WiseAlpha’s educational series: Teaching you everything you need to know about the bond market and more.
Wealth accumulation and preservation is important from a young age.
Hey Millenials, Gen Y and Gen Z, this is one for you.
Generating a consistent income stream is absolutely key for investors nearing retirement but it is something all of us should be doing from a young age.
“Think of your wealth as a newly planted fruit tree, growing from a freshly planted seed to a young sapling in your twenties watered by your salary and other income”.
Rezaah Ahmad, CEO, WiseAlpha
“Over the years your wealth increases as the size of the tree increases, and even if some of the branches fall off in bad weather you still have the ability to grow new branches and continuing growing it.”
But at a certain point, when you transition into retirement, you want to be able to enjoy the fruits of your labour quite literally and be certain you have a strong fruit tree continuing to bear fruit beyond your life expectancy.
This is the basis for building wealth over your lifetime. Initially, to grow your wealth you need to take risk by investing some of the money you earn. As the benefit of that hard work pays off, you need to preserve those assets, protect them from market volatility and reduce your risk.
The UK’s appetite for fixed income is growing
Despite equities being the biggest area of a UK investors’ portfolio allocation corporate bonds are becoming increasingly more important in delivering income and preserving capital.
When you think that the UK pension fund industry allocates 36%* of funds to bonds it makes sense that private investors should also put a significant part of their portfolio into bonds to build their retirement capital.
And it’s also worth remembering that the global bond market is worth $87.7 trillion, which is more than the global share market ($67.1 trillion).
So, how should you allocate?
Equities and corporate bonds have different characteristics and risks but they are complementary to each other in a portfolio.
When markets become more volatile, corporate bonds become more appealing as a way to locking in returns and preserving capital.
And they also help to smooth out returns over time.
Generally when shares under perform corporate bonds outperform — and the opposite is also true.
“Corporate bonds should be viewed as a defensive investment versus equities, and some bond opportunities can also generate double-digit returns ”, says Rezaah Ahmad.
It is often said that you should aim to invest the same % of investible capital as your age, depending on your personal circumstances of course.
This means that the older you get the more you should rely on income generating assets from your portfolio ahead of retirement.
- Global Pension Assets Study 2017 Willis Towers Watson
Please remember that bonds are investments not savings or deposit protected products and your capital and interest is at risk.
Find out more about investing with WiseAlpha. All factual information true at the time of publishing.
As with all investments your capital is at risk. Invest via our Fractional Bonds.