Bonds and fixed interest

Bonds and other fixed interest securities are valuable assets for investors looking for stability, diversification and relatively predictable returns.

Bonds are debt securities issued by governments, corporations, or other entities to raise money. When you buy a bond, you are essentially lending money to the issuer of the bond for a certain period of time. In return, the issuer agrees to make periodic interest payments (coupons) and then return the principal amount (face value) at maturity. The overall return you make on the bond is called the yield.

Here’s a quick run-down on some of the different types of bonds:

Government bonds: Issued by national governments, state governments or other local authorities these are generally considered low-risk because they are backed by the government. Consider, for example, US 10-Year Treasury Bonds, issued by the US government and which are considered a safe investment due to their government backing. If you purchase a US 10-Year Treasury Bond, you’re essentially making a 10-year loan to the US government.
Treasury indexed bonds: These are Government bonds indexed to inflation, providing protection against the erosion of purchasing power. For example, the Australian government regularly issues Treasury Indexed Bonds, for which the capital value of the security is adjusted for movements in the Consumer Price Index (CPI).
Corporate bonds: These are issued by companies to finance their operations. They typically offer higher yields than government bonds but come with higher risk. Corporate bonds do not have government backing, and companies can and do go out of business which would potentially leave any bond holders out of pocket. However, many of the companies offering bonds are large, stable businesses and household names. For example, Australian businesses such as Telstra, ANZ, BHP and CSL have all issued corporate bonds.
Junk bonds: Also known as high-yield bonds, junk bonds offer the potential for higher returns, but they also carry a significant risk of default and are often considered highly speculative.

Property

Property refers to physical land and buildings including residential, commercial and industrial buildings. An investment in property can provide steady income, usually in the form of rental income. Property values also tend to appreciate over the long term, offering the potential for capital gains.

There are various types of property that can be invested in.

Residential property: Family homes, apartment buildings, townhouses and flats are popular with investors.

Commercial property: This includes office buildings (leased to businesses), retail spaces (leased to stores, restaurants, and other retail businesses), and industrial properties such as warehouses, factories and distribution centres.

Farmland: Used for growing crops, raising livestock and grazing animals.

Specialised property: Think about healthcare facilities (such as hospitals, clinics and nursing homes), research and development facilities (used for innovation and product development, often in the biomedical space), and hotels and resorts.

Property has some specific features that set it apart from other asset classes.

Property is a tangible asset – built with concrete and mortar. It can be seen and touched, and this can provide a greater sense of security.

Rental income from tenants can provide a consistent, steady cash flow. Certain types of property – such as commercial property – can include ‘ratchet’ clauses. These clauses are designed to protect owners by preventing rent from decreasing.

Various tax deductions and incentives are often available to owners, which can improve returns. And property values can increase over time, leading to capital gains when sold.

However, property is also subject to a specific set of risks.

Property values can be affected by economic conditions, supply and demand, and location-specific factors.

Issues specific to a property, as well as broader economic conditions, can lead to periods of high vacancy which will reduce rental income.

Properties require ongoing maintenance and repairs can be expensive and time-consuming.

Finally, property is less liquid than other assets. In other words, converting bricks and mortar into cash can take a long time. ‘Time on market’ is one measurement that tracks changes in the time property takes to sell or lease. For example, in September 2025 the average amount of time taken to sell a commercial property was 40 days.^*

* _{Source: Commercial Property Guide Time on Market measurement (TOM)}

Shares

Shares, also known as stocks or equities, are a type of financial instrument that represents ownership in a company. When you buy shares, you become a shareholder, which means you own part of the company proportional to the number of shares you hold.

Shares provide returns in two ways.

Some companies pay dividends, where a portion of profits is distributed to shareholders. Smaller companies may never pay dividends – in Australia for example, there are numerous small mining companies and mineral explorers, which often don’t pay dividends. On the other hand, some companies are often considered an attractive investment because they regularly pay dividends. In Australia, think of companies like the Big Four banks (ANZ, CBA, NAB and Westpac) and the larger mining companies (BHP and Rio Tinto).

The value of shares can increase over time, leading to capital gains. In fact, as the 2025 Vanguard Index Chart shows, shares have consistently outperformed cash, bonds and fixed interest, and property over the long-term. This is despite one of the more obvious drawbacks of shares which is volatility. While all investments experience changes in value, growth investments like shares are especially prone to frequent and rapid fluctuations. While market volatility is a normal part of investing in shares, it can be unsettling which is why it pays to zoom out and focus on the long-term trends.

Finally, shares are generally liquid and relatively easy to buy and sell on stock exchanges.

Risk and return characteristics

The table below shows the broad risk and return characteristics associated with each of the key asset classes.

Understanding the investment basics