25th August 2023
Bonds vs Equities
WHERE SHOULD INCOME-SEEKERS TURN?
UK income-seekers often face the dilemma of choosing between bonds and equities for their investments. Both asset classes have their unique advantages and risks.
To make an informed decision, it’s essential to understand the differences between the two and assess your risk tolerance, investment goals and time horizon.
Bonds are fixed-income securities that governments, corporations or other entities issue to raise capital. They pay periodic interest (coupon) to bondholders and return the principal amount upon maturity.
Some key features of bonds include:
Lower risk: Bonds are generally considered less risky than equities because they provide regular income and a predetermined return on investment.
Stability: Bonds can add stability to your portfolio as their values tend to be less volatile than equities.
Predictable income: Bonds provide a predictable income stream through coupon payments, making them attractive for income-seeking investors.
However, there are some downsides to bonds:
Lower returns: Bonds typically offer lower returns than equities due to their lower risk profile.
Interest rate sensitivity: Bond prices are sensitive to interest rate changes, and rising rates can lead to capital losses.
Inflation risk: Inflation can erode the purchasing power of bond income, making it less attractive over time.
Equities, or stocks, represent ownership in a company. You can benefit from the company’s growth and profitability as a…
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This article does not constitute tax or legal advice and should not be relied upon as such.
The value of your investments can go down as well as up, and you may get back less than you invested.
The tax treatment is dependent on individual circumstances and may be subject to change in the future. For guidance, seek professional advice.