Guaranteed investments offer stability and security to those wishing to invest with no risk to capital. This is a significant attraction to those who saw the value of their other investments fall dramatically in recent years, and indeed to those who only witnessed the economic downturn, and are coming to invest money now.
These type of investments are rapidly gaining in popularity, as many investors who felt the pain of the recent slump in stock investments seek more stability and security, moving forward.
Within the spectrum of these investments, we look into the three of the more prominent products are the bonds investments: income bonds, guaranteed bonds, and fixed interest bonds.
Guaranteed Bonds
Offer a premium investment to those prepared to lock their money away over a fixed period of time. This period is known as the term of the bond. As guaranteed investments, these bonds offer to return, as a minimum, the capital invested, plus any growth that is achieved.
Bonds come with various terms, and a typical bond term might require the investor to leave cash invested for five years.
The Guaranteed Investment Bond is a single premium, unit linked insurance bond that invests in a range of portfolios. The bond offers a guaranteed investment over 8 years, and has the attractive feature that annual growth in the bond up to 10% can be rolled back in, and becomes part of the guaranteed investment.
The usual minimum investment in this bond is £10,000. It follows that the investor is guaranteed, at the end of the bond term, their return will be no less than their initial investment. However, investors must specify and select the guarantee, which is not automatic. In other words, if the investor chooses not to select the guarantee option, no assurance is attached, and there is a possibility that their eventual return may be less than the amount invested.
The security of guaranteed investments generally comes at a cost, however, few financial services like MetLife Guaranteed Investment Bond provide on the basis of an assurance charge, which is an insurance premium to cover the cost of the guarantee.
Guaranteed Investments - Income Bonds
Income bonds may suit those who wish to enjoy a monthly income from interest on a lump sum guaranteed investment. This type of bond is not invested in the stock market and may be the guaranteed investment of choice for those wishing to avoid stock market investments.
The level of monthly income will depend on the interest rate offered when investing in the bond. Any charges on income bonds are wrapped into the bond, which means that you get the rate of interest that you were promised.
Income bonds offer the security of knowing that your original sum is secure and will be returned to you, combined with the monthly or annual interest payments on your cash. (You can also choose to roll up your annual interest, and take it at the end of the bond's term). These payments are taxable, and can be paid directly into your bank account.
As is generally the case with bonds, penalty charges are generally payable if the bond is cashed in before the end of its term. From that point of view, income bonds are suitable only where the investor can do without the cash for the term of the bond.
Guaranteed Investments - Fixed Rate Bonds
Fixed rate bonds belong to these type of investments in that they offer a fixed rate of interest to investors.
Cash must remain invested in the bond for an agreed number of years and interest from the bond can be paid monthly or annually, either into the bond or into a bank account.
Returns on fixed rate bonds depend on the amount invested, the interest rate agreed, and the term of the investment. Generally, the longer you agree to leave your money invested, the better the terms you will receive. Fixed rate bonds offer a high degree of stability to the investor, combined with the knowledge of how much will be returned, on a monthly or annual basis.
There are a large and varied range of investment products. These are just a few of many investments available. As with all guaranteed investments, it is a great option for those who need the security of knowing that there is no risk to their capital.
By: Rob Prime
Rob Prime is an investment advisor and finance expert. He is a co-founder of ThinkPartners Ltd., a UK based company that offers various financial services. At PRINCIPLE FIRST, financial advisers have taken the concept of financial advice to a new level.
MetLife Guaranteed Investment Bond. http://www.principlefirst.co.uk/investments/metlife-guaranteed-investment-bond/
Thursday, November 25, 2010
Saturday, November 20, 2010
Types Of Investment Bonds
There are many types of investment bonds in the market. Each type of investment bond has its own feature, which make them unique. It is very important to know the type of investment bond featured benefits. If an investment bond feature benefits the investor, then the investment has lower risk, so as the yield, and its price should be higher.
In the other way round, If an investment bond feature benefits the issuer, then the investment has higher risk and yield, and its price should be lower. Therefore, as an investor, once we know who benefits from the feature, then we stand a better investment position whether to pay more or less for the type of investment bonds before investing. Below are some of the most common bonds in the market.
Government bonds - are issued by the monetary authority of a country. At the time of issue, government bonds have maturity period from as short as one year to as long as 20 years.
Corporate bonds - are issued by corporations, mainly bought and sold by private and public institutions. They offer limited interest from retail investors.
Secured bonds - are backed by some specified assets such as mortgages or account receivables for investors to be convinced to park with their money. For example, a mortgage backed secured bond bundles mortgage, and then sells investors the right to receive the payments that consumers make on those mortgage loans.
