- April 8, 2024
- Posted by: legaleseblogger
- Category: Related News
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**Exploring Bonds for Portfolio Diversification**
Anyone on here buying or knowledgeable about bonds? I am considering diversifying my portfolio by adding some bonds.
I understand that in times of high interest rates, purchasing bonds can be advantageous. By locking in high interest payments, and potentially benefiting from capital appreciation if interest rates decline, it seems like a smart investment strategy. However, I am still in the process of researching and learning more about this investment avenue.
No one can predict the future, but I personally anticipate a few more interest rate hikes. Nevertheless, the risk associated with bonds doesn’t appear too severe, as you are guaranteed high interest payments at the very least. Bonds seem like a potentially superior option to Term Deposits, as they offer the possibility of both high interest payments and capital appreciation. However, my understanding may be flawed, which is why I am seeking clarification on how bonds operate.
Moreover, I am curious about where one can purchase bonds in New Zealand. Would it be directly from the New Zealand government, or are there other options available? I am hesitant about investing in corporate bonds unless they belong to top-tier companies. I am inclined towards shares in companies rather than corporate bonds. Thus, I am seeking guidance on acquiring New Zealand government bonds and the process involved in the transaction. Additionally, is it feasible to purchase bonds from another government, such as the USA or Australia, and how would one go about doing so?
Given my interest in exploring bonds as an investment opportunity, I am open to hearing various perspectives and ideas on this subject.
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****** just grabbed a
[https://www.reddit.com/r/PersonalFinanceNZ/comments/18rq0ft/help_with_bond_buying_strategy/](https://www.reddit.com/r/PersonalFinanceNZ/comments/18rq0ft/help_with_bond_buying_strategy/)
A bit of discussion in this thread I started, though not as detailed.
TLDR I went for the Simplicity fund but probably would have gone for Kernel US Bond Fund if I was doing it now.
If you are going for a foreign bond fund and the yield is around 5% then the “FIF” tax is no worse than buying local. If you factor in 28% max for a PIE fund verse buying bonds direct and paying RWT at higher rates it may actually be a tax advantage.
You can buy ETFs like SGOV for US treasury bonds
While i buy individual bonds, most people should buy bond funds, Listed or unlisted.
Your analysis is correct regarding bonds often being a better play than term deposits with the potential of capital appreciation rather than simply being an interest bearing asset. This is a privilege in holding bonds, and accordingly, there is meant to be a premium on it. The vast majority offers of TDs in NZ however seem to have the reverse, which is rather unfortunate.
NZ bonds are difficult to acquire. I personally would look at bonds from other countries, as the difficulty to acquire them is considerably easier.
The NZ government has appointed Kiwi Bonds for primary market acquiring ([https://debtmanagement.treasury.govt.nz/kiwi-bonds](https://debtmanagement.treasury.govt.nz/kiwi-bonds)). Do not expect to get auction rates offered as an individual. Based on the information on that page, as I understand, the NZ bond market is relatively dead for those not directly auctioning.
I personally think it is easier to simply look overseas, as it is considerably easier to acquire other countries bonds. There are, of course, tax implications in doing so. IBKR is a great option for doing so.
Alternatively, as many of this subreddit will suggest, just compare providers of TDs and pick high-bearing ones. Many in this subreddit would suggest to look at what Rabobank offers, as they frequently offer the highest rates. [https://www.depositrates.co.nz/interest-rates/](https://www.depositrates.co.nz/interest-rates/) is a great resource for that.
I think you need to be a wholesale Investor to qualify to buy bonds directly in NZ. Lot sizes are huge
If you really want NZ bonds your best bet is an ETF like NZB or NGB. But their term structure (maturity dates) mean when OCR goes up their value goes down to bring yields in line. Would recommend not trying to time the bond market.
If you want to play interest rates you are likely better off with a money market type fund such as kernals https://kernelwealth.co.nz/funds/kernel-cash-plus-fund
Individual bonds https://smartinvestor.sorted.org.nz/bonds/ and bond funds available from the usual suspects like https://simplicity.kiwi/investment-funds/funds
Don’t bother buying individual bonds. Bonds are generally very expensive. They can cost as much as $100,000 each if not more. Also you should never buy just one bond, you need to diversify into many different bonds. This leads to an obvious problem where getting into bond investing could cost you $10m or more depending on the price of the bonds and how diversified you want to be.
Instead if you want exposure to bonds, buy a bond ETF. There are many to choose from. They are available for a very low price.
If you do buy government bonds you probably want to buy very long term government bonds.
Alternatively you could consider some shorter term riskier but still very safe corporate bonds. Consider a bond from Microsoft. There’s virtually no chance Microsoft won’t pay. They’re probably safer than the NZ government in all honesty. There are bond ETFs that just invest in safe (but not risk free) corporate bonds.
There are also ETFs that invest in riskier bonds. These ETFs are more like stocks in terms of their risk.
Most of these ETFs available will be in USD terms just because there’s so much more to choose from there.
> So, how do you buy NZ govt bonds?
Why would anyone in their right mind buy NZ bonds. Do you know what bonds represent?
Kiwi bonds would be a good google start.
The question you need to ask is about why you want to invest in bonds? And what will you use the interest rate for?
Generally, bonds are not really useful for most people as it is about conserving wealth, not building wealth