In this episode of "Wealth and Toil," hosts Luke Laretive and Dylan Pargiter-Green discuss the key elements of fixed interest investments.

Fixed interest, or fixed income, is a crucial component of a diversified investment portfolio. It's typically less volatile than equities and offers a more stable return, primarily through interest payments from bonds.

Mechanics of Fixed Interest:

Lending money to entities (corporate or governmental) and receiving regular interest payments (coupons), with the principal amount typically returned at the end of the bond's term.

Capital Structure:

The basics of a company's capital structure—assets, liabilities, and shareholder's equity. The priority of debt repayment over equity in cases of financial distress.

Benefits of Fixed Income:

Fixed income is portrayed as a stabiliser within a portfolio, offering protection against market volatility and often providing negative correlation with equity markets.

Types of Risks in Fixed Income:

Credit Risk:

The risk associated with the debtor's ability to make scheduled payments.

Interest Rate Risk:

Discusses how bond prices are inversely related to interest rate changes. The concept of duration, a measure of sensitivity to interest rate changes.

Liquidity Risk:

The liquidity aspect of bonds, some bonds are more tradable than others.

Market Dynamics and Strategy:

How different environments, like changes in interest rates, affect bond prices and yields. Beware recency bias and understand the long-term nature of bond investments.

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https://senecafs.com.au/

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