Creating a tailor made XTB portfolio
- The adviser’s client was being made redundant
- He had $700,000 to invest.
- He had 8 years until his super could be accessed.
- During that time he wanted to have $100,000 p.a.
- His Super was already well planned out
- He was happy to use all the income and capital from the $700,000 during the 8 year period.
Given the client wanted $100,000 per year from only a $700,000 investment, the portfolio would need to deliver both capital and income each year to meet that goal. The way to do this is by putting together a ‘maturity ladder’ portfolio of fixed-rate XTBs. This approach involves selecting a range of XTBs in a way that one XTB matures each year, which gives you both capital and income each year. We selected the range of XTBs with the aim that the annual income and return of capital would be equal to, or just over the client’s $100,000 goal.
- The longest dated XTB in the current range matures in 2022, in 6 years’ time.
- $540,000 was allocated to a range of fixed-rate XTBs
- The remaining $160,000 was allocated to floating-rate XTBs until new fixed-rate XTBs are issued that mature in 2023 and 2024 to cover the 8 year time horizon.
- The floaters provide less income than many of the longer-dated fixed-rate XTBs, but they do not have duration risk,. This makes them a great tool to preserve capital value even if rates rise.
- When new fixed-rate XTBs come on line in the next year, the floaters can then be sold and reinvested in the new fixed-rate XTBs out to 2024. This will complete the 8 year maturity ladder.
Why corporate bonds?
- The client’s goal is achievable because XTBs and their underlying corporate bonds deliver better income than TDs.
- Like TDs mature on known dates and with known capital returns.
- The adviser was aware that TDs did not deliver the desired outcome, and the uncertainty of hybrids was far too great for the client’s risk appetite.
- He also looked at annuities, but they did not deliver on the client’s needs.
- Corporate bonds are able to deliver known outcomes, subject only to the solvency of the issuer.
Please call the XTB team if this kind of assistance would be useful for your business. You call us just to have a second pair of experienced eyes look over what you’re proposing for your client portfolios.
Call: 1800 995 993 or email: firstname.lastname@example.org