How fixed income investments can mitigate risk during rising interest rates and inflation
Despite rising rate hikes in a bid to tame inflation, fixed income securities’ role in your portfolio hasn’t changed. In fact, fixed-income products can be a vital defense during times of economic uncertainty, particularly for long-term investors looking to diversify and offset riskier assets.
Fixed income investment can offer crucial balance and additional income to your portfolio, something that is even more important in the face of today’s high inflation and rising cost of living.
In FY23, where we’re tipping out of all the asset classes, fixed-income investments with strong running yields will reign supreme. Property and equities are not far behind. Certainly, after years when yields remained near zero, fixed income securities proved to be an attractive and attainable source of steady, reliable income.
Fixed income is an investment approach focused on capital and income preservation. Fixed income securities broadly refer to investments that have three basic elements underpinning them: a fixed rate of return, for a fixed period of time, on a fixed schedule.
Fixed income is a broad asset class that includes government bonds, municipal bonds, corporate bonds and asset-backed securities such as mortgage-backed bonds. They’re called ‘fixed income’ because these assets provide a return in the form of fixed periodic payments.
Fixed income investing can potentially provide investors with benefits such as assets with a focus on capital preservation, income generation and diversification. Investors should look out for the following factors if they want to invest in fixed income investments:
At VentureCrowd, we prefer higher-yielding fixed-income products and generally invest in those that offer between 9% and 15% p.a. These are usually paid monthly for a 12 to 18 month period. That means during the investment term, you will receive a monthly income, and then at the end of the term, the investment amount is returned to you.
There are many reasons why you should consider fixed-income products when rates are rising and inflation is high:
The most important role of fixed income in a portfolio is to mitigate losses in market downturns. This is because fixed-income assets are generally less sensitive to macroeconomic risks, such as economic downturns and geopolitical events.
Investing in a broad range of fixed income securities with different investment terms and durations helps to avoid interest rate risks.
For investors with portfolios containing a significant portion of listed and private equities, or other asset classes, allocating a portion of their investments to fixed income securities is an effective way to diversify their portfolios during market downturns.
Fixed income can provide capital stability. The principal is returned to the investor when it matures, making this investment an effective capital preservation strategy.
Most of the investment return for fixed-income products is coupon income. Coupon (or interest) payments can help generate a steady source of income.
Investment types to consider
To diversify and mitigate risks, investors may consider high-yield income securities. Obviously, higher return rates come with additional risk. However, when you have 12-month term deposits paying around 3.5% and the Consumer Price Index (CPI) currently over 6%, you are basically losing money unless you’re earning over 6%. So we are expecting higher-yielding fixed income securities to grow in popularity over the next 12 months.
Fixed income securities can also be backed by real estate assets. One of the most commonly understood options is a First Mortgage Fund. This type of investment allows wholesale investors to diversify their portfolios by backing a residential development project with a target return of 12% p.a paid monthly in arrears on an 18-month term and with a loan-to-value ratio (LVR) of around 70%.
At VentureCrowd, First Mortgage Fund loans generally pay between 9% to 12%. When you’re talking about property, it’s a very tangible asset that may be a draw card for investors who like to see their money contributing to the literal building of an asset! Better yet, the property capital stack provides multiple ways to enter the property market AND earn a fixed income.
We also offer multiple fixed-income options including:
At VentureCrowd, our goal is to offer you access to high-yield and purpose-driven investment opportunities across a range of investment categories.
To offset risk and supplement your income during times of rising rates and inflation, fixed-income investments in property could give you the stability and reliable income you’re looking for. It’s also a good option for investors who want to diversify their portfolio and gain exposure to the many growing sectors in real estate.
VentureCrowd’s Property Ventures offer a diversified portfolio of property investments so you can safeguard your nest egg.
Carrara, Qld investors can earn 12% p.a. paid monthly or compounded for 24 months. Invest in one of Australia’s strongest growth suburbs with 37.4% capital growth last year.
Offering a strong rental yield at 5.4% p.a., outperforming Sydney, Melbourne & Brisbane,this property fund enables wholesale and pre-approved investors to earn passive income and receive monthly distributions, investing in preference shares in an architecturally designed project in Carrara, QLD.
Glenvale Property Fund with a target of a return of 12% p.a. (net of fees). Glenvale is located in Toowoomba’s western corridor and is a rapidly emerging rural community zone.
The region has seen steady population growth over the last few years and is expected to continue growing by 1,700 new residents each year over the next decade.
As a result, there’s over $13 billion of planned infrastructure in this sunshiny gem. This investment allows wholesale investors to diversify their portfolio by backing a residential development project being completed in Glenvale, Toowomba QLD.
If you’re already well versed in fixed-income securities, explore our equity product Cannon Hill,Qld with a target ROI of 40%, min 18 month term. Development Approvals are in place for 45 apartments over four stories, with the project having an estimated completion by March 2024.
Located in a high-growth area with an undersupply of residential properties, the suburb vacancy rate is currently 0.9%, seeing rent increases by $40 average per week (12%) over the past 12 months* (*Source: Broad Property Research and Advisory Research report)
This venture enables wholesale and pre-approved investors to purchase equity in the development of an architecturally designed, multi-residence apartment project in sought-after green-belt suburb, Cannon Hill, Qld.
Whichever level of the property capital stack you’re comfortable with, our aim here at VentureCrowd is to empower you to back what you believe in and access impactful property investments that allow you to diversify your portfolio.
Further information can be found on the VentureCrowd website. Any queries regarding VentureCrowd should be directed to VentureCrowd and not to Stockhead.
This article was developed in collaboration with VentureCrowd, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions. Any documents linked or referred to in this article were not selected, modified or otherwise controlled by Stockhead. Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in the documents linked or referred to in this article