INVESTMENT
Buying bonds for your portfolio The vast majority of bonds can be easily bought and sold on markets, such as the London Stock Exchange, just like equities. This means you can ‘trade’ your bond, selling it before the maturity date to release some money sooner. Any capital gains – secured if you sell a bond for a higher price than you bought it – do not trigger capital gains tax. Investors considering buying bonds should do so through tax-efficient products, such as ISAs or Self-Invested Personal Pensions (SIPPs) to avoid being taxed on any income they receive. If choosing the right bonds seems too daunting, it makes sense to invest in a bond fund that pools multiple investments into one product. Investors can choose from a range of different bond funds, from ‘strategic’ bond funds, which invest in a mix of corporate and sovereign debt, to funds that focus solely on company or country debt. Barring a company or organisation going bust, investors have a high chance of getting at least some of their money back through the scheduled payments
regulator, the FCA, says in its guidelines that investors should not invest more than 10% of their annual wealth in these types of bonds. Elsewhere, two Cambridge schools were able to install solar panels this year thanks to funds raised through bonds. Solar for Schools installed solar panels at St Laurence Catholic Primary School and St Bede’s Inter-Church School with money raised on the Ethex website. The Bury St Edmunds-based organisation has installed solar panels on 84 schools since February 2015 and is currently raising £250,000 via an Innovative Finance ISA eligible bond, targeting a 5% return to bondholders. $420 m
that bonds offer. If a company falls into liquidation, bondholders are paid before shareholders if any money is recouped from the defunct business. Anyone considering investing in bonds, or any asset class, should consider consulting a professional financial adviser before investing. Diverse options The vast array of bonds on offer – from debt of major countries to social impact organisations – means investors have plenty of ways to spread risk. Besides bonds from different borrowers, investors can select bonds from different countries, companies and organisations across the world with varying levels of risk and reward. Investing in a mixture of these alongside other asset classes – including those covered in our investment series – can be a sensible approach to building a portfolio that can produce returns through most market conditions. Anna Lawlor is the co-founder of Luminescence Communications. Additional reporting by Bradley Gerrard
The amount raised via 132 social impact bonds across 25 countries, as of July 2019
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ISSUE 05
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