Question: The Switzer Dividend Growth Fund is to pay a $0.98 dividend on the 28/4/17 franked to $0.88. Whilst pleasantly surprised I am concerned that the Fund is paying out of its Capital? My super fund holds shares hence the query.
Answer (by Paul Rickard): I wish we were paying a $0.98 distribution, but it is in fact $0.0098 per unit (approx. 1c per unit). 89.5% will be franked, meaning that the franked component is $0.0088 per unit.
I can assure you that we are not paying out of capital. The distribution represents the net income received from the period of 24 February to 31 March.
Question: The ‘allocating your assets’ page shows a defensive portfolio includes 25% cash, 55% bonds and 20% growth. I am 85 and my portfolio is similar, but no bonds – 75% ($600,000) term deposits, and 25% ($200,000) growth.
I have read your bond tutorial and feel I need bonds. However, your ASX list of bonds seems out of date. Do you have some current recommendations?
Answer: Firstly, ‘term deposits’’ could be considered to be part of your bond portfolio – it all depends on the maturity (term). Under six months would probably treat in my liquids or cash bucket, but over this period, I would think of them as a bond.
Yes, the list I have on that page is not up-to-date – to be honest, I get very few queries on this page – so probably why it has slipped through.
Thirdly, how to invest. You have three broad choices:
a) buy bonds directly. You can buy treasury bonds on the ASX through your stockbroker (see here [1]) or alternatively, direct bonds through one of the bond brokers
b) bond exchange traded funds like iShares Aust Composite Bond Fund – ASX Code: IAF
c) managed bond funds
The main considerations are duration and credit risk. Personally, I think bond rates will rise over the medium term, so I am keeping the duration of my bond/fixed interest component pretty short, and am investing in term deposits and hybrids.
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