Investing In Debt

By Author: Lecia Selbo
Total Articles: 49
Comment this article

Each financial year the ISA allowance rolls over, meaning that if you haven''t invested the full amount by the start of April, you lose the possibility to do so. At present the allowance is ?7,200 for the under-50s of which half can be made up in cash and the rest in stocks and shares options.

Each year, most people make as greater use of their cash ISA as possible. The more that is saved away, the more money you have earning tax-free interest. Yet many people completely ignore the stocks and shares element of their ISA.

An interesting option for a stocks and shares ISA are corporate bonds. Corporate bonds are something that many people have heard about, but not too many people are fully aware of.

One of these options is corporate bonds. A corporate bond is essentially a loan between a company and an individual. Through selling thousands of bonds the company can make large sums of money very quickly. In return the company promises to pay a certain amount of interest each quarter or each year, as well as repaying the full cost of the bond at the end of a pre-agreed period.

Like any other loan, however, ...
... companies can default on corporate bonds, so there is a level of risk. If they do not have the capital to meet their regular interest payments, the bond issue may fail leaving bond-owners with nothing.

To make things a little more complex, once you''ve bought a bond you can sell it on. The price may go up or down depending on the state of the wider market and how reliable the original issuing company is.

All this might sound a little risky, companies can go bankrupt as we all know, and bond issues don''t always work. The reason why corporate bonds are good for an ISA is because they can also include government bonds. A government bond is exactly the same thing as a corporate bond, with the added bonus that the government won''t go bankrupt and therefore government bonds are a very sound investment.

When it comes to finding an ISA, then, you can choose the level of risk. High levels of risk generally offer high levels of return, but not that much more that it''s worth the chance of losing all your money. A lower level of risk, an ISA based on gilts and solid company bonds offers a lesser return, but one that is still good value for money. A low-risk ISA in the current market will offer a return of around 5%, far better than you would get in any cash ISA. Lecia Selbo opened his own corporate bonds with Legal