Fixed interest investments

A balanced investment portfolio includes a percentage of fixed interest securities, this is considered a conservative portfolio structure - but is it really?

With Australian equities comprising between 16% to 25% and international shares from 20% to 30% of an investment portfolio, equities are viewed as the more volatile investment class offering greater returns albeit at higher risk.

The definition of fixed interest is an income derived from a pre-determined payment allocated by the issuer at regular intervals with the principal returned after a set period. As such, fixed interest is a debt instrument allowing no ownership in the firm ranking in front of equities in the case of liquidation.

Whilst government issued bonds are the most common form of fixed interest instruments, corporate bonds form secondary fixed income sources. Differing levels of government from federal, state and local issue debt securities raising cash to finance both day-to-day operations and projects.

Fixed-income investors receive a set interest rate of return in the form of interest in exchange for lending money to the enterprise. Investors are repaid the principal, the original sum at the maturity date. I reckon 15% to 25% is the correct ratio depending upon the degree of conservatism investors require.