(Newswire.net — April 2, 2020) — There is a point in everyone’s lifetime when they believe it is time to start saving for that metaphorical rainy day. With the distinct number of opportunities available to those looking for extra cash flow, deciding which investment route to take is often an intimidating and confusing prospect for many. For those who are seasoned investors, particularly those with experience of receiving a regular investment income, bonds will form the foundation of their portfolio.
While the prospect of investing in bonds seems complex and only for ‘seasoned’ investors, bonds provide a reliable and safe income for investors of all experience compared to other opportunities. So, if you are looking for a relatively low-risk investment opportunity, bonds are an extremely popular choice.
What is a bond?
Simply, consider a bond as an IOU between a lender and a borrower. For those looking to invest, they can purchase a bond (lend) where the money goes to a borrower. This is an extremely common occurrence for property developers looking for outside investments. If a property developer issues a series of bonds, they will receive investment from a series of lenders who have purchased the bonds. The money they receive from the investment will be paid back over a period of time, plus interest.
How do they work?
As established, bonds in very simple terms are a form of loaning or borrowing money for a set period amount of time. Investors will typically see their interest returns at a predetermined rate at the start of investments. The predetermined interest rates allow an investor to receive a salary like payments.
For example, if an investor was to purchase a 3-year retail bond offered by Wellesley at £100,000 with an interest rate of 4%, essentially it is saying ‘in three years I owe you £100,000 and every year until then I will pay you X amount in interest until then’.
What are the Benefits of Bonds?
It is safe to say that investing in bonds may not be the trendiest place to put your money in the investment world, you will not need to constantly have the markets up on a double screen computer like you were investing stocks. Whilst no investment is risk-free, the associated risks attached to a bond are far safer, reliable and manageable than those attached to other investment avenues. Alongside the relatively safe investment opportunity bonds provide, there are also a number of other advantages attached:
- Fixed interest is often a better rate than cash deposits.
- The interest payments you will receive are similar to salary payments.
- As long as the broker remains financially solvent, you will receive the fixed interest rates agreed at the start of your investment.
- Although simple in nature, they provide a clever way of diversifying your portfolio.
Risk.
It would be wrong not to highlight the risks associated with investing your money in bonds. As mentioned, like any investment, there is a level of associated risk with bonds. Typically, the most common risk associated with the safety of your bond lies with your provider’s financial situation, if the company is in a strong financial position, your investment is relatively protected. The greatest risk associated with a bond investment will be when a greater interest rate is attached.
Are bonds for you?
It is important to note that each investor, needs, wants or desires are different, and therefore should find the correct investment opportunity for you. Like any investment opportunity, there is a chance you can lose money, but bonds provide you with an opportunity to diversify your investment portfolio. If you are looking for an investment opportunity with a predictable and reliable stream of income, it could be an ideal way to bolster your income and introduce extra cash flow into your day to day life.