New announcement. Learn more

Blog Articles

NvidiaMillieAIRPAAgingJewelleryScam investmentInvestment fraudInvestment fraudsScamsCyclonesFloodingInsurance premiumsInvestment managerArtesianOrgans on a chipManaging household moneyCouplesTravel insuranceTravel cardTravelPlastic WasteStewartCollaborative engagementBest Ethical Financial AdviserAwardHuman skinCrash test dummyAkzo NobelBieresdorfUnileverThe 3 R'sAnimal crueltyAnimal testingSyndicated propertyWholesale investorBreast cancer, mammogramGender diversityDiversity40:40 vision30% clubFemale leadersOutlookIndicatorsRecessionFossil FuelsWomenChildrenCyberVisaMagellanDEIDiversity, equality and inclusionGHG emissionsNet ZeroNorway Oil FundEngagementActive EngagementWealth protectionPasswordsBank of mum and dadBank loansBull marketReparationsVolunteeringB-corpGarden festivalCompensationClimate changeBuilding portfolioPortfolioBusiness as a force for goodB corpFinologyNanukPlasticPackagingEsg investingFear of missing outConfirmation biasBehavioural financeRetirement villageEsg ratingsSustainableWalking the talkProxy votingVotingAwardsBear marketEthical preferencesIndependent informationGreenwashingNastiesGMODonationsMindful MoneyRIAAWarEthicsAuctionImpact InvestingCyber securitySustainable InvestingResponsible InvestingMarketTimingCoronavirusCovidAiaCignaEthical investingEsgEnvironmentActivePassiveEPAProperty Relationship ActTax returnWearable DeviceArtificial IntelligenceUnderwritingDNA TestingGenetic TestDe Minimis ExemptionFair Dividend TaxForeign Investment FundTax ratesKiwiSaver feesChinaBrightline TestEQCAdvice FeesInvestment feesJunk InsuranceWarrantiesConsumer Guarantees ActRetirement IncomeNew Zealand SuperannuationBridgesFitness CoachingWellnessSally MellorInvestment PropertyTenantLandlordRental PropertyCar RentalCar InsuranceRelationship BreakupProvisional TaxBeanyAccountingTrust DeedBeneficiaryTrust ActTrustSkin cancerProstate cancerMelanomaLung cancerCervical cancerCancer mythsFirst home buyerOpinionFactsSwindlerScamTreasuryVolatilityDollar cost averagingFamily trustsResearchMilfordInvestor confidenceFMAInvestment assumptionsTerm depositsKiwisaver monitoringKiwisaver comparisonStress freeHolidaySecurityBanksTax refundRiskReturnInvestingGreedFinance companiesContents insuranceOwing moneyCredit cardCredit cardsPropertyExpertsBubblesBorrowingLendingFloatFixMortgageLoansInterest ratesFinanceBrokingLegislationForeign superWordingOmbudsmanHouseCoverContentsBalanced fundSchooling costsEducationCredit ratingsTradingSecondary marketTerminologyFixed interest investmentFixed InterestLegalGuarantorUk pensionPension transferSpendingChristmasConsumer behaviourUK Pension TransfersQROPsInvesmtentWays to dieInsurance claimsWinz#residential care#assetsTrustsResidential care subsidy#residentialcaresubsidy#gifting#familytrustsSavingsLottery#bonusbondsSpecific injuryCase stuffyTrust expensesEstate planningAsset protection#trust#family Trust#incomeprotectioninsurance#incomeAdriennes