CAMBRIDGE CATALYST Issue 05

INVESTMENT

Anna Lawlor explains what bonds are, how they work and how you can use them to invest in Cambridge businesses

rom wars in France to electric car charging points in Cambridge, bonds have given investors access to innumerable investment opportunities. In the final instalment of our Invest in the Cambridge Ecosystem series, we’ll explore how bonds work, what they offer the investor and the borrower, and unveil some Cambridge-specific investment opportunities. Steady investments Investors are constantly searching for a sure-fire investment that won’t let them down. While no investment can guarantee a return, bonds – a ‘fixed income’ asset class – are generally regarded as being a lower risk investment, and an important part of an investment portfolio. Bonds are essentially an ‘IOU’; a loan made by an investor to a borrower. The amount of financial return is pre-agreed, fixed and there are terms about when that money is due to be paid back to the lender (the bondholder).

While no investment can guarantee a return, bonds are generally regarded as being a lower risk investment"

This means bond investors own debt linked to the entity they have lent their money to through the bond purchase. To fund his cross-Channel campaign, William of Orange used the first launch of a bond by a national government in 1694, igniting a nascent industry that would balloon to $255 trillion in size more than three centuries later. Now, bonds are issued by governments, companies and even social impact organisations all over the world as a way to quickly raise money to fund their development. When bonds are launched, an offer document states when the principal of the loan – which is the capital the investor has lent – is due to be repaid (known as the maturity date of the bond). It will also outline terms of the

90.22% The ten-year cumulative total return of investment-grade corporate debt 70.94% The ten-year cumulative total return of UK Government debt

ISSUE 05 22

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