Speaking of negative interest rates...
Now figure how a fund delivers 5-8%
US property prices going to increase more then.
I have small amounts of some currencies, taking advantage of the relative low rates in purchasing. I hold some stocks but I lost money in stock investing. And therefore, I am considering other types of investment. And I choose to invest in bond fund because that gives me a better yield (around 8 to 10%) than buying bonds (around 3% yield to maturity), inclusive of the 1.5% subscription fees and 2 or 3 dividend payments will cover the cost of subscription.
Accordingly, is it wise to switch the investment from the Emirates bond AUD version to Templeton bond fund AUD version, with the Templeton present NAV at the lowest point? Also, is it wise to invest in Allianz income and growth CAD version, with the present NAV moving around the median price? Please advise. Thank you!
No one can and should be advising you on a forum, about specific transactions. It is almost unethical without knowing your risk tolerance, financial situation and other background - things you should be talking to a financial advisor about if you're not able to calculate for yourself.
- By financial advisor I mean someone who has a fiduciary duty to you and not some random sales guy at some bank whose job is literally to make you nervous and switch and churn through investments, to earn a commission.
- At a very basic and very simple level, anything that yields above US Treasury rates carries risk. The reason you're getting a high dividend is you're getting compensated for the risk and potential capital loss. At that point, you're also losing money in FX transactions and fees / commissions and sales charges - a whole lot of people are making money BEFORE you make money.
With that in mind, I think you do need to retune your expectations of what you can get out of this forum - general advice, not specific transactional advice. Specific transactional advice needs to be holistic as I said before.
Yes, there are lots of very very specific funds, shares and ETFs being discussed on the forum, but those discussions are technical and not advisory in nature.
On a general note - yes, 2/3 dividend payments will cover the cost of the subscription. However you're not accounting for the historical capital loss that you're seeing (for example on the Templeton fund). And beyond the 2-3 dividend payments, you're not accounting for continued fees + further capital loss over a 2-3-5 year period.
Why not consider a low-expense bond ETF on the stock market which may have a slightly lower yield but does not have all the FX switching, sales and 1%+ management charges attached to it. A simple brokerage fee + a low expense ratio and may be a small asset management fee if there is any at your brokerage or bank.
I am NOT recommending these to you, but there are plenty of good ETFs out there, specially if you can trade on the London Stock Exchange through your broker - take a look at iShares UK's fixed income range as an example.
And finally, people lose cash in stocks, because (in my very simple opinion) they've bought the wrong stocks or they've sold too quickly. This happens in property, funds etc. (There is an interesting opinion / research paper out there that expands on a theory that illiquid investments or investments which are not easy to switch on impulse, like property, make money because people cannot sell / buy then easily.)
Last edited by shri; 12-09-2019 at 09:37 AM.
1. bond funds buy the underlying bonds to give them the annual coupon to pay out..
2. the underlying bonds that you personally would buy are yielding 3% or so...
3. then what the bond funds are buying are things you would not buy.. (i.e. either higher risk, longer tenor, or some weird yielding currencies).. or like some said, returning you part of the principles
generally most things are risk reward neutral... you take higher risk you have larger reward...
most of the bonds purchased by the funds are the same bond.. mainly in USD or key currencies like EUR/CNY... so when you purchase a CAD based bond fund chances are there are some backend derivative mechanism to convert that currency back, or worse it is left unhedged and you get the exposure of FX...
I have seen tonnes of methods ppl can do FX hedges or financially engineered it to not do FX hedge.. etc.etc... to improve yield or otherwise... until i really dig into the prospectus i wouldn't know what is being done, and even if i do many of the prospectus will not tell you the full story, merely giving the managers a rather wide discretion what they can try to do on hedging..
Good luck on your hunt for the ultimate yield and the switches... remember, the last time such things happened, the several years before the GFC, yields were so low and everyone was hunting for that holy grail 10% yield, and subsequently ran into the mini-bond and sub-prime backed engineered notes.. not saying those are bad, but obviously the recognition of risk is not universal. I think this round the carnage will be in the low quality bonds and loans.. which the market are really filled with them...
So I bought 3 years ago for 8.77 and today you could say is 11.29. So overall, total return over 3 years is 22% (7% per year). It's not the best return and with hindsight I'm sure there are better things I could have done, but I'm happy with any kind of return and not a loss. Also again don't forget this is the tool that gives me 70% LTV ratio that enables me to borrow JPY and other currencies cheaply to do other kinds of investing with.