IAF and cash
Hi Mm team. Are you able to explain how IAF works. When one of your portfolios sells some equities (waiting for a buying opportunity) do you consider parking the cash in something like IAF or AAA? Thanks Alain
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Answer
Hi Alain,
AAA is a cash investment, and can be used as such. It pays slightly more than the cash rate and has a variable rate of interest – similar to an at call cash account. IAF is a bond investment, that pays a fixed rate of return underpinned by a diversified portfolio of investment-grade Australian government, semi-government, and corporate bonds. The price of IAF can move up and down, largely around the outlook for interest rates. We often talk about bond yields moving up, or bond yields moving down. If a bond yield is going up, it means the capital price of the bond is going down and vice versa. For parking cash, particularly for a short time, we think cash (or a cash ETF) is the best approach. If buying IAF for a short term hold, there is certainly the potential to lose money.
