The Reserve Bank of Australia (RBA) lowered its official cash rate to 0.10 per cent in November, which was great news for Australians who are paying off a mortgage but far from great news for those heading for or in retirement.
Instead of worrying about making loan repayments, many near-retirees and retirees are concerned about how to create an income stream that can support them in what’s likely to be a long life after work.
Doing so isn’t easy when interest rates on savings products have followed the RBA cash rate’s lengthy downward trend, many markets still haven’t fully recovered from Covid-19 and even the very structure of the Australian retirement income system is under review, casting doubt over the longevity of the current superannuation-plus-the-Age-Pension formula many have put their faith in.
As a result, if you’re planning for retirement or already in retirement, your strategy may be to simply carry on working for longer than planned or to tighten your belt until interest rates start picking up. The downside of that plan is that it comes with a very uncertain timeline; while the RBA has said a negative cash rate was unlikely, it added that cash rates could stay at 0.10 per cent for years.
There are investment opportunities paying competitive returns. If you’ve got the time, the inclination and the funds, you could scour the market for assets such as promissory notes, bills of exchange, fixed and floating rate debt securities and government bonds.
The problem is that many of those investment opportunities require specialist knowledge and large amounts of upfront capital (and others aren’t available to retail investors at all).
There is, however, a way you can get exposure to the returns available from these types of investments, allowing you to create an income stream without having to become a money-market trader!
It may be time to investigate what’s known as an enhanced income fund, also known as a diversified income fund. But it’s wise to also ensure that that fund is provided by a leader in the field.
Trilogy is one of Australia’s leading property-based fund managers, with a long track record in helping retirees create retirement income streams from their range of mortgage trusts, diversified income funds and property trusts. You can read more about Trilogy’s storied history here.
The Trilogy Enhanced Income Fund is a diversified income fund, designed specifically for investors who are seeking competitive returns and portfolio diversity, while having 30-day access to their money, as long as the fund is liquid.
Such funds may, but not always, invest the larger proportion of investors’ money in cash, cash-style investments and other financial assets such as term deposits, government bonds, and income securities, but seek to ‘enhance’ the return achieved by dedicating a smaller proportion of the fund’s holdings to higher-risk, higher-return investments.
This is how the Trilogy Enhanced Income Fund works. The fund invests approximately 65 per cent of its funds directly and indirectly in a range of cash, cash-style investments and other financial assets, while approximately 35 per cent of the portfolio is invested in the Trilogy Monthly Income Trust, a pooled mortgage trust that invests in loans secured by registered first mortgages over Australian property.
The Trilogy Monthly Income Trust has been running for 13 years (you can read more here about how an investment in the trust itself might work for you) and is rated a ‘very strong’ mortgage trust by ratings agency Australia Ratings.[1]
The investment strategy used by the Trilogy Enhanced Income Fund aims to generate an income stream that can be paid to investors each month. Historically, it has enabled the fund to provide competitive monthly returns.
You can read more about what a diversified income fund is and how it may meet your investment needs here, but as Philip Ryan, Trilogy’s co-founder and managing director, explains, “the Enhanced Income Fund is for investors who prefer conservative-style investments and the return appropriate to that type of investment”.
While all investments carry risk, the addition of higher-returning assets to an enhanced income fund offers the possibility of better returns but is balanced against the greater possibility of capital loss and other associated risks. Trilogy’s team of experienced investment and property managers work hard to minimise these risks, however, through diversification and active portfolio management.
“The primary thing that drives us at Trilogy is generating income for our investors,” Ryan says. “But the other thing that drives Trilogy is an understanding of risk. We work to mitigate or lessen the risks inherent in our investments at all times, in part by ensuring a comprehensive review of all investments by our lending committee and investment committee, respectively, by aiming for diversification of assets in our portfolios.”
Getting started with the Trilogy Enhanced Income Fund is a pretty straightforward process.
The first step is to obtain a copy, read fully and understand the Product Disclosure Statement (PDS). Then, you’ll need a minimum initial investment of $5,000. Your distribution payments will be made to your nominated bank account or you can choose to reinvest them in the fund.
It’s important to understand, though, you shouldn’t treat the fund like an everyday bank account. Instead, the fund should be considered as part of a diversified investment portfolio. While the Fund is liquid, you can gain access to your funds within 30 days.
“No investor should put all their money in a Trilogy product,” Ryan cautions. “We expect investors to treat an investment with us as part of their portfolio, not the portfolio.”
If you would like to learn more about Trilogy, the Trilogy Enhanced Income Fund and how an investment of this type could play a role in your retirement investment portfolio, you can learn more here.
[1] The information contained in the Australia Ratings Analytics report and encapsulated in the investment rating is of a general nature only. The report and rating reflect the opinion of Australia Ratings Analytics Pty Limited (AFSL 494552). It does not take into account an individual’s objectives, financial situation, or needs. Professional advice should be sought before making an investment decision. A fee has been paid by the fund manager for the production of the report and investment rating.
TRILOGY INFO This article was prepared in partnership with Trilogy Funds Management Limited ABN 59 080 383 679 AFSL 261425 (Trilogy Funds) as responsible entity for the Trilogy Monthly Income Trust ARSN 121 846 722 and Trilogy Enhanced Income Fund ARSN 614 682 469. Application for investment can only be made on the application form accompanying the Product Disclosure Statement (PDS) dated 17 December 2018 and by considering the Target Market Determination (TMD) dated 1 October 2021 for the Trilogy Monthly Income Trust ARSN 121 846 722 and PDS dated 28 July 2020 and TMD dated 1 October 2021 for the Trilogy Enhanced Income Fund ARSN 614 682 469 available at www.trilogyfunds.com.au. The PDS contains full details of the terms and conditions of investment and should be read in full, particularly the risk section prior to lodging any application or making a further investment, together with the TMD. All investments, including those with Trilogy Funds, involve risk which can lead to loss of part or all of your capital or diminished returns. Trilogy Funds is licensed to provide only general financial product advice about its products and therefore recommends you seek personal advice on the suitability of this investment to your objectives, financial situation and needs from a licensed financial adviser. Investments with Trilogy Funds are not bank deposits and are not government guaranteed. Past performance is not a reliable indicator of future performance.
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