Fixed income

Fixed income

The industry calls it fixed income; the rest of us say bonds. Bonds are effectively loans made by you, the investor, to a company or government. They promise to repay the exact investment back after an agreed period - five or ten years' time is common.

So where's the return? To reward your generosity, the company or government will pay you a little money each year. The level of this "coupon" (weird industry name) reflects the level of risk of the company or government, and is also affected by how long you're willing to part with your money. For example, bonds issued by the US government, regarded as a safe bet, may pay 2% when bonds issued by the Italian government, a less safe bet, may pay 4%. And consider the length of time.

A major UK company may pay 4% on a five-year bond but may need to pay 8% if it needs the money for 10 years. The main risk is that the borrower goes bust and can't repay your money. The main benefit is income certainty - unlike with shares (and dividends) you know how much the coupon payment will be each time. It may explain why these investments are usually favoured among retirees.

 
 
FANG

FANG

Frontier markets

Frontier markets

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