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 more about any of
the services we’ve mentioned
simply:
- Contact your SFS Financial Adviser
- Call a member of our Client
Help Line on 0800 137 832 - Visit your local Skipton
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