Credit investing is becoming increasingly popular among Australian investors seeking alternatives to volatile equity markets. Whether you’re aiming to diversify your investment portfolio or generate consistent income, understanding the credit investing basics is a smart move.
In this blog article, we’ll walk you through what credit investing entails, the different types of credit investments available, associated risks, and how to start your journey. By the end, you’ll have a solid understanding of how credit investing can work for you.
What Is Credit Investing?
At its core, credit investing involves providing capital to borrowers—governments, corporations, or institutions—in exchange for regular interest payments and repayment of the initial investment at maturity. These investments come in various forms, such as bonds, syndicated loans, and credit securities.
Unlike shares, which represent ownership in a company, credit investments represent debt. You’re effectively acting as the lender, and the borrower agrees to repay you with interest. This structure offers more predictable returns compared to the ups and downs of the stock market.
For a beginner-friendly overview, check out MoneySmart’s guide to bonds by the Australian Securities and Investments Commission (ASIC).
Common Types of Credit Investments
There are several key credit instruments you might come across:
- Government Bonds – Issued by federal or state governments. These are generally low risk and highly liquid.
- Corporate Bonds – Issued by companies looking to raise capital. These carry higher yields than government bonds but come with greater risk.
- High-Yield (Junk) Bonds – Offer even higher interest rates due to the greater risk of default.
- Securitised Credit – Includes mortgage-backed securities and asset-backed securities, often pooled together and sold to investors.
Some investors access credit markets through managed credit funds or ETFs, which provide exposure to multiple securities and help diversify risk.
Want to compare bonds and funds? Canstar offers useful tools for evaluating investment options.
Why Investors Are Turning to Credit
Credit investing appeals to a wide range of Australians for a few important reasons:
- Stable Income – Credit instruments typically offer fixed, regular interest payments (called coupons), which can provide a reliable income stream, especially for retirees or conservative investors.
- Lower Volatility – Bonds and credit securities tend to be less volatile than stocks, which is ideal for long-term financial stability.
- Diversification – Credit assets behave differently than equities, making them a useful tool for reducing overall portfolio risk.
Morningstar Australia highlights how well-managed credit investments can enhance risk-adjusted returns and balance equity exposure.
Risks to Be Aware Of
While credit investing has many advantages, it’s not without risk. Key risks include:
- Credit Risk – The borrower could default, meaning you may not receive the expected interest or principal repayment.
- Interest Rate Risk – If interest rates rise, the market value of existing bonds typically falls.
- Inflation Risk – Fixed income streams may lose purchasing power if inflation rises.
- Liquidity Risk – Some bonds or debt securities may be difficult to sell quickly without a price discount.
Mitigating these risks involves doing due diligence, diversifying your holdings, and potentially seeking professional advice.
If you’re unsure how to begin, Avante Partners offers expert financial advisory services to help evaluate strategies and manage risks.
Steps to Get Started with Credit Investing
Ready to dip your toes into credit markets? Here’s how to begin:
- Understand Your Investment Goals – Are you seeking income, capital preservation, or diversification? Your goals will shape your approach.
- Evaluate Your Risk Appetite – Are you comfortable with low-risk government bonds or willing to consider higher-yield corporate credit?
- Research Products and Platforms – Look into individual bonds, ETFs, or managed credit funds. Popular Australian trading platforms like CommSec, NABTrade, BondExchange, and Bartercard offer access to credit products.
- Start Small – Consider investing a small portion of your portfolio initially, and grow as you gain confidence.
- Monitor Your Investments – Keep an eye on interest rate movements, credit ratings, and market developments that could affect your returns.
Many Australians include credit investments in their superannuation strategy. Learn more about SMSFs and retirement planning on our superannuation insights page.
Who Is Credit Investing For?
Credit investing can suit a variety of investors:
- Retirees or Pre-Retirees – Looking for stable income.
- Risk-Averse Investors – Seeking lower volatility compared to equities.
- Diversified Investors – Wanting to add a non-correlated asset class to their portfolio.
- New Investors – Who prefer fixed returns over speculative gains.
How Avante Partners Can Help
Understanding the credit investing basics can provide you with new ways to earn consistent income and protect your wealth. While not as widely discussed as share investing, credit markets are a vital component of a well-rounded portfolio.
Working with an expert can help you make informed decisions. Avante Partners can help you understand how credit investing fits into your broader financial strategy. Don’t hesitate to speak with a financial adviser before taking the plunge.
