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A Guide to Lump Sum investments

 

Corporate Bonds

These are very similar to Government Bonds in that they have a fluctuating price, a fixed interest coupon and a redemption date; but they are not backed by the government, which means:

1.    That corporate bonds are riskier. There is a risk to income if the company defaults on payments and a risk to the capital if the company goes bust

2.    Yields tend to be higher, because of the higher risk. Current yields are 5 - 6%, depending on the bond’s risk rating. Bonds are rated for risk (AAA to C) by agencies such as Moody’s. Bonds rated BBB and above are viewed as investment grade; below BBB they are considered “junk bonds”.

3.    A wider “spread” between buying and selling prices

4.    Higher minimum purchase and higher buying and selling costs

5.    That their terms and conditions may be less straightforward. Some have repurchase options during the lifetime of the bond.

Because of these complications, always take advice before buying corporate bonds.

A further complication with both gilts and corporate bonds is that you pay an amount, additional to the price, for the interest accrued to date.

If you wish to include them in your portfolio, one way to spread the risk is to buy shares in an investment trust specialising in gilts and/or corporate bonds

 

NEXT STEPS

To learn about the following investments, if you aren't already familiar with them click on the relevant link:

To learn about other investment options, return to the Introduction to investments section

However if you feel that you need some help from a financial advisor, then visit our section on obtaining financial advice, or our page on Laterlife selected services and associated advice.

 

   
 
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