Cash and fixed interest investment asset class
Introduction to the cash and fixed interest investment asset class
Relative to property and share investments, cash and fixed interest investments are a lower risk investment which offer potentially lower returns over the longer term. In return for lending your money to an organisation, you're able to earn interest. Cash investments are usually on call, while fixed interest investments are usually for a set period of time.
Investing in cash and fixed interest investments is most useful for producing a regular income and protecting your capital base. You should invest in cash and fixed interest investments when you may need to call on your money in the near future, defined conservatively as the period within the next three years.
the Shape of Money recommends that, depending on your personal situation and portfolio requirements, you should have at least some of your funds in both cash and fixed interest investments.
Cash investments
Cash investments are best suited for the funds you may need immediately, for your rainy day or emergency fund. The following comments apply, whether or not the investment is made directly, or through a managed fund.
Cash investments may have a lower rate of return than fixed interest investments, but they offer easier access to your funds. Always check the way in which interest is calculated: examine whether it's calculated on the average or minimum balance, and whether the interest is credited daily, monthly or annually.
Characteristics of cash investments:
- Your money will be on call, though it doesn't necessarily have to be called an on-call account,
- There shouldn't be any entry or exit fees,
- You should be able to compound your interest, and
- You shouldn't be penalised for making a withdrawal.
Cash investments can be made directly, or indirectly through unit trusts.
Fixed interest investments
The term Fixed Interest Investments covers a broad range of investment options, ranging from a local bank's term deposit, through to government and corporate bonds.
These investments are for a fixed period of time, in which you lend the institution funds and they agree to pay back that sum (or principal) at the end of the term (or maturity date). They also agree to pay you interest (or coupon payment) at regular intervals.
The range of fixed interest investment options includes term deposits, kiwi bonds, debentures, corporate and government bonds.
It's important to note that the value of investments in tradable bonds is influenced daily by interest rate movements. This point applies equally to both direct and managed fund investments.
Fixed interest investments can be made directly, or indirectly through unit trusts.
Other income investments
Investments in mortgage trusts share the advantages of other cash and fixed interest investments, namely regular income and lower risk. It's particularly important to realise that mortgage trusts are, however, relatively less liquid.
These investments are made through unit trusts and gifs.
Additional information and resources
There are a number of useful books in our Other Resources section you could consider buying or borrowing. Most of these include information on investing in Cash and Fixed Interest Investments.
In addition, try magazines such as the NZ Investor Monthly, and financial newspapers such as the National Business Review and The Independent.
FAQs
Fixed interest investments
They also agree to pay you interest (or coupon payment) at regular intervals. The range of fixed interest investment options includes term deposits, kiwi bonds, debentures, corporate and government bonds.
How much cash vs investments should I have? ›
A general rule of thumb is that cash or cash equivalents should range from 2% to 10% of your portfolio, although the right answer for you will depend on your individual circ*mstances.
What are the most commonly accepted groups of asset classes? ›
Historically, the three main asset classes have been equities (stocks), fixed income (bonds), and cash equivalent or money market instruments. Currently, most investment professionals include real estate, commodities, futures, other financial derivatives, and even cryptocurrencies in the asset class mix.
What is the most efficient asset class? ›
Asset classes that tend to be more efficient include large cap equities and fixed income. Small- and mid-cap styles tend to be less efficient.
What are examples of fixed interest assets? ›
Fixed interest assets (also called “fixed income”) include corporate bonds, government bonds, semi-government bodies and debentures. They work like a loan from you to the bond or debenture issuer, with a set rate of interest due to be paid to you at set intervals, and often a specific payback date.
What are the 4 asset classes of investment risk? ›
Asset classes are the building blocks of any investment. The four main asset classes are cash, fixed interest, property and shares. Cash and fixed interest asset classes are what we call 'defensive' assets, which means they are designed to defend your investment from losses.
What is the riskiest asset class? ›
Why Equities Are the Riskiest Asset Class. Equities are generally considered the riskiest class of assets.
What is the most profitable asset class? ›
The 9 Best Income Producing Assets to Grow Your Wealth
- Stocks/Equities. If I had to pick one asset class to rule them all, stocks would definitely be it. ...
- Bonds. ...
- Investment/Vacation Properties. ...
- Real Estate Investment Trusts (REITs) ...
- Farmland. ...
- Small Businesses/Franchise/Angel Investing. ...
- CDs/Money Market Funds. ...
- Royalties.
The equity market is known to deliver one of the highest returns among various asset classes in the long run and this is not going to change much in 2024.
What is a good investment portfolio mix? ›
Many financial advisors recommend a 60/40 asset allocation between stocks and fixed income to take advantage of growth while keeping up your defenses.
Commonly cited rules of thumb suggest subtracting your age from 100 or 110 to determine what portion of your portfolio should be dedicated to stock investments. For example, if you're 30, these rules suggest 70% to 80% of your portfolio allocated to stocks, leaving 20% to 30% of your portfolio for bond investments.
What is the safest asset to own? ›
Safe assets are those that allow investors to preserve capital without a high risk of potential losses. Such assets include treasuries, CDs, money market funds, and annuities. There is, of course, a risk-return tradeoff, such that safer assets typically offer comparatively lower expected returns.
What type of asset is a fixed capital investment? ›
Fixed capital are assets of a business that are permanent in nature and are not intended to be disposed of by a business. These assets include land, buildings, plant, machinery, fixed equipment, furniture, fixtures, vehicles, livestock, etc.
Is fixed investment an asset? ›
Investments are non-current assets that are recorded under the head of fixed assets. Investments lack physical being but are used over a long period of time.
What is a fixed asset investment called? ›
Fixed assets are also known as capital assets and are denoted by the term Property, Plant and Equipment in the balance sheet. Fixed assets cannot be easily converted into cash.
What are the asset classes of investments? ›
What Are the Different Asset Classes? Historically, the three main asset classes are considered to be equities (stocks), debt (bonds), and money market instruments.
