By Richard Pemberton, investment director, Canaccord Genuity Wealth Management
DESPITE the prospect for US interest rates to increase two or three times in 2017, there seems little chance of the UK following suit. In fact, we could be looking at several more years of domestic interest rates below 1%, considering the challenges the UK is likely to face beyond Brexit.
So what about investing in bonds? After cash, traditionally risk-averse investors tend to turn to bonds (government or corporate), which can offer a fixed income, albeit with some risk. The problem is that the lowest-risk bond option – UK government bonds – is also offering pitiful returns.
However, all is not lost, and we should not view all bonds in the same way. The risk, return and role they play can vary greatly depending on the characteristics of the bond.
Take, for example, cash-rich nations such as Qatar or the largest technology firms, including Apple. It is considered that they offer high-quality bonds (lower risk – lower return), although they can still deliver attractive returns of 3% or more. Other bonds are regarded as lower-quality (higher risk – higher return), such as bonds issued by companies whose ability to pay interest and repay the capital at maturity is less reliable.
Diversification is key, as it can help to reduce the volatility of returns (and thereby risk). However, there is often a minimum £100,000 investment required in any one company bond.
A bond fund or a savings account? Again, all is not lost – and bond funds, or a blend of bond funds, offer ready-made diversification for investors with smaller amounts of capital. For example, the Canaccord Genuity Wealth Management Select Bond Fund, which invests in a globally diversified portfolio and targets a minimum annual income of 3%, allows investments from just £5,000.
It’s good to know there are alternative options out there for cash savers. Speak to us and find out more on 708090. For more information about fixed income investing, go to http://thewealthhub.canaccordgenuity.com/fixedincomeinvesting/
Investment involves risk. Past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up, and investors may not get back the amount originally invested.Subscribe to our Newsletter