One type of investment has gone from 0 to a whopping 10 per cent returns but there’s a reason to proceed with caution.This has come with no small amount of pain and discomfort for many Australians who have been stretched trying to keep up.
The current round of US government-backed inflation linked bonds is delivering a return of 9.62 per cent, but these are only available for a short window until the inflation calculations are recalibrated on November 1.The big benefit of bonds is that they pay a consistent income return, and aren’t subject to the ups and downs of the sharemarket. Bonds are typically ‘secured’ by the bond issuer, i.e.
If you’re investing into bonds, you want to be confident whoever you’re buying them from is going to be around to make the interest payments and give you your money back when the bond comes due.Another risk is around fluctuations in the price and value of bonds over time. I mentioned above that bonds are typically more stable than other investments, but their values can and do fluctuate from time to time.
If you’d bought a bond a couple of years ago that was being paid back today, because of the high inflation over the last 24 months, when your money is returned it’s buying power will be much lower than it was when you kicked off your investment.