storyQuizLife expectancyLVR ratioHouse depositBorrowing to buy a house#firsthomebuyerKiwisaver returns#kiwisaver feesReitrement savingsFirst home buyersUncategorized#financialplanningPersonal financesFinancial management#personalfinances#mortgages#finances#fidelity#kiwisaverperformance#redundancy insurance#incomeinsuranceRetirement ageJohn KeyFirst home buyer withdrawalKiwisaver rulesFirst home buyer grantUnclaimed moneyMoney refundsPortability superBringing home KiwiSaver#australia KiwiSaverInsurance #insurance#homeinsurance#liability#insurance claim. Insurance claim#income insurance protectionFirst home grantDumb ways to dieUnder 18 years oldTax creditTrans-tasmanPortabilityAustraliaAsteronRisk profilesMoving funds#changing kiwisaver managersInvestment returnsTibTerminal illness benefit#claim#sil#kiwisaver analysis#shares#mighty river power#electricity#partners lifeTrusteeSafety of KiwiSaverFunBeerCredit ratingBad debtTax rebateInvestment advice#retirement planningLapseExpensesFighting fundEmergency cashRipping off elderlyFinancial planingPass backUnit pricingGareth morgan#Medical Assurance Society#MAS#investment analysis#travel insurance#insurance claimFinancial planningBudgettingReporting#insurance commissionInsurance commissions#commissions#career in insuranceSouthern crossClaimingInsurance excessesRussiaJohn clarkeHumourGfcCyprusHome insuranceEarthquakesCrisisStand down periodPolicy wordingChurningContributions holidayTaxesPayrollEmployer contributionsEsctEmployee contributionContribution holidaySil kiwisaver. westpacKwiisaverBitAsset allocationAsbAnzAwarenessReturnsPerformanceProstate canerWillsRelationship PropertyPlanningLegal AgreementsLawyersDivorcePremiumsTowerFund ManagersFisherKiwibankDefault schemesBnzAMPPetsPet insuranceMoney managementBudgetsHouse insuranceFire and general insuranceAccChilds trauma insuranceChilds traumaProtectionFund managerClaim trauma insuranceTotal and Permanent Disablement InsuranceOnePath LifeClaimsSmokingSmokers ratesInsurance researchInsurance analysisImageFree quotesSavingMoneyInfographicInflationVideoTpd insuranceTPDSovereignDisabilityCase StudyAxaHeart attackLoveIncome protectionCancer insuranceBreast cancerTerranovaMinimum wageEmployer contributionTraumaIncome protection insuranceCancerSortedRisk profileRetirementOnepathInvestmentsWestpacBTWho can joinRetirement savingsFuneral plannerFuneralDyingDeathTrauma insuranceLife InsuranceInsurance News & ViewsInsuranceIncome insuranceHealth insuranceDisability insuranceUS citizenRetiring to live in new zealandInvestmentFATCAReturning to new zealandRetiring in new zealandMember tax creditKickstartTransitional residentTaxationRetiring to new zealandNew migratnFifFdrDe minimisSuperannuationRetiringNZ superannuationNew zealandEligibility for NZ SuperMorningstarInvestment ReturnInvestment performanceFund sizeFeesTaxPIRPIEMoney News & ViewsIrdMinimum contributionKiwiSaver News & ViewsKiwiSaverContributions1 April 2013

