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Corporate bonds- risk?
I went to a retirement seminar today and it has thrown the cat among the pigeons.
We have £100k that I need an income from for 10+ years
Building society =3-4% no risk
Buy-to-let= 6-8% risk of damaged to house, risk of falling or rising house prices. Lots of Argo
Corporate Bonds=7-10% income... But is there a risk factor? Do the companies need to go bust to lose my money
Can I buy 10x£10k in*
Bt
John Lewis
M&S
2 electric utilities
2 water utilities
Transco
2 banks
2 manufacturers
Splitting my exposure to any sector going bust. Utilities are almost guaranteed their income by regulators and being in a monopoly position
http://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/gbp-bonds?sort=coupon
I would appreciate any feedback and how you are qualified to give such opinion
Thanks
Tony
We have £100k that I need an income from for 10+ years
Building society =3-4% no risk
Buy-to-let= 6-8% risk of damaged to house, risk of falling or rising house prices. Lots of Argo
Corporate Bonds=7-10% income... But is there a risk factor? Do the companies need to go bust to lose my money
Can I buy 10x£10k in*
Bt
John Lewis
M&S
2 electric utilities
2 water utilities
Transco
2 banks
2 manufacturers
Splitting my exposure to any sector going bust. Utilities are almost guaranteed their income by regulators and being in a monopoly position
http://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/gbp-bonds?sort=coupon
I would appreciate any feedback and how you are qualified to give such opinion
Thanks
Tony
0
Comments
By and large the company would likely heading for bust if they were to default and you would rank low on the priority of creditors.
After all that, picked sensibly, they can be a good part of a portfolio. You may want to consider equity based income distribution funds, some of them are giving very good returns at the moment, at a lower risk and easier to cash out of.
Like this one
https://www.fidelity.co.uk/investor/research-funds/fund-supermarket/factsheet/summary-adv.page?idtype=ISIN&fundid=GB00B3KB7682&UseProxy=Yes&fundname=Fidelity%20Enhanced%20Income%20Fund%20A-Income
Where did you get that from? The link you provided shows max is 5-6%, and the better know names are more like 4-5%.
60k for a buy to let mortgage
and 30k in the stock market spread across from 6 to 30 companies in different sector, you could use your isa allowance this year for shares which is around 10 grand
I think you are reading the link wrong. The coupon column is annual rate they will pay. That is watered down by the price you pay for the bonds
Hsbc Holdings Plc
GBP | XS0043041879 9.875 8 Apr 2018 5 yrs 2 mths 101.054 19 Feb 2013 1.487%
IE HSBC costing 101p for a 100p which will pay back 9.8% for five years till 2018 when they will repay 100p unless they go bust.
I'd be inclined just to keep it simple and put the money into a small portfolio of equity income funds investing in blue chip shares which typically pay 3 to 4 % at the moment, and there's a good chance that in a few years the capital will have grown quite a bit and the dividends paid out will have risen significantly as well. If you hate ever seeing anything go down, maybe this is not for you, but over the long term investments like this will serve most people well and this is probably as good a time as any to get in. Don't buy direct - go to a broker/fund supermarket who will rebate most of the commission.
But it's the gross redemption yield that you will actually be getting, not the coupon rate. The gross redemption yield for the HSBC is 1.487%.
Having said that, the figure for HSBC didn't look right to me anyway. I've looked it up and they're redeeming that one 5 years early, which explains why the price is low compared to the coupon.
A better example is the United Utilities 2026 bond. The coupon is 8.875% but you won't get this return on your money, you'll get the gross redemption yield which is 4.183% (if held to maturity and they don't go bust).
My personal recommendation is to go for diversity to help minimise your risks. You can diversify in part cash, part property, part stocks and shares. There are other investment options like metals etc but these won't provide an income.
For instance, if you think property prices will rise over the next 10 years and you don't mind the work involved in maintaining a property, BTL could be a good option. However, as you have already mentioned, there can be downsides and it also means sinking the majority of your money into one investment which means this is a high risk strategy.
But then everything is a risk. Even in a building society, money is not safe because of inflation.
As for investing in stocks and shares, I would really recommend investing in funds rather than going direct to companies. This is because funds split how they invest into different sectors, companies and countries which lessens your risks. The bad side is that there is a management fee but this is a good trade off IMHO.
With savings and S&S, if you pursue these options, I would recommend putting everything you can into some sort of tax wrapper ie. ISAs, SIPP etc to help keep your gains.
I would also recommend holding any stocks and shares or funds with one of the S&S holders ie. Wii, Hargreaves & Lansdown etc rather than banks as the banks charge a lot more.
Personally, I am currently invested in one bond fund with a reasonable yield (for these times) which invests in all types of bonds both in the UK and abroad. Plus this bond fund can invest in assets too if it looks like investing in bonds is no longer going to be profitable.
However, this isn't my only fund. I have five others all with different aims. Some I have for growth and some for a bit of income and I regularly watch what is happening with my funds so that if I think something is about to turn bad and I don't think it can recover in the long term, I can pull out.
I would also recommend asking on the money savers forum. There are a number of people who like to invest and they will probably provide you with even more options.
Good sites to help are:
http://forums.moneysavingexpert.com/forumdisplay.php?f=17
http://www.trustnet.com/ (this latter has a list of all the many funds available)
Edit: I have just seen that you have already been given some good advice above too.
http://www.telegraph.co.uk/finance/personalfinance/investing/isas/9881233/Isa-investing-Bonds-are-no-longer-the-low-risk-option.html
Are you talking about this article El1aine?
The article recommends staying away from gilts (and I would agree) and instead look at strategic bond funds instead (and I would agree with this too - if this is what someone is looking for).