Protecting Wealth in Changing Markets: The Role of Bonds and Other Defensive Assets

The Changing Investment Landscape

The Reserve Bank of Australia has signalled that interest rates are set to fall after a long cycle of increases. While that’s welcome news for borrowers, it presents a fresh challenge for savers and income-focused investors. Lower rates mean lower returns on cash and term deposits, reducing the reliability of these as sources of income.

At the same time, global share markets remain volatile; rising one week, falling the next, and in some cases rallying to new highs, leaving even seasoned investors questioning where to find consistency.

For those seeking regular returns that outpace inflation, the options can feel like they’re narrowing. In fact, recent analysis from Morningstar shows that as cash rates decline, traditional low-risk investments struggle to keep pace with inflation, while OECD research highlights that income-seeking investors are increasingly pushed toward a narrower pool of defensive assets. But there is an asset class that can offer a balance of stability, income, and growth potential: bonds and fixed income investments.

At Poole Advisory, we believe that in times of uncertainty, diversifying into the right defensive assets can be a powerful way to protect your wealth and secure reliable returns.

At Poole Advisory, we work with many clients, especially those in or approaching retirement, who want their portfolios to work harder. Here are four common income investing mistakes we help our clients avoid.

Why Fixed Income Is Back in Focus

For much of the past decade, ultra-low interest rates made cash and fixed income less appealing. But as rates stabilise and central banks look to ease policy again, bonds and fixed income are regaining their place in well-structured portfolios.

Here’s why:
🔹 Predictable Income – Bonds can provide regular interest payments, often more stable than dividends from shares.
🔹 Inflation Protection – Certain types of bonds are designed to keep pace with inflation, helping protect your purchasing power.
🔹 Diversification – They can offset volatility in equity markets, smoothing overall portfolio performance.
🔹 Capital Preservation – Compared with shares, quality fixed income investments generally carry lower risk of loss.

Keep in mind: Not all bonds are created equal. Government and investment-grade corporate bonds are more defensive, while high-yield bonds can offer higher returns but carry more risk.

The Role Bonds Can Play in Your Portfolio

The key is understanding how fixed income complements your broader strategy. For example:
🔹 If you’re approaching retirement, bonds can provide reliable income streams.
🔹 If you’re still in accumulation mode, bonds can stabilise your portfolio so you don’t have to sell shares in a downturn.
🔹 If inflation remains sticky, inflation-linked bonds can help preserve your real returns.

It’s not about replacing shares or property, it’s about finding the right balance between growth and defence.

Other Defensive Assets Worth Considering

While bonds are the headline story, there are other options to consider as well:

🔹 Term deposits and high-interest savings accounts – Safe, with returns fixed for the term, but limited in value once rates fall further. The comfort of safety often comes at the cost of growth, particularly in a falling-rate environment
🔹 Infrastructure and real assets – Can provide inflation-linked income and generally stable cashflows, though often requiring specialist access.
🔹 Annuities – These are products that provide a guaranteed income stream, often for life. They are generally invested in bonds, which back the payments, and can be particularly useful for retirees who don’t wish to worry about the market risk of other asset classes (Moneysmart: Annuities explained). The trade-off is that annuities are usually less flexible than bonds or shares but for the right client, certainty can be worth more than chasing yield.

Each comes with trade-offs, which is why the right mix depends on your goals, timeline, and appetite for risk. Speak with Poole Advisory today to explore the best options for your situation.

The Takeaway

Investors don’t have to rely on guesswork about what markets might do next. Instead, the focus can be on building a portfolio that balances stability with growth, using defensive assets such as bonds and annuities to provide reliable income while still leaving room for long-term opportunities.

At Poole Advisory, we work with clients to design tailored portfolios that achieve this balance, ensuring your money is working as hard as you are, through every stage of life.

If you’d like to explore how defensive assets such as bonds and annuities can strengthen your portfolio, Poole Advisory can help. Get in touch today to design a strategy that balances growth with stability and gives you confidence in your financial future.

Compliance Disclaimer:

This information contains general advice only, that is, advice which does not take into account your needs, objectives, or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial or credit advice that addresses your specific needs and situation before making investment or borrowing decisions. Taxation information is based on our interpretation of the relevant laws as at 1 July 2018. While every care has been taken in the preparation of this information, Prosperitas Partners Pty Ltd does not guarantee the accuracy or completeness of the information. The case studies are hypothetical, for illustration purposes only and are not based on actual returns.

Poole Advisory Pty Ltd ABN 15 642 040 604 is a Corporate Authorised Representative (No. 001282603) of Prosperitas Partners Pty Ltd ABN 30 662 654 453 AFSL 544 917

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