What are Fixed Interest Investments in New Zealand?

There are three main 'asset classes' when investing.  Fixed Interest, Property and Equities (Shares).  These are then often separated into New Zealand, Australian and International sub categories.  It is easy to think that the Fixed Interest asset class is straightforward and the easiest to understand, but unfortunately, it is actually the most complicated.

Calling the asset class 'Fixed Interest' is really a misnomer.  This implies that the investments are 'Fixed', that they have 'Interest' and therefore that the 'Interest' is 'Fixed'.  The reality is that within the 'Fixed Interest' asset class there are many different kinds of investments available, some of which do not have a 'fixed term' (perpetuals), Some interest rates can be 're-set' on an annual basis, and apart from Term Deposits, the value of the investment can change minute by minute.

It has been suggested that the asset class should be 'debt securities', as the main thing that all these investments have in common is that the 'issuer' is borrowing money from the investor.

What are the main kinds of 'Fixed Interest' investments available?

Term Deposits are the first kind of Fixed Interest investment that investors become aware of.  Here you are 'lending' your money to the Bank/Financial Institution.  You choose how long you are going to be investing for (3 months to 5 years.)

You then get paid an interest rate that is usually higher for the longer term investments.  Your money is then 'locked up' for that time period.  (In general, you can 'break' your term deposit with a bank and lose most of your interest due - but this is at the financial institutions discretion, and they can say no.)

Your interest is paid into your investment monthly, quarterly, annually or 'at maturity' and you can choose whether to have these funds compounding or not.  Your capital investment remains the same.  When making a Term Deposit, you need to consider the financial stability of the financial institution (look at credit rating) and the interest rates/time period for investment.

Within the 'Term Deposit' type investments are 'debenture stock' and other 'Term Deposit' type investments with non Bank Financial Institutions.

Government Bonds When you lend to the Government in New Zealand by purchasing Government Bonds, this is generally the 'lowest risk' 'Fixed Interest' investments that you can purchase.  This is because the NZ Government has a strong credit rating, (AA+ by Standard and Poor’s Ratings Group, AA+ by Fitch Ratings and Aaa by Moody’s Investors Service.).

The Government can raise money to repay you by increasing taxes.

Government Bonds are issued in 'tenders' or by 'syndicated issue' or 'private placement'.  When Government Bonds are issued, they are only available to 'persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money. As a consequence, the wholesale offer does not constitute an “offer to the public” as defined under the Securities Act 1978 (“the Securities Act”) and is not subject to the provisions of that Act.

What this means is that as 'small' investors, you cannot purchase Government Bonds directly when they are issued.  You have to purchase them on the 'secondary market'.  More information on that is in this blog post Fixed Interest Secondary Market – a what???

The Bonds are New Zealand Dollar bonds with a fixedcoupon which is paid semi-annually in arrears. On the Maturity Date, the Face Value of the Bonds is paid and the final payment of Coupon Interest is made.
The 'coupon' rate on Government Bonds has been 6.00% for some time, but recently they have been issued at 5.50%, reflecting the lower interest rate environment in New Zealand.
As these are lower risk than other investments, these investments have a lower return, but from time to time can be a core 'safer' investment in your Fixed Interest portfolio.
Corporate/Local Authority/Bank Bonds work in the same way as Government Bonds, except you are 'lending your money' to the entity that is issuing the Bonds.  This means that you need to understand what that entity does, what their credit rating is, what the risks are for their business and therefore, how risky these investments are compared to Government Stock.

Fixed Interest Managed Funds
There are thousands of Fixed Interest 'securities' available to invest in in New Zealand.  As 'non term deposit' investments are traded and valued minute by minute, the values of these securities, and the most suitable securities to hold are continually changing, at Moneyworks, we prefer to use fund managers to provide access to diversified portfolios of fixed interest investments.

We are continually researching the most appropriate funds to use for our clients and at present we use a combination of funds from AMP Capital and Tyndall Investment Management Ltd.  Which funds are applicable for each client, and in what proportions is an ongoing analysis and adjusted to each client.

Where clients have bigger portfolios, from time to time we add 'Direct Bonds' or 'Term Deposits' which are held to maturity.  As the minimum investment tends to be $5,000 or $10,000 there are a number of factors that take into account when adding these to portfolios, including diversification, time to maturity, credit rating, risk and suitability to that clients portfolio.

With Fixed Interest Managed Funds the fund manager continually reviews and manages and buys and sells the investments in the portfolio.  Their goal is for stability of capital value on the portfolio and to provide investment returns on the portfolio, so they are monitoring and changing the underlying investments as the economic environment changes.

As interest rates fall, Fixed Interest Securities (non Term Deposits) and Fixed Interest Managed Funds, can get a capital gain. Conversely, as interest rates increase, these investments can get a capital loss.

Therefore, it is important that your fixed interest exposure in your portfolio is continually monitored and reviewed and changed for the economic and investment environment as is applicable.

To understand Fixed Interest in more detail, look at these other blog posts.

How do Credit Ratings work?

Fixed Interest Terminology

Fixed Interest Secondary Market – a what????

If you have any thoughts or opinions that you would like to share, visit us at our Twitter, Facebook or Linked In pages, and comment.


By Carey Church


This product has been added to your cart