About Bonds

* Understanding the investment clock is a useful tool for guiding you along the journey to financial independence. It helps you know when to invest and the best performing assets at a given point in time. * The investment clock is not a really good tool for predicting the timing of economic trends with great accuracy. Its real value lies in its ability to depict the cyclical relationship between the share, property and fixed interest markets and the order in which they occur. * The clock tells you the most appropriate investment medium, considering the prevailing economic indicators such as interest rates, commodity prices and inflation. It shows that the share cycle is followed by the real estate and then the fixed interest cycles. The investment clock has proved accurate in reflecting the market forces that drive the various investment cycles. And the order in which they occur. * Looking at the clock, twelve o'clock is the boom and a rapid increase in the demand for real estate results in property prices rising. Often property prices rise by 20% per annum during these boom years. * As property purchases are primarily funded by borrowing, the increased demand for funds causes the cost of funds that is interest rates, to rise. As interest rates rise, companies find it harder to make profits. This together with the fact that the booming property market and fixed interest investments seem more attractive, causes share prices to fall or at least stagnate. As property prices tend to boom at these times and because interest rates rise, the rapid growth of the property market cannot be sustained for more than a few years. Property prices stagnate and even fall. * At about 3 o'clock in the investment clock, the share market is usually doing little and offers few prospects for investors and interest rates are too high to make borrowing for property an attractive option. This is the fixed interest or cash part of the cycle when cashed up investors can take advantage of the high interest rates on offer to lenders by way of bonds, debentures and cash deposits in financial institutions. * Other investors just try and battle on paying more interest on their borrowed funds. * High interest rates slow the economy and lead us into the recession. * This brings us down to six o'clock; in the depths of a recession and as mentioned Australia has a recession of varying magnitude every seven to nine years. Now investors are either too scared, or cannot afford to borrow money and in time interest rates slowly start falling. Also during these times companies are forced to become leaner and increase productivity. These measures and the slowly improving economy translate into increased company profits and this gradually stimulates share prices to recover. * Understanding the cycle and the cyclical relationship between the share, property and fixed interest markets is critical if you want to maximise the return on your investment dollar, with the minimum of risk. * You may well ask - why do economic cycles occur in the first place? Why doesn't our market driven economy find a nice equilibrium? The simple answer is that the world economy is a collection of many nations each at their own individual point of the economic clock. And each nation is made up of millions of people each making their own financial decisions as a reaction to, or in the expectation of, other people's decisions. The sheer momentum of all these economies means that they always over swing the mark, resulting in cyclical economic movements.

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