Fixed income investment beats Equity Investment

I had a portfolio that consists of equity and fixed income investments. The fixed income investments comprise preference shares and corporate bonds listed on the Singapore Exchange. The proportion between equity and fixed income investments is 66% and 34% respectively. These investments were bought at different times, some as early as May 2008 and the latest was in January 2012.

How did two types of investments performed over the period? The equity investments were down 4.39% on costs but fixed income investments were up 3.65%. On a portfolio basis, total investments pared down paper losses of equity to negative 1.70% on overall basis.

Over past 2 years, fixed income investments (e.g. bonds funds) performed well. Because of low interest rate environment globally and this low interest rate will be sustained for a long period of time till late 2014 in US (Source: FOMC, 20 June 2012), bonds funds would possibly retain its value. (Note: Bond price moves in opposite direction as bond interest/coupon rate.)

It is commonly recommended that retirement fund must have some investment in bonds for stable income and less in equity investment as the latter carries higher risk of diminution in value and is more volatile. It must be said that there are different types of fixed income investments. Different fixed income investments carry different risks and investors must choose the ones that suit their risk profiles. Do not base your decision purely on level of interest/coupon rate. So it is not as easy as I think.

Copyright © 2012, limkimtong for Living Investment

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