Investment Bonds - The Forgotten Retirement Fund

Hi folks

You all know my conspiracy theories on retirement Superannuation and how I am getting the best out of my Super despite it's inherent problems, however, I have not chatted to you about Investment Bonds yet.

Investment Bonds have taken a back seat as a legitimate form of investment with the rise of superannuation and folk's love of direct share and property investing. However Investment bonds are now making a comeback since Australian Superannuation laws have continued to change for the worse.

Slow baked sweet potato. 

What are Investment Bonds?

They are not the low earning cash bonds you can trade on the stock market - these are actually insurance policies that invest directly into a variety of equity (share) investments. Investment bonds combine the features of a managed fund with the benefits of a life insurance policy. Here is an excellent write-up on investment bonds by ASIC HERE.

What are the benefits of Investment Bonds?

Due to these investments being held under the structure of an insurance policy, the following benefits are available to the holder of investment bonds in Australia.

  •   Investment bonds are tax paid (30% company tax).
  •   Zero personal tax is payable once you have held the bonds for 10 years 
  •   If you do need to withdraw funds in under 10 years you still get a 30% tax rebate on the taxable portion of the amount withdrawn.
  •   Investment bonds can be pre-bequeathed outside of an estate.
  •   Highly tax effective outside of Superannuation. 
  •   Can be accessed at any age or stage of life.
  •   No need to ever declare the earnings of investment bonds for taxation purposes (unless you withdraw in the first 10 years).
  •   Can start with as low as $1000 initial investment and then Bpay/EFT/Direct Debit as little as $100 a time for no fee.
  •   Can swap investments for fee.
  •   No limits on initial investment amount or subsequent amounts in the first year of investment.
  •   Can invest 125% of the previous year's investment year on year and still have full tax benefit.
  •   Tax effective investment for children from the age of 10.
  •   Tax effective for early retirement before being able to access preserved superannuation
  •   A variety of investments and funds available including Vanguard and iShares products (depending on the bond provider).
  •   Fees comparable to Superannuation products (always scrutinise this however)

A delicious home cooked lamb roast.
Even the mint jelly is home made.

Here is a link to a couple of high-level articles HERE and HERE to get you started on researching investment bonds.

There are many providers of investment bonds in Australia the largest being Australian Unity . As part of your research, always-always-always read the PDS thoroughly, be fully aware of all fee structures and also be aware of the return and quality of the investment products being offered by each bond provider. Australian Unity's PDS is well written and highly educational  - I suggest you start your first PDS research with that one HERE. (No, Australian Unity are not paying me in any way!)

The reason I personally like investment bonds is that I can access these well before I can access my Superannuation and they have slightly better tax benefits than even fully franked dividend shares and after 10 years any of my earnings are tax free including GST (..... pokes tongue out at my Superannuation and makes an immature face). Investment bonds are also infinitely easier to deal with come tax time every year - no tracking of share parcel purchases, dividends, franking credit claims etc etc.  Once retired you can organise a regular withdrawal plan for free too - and all tax free after 10 years (..... blows a childish 'rasberry' at Superannuation pension administration fees this time)

Now I am not a financial adviser but I think Australian investment bonds are truly worthwhile your time researching as a highly flexible and tax effective alternative or supplement to Superannuation. Many articles say that investment bonds are good tax havens for the rich (very true) but they are also excellent for low income earners, early retirees, those transitioning to retirement before preservation age and many other personal circumstances too. 

Take care folks and stay nice.

Mr HM (Phil)

Here is a lovely picture of  Mrs HM's mum and Toby-the-dog
a few days before she passed.
Toby lives with us now.


  1. Thanks Phil! I know zero about investment bonds, so I'll take a look at your suggested reading...

    1. I'd really value your thoughts on these type of investment some time or other. My first love is of course LIC's, but these are a close second providing one does their homework.

    2. Interesting. Doesn't look too bad. Can invest in low-cost stuff like VAS which is good.

      The tax treatment is slightly better than a tax-paid Bonus Share Plan - BSP (not DRP) - as offered by AFIC and Whitefield.

      Only concern is whether you'd get the wholesale fee rates from Vanguard or the retail rates, or somewhere in between? And also the extra 0.60% fee from Aus Unity is a drag on performance compared to using AFIC BSP, not a big deal though as the tax benefits can definitely outweigh that - with AFIC Bonus Share Plan, you'd be up for CGT after 10 years if you want to redeem your funds, of course.

      Definitely looks as though it could suit some circumstances pretty well!

    3. I just looked up the underlying MER document they have on file for the Vanguard products I use, VAS 0.16 and VGS 0.16. Pretty reasonable me thinks.

  2. Phil you're a gem as usual. More food for thought. Toby looks adorable!


  3. Lovely pic. What a lucky boy Toby is to have found a loving home.

    1. Thanks Brigie - Toby is a lovely boy and has fitted in wonderfully. Our cat however may not agree!

  4. Thanks for this post Phil ... we are looking to take early retirement - selling our Sydney home & living off the proceeds (moving into our investment property). I've been looking into where to park the money from the house sale for maximum profit. Kim from Sydney

    1. There are plenty of good products out there Kim - don't rush into them .... do your homework

  5. Hi.. dropping by,,, I renamed my blog and changed the addy :-)
    Hope you still come by..


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