A diversified and well constructed portfolio is critical to income flow at retirement. And, having a good understanding of each principal investment class is important to achieving this. In this part of the blog series on building income and wealth for retirement, we examine quoted bonds and gilts.
At the time of writing, the yield (annual interest) on a 10 year Government Gilt is 0.29% with talk of negative returns on the horizon. At the moment the returns average less than 1% annually at a time when inflation is in the region of 2% to 3% annually.
Corporate bonds are potentially more interesting. They are, in theory, liquid. i.e. you can buy and sell on the stock market daily. However, the average corporate bond yield is currently 1.61% (quoted by www.fixedincomeinvestor.com). Not enough to make a defined change to your income level.
There are several other complications with quoted bonds that investors should also consider. While the bonds are tradeable, the price will be fixed by the market. If the feeling of the market is that a lower interest rate is acceptable, the capital value of the bond will increase and vice-versa. Therefore, it’s unclear what price you will achieve in the future if you choose to sell.
While you may have received some income, you might find that a capital loss wipes out any gains you have benefited from.