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Britons planning for their retirement years have been encouraged to look at an invesment option that could provide healthy returns and a predictable income.
Rezaah Ahmed, CEO of investment platform WiseAlpha, spoke to Express.co.uk about the advantages of fractional bonds, where a corporate bond is divided into smaller parts, so they are accessible to more individuals.
He said: “Corporate bonds are a valuable asset class for retirement because bonds have a defined maturity date, so they have contractual income.
“It doesn’t mean that it’s risk free, but it’s much more predictable than investing in stocks, where it can go up and down quite dramatically.”
WiseAlpha offers fractional bonds to allow people to invest in big names such as Apple, Tesco and Ocado, with current returns ranging from 4.5 percent to up to 10 percent.
Mr Ahmed said: “It suits people who have got a shorter time horizon and who want to have a predictable income stream for a defined period.
“I think it’s very valuable to include as part of your asset allocation. I would never say shift away totally from equities and put it in corporate bonds.
“You should have a balance, especially for people who have got a shorter time horizon. You do want that predictability, you do want to know after five years that this amount of my capital is going to predictably come back.”
He said it’s important for investors to have a sense of their “real income”, monitoring how much their actual costs are rising above the overall inflation rate, such as with the rising costs of food.
The investment expert said he would never encouraged an individual to put all their savings funds into corporate bonds.
He explained: “It should be done as a multi-asset class approach to build your portfolio, so you should have equities, savings, cash, and then corporate bonds are a nice inbetween, between the risk of savings and equities.
“We encourage people to start building and to be thinking about their risk profile.”
Asked about the benefits of putting funds into cash rather than investments given the current high interest rates, he said: “If inflation was two percent, and you were generating four to five percent or cash, and the stock market was generating eight percent or was a bit volatile, then maybe having a big overweighting in cash makes sense.
“But if inflation is at that level, banks never offer those types of rates. It’s only because the Bank of England rate is 5.5 percent or so, that the banks are having to put up their savings rate to attract capital.
“A lot of people are also interested in Government bonds because they are yielding four and 4.5 percent right now. The banks were forced to move things up just because of the macro environment.”
The Bank of England held the base interest rate at 5.25 percent again in its latest decision.
If you want to learn more about the bond market, WiseAlpha has a Bond Academy explaining how the investment vehicle works.
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