Bonds
What is a Bond?
A bond, also referred to as ‘fixed interest’ investment, represents a loan made by you to a government or company. In return for your money, the borrower (government or company) agrees to pay you a specified rate of interest and repay the amount of the loan on a pre-agreed date (maturity).
Types of bond
There are two main types:-
- Government Bonds - As the name suggests, these are issued by the government and are considered the safest type of bond as they are backed by government guarantees.
- Corporate Bonds - These are issued by companies, usually to finance or expand the company. They generally offer higher returns than government bonds as they carry a higher level of risk.
The role of bonds in a portfolio
Although returns are historically generally low, bonds work well as part of a diversified portfolio as it can offset the volatility of other asset classes such as shares as well as providing higher returns than cash.
Benefits
- Fixed level of income
- Low risk
- Return of capital if held to maturity
- Potential for small amount of capital growth
Drawbacks
- Lower returns
- Value can fluctuate
- Could receive less than original capital if sold before maturity
- Open to default risk
To find out what type of investment is best for you, it’s important that you understand your attitude to risk.
Visit the Guide to Investing and Risk pages to find out more or take our simple questionnaire and see examples of the types of funds that may meet your needs.
Assess your attitude to risk - take our questionnaire
To find out more about any of
the services we’ve mentioned
simply:
- Contact your SFS Financial Adviser
- Call a member of our Client
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