 of the income is provided by US bonds – Barminco, both the April and March 2022, Forstescue bonds and Virgin.

I can look at all my bonds in the MyFIIG portal which lets me see the income projected monthly for the next five years. It lets me plan in advance as I know what cash is coming in with a high degree of certainty. Using the FIIG dashboard you can create a spreadsheet to schedule your income.

While I’m happy with my investments, bonds are not for everyone. I have the advantage of wholesale investor status giving me much more choice. Some of the bonds I’ve chosen may be considered fairly risky as well.

All said and done you can earn a decent return for not that much capital.

EM – Do you have any advice you'd like to give someone starting out?

Ray – Once you've overcome your initial lack of understanding and when you've seen some income, reliably coming in you expand your appreciation and horizon. Your confidence rises with success.

Bonds are a good alternative to term deposits; if you invest in a term deposit you might be lucky to get 3% pa. There are lots of bonds out there with different maturities, the flexibility of buying and selling, and income that is hard to beat.

You can do it too!