Fixed interest
Fixed interest investments, or bonds, are loans you make to the Government or a company.
Bonds offer a promise to have the money you invested returned to you, plus interest. The amount of interest you receive is set at the start of the loan and is generally delivered in regular payments during the term of the loan. Some payments may be linked directly to inflation.
The value of fixed interest assets is directly affected by changes in interest rates, so they do carry a degree of risk.
A rise in interest rates will generally reduce the value of the asset, while if interest rates fall, the value will tend to rise.
Historically, long-term returns on fixed interest have been lower than those for shares.
Australian fixed interest
Australian fixed interest investments are made up of Government bonds and bonds issued by companies (corporate bonds). Fixed interest portfolios usually hold a mix of maturity dates, e.g. 1 year, 3 years, 5 years or longer.
Issuers of fixed interest bonds are rated by international rating agencies to give buyers a guide to the chance that a payment will be missed.
International fixed interest
Investors have the opportunity to invest in international fixed interest offerings, especially from the USA, Japan and Europe. The term to maturity of some international bonds is longer than bonds available in Australia, e.g. the US government has issued 30-year bonds and some bonds that never mature.
