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Confusing jargon can be one of the main roadblocks to financial self-sufficiency. And we get it. So many investment options are available nowadays.

Bonds vs Stocks, Managed Funds vs ETFs, Investment vs Education Bonds… It’s hard to keep track.

That’s why at Futurity, we keep it simple. Because investing in your family’s education should be an easy, evidence-based and exciting process – for everyone.

So if you’re ready to tackle the jargon head on – and get a clear understanding of the different investment terms – this article is for you.

 

First up: what’s the difference between Stocks and Shares?


Believe it or not, Stocks and Shares are the same thing (although in Australia, we tend to use ‘Shares’ more commonly).

But the differences in Bonds vs Stocks is a lot more distinct.

Okay… so Bonds vs Stocks, what’s the difference?

In a nutshell, Bond investors receive a return of their capital – as well as interest payments over the term of the Bond. Stock investors, however, receive a return on their capital.

Bond investors loan money to a company or government for a set period. At the end of that period, the investor gets their money back – on top of the interest they will have already received throughout their investment.

Stock investors, on the other hand, own a portion of the company they have purchased Shares in – and therefore have a claim to the company’s earnings and assets.

Are managed funds and ETFs the same thing?

Managed Funds and ETFs are similar, but not the same. An ETF (Exchange Traded Fund) is a Managed Fund – but a Managed Fund is not an ETF.

Let’s break it down.

A Managed Fund is a unit trust product, which involves buying a group of assets from a trust fund as a single unit.

Basically, it pools your savings with other investors’ money. Then, a professional fund manager divides the pool into assets like Shares, Fixed Interest and Property.

An ETF is a Managed Fund where your units can be bought or sold on an exchange, like through the ASX (Australian Securities Exchange).

How are Government and Corporate Bonds different from Investment Bonds?

Government and Corporate Bonds – also known as Traditional Bonds – are loans that the entity takes from investors who buy its bonds.

With Government Bonds, you make a payment to support government spending and obligations. These bonds often include periodic interest payments known as ‘coupons’.

Corporate Bonds follow a similar concept, but your payments go to a company instead. The company gets the capital it needs – and in return, you are paid a pre-established number of interest payments at either a fixed or variable rate.

Meanwhile, Investment Bonds are managed investments that help you achieve your long-term financial and estate planning goals. They’re generally more flexible and tax effective than a Government and Corporate Bond.

Much like your Superannuation, when you invest in an Investment Bond your money is pooled with other people’s – and invested in a range of asset classes. Typically, they have a wide-ranging investment menu to choose from.

Now the big question: what are Education Bonds?

To know what an Education Bond is, you first need to know what it’s not.

An Education Bond is not a traditional bond like Government or Corporate Bonds. And it is not an ETF.

Instead, an Education Bond is more like an Investment Bond – and it offers all the same features.

The difference is that an Education Bond is designed as a dedicated, tax-effective investment for – you guessed it – education. It also has the added flexibility and features such as:
  • Special education tax benefits
  • Estate planning features
At Futurity, our Education Bond also enables the appointment of multiple beneficiaries.

Although you can use it for any purpose, Education Bonds are established to invest in education – and most often for the benefit of children or grandchildren.

Wait, so an education bond comes with tax benefits?

Oh yes.

First of all, Education Bonds are non-distributing. That means, you don’t need to declare ongoing earnings in your annual tax return. At Futurity, we pay tax on your behalf within the fund at a rate of up to 30%.

You’re also entitled to the Education Tax Benefit. In practice, this means when you make a withdrawal to fund education costs, you’ll enjoy an additional $30 for every $70 withdrawn from your investment earnings.

Not to mention the compounding power of your investment. We automatically reinvest your investment growth – which means you’ll be enjoying the interest on top of your interest!

The benefits reach even further – to your beneficiary as well (the person who receives the income from the Education Bond.) So, if their taxable income is below the tax-free threshold, they will pay little or even no tax on the earnings when they’re withdrawn.

Last but not least, you can withdraw your funds at any time. For any purpose.

If you withdraw for non-education purposes, investment bond rules will apply in regards to the tax payable on earnings.

Importantly, if you have held your Bond for more than 10 years, you will generally receive a tax-free withdrawal.

Want to learn more about how you can set your loved ones up for lifelong learning? Speak with your financial adviser about the Futurity Education Bond range. Or get in touch with us.
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