Retail bonds are proving to be very popular these days because they provide investors with a way to earn higher rates of interest than they can currently enjoy from even the best savings accounts. Investing in retail bonds involves lending money to companies that are short on cash in return for bonds. Many companies are currently desperate for money, and this means that they often issue bonds that have excellent interest rates, which investors can take advantage of.
However, there are some risks involved in investing in retail bonds. One of the main risks is that investments are not protected by the Financial Services Compensation Scheme, which provides up to £85,000 protection for money kept in savings accounts should the bank go bust. If someone invests in retail bonds and the firm goes bust, they will essentially lose out.
Before investing in retail bonds, it is a good idea to spend some time finding out more about them and what the potential risks are.
1. Research the Issuer
The most important thing that investors should do if they would like to invest in retail bonds is to carry out thorough research on the issuer. It essentially involves lending money to the company issuing the bonds, so it is a good idea to ensure that the money is in good hands.
This can be achieved by reading up on stock market announcements, finding out about the company’s cash flow and finding out more about the business model and the management. Basically, investors should make sure that they have a good understanding of the company before they decide to invest.
2. Find Out What the Bond Debt Is Secured Against
One of the biggest preoccupations for investors is what will happen if the company goes bust. It is therefore a good idea to carry out some more research to find out what the bond debt is secured against. This can usually be found in the bond issue details, but if not then they should be available from the company directly.
3. Weigh Up the Risks
Many people are attracted to retail bonds because of the higher rates of interest on offer compared to savings accounts. However, there is one thing that should be remembered: interest rates are often higher when there is more risk involved in the investment. Newer companies or those with a higher risk of going bust often set their interest rates higher in order to attract investment, but investors need to remember to look beyond just the interest rates.
Investors who decide to invest in bonds with a high interest rate should know about the risks involved, and only invest what they can afford to.
4. Seek Professional Advice
Finally, investors should always seek professional, independent advice before they invest in retail bonds. If they do not have experience in this area, it is far better to get advice and then start off small until they have a better idea of what they are doing.
Invest in Retail Bonds
Retail bonds can be very tempting, especially when compared to the current rates of interest offered by savings accounts. However, investors should always make sure that they do their research first and always find out as much as they can about the company they are lending their money to in order to reduce the risks involve in investing their money in this way.