In our crash course on the alternatives to the stock market, we’ve already touched on bonds, namely guaranteed income bonds and premium bonds. We now look at a few other variants on the theme.

The first are distribution bonds. These are operated by life insurers and mix gilts with equities and corporate bonds. They can also involve commercial property, a boom sector in recent years.

The key thing to remember here is that you can lose your capital. But these bonds can offer some income and steady growth. At present, they are a decent investment, giving a yield of around 5%. Since your savings account is paying you around 4%, these bonds look attractive. And you may be getting next to nothing leaving your cash in some bank accounts.

And what is yield?

This is a key factor in looking at the worth of a financial instrument (a share or a bond etc). The yield expresses the income as a percentage of the value of the fund.

The second of today’s bonds to consider are corporate bond funds. Whereas gilts are guaranteed by the Government, corporate bonds are issued and backed by companies.

Most often, people buy these in investments in unit trusts. As ever, your income is tax free if you include this bond in your Isa.

The risk associated with corporate bonds depends largely on the strength of the issuing company. Credit ratings are awarded by two main agencies - Standard & Poor’s and Moody’s – to give investors some idea of the creditworthiness of a company.

Standard & Poor’s ratings, for example, range from AAA (high financial strength) to CCC (low financial strength). As you would expect in the current environment, the financial strength of many companies is being severely tested, and the number of corporate bond downgrades has been increasing.

As such, if a man with a van says that he has bonds for sale in his business, best to pass up the once-in-a lifetime offer. If you do want to invest, seek professional advice. And read the small print.

Forget the Lottery And Take A Safer Bet On Premium Bonds

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