Investors are ignoring the profit potential of investment bonds because they are unaware of how the financial product works, according to new research.
Only 15% of investors consider investment bonds a crucial component of their retirement planning – which means the vast majority of people are not making the most of bonds, argues AXA Wealth, which conducted the survey.
Around 25% of investors admitted they had no idea what part, if any, investment bonds played in their portfolios.
Another 16% said they weren’t sure of what yield to expect from an investment bond, so excluded them from their portfolios.
Now one pensions expert says that savers are missing a trick by not investing in bonds since they are flexible investments that allow tax-efficient withdrawals to top-up income.
Financial independence
Ian Colquhoun, of AXA’s specialist products team, said: “It’s important to consider the wide range of savings and asset vehicles available to bring the best chance for financial independence.”
He added that for some retirement savers that would mean consolidating their wealth from a mix of different assets to take advantage of the tax allowances available.
He said: “The investment world’s hidden gem could be investment bonds which could help savers achieve financial independence.”
However, many investors are still confused or unaware of the range of bonds available and Amie Stow of Barclays’ wealth management says there are several to consider.
She points to government bonds as having great potential, though yields are running low at around 2%, they look likely to increase.
This is true for US government bonds and when stronger economic data lands for the UK economy then the British government’s bonds should also increase their yield.
Bonds to avoid
Bonds from governments in the Eurozone are probably best avoided, says Amie, since analysts predict that if the crisis worsens the European Central Bank will rescue the bond market and hit yields.
Instead, Amie says corporate bonds in countries on the Eurozone periphery should be considered, including those in the UK, for firms with strong cash flows who are in retail or industry.
Amie explains there are still profits to be made from bonds in emerging markets though growth is now subdued as investors have piled in looking for profits.
Local currency bonds should be avoided as these are affected by the rising strength of the US dollar and by central banks trying to weaken their currencies.
Amie explains: “We are wary about fixed income assets even though they have delivered positive returns year-on-year though at a lower rate than we have become used to.”
