Investing in bonds?

Know your bonds at Enable in Bishop Stortford our Independent Financial Advisors often talk about “investing in bonds” with our clients but we like to remind ourselves that not everyone understands exactly what they are, how they work.

There are a couple of things worth understanding clearly about bonds. Firstly there are many different types of bond – corporate, government (sometimes known as gilts), retail and index-linked bonds and they all have different levels of risk and return. But what they have in common is that they are a bond essentially a kind of IOU, when you invest in a bond, you are lending the issuer your money in return for regular payments. 

Some savings institutions use the word bond for fixed-rate savings accounts; these may be described as “a two-year bond” or similar, but are actually ordinary savings accounts where your money is protected by the FSCS, meaning the first £85,000 would be returned by the government if the bank went bust. However, “real” investment bonds are not savings accounts and do not benefit from this cover.

This means that bonds are more risky, traditionally bonds have been seen as a safer option than shares, mainly because unless a company or government which issues them goes bankrupt or (for governments) simply fails to pay you, you are pretty likely to get the par value back., If however
the issuer does “default” the value of your investment will be lost.

The other thing to understand is that the value of bonds traded on the stock market falls as well as rises depending on interest rates. In general, bond values and interest rates have an inverse relationship. If interest rates rise and they can get a better return from other types of investment, the value of the bond becomes less to them, so it falls. Conversely, if rates fall the value of a bond will tend to rise. Enables IFA’s are happy to answer any investment questions you may have.

Issued by: Enable Independent Financial Life Planners
25c North Street, Bishops Stortford, Herts CM23 2LD
Telephone: 01279 755950 - Fax: 01279 657339
Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority.
It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us.
NOTHING CONTAINED IN THE ARTICLES SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE