Invest in Portland

Guaranteed investments offer stability and security to those wishing to invest with no risk to capital. This is a significant attraction to those who saw the value of their other investments fall dramatically in recent years, and indeed to those who only witnessed the economic downturn, and are coming to invest money now.

These type of investments are rapidly gaining in popularity, as many investors who felt the pain of the recent slump in stock investments seek more stability and security, moving forward.

Within the spectrum of these investments, we look into the three of the more prominent products are the bonds investments: income bonds, guaranteed bonds, and fixed interest bonds.

Guaranteed Bonds
Offer a premium investment to those prepared to lock their money away over a fixed period of time. This period is known as the term of the bond. As guaranteed investments, these bonds offer to return, as a minimum, the capital invested, plus any growth that is achieved.

Bonds come with various terms, and a typical bond term might require the investor to leave cash invested for five years.

The Guaranteed Investment Bond is a single premium, unit linked insurance bond that invests in a range of portfolios. The bond offers a guaranteed investment over 8 years, and has the attractive feature that annual growth in the bond up to 10% can be rolled back in, and becomes part of the guaranteed investment.

The usual minimum investment in this bond is £10,000. It follows that the investor is guaranteed, at the end of the bond term, their return will be no less than their initial investment. However, investors must specify and select the guarantee, which is not automatic. In other words, if the investor chooses not to select the guarantee option, no assurance is attached, and there is a possibility that their eventual return may be less than the amount invested.

The security of guaranteed investments generally comes at a cost, however, few financial services like MetLife Guaranteed Investment Bond provide on the basis of an assurance charge, which is an insurance premium to cover the cost of the guarantee.

Guaranteed Investments – Income Bonds

Income bonds may suit those who wish to enjoy a monthly income from interest on a lump sum guaranteed investment. This type of bond is not invested in the stock market and may be the guaranteed investment of choice for those wishing to avoid stock market investments.

The level of monthly income will depend on the interest rate offered when investing in the bond. Any charges on income bonds are wrapped into the bond, which means that you get the rate of interest that you were promised.

Income bonds offer the security of knowing that your original sum is secure and will be returned to you, combined with the monthly or annual interest payments on your cash. (You can also choose to roll up your annual interest, and take it at the end of the bond’s term). These payments are taxable, and can be paid directly into your bank account.

As is generally the case with bonds, penalty charges are generally payable if the bond is cashed in before the end of its term. From that point of view, income bonds are suitable only where the investor can do without the cash for the term of the bond.

Guaranteed Investments – Fixed Rate Bonds

Fixed rate bonds belong to these type of investments in that they offer a fixed rate of interest to investors.

Cash must remain invested in the bond for an agreed number of years and interest from the bond can be paid monthly or annually, either into the bond or into a bank account.

Returns on fixed rate bonds depend on the amount invested, the interest rate agreed, and the term of the investment. Generally, the longer you agree to leave your money invested, the better the terms you will receive. Fixed rate bonds offer a high degree of stability to the investor, combined with the knowledge of how much will be returned, on a monthly or annual basis.

There are a large and varied range of investment products. These are just a few of many investments available. As with all guaranteed investments, it is a great option for those who need the security of knowing that there is no risk to their capital.

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Anyone can write a financial plan, or at least it seems that way. You can consult your banker, go to a brokerage firm, or hire someone who calls himself or herself a financial planner to prepare a plan for you. Financial planning simply isn’t that complicated, right?

Let’s consider what’s included in a comprehensive financial plan. There’s a section on what happens if you died today. Will estate taxes be due? Does your estate have enough liquidity? Another section outlines what happens if you become disabled or need long-term care. Have you saved enough for retirement? And how will you pay for your kids’ or grandkids’ college education? What about charitable giving, income tax savings, and investment allocation?

The first place to start is selecting the right person to develop a financial plan. Find someone with a fiduciary responsibility such as a Certified Financial Planner™.

It is important to seek out someone who will listen to your objectives and design a plan to meet your goals. Be sure the person you choose to draft your initial financial plan is familiar with how the planning you do in one area affects outcome in another. For example, what you do in the area of investment planning can affect your tax planning. What you do to provide for asset protection can affect your estate planning, and so forth.

A sound financial plan should also address how you are expected to behave when placed in a variety of scenarios. The only certainty in life is that the unexpected will always happen. When placed in an unexpected situation, most people will tend to make major decisions based on emotion, and then try to rationalize them, undermining their long-term planning. Therefore, a solid financial plan should be flexible enough to accommodate the unexpected. This is especially true in the investment-planning arena. It is important to have a written investment policy statement to help protect your portfolio from unplanned and impulsive revisions of sound long-term policy. Especially in times of market turmoil, investors without an investment policy statement are inclined to make investment decisions that are inconsistent with prudent investment management principles–and their best interest. Your investment policy provides an agreed-upon and well-thought-out framework from which sound investment decisions will be made.

