 |
Growing your property portfolio fund with corporate bonds
Even during the recent sub-prime fiasco, shrewd investment in property - backed by diligent research - was still a low risk option for medium to long term investment. The property market is now starting to recover, and so competition for those prime investment opportunities will also be picking up. The credit crunch has put the squeeze on buy-to-let, and indeed all forms of mortgage lending; and so if you are still some way off accumulating a sufficient deposit, it makes sense to look at the prudent investment measures that you can take to achieve the best growth possible for your property portfolio fund. One of the most popular forms of low risk investment products are corporate bonds.
Corporate bonds are also known as fixed interest securities, and are commonly accessed by private investors through providers like Legal & General (visit their site for more on corporate bonds). Investment in corporate bonds usually takes the form of investment in a fund comprised of many corporate bonds, with the risk of the investment lowered as it is hedged between the fortunes of all of the all the different bond issuers. But exactly what is a corporate bond, and what is the source of the risk?
Corporate bonds, like government bonds, are issued to raise finance. In return for what is effectively a loan, the investor is paid regular fixed interest payments for the life of the bond, which is usually measured in years (hence the term fixed interest securities). The risk in investment comes from the possibility that the company will fail, in which case interest payments cease, and the initial capital invested may not all be recovered. In a slightly less apocalyptic scenario, the company performs so badly that the interest payments are reduced – although it is important to note that the fixed interest repayments take priority over other commitments like shareholder dividends.
Every corporate bond undergoes an independent risk assessment, resulting in a credit rating which reflects an assessment of the likelihood the company will be unable to make fixed interest payments. The best rating is ‘AAA’, and many of the low risk corporate bonds investment funds are comprised almost solely of AAA rated bonds. These funds can achieve modest growth for low risk. Alternatively, if you wish to see more rapid growth, you can invest in high interest funds, which mix AAA corporate bonds with more risky propositions – and of course, the higher the risk, the higher the potential reward.
|
|
