Why debt is the new big thing in investment

*This content is brought to you by Wealth Migrate

By Lee Rush* 

Investors need to be aware of the long-term trends so they can make decisions that grow their investments, this means being well-informed about developments around the world and educating yourself on how these changes can affect you and your investment.

By keeping a wary eye on the trends and patterns, you can stay well ahead of the curve no matter what new trends appear – and the one that seems to be coming to the fore at present is debt.

Debt investments, including bonds and mortgages, provide fixed payments to investors and tend to be less risky than equity investments. They also usually offer lower, though more consistent, returns.

They are much less volatile than equities and investors can generally avoid the nausea-inducing highs and lows of the stock market. Mortgage investments come with set interest rates and are backed up by collateral in the form of property.

Since the 2008/2009 global financial crisis many banks have been in disarray, and one of the results of this is they have pulled back from financing property. The gap they have left has been filled in many cases by private equity firms, including Black Rock. These firms generally have low gearing (loan to value ratios) and can earn attractive monthly, quarterly or annual fixed-income returns.

This now-widespread trend used to be available only to sophisticated investors, private equity firms or real estate investment trusts (REITs), but technology has made it accessible to many more people, even investors with smaller investment minimums.

While the Covid-19 pandemic has increased the uncertainty levels, things have been fairly tumultuous for the past few years. Uncertainty tends to make investors move away from capital growth and head for fixed income, with its built-in lower risk. This is the reason debt products have become more popular.

A big plus for these types of investments is that in the event of a default, a debt investment comes ahead of an equity investment, so it is inherently a less risky choice. In bear markets debt products are favoured as they allow investors to manage the downside more aggressively while still focusing on income.

No matter where you decide to put your money, there is always some risk when investing. However, an educated investor will make smarter, better-informed choices. Wealth Migrate, for example, is committed to educating investors through its Wealth University, among other online offerings, to ensure that investors do not make expensive and heart-breaking mistakes with their money.

  • Lee Rush is the Wealth Migrate Head of Communities.