Tuesday 08 March 2016 by FIIG Research Education (basics)

White paper – Looking for income? Bonds are a true provider

In this substantial white paper, FIIG expert Elizabeth Moran discusses the top SMSF concerns of 2016 and explains how to use bonds to reduce your investment risk while maintaining your income

In this new white paper, Looking for income? Bonds are a true provider, Elizabeth Moran discusses the biggest SMSF concerns of 2016 and their solutions.

Whether your concerns are mainly economic or more individual, the white paper has the answers that will help you enter the bond market with confidence and achieve what you want with your portfolio.

Taking a systematic approach to bond education, Moran uses one investor’s disastrous investment in the Big Australian, BHP, to explain why investors seeking income should always target a company’s bonds in preference to its shares. 

She also identifies and explains the various types of bonds and their characteristics, while suggesting three types of bonds to enhance your portfolio in any economic climate.

Finally, for investors who have yet to enjoy the benefits of bond ownership, Moran explains six ways to access the market and their benefits and drawbacks.

An extract from the 10 page document is below. You can download the full PDF using the link.  

Is BHP a good income stock?    

In mid-2015 when I was presenting at a series of conferences, one of the other presenters was excited that he’d bought a new income stock – BHP Billiton for a bargain price of $25. The presenter was nearing retirement and was attracted by the 10% dividend.

Since then the share price has fallen to around $17 and this investor would have lost over 30% of the value of his capital.

 Prior to BHP’s recent results announcement, there was much speculation about a possible dividend cut. Commentators were questioning whether the dividend could be sustained and BHP CEO Jac Nasser said the company’s balance sheet “must always come first”, ahead of sustaining a progressive dividend.

 Unfortunately, my fellow presenter who purchased BHP for its high income would have been devastated by its recent severe dividend cut of 75% from US62 cents to just US16 cents.

 To my mind, BHP demonstrates the absolute necessity for investors to diversify into bonds, which are the true ‘income provider’. No matter what happens in regards to profitability, bond income is a contractual liability and the company must make the payments or face serious consequences.


Download the PDF from this site. See the link to the white paper on Cuffelinks websiteExternal link - opens in a new window.