Actor Sir Michael Gambon lends his voice to a short video on the perils, pitfalls and opportunities posed by investing in fixed income bonds
In These Uncertain Times Of Trump And Brexit, The Future For Fixed Income Is Unclear To Say The Least, So Here Are Some Valuable Tips To Help
The Fables Of Fixed Income
Based on its huge experience and motivated by tricky investment times, fund manager Aberdeen has published a useful booklet entitled The Fables Of Fixed Income highlighting the potential pitfalls of the investing in the fixed income bond market. You can download it below.
You can watch a short video on The Fables Of Fixed Income exclusively on Citywire by clicking the image below.
Aberdeen Shares Its Fixed Income Experience
According to Apollonius of Tyana, a 1st century philosopher, the fable writer Aesop “made use of humble incidents to teach great truths.” Following in this tradition we hope that this simple guide – illustrated by John Devolle – can help anyone to separate fixed income fact from fixed income fiction and encourage them to explore the wonderful and diverse world of bonds.
We have been investing in bonds for many years and have witnessed numerous market cycles, the invention of many novel types of bonds, and the rise and fall of many investing styles.
Through this evolution, we’ve come to understand many things about what works – and what doesn’t work – in this multi-trillion pound global market.
On the following pages, we set out some of the key things we’ve learned. While these fables are designed to help the novice gain perspective, they may also help more experienced investors to question some of the accepted ‘wisdom’ of the crowd.
Global Head of Fixed Income, Aberdeen Asset Management
Read The Fables Of Fixed Income
The Seven Dwarfs - A Tale Of Diversity
Bonds are anything but uniform. They are issued by a wide range of entities – from governments to multinational organisations to young fast-growing companies – and in many different geographies, from the US to Europe to Southeast Asia to sub-Saharan Africa. The risk and return profile of bonds can therefore vary enormously and returns across this diverse universe aren’t necessarily driven by common factors.
The Emperor’s New Clothes - A Lesson In Independence
A bond market index can serve a useful purpose – not least, it can help you track the average performance of a ‘market’. However, this rarely tells you where is best to invest. Indeed, by their very nature, bond indices are weighted towards those bonds that constitute the bulk of the market. So simply tracking an index automatically steers you towards the most indebted issuers, which you might be wise to avoid.
Sinbad The Sailor -A Voyage Of Discovery
In ancient Baghdad, a rich merchant – Sinbad – sat with a porter to recount how he became wealthy in the course of seven wondrous voyages to far-off lands. Sinbad told the porter how he had faced many perils, but this never deterred him from seeking to gather his fortune by trading in the merchandise of the many lands he visited. There are lessons here for bond investors.
The Dog And His Reflection - A Story Of Caution
Bonds deliver income via a series of interest or ‘coupon’ payments. This means the upside for bonds is always limited. The issuer usually has no reason to give you anything more than the payments you have been promised and the return of your capital upon maturity. A good bond investor therefore needs to have a cautious mentality. Seek to avoid those bonds where the issuer is likely to suffer a decline in creditworthiness, rendering them less capable of delivering future payments.
Dick Whittington - A Story Of Perseverance
At the most basic level, what every investor wants to know about a bond is: ‘Will it pay me what it has promised?’ The most widely-used indicator to help answer that question is the credit rating, produced by independent agencies such as Moody’s, Standard & Poor’s and Fitch. Credit ratings do provide a useful guide to creditworthiness. But it’s vital for bond investors to do their own in-depth research – and not just rely on the same information as the rest of the market.
The Tree And The Reeds - A Lesson In Flexibility
When there is a lot of uncertainty and instability in the global economy, it makes sense to adopt a flexible and dynamic approach to bond investing. Aesop’s oak tree always thought that it was far stronger than the reeds below. Yet it was humbled when a storm uprooted it. The oak tree had always relied on its strength, but found out the hard way that being inflexible was disadvantageous. Reeds may bend – but they very rarely break.
Please Share This
If you’ve found this page of interest, please would you kindly send a link to it to your friends and colleagues using the buttons below. You’ll be helping us out, and they might appreciate it too. Thanks, it's much appreciated.
AJ Bell Is Often The Best Value SIPP For Stockmarket Assets
Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
Get Valuable SIPP And SSAS Insights Emailed Directly To Your Inbox Every Monday
As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from Unbiased.co.uk. Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.
Please read our full Terms which includes criteria for SIPPclub membership.