Ask Paul: My income fund has gone backwards, should I cash it out?


Dear Paul,

I am an 84-year-old pensioner whose balance in July 2021 with BT Tax Effective Income Fund - NEF was $7222.22 and now it is $6677.14, having earned me $80.66 this year.

Should I have it returned to me and put it in my bank, where I have $10,000, or is it likely it will improve where it is and I'll have something to leave my kids and grandkids?

ask paul clitheroe my income fund is going backwards

I have one other investment of many years: $15,000 with Charter Hall gives me $95 a month, which is fantastic. I get the pension and don't own my own home. - Kay

It has been a horrible year for income funds, Kay.

Rising interest rates are great if you are after a term deposit today, but have impacted most income funds, which generally hold longer-term bonds in their portfolio. I'd give BT a call and have a good chat about the fund. Its website, to its credit, gives good information on their funds and, unfortunately, this fund has not done well.

According to the information supplied by BT, its five-year performance is 3.8%pa and the fund does not rank well against similar funds.

BT has a very good track record as a manager and one argument is that this fund may start to perform much better as rate hikes stop.

But if you would prefer certainty, you could withdraw your funds and pop them into a very safe term deposit where you should earn over 3%pa. This decision is very much dependent on your attitude to risk, but it sounds to me as if you are quite risk-averse.

That is a lovely, unselfish thought about leaving money to your kids and grandkids. We now have three very young grandchildren and while very noisy and active they do bring great joy.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.