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Archives for Ian Maloney

Electric Cars

Should we go out and buy shares in Tesla? We have had a few questions from clients asking for ethical investments in their portfolios and Tesla is a name that comes up amongst these discussions. Tesla heavily promotes itself as the green future of transport. So, is this a ground breaking technology that will save the environment? Let’s take a look under the hood.

No prizes for guessing what powers an electric car and surely electricity is cleaner fuel than petrol, right? Teslas are charged via a hook up to a power outlet in your house and that electricity comes from a power station which, for the most part, is generated from burning coal. There are also losses in transmission along the power lines, and losses in the battery as it is charged. I have not included those losses in my calculations below as they are difficult to quantify.

I will base my comparison on the amount of Carbon Dioxide (CO2) that is emitted. There are plenty of other pollutants for both Electric cars and Petrol engines but for the purpose of this assessment we will just look at CO2. The average amount of CO2 per kilowatt-hour of electricity generated varies from state to state due to the differing ways electricity is generated. In Queensland, it averages out at 0.79kgs of CO2 per kilowatt hour, whereas in Victoria it’s a whopping 1.08kg of CO2 per kilowatt hour. Down in Tasmania it comes in at 0.14kg of CO2 per kilowatt-hour due to the use of hydroelectric power.

If we look at the Tesla Model 3 (below), which is a similar size to a Toyota Corolla, it has a range of 352kms on a full charge and its battery power is 57kwh. Therefore, a full charge in Queensland will emit 129g CO2 per kilometre and in Victoria that would increase to 177g CO2 per kilometre. That is about 100 litres of CO2.

According to the Green Vehicle Guide ( published by the Australian Government, a bog standard Toyota Corolla 1.8l Manuel will release about 196 grams of CO2 per kilometre in an urban environment. So, based on the Tesla emissions of 177g CO2/km above, there really is not a lot in it for Victorians.

Ideally, if you own a Tesla, you need a solar panel on the roof of your house and a battery to store the energy during the day so you can recharge overnight. Then you really are a greenie.

Please note, the above had been provided about general advice. If you would like more tailored advice about investing or any financial services, please contact us today. One of our advisers would be delighted to speak with you.

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What’s A Bond And How Do They Work?

Recently we have been able to gain exposure for our clients to the wholesale corporate bond market. We see this as a great alternative to the recently issued bank preference shares as they are lower risk, and offer greater protection in the advent of a market downturn.

Firstly, what is a bond and how do they work?

A bond is simply a loan or an IOU from an investor to an issuer (such as the government, a bank or corporation). Think of the loan you take out from the bank to buy a house. The bank expects to be repaid interest and principal. If you fail to make the payments you break the contract and the bank has rights to recover its funds. Bonds work in much the same way. The investor agrees to lend money to the issuer who must then honour that legal obligation by paying back interest and principal. The interest payments (coupons) are typically made by the issuer twice a year and the principle is paid back at maturity.

Bonds are traded on a market much like shares and their price fluctuates from day to day. Generally speaking, we will aim to hold the bonds until maturity when they are paid back at face value – usually $100. As such, we are not overly concerned with the day to day fluctuations in price and holding bonds until maturity will also reduce brokerage as there will be no exit charge. If, however, an investor wants to sell their bonds before maturity they do expose themselves to the risk of selling below their purchase price and they will incur brokerage.

Different Types of Bonds:

Fixed Rate bonds – A fixed rate bond pays a fixed amount for the life of the bond, known as the coupon rate.

Floating rate bonds – A floating rate bond pays income linked to a variable benchmark. The margin over the benchmark is fixed and set when the bond is first issued, and income will rise and fall over time as the benchmark changes.

Inflation-linked bonds (ILBs) – An ILB is a security linked to the consumer price index (CPI) or inflation. Therefore the capital value of the bond grows with inflation.

Why Bonds?

Some key benefits of bonds include:

  • Regular income – the bond’s interest accrues daily and is generally paid twice a year.
  • Diversification – bonds provide a different type of return on shares and property.
  • Liquidity – although it is our intention to hold the bonds until maturity, bonds can be bought and sold prior to maturity.
  • The minimum investment for bonds is $10,000. This is much lower than a managed fund where the minimum is usually $20,000.
  • Lower risk – many of the recent bank hybrids contain caveats that put the owners capital at risk in the advent of a downturn. These hybrids also do not allow the holder to be rewarded should the bank perform better than expected.

If you would like to learn more, please contact us today. One of our friendly advisers would be delighted to speak with you. Please note that the above has been provided as general advice, it has not taken into consideration your personal circumstances or financial goals.

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