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In the final episode of The nestegg Podcast for 2021, host Maja Garaca Djurdjevic checks in with our three experts to hear their final thoughts on the year that’s passed and their hopes for the next 12 months.

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Steve Waters, director of Right Property Group, talks Christmas selling season and opens up about the key lessons that he’s learnt this year that he will gladly take forward with him into 2022.

RMIT senior lecturer of finance Dr Angel Zhong covers meme stock ETFs as well as provides her thoughts on next year’s economic outlook.

Finally, tax and super guru Timothy Munro shares his end of year financial checklist and some handy tips that could help you keep your credit card in check over the gifting season.

Tune in to hear more below.

Have a question for our experts? Get in touch at [email protected], and you might get featured on the next episode.

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Reasons to invest in government bonds

By Louise Chan

February 17 2020
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Invest

Reasons to invest in government bonds

By Louise Chan
February 17 2020

Many investment experts recommend adding government bonds to an investment portfolio in order to reap its benefits while limiting risks and losses.

Reasons to invest in government bonds

By Louise Chan

February 17 2020
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Government bonds are one of the safest assets that you can add to your investment portfolio, but there are other reasons why this asset class should be added to your portfolio.

Consider the top reasons below.

Safety and stability
Government bonds, especially AGBs, are some of the safest and most stable securities you can add to your portfolio – to date, the Australian government has never defaulted on its bonds.

AGBs are investment grade – and so are many international government bonds – which means experts are confident that the bond issuer is not at risk of defaulting.
Assured income
Majority of government bonds are fixed-income investments, which means investors can expect to receive interest payments regularly.

This assurance also means government bonds offer more liquidity, and they can easily be traded anytime should you need cash quickly.
Lower risk
The biggest risk in bonds are inflation and interest rates, which are inversely proportional. This means:

When inflation is low, interest rates rise and returns increase, but bond prices decrease.
When inflation goes up, interest rates decline and returns decrease, but bond prices increase.

Inflation may decrease the value of the accumulated income by the time the bond matures, but using different strategies may ensure that the benefits would outweigh the risks.

For instance, the bond laddering strategy requires investment in bonds with different maturities and reinvesting the principal amount and gains in the next maturing bond. This strategy helps mitigate inflation risk while also ensuring that a portion of your money retains liquidity.

Another thing to note is that there are AGBs that can protect against inflation – the face value of exchange-traded Treasury Indexed Bonds are adjusted quarterly based on the consumer price index.
Liquidity
Government bonds are offered in the primary market as large parcels worth at least $1 million, but AGBs may also be purchased in smaller parcels in the secondary market.

AGBs are listed in the Australian Securities Exchange in the form of CHESS depositary interests (CDIs), and this allows retail investors to gain beneficial ownership of small parcels.

Since smaller parcels allow retail investors to participate in holding AGBs, offering them as CDIs produces a greater demand from investors and increases its liquidity.
Tax benefits
Some AGBs benefit from tax exemptions. However, not all AGBs are created equal, and some tax conditions differ depending on the bond issuer.

For instance, municipal bonds may only receive a tax exemption at the municipal level, while some AGBs may offer a full tax exemption on its earnings.

Explore nestegg to learn more about bonds and other debt securities.

About the author

Louise Chan

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author