Many people believe the process ends once the plan is written. But good financial planning means regularly monitoring and adapting strategies to ensure you’re meeting your goals. Remember, you’re not just trying to create an end product that won’t ever need to change. You’re developing a map that will help guide you toward financial stability. And regular comparisons of where you planned to be in the future with where you actually end up can generate important discussions about why you ended up where you are. Are you ahead of plan because your investment portfolio did better than expected, were taxes lower than expected, or maybe you spent less than expected? The reason you end up at a particular place is important to understand because that determines what types of adjustments might be needed for your plan A financial plan that’s developed with the help of a professional financial planner could be the right map to help you reach your financial destination.

Many people can help you prepare a financial plan, but the most successful plans are crafted by professional planners whose allegiance is to you, the client. Professional planners have the credentials and understanding to know how the different areas of financial planning affect one another so they can help determine what is right for you. And professional financial planners will follow up with you after the plan is in place to assist in analyzing deviations from the plan in order to make competent adjustments to steer you away from failure.

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Simple advice can create problems that are not always simple to fix. One example is the advice that an investor’s age plays a central part of their investment strategy and asset allocation (for example standardised high risk strategies for young investors and conservative strategies because you are already, or close to being, retired). This advice is too generic and the individual’s circumstances and appetite for risk must be taken into account. If you follow this type of generic advice you may find yourself having sleepless nights and worrying needlessly about either investments considered too risky or of running out of money.

Today’s 65 Is Not Yesterday’s 65

A lot of investment advice is predicated on what might be called a life-cycle theory of investing. This is an idea that people go through predictable stages of their financial lives, accumulating more assets than savings in the early years, saving more in the high-earning years of middle age, and then very little, if any, saving throughout retirement.

Things have changed, though. Long careers at a single employer are less common, people are tending to have children at an older age, be responsible for older dependents as well; and with people living longer than ever before, reaching 80 years is no longer unusual. However, much of the retirement advice presently published is predicated on old data. So with today’s 65-year olds lifespan significantly higher than yesterday’s 65-year old, even with superannuation guarantee legislation most Australian workers are significantly under-saving for what it is likely to be their lifespan.

Your Age Is Not Your Number

There are several published investment suggestions which can be considered dangerous, especially without seeking specialist investment advice for your particular circumstances. One such example often touted around the weekend BBQ is that a person’s age should correlate to the percentage of their portfolio that should be invested in bonds or a similar conservative asset class. The suggestion being that a 30-year old should have a 30% allocation to bonds, whilst a 65-year old should be 65% allocated to bonds. Rather, this suggestion should perhaps be, in the extreme, where a newborn should have a zero allocation to bonds, and a centenarian a 100% allocation to bonds. Humans differ and individual circumstances differ, so seeking advice from a professional expert is important, nay critical.

Shares Are For The Long Term (and may not be as risky as you think)

People who are a little sceptical about shares should know that the risks accompanying equity investments may not be as great as they think. Whilst putting all of your money into a single share (or even similar group of shares in one industry) is risky, a diversified portfolio of shares covering varying industries, offers a different and less risky option.

Multi-year losses in the stock markets are rare, and that is a powerful advantage for investors. As long as an investor holds a diversified portfolio and invests for the long-term, the odds of losing money is actually quite low and the odds of achieving positive real returns are good.

What Is The Real Risk?

As much as we can focus on the risk of loss, that is not the only risk that matters. A person can consistently save a little each week for 40 years and invest that money very conservatively and never see a down year in their portfolio. However, that same person could find themselves 10 or less than 20 years into retirement with no money, then requiring total dependence on the Aged Pension, even though this investor was completely risk averse.

Investors should be aware that this risk of failing to accumulate enough assets to last through retirement is a real risk and a real problem to be addressed.

So, What To Do?

Firstly, plan for a healthy, happy retirement. Be very suspicious of any simple rule-of-thumb about how much to save or how to allocate and invest your hard-earned savings. Think carefully and seriously about what your actual retirement needs are and speak with a qualified investment advisor. Be informed, consider what your retirement goals are and how you will be able to achieve them. Be honest with your advisor. If you can not speak openly and honestly with the advisor you have chosen, find another to whom you can speak openly and honestly. Remember the advice may cover such issues and recommendations that you don’t like – such as your need to lower your spending expectations in retirement, save more today, seek higher investment returns, or perhaps all three plus others for you to consider. Be informed and carefully consider your appetite for risk – you may consider that the risk of running out of money in retirement is worse than losing some money today, and that the long-term benefits of diversification outweigh the risks.

For further information speak with a financial advisor or self managed super fund specialist.

Disclaimer

The information contained in this document is based on information believed to be accurate and reliable at the time of publication. Any illustrations of past performance do not imply similar performance in the future.

To the extent permissible by law, neither we nor any of our related entities, employees, or directors gives any representation or warranty as to the reliability, accuracy or completeness of the information, or accepts any responsibility for any person acting, or refraining from acting, on the basis of information contained in this communication.

This information is of a general nature only. It is not intended as personal advice or as investment recommendation, and does not take into account the particular investment objectives, financial situation and needs of a particular investor. Before making an investment decision you should read the product disclosure statement of any financial product referred to in this newsletter and speak with your financial planner to assess whether the advice is appropriate to your particular investment objectives. financial situation and needs.