Why You Need Bonds in Your Investment Portfolio
Why You Need Bonds in Your Investment Portfolio
When investing, your capital is at risk. Investments can fluctuate in value, and you may not get back the amount invested
Creating an investment portfolio can mean putting your money towards a number of sources with varying levels of risk and return. Creating a diverse portfolio is important for helping to mitigate the risk aspect, and bonds should be considered as a method to do this.
A varied investment portfolio is a step towards completing a financial life plan that can help you achieve your goals. At Hansford Bell we provide financial advice and services, and in this article we’ll discuss what bonds are, how they can benefit you, and how you can invest in them.
Contact our friendly team for support and advice on your financial plans.
What are Bonds?
Typically seen as less risky than other investments like shares, bonds are a type of fixed income investment that usually provide an interest payment based on the amount you invest. They are also known as fixed income investments or fixed interest investments.
A bond involves:
- Investing your money in a company, business, or initiative that requires funding
- Receiving regular interest payments
- Gaining the initial investment or loan back at the end of a fixed, agreed upon amount of time
The process isn’t entirely risk-free, and for non-guaranteed bonds you may not end up getting what you initially invested back at the end. However, a bond can provide a consistent, low-risk form of income to add to your portfolio.
Bonds for Pension Investments
Bonds can be included as part of the retirement process when you choose an annuity over income drawdown. In particular, long-term bonds can provide a regular income to last the rest of your life.
Annuity investment funds typically aim to invest long-term annuity bonds into funds expected to change in-line with the change in annuity rates. It is important to note this is predictive, and long-term bonds can still experience volatility due to the nature of their timescale.
Thinking about retirement? Find out how to prepare yourself financially >
The Benefits of Bonds Compared to Other Investments
The nature of bonds can provide them with a number of benefits and considerations when compared to other investments like shares or equities. Some of the main benefits of bonds can be:
- A lower overall risk
- Spreading risk across multiple investments
- Lower volatility than shares
- Options for potentially riskier yet more rewarding long-term or high-yield bonds
- A steady, defined income
- Easier to deal with company liquidation – only for direct investors, rather than those invested through a fund
Bonds can work better when combined with other investments as part of an overarching financial plan. Contact us today to find out more.
Diversify Your Investment Portfolio
While bonds can have a range of benefits when compared with other investments, it can be a better choice to make them work together.
The synergistic effect of having multiple investment and income sources allows you to spread the risk of your investments, reducing the impact if any of them fail or perform poorly.
A diverse investment portfolio can include a number of different investment sources such as:
- Shares or equity
- Bonds
- ISAs
- Premium bonds
- Funds
There are many different ways that you can invest your money, and looking at them all together can provide you with greater results. Considering your finances with regards to your life goals can also help, which is something you can achieve through financial life planning from Hansford Bell.
Find more ways to diversify your investment portfolio with our guide to choosing the right ISA >
How to Invest in Bonds
With the benefits of adding bonds to your investment portfolio in mind, you can begin the process of investing in them. The way in which you do this can impact on the overall control you have of your funds, as well as their security and impact on your finances.
There are two main ways of investing in a bond:
- Investing into a collective fund
- Directly investing
Investing into a collective fund, or hedge fund, means adding your money to a pool and professionals will invest based on their knowledge, expertise, and tools. They can be beneficial due to the hands-free nature and expert insights you’ll receive but you’ll have less control over where the funds go and will have to pay fees for this service.
Directly investing is the alternative, but this can lead to increased risk when you’re not sure of what to invest in; through this method you will need to manage your investments yourself. A benefit unique to direct investments is quicker response times to company liquidation that with fund bonds.
Choose the right investment plan for your bonds by contacting the team at Hansford Bell.
Financial Life Planning from Hansford Bell
You can improve your portfolio by including bonds as part of a varied and diverse set of investments. This can be furthered by looking at your funds as a whole and incorporating them into a financial life plan in a holistic approach towards finances.
Get in touch to begin the diversification of your investment portfolio, see our financial life planning service for more information on how your funds can work together, or read on with some related articles below!
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Disclaimer: This article is for informational purposes only and does not constitute advice.
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