29 May 2012

As equity markets continue to drift sideways, market commentators are finally beginning to recognise the merits of the fixed interest market. Readers of the Whites IFM “News and Notes ” would be aware that we have been regular supporters of this asset class. Because we promote investment rather than speculation, our advice is consistent over time. The more speculative commentators try to  pick the right time to enter the market with some arguing that last year’s rally in government bonds means that the value from this sector has largely been tapped. Even the biggest and best fixed interest investors (Bill Gross from PIMCO) have made unfortunate calls when it comes to second guessing the market.

Today’s financial press carries this article: “Experts are advising a smart move into fixed income“. While we don’t agree with the sentiment of encouraging investors to try to pick the right time to buy, we do support the view that many SMSFs are considerably under invested in cash and fixed interest (bonds, income securities etc). For many self funded retirees, an allocation of 25-50% to this sector can be appropriate. The soundness of having a well diversified investment portfolio cannot be over-emphasised and is one theme to which we keep returning. As noted in today’s X factor article by Don Stammer: “Diversification, awareness of risk and having a core holding of safe assets are always the stuff of sound investing“.

Note that the former article also refers to a move by the Commonwealth Government to provided an ASX listed government bond accessible to retail investors before the end of 2012. Given that the government already guarantees retail deposits up to $250,000 we remain sceptical about the merits of providing considerably lower yielding government bonds to investors. We will continue to monitor and report on this development.