Unsecured bonds - or sometimes called debentures are the most commonly issued type of investment bond. Although it may sound risky, they are generally not. They are backed by the issuer's credit quality. In general, the higher the issuer's credit quality, the higher the chance the borrower will make the payment to investors as promised. Therefore, the investor's risk is reduced. Debentures are issued by high credit quality corporations and institutions, and they are often more highly rated than secured, asset backed investment bonds.
Convertible bonds - are hybrid investment which contains a bond and a stock. If an interest rate risen, the bond will fall in value. However, investor can still benefit from the risen stock price by converting it to common stock. If an investor choose not to exercise the convertible, the investor can benefit from the bond's interest income until the its maturity. This type of investment bond is suitable for investors with low risk profile, and seek for regular income with downside protection against falling share prices. Convertible bonds rate of return is lower than non-convertible bonds.
High yield bonds - as the name suggested, pay higher interest rates to investors. This types of investment bonds' grade is lower, and are issued by emerging market economies such as those good companies which fallen on bad economy times. Therefore, they are riskier than investment graded bonds.
Zero-coupon bonds - pay no coupon interest during the tenure of the bond. But, the coupon interest is accumulated and paid in one lump sum at the time of maturity. This types of investment bonds are normally sold at a discount.
Floating-rate bonds - or name floaters, is a type of investment bond which periodically adjust the coupon interest rates base on the current market interest rates. If the market interest rates risen, the coupon interest rate will be adjusted to higher. If the market interest rates fallen, the coupon interest rate will be adjusted to lower.
Callable bonds - is riskier and offer a higher rate of return. The issuers have the right to call back the bond anytime and repay its debt before maturity. This occasion normally happens when interest rates fall, the issuers will call back the bond and reissue another bond at a lower rate of interest.
By: John Khoo
Appreciate the knowledge of investment, understand the investment psychology, and we shall be on the right path to wealth building and wealth accumulation.
http://www.marketfutureoutlook.blogspot.com
http://www.marketfutureoutlook.blogspot.com/2010/10/why-should-we-invest.html
In the other way round, If an investment bond feature benefits the issuer, then the investment has higher risk and yield, and its price should be lower. Therefore, as an investor, once we know who benefits from the feature, then we stand a better investment position whether to pay more or less for the type of investment bonds before investing. Below are some of the most common bonds in the market.
Government bonds - are issued by the monetary authority of a country. At the time of issue, government bonds have maturity period from as short as one year to as long as 20 years.
Corporate bonds - are issued by corporations, mainly bought and sold by private and public institutions. They offer limited interest from retail investors.
Secured bonds - are backed by some specified assets such as mortgages or account receivables for investors to be convinced to park with their money. For example, a mortgage backed secured bond bundles mortgage, and then sells investors the right to receive the payments that consumers make on those mortgage loans.
Unsecured bonds - or sometimes called debentures are the most commonly issued type of investment bond. Although it may sound risky, they are generally not. They are backed by the issuer's credit quality. In general, the higher the issuer's credit quality, the higher the chance the borrower will make the payment to investors as promised. Therefore, the investor's risk is reduced. Debentures are issued by high credit quality corporations and institutions, and they are often more highly rated than secured, asset backed investment bonds.
Convertible bonds - are hybrid investment which contains a bond and a stock. If an interest rate risen, the bond will fall in value. However, investor can still benefit from the risen stock price by converting it to common stock. If an investor choose not to exercise the convertible, the investor can benefit from the bond's interest income until the its maturity. This type of investment bond is suitable for investors with low risk profile, and seek for regular income with downside protection against falling share prices. Convertible bonds rate of return is lower than non-convertible bonds.
High yield bonds - as the name suggested, pay higher interest rates to investors. This types of investment bonds' grade is lower, and are issued by emerging market economies such as those good companies which fallen on bad economy times. Therefore, they are riskier than investment graded bonds.
Zero-coupon bonds - pay no coupon interest during the tenure of the bond. But, the coupon interest is accumulated and paid in one lump sum at the time of maturity. This types of investment bonds are normally sold at a discount.
Floating-rate bonds - or name floaters, is a type of investment bond which periodically adjust the coupon interest rates base on the current market interest rates. If the market interest rates risen, the coupon interest rate will be adjusted to higher. If the market interest rates fallen, the coupon interest rate will be adjusted to lower.
Callable bonds - is riskier and offer a higher rate of return. The issuers have the right to call back the bond anytime and repay its debt before maturity. This occasion normally happens when interest rates fall, the issuers will call back the bond and reissue another bond at a lower rate of interest.
By: John Khoo
Appreciate the knowledge of investment, understand the investment psychology, and we shall be on the right path to wealth building and wealth accumulation.
http://www.marketfutureoutlook.blogspot.com
http://www.marketfutureoutlook.blogspot.com/2010/10/why-should-we-invest.html
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