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Corporate bonds are a popular option for many investors, offering an alternative - and generally more lucrative - way to invest in business compared to buying shares.
Corporate bonds are essentially an IOU from a business - they want to borrow some money, and turn to investors to deliver that funding, paying back interest on that debt at half-yearly intervals before returning the capital when the bond matures.
While some corporate bonds are made available to retail investors, many are restricted solely to institutional investors, though that is changing thanks to WiseAlpha, an investment platform which opens up bonds from some of the biggest brands to normal investors. These currently include the likes of Virgin Media, the RAC and McLaren.
So what do you need to think about when it comes to investing in corporate bonds? I asked Rezaah Ahmad, chief executive officer and founder of WiseAlpha, for his tips.
According to Ahmad, comfort is probably the most underrated consideration when it comes to investing of any kind.
He explains: “Who wants to be kept up at night agonising over investments? In corporate bonds, companies that can demonstrate long term stability are usually the ones to go for.”
It’s an important point; there are plenty of people who want to invest, but don’t want to spend all of their time trawling through the financial pages to keep up to date with what’s happening. Instead they want a simple and reliable way to enjoy a strong return from investment. This attitude is a factor in the growing popularity of investing in tracker funds too.
Start with firms you know
When investing in corporate bonds, Ahmad suggests starting with market leaders and brand names that you are familiar with.
He says: “Choose companies whose products you understand and even use and where there is plenty of news about them as it makes it easier to keep track of performance.”
That said, it’s important not to simply limit yourself to household names.
“Some of the biggest UK companies are debt-funded but retail investors may never have heard of them. In these cases look at who the company’s customers are,” suggests Ahmad.
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