If you’re too anxious to invest in shares (that is, stocks or equities), you’re not alone. People can’t be blamed for being scared of shares; there are an awful lot of chilling stories in the media.
Thre are “safer” alternatives to shares if you really can’t sleep at night worrying about your investments. There are times when it’s better to be in bonds and cash than shares anyway. That’s when share prices are plunging or simply stagnating over a long period of time.
cash funds, which quite literally have cash deposits in them,
fixed interest funds, which contain corporate bonds, and
commercial property funds, which although they hold shares of property companies, prosper on the commercial property market.
Fixed interest investments such as bond (that is, debt security) funds are of particular interest to safety-first investors. Looking at the four funds on the RaboDirect platform, the risk rating on them is either low or medium.
Bond funds do fluctuate in value, albeit no-where near as much as share funds. That’s because those bond funds with high coupons (interest rates) become more sought after in times of low interest rates such as now. The price rises on demand or conversely it can fall.
That means the return can be more than the coupon rate. Looking at the Asteron Unit Trusts Corporate Bond Trust, for example, for the year to date, the fund has returned 6.02% growth, and 1.09% income – or a total of 7.73%.
Before buying units in a bond fund, you need to ask yourself if you’re looking for income or capital gain. If you’re solely focussed on income – because you’re living off the returns of the fund, then you’ll choose a different fund to someone who is still building up a nest egg.
If you are scared of stocks and/or funds, your phobia can be overcome. One way to approach this is to ease yourself into share investing with a “conservative” fund that holds 20% or less in shares.
If even this bothers you, take a look at the RaboDirect “Find the right Managed Fund for you” page here. One of the drop-down boxes rates funds on their risk. Start with “lowest”, where you’ll find the Cash Advantage Fund. The next level of risk up - “low risk” - returns funds such as Asteron and Tyndall’s corporate bond funds.
Once you hit “medium risk” you start getting a few conservative share funds such as the AMP Capital Conservative Fund. It’s interesting to note, that these conservative share funds rank alongside fixed interest and income funds, such as the Tyndall Income Fund, which just goes to show that risk is a continuum.