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.
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.
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.
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