![]() Past performance of financial products is no guarantee of future performance. It is important to note that past performance isn’t a reliable indicator of future performance and there may be cases where there are other tax or strategic benefits of owning an investment bond that aren’t captured in this example.īelow the performance chart below is a worked example to show the impact of tax at the highest marginal rate. This is higher than the 8 popular growth investment bond options surveyed and may be because ETFs have low fees and are themselves tax efficient.Īt lower marginal tax rates the after-tax ETF portfolio return would be between 4.7% p.a. Investment bonds are ‘tax paid’ investments whereas with a portfolio of ETFs the investors need to pay tax on income and capital gains.Īssuming the portfolio of ETFs was taxed at the highest marginal rate on income and capital gains, the after-tax return would be 4.7% p.a. over five years.Īn important difference is the impact of tax. A portfolio of ETFs with a similar asset mix (and risk) – like the Stockspot Topaz Portfolio – has returned 6.8% p.a. The average five year return for a growth investment bond of the 8 surveyed has been 2.9% per year at at 31 December 2022. Investment bonds are available across a range of different investment options including shares, bonds, property, infrastructure, and mixed asset portfolios. So as long as you definitely won’t touch your investment for at least 10 years, you won’t need to pay additional tax or capital gains tax. This means the tax on investment earnings is paid by the bond issuer at the (current) company tax rate of 30%.Īfter 10 years from the start date of the investment you don’t need to pay personal income tax on the investment. What are the benefits of investment bonds?Īn investment bond is a ‘ tax paid‘ investment. Investment bonds are considered to be a tax efficient way, especially for high income earners, of investing outside of super (as long as certain conditions are met). It’s for this reason that parents (and grandparents) like investment bonds as a way to help save for big ticket expenses like their education, a car, or house deposit. Investment bonds let you invest on behalf of a child (or grandchild) and have the ownership automatically transferred to the child at a date you set in the future. You can access them via life insurers and friendly societies. Overview of the investment bond tax rulesĪn investment bond (also known as an insurance bond) is a combination of an investment portfolio and a life insurance policy.Conclusion: when investment bond or ETF portfolio?.What are the benefits of investment bonds?.Here we compare the historical returns of investment bonds available in Australia in the growth category (61%-80% growth assets) to a diversified portfolio of exchange traded funds (ETFs) with similar risk, taking into consideration fees, tax and performance. You might also have heard of investment bonds if you’ve read any of the Barefoot Investor books (including Barefoot Kids) by Scott Pape. ![]() If you’re looking for ways to invest for children, or have looked into tax efficient ways to structure your income, you may have come across investment bonds (also known as insurance bonds). If you want to find out whether investment bonds are right for you, speak to a qualified adviser. The article is based on objective, factual information. Important Disclaimer: The information provided in this blog is intended for educational purposes only. ![]()
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