Are investment bonds any good?

megsmummy

I have been given some money for my childen's future from my parent. In the past I have put this in to Stocks and Shares ISAs/cash ISAs. As the rates are so appalling at the moment I wondered whether bonds would be any good.
Surprisingly I couldn't find any advice from Martin. Is there something I am missing about them?

Thanks for your thoughts

dunstonh

Are investment bonds any good?

When they are the best tax wrapper for the objective then yes they are. When they are not the best tax wrapper for the objective then no they are not.

As the rates are so appalling at the moment I wondered whether bonds

would be any good.

Most investment bonds have a minimum contribution of around £10k+ For larger investments where a trust is required then the investment bond could be suitable. However, for smaller holdings and more average circumstances, a Unit Trust/OEIC held under designation would more likely be more suitable.

Surprisingly I couldn't find any advice from Martin. Is there something I am missing about them?

Martin's track record on regulated investments hasnt been that good in the past and some years back, he actively moved away from doing investment articles bar a few areas where there are referral payments made.

The investment bond tax wrapper is more advanced than the other options. The its not something you can really put into a short non-technical article that you know is only going to right around 70% of the time.

bowlhead99

dunstonh wrote: »

Most investment bonds have a minimum contribution of around £10+ For larger investments where a trust is required then the investment bond could be suitable. However, for smaller holdings and more average circumstances, a Unit Trust/OEIC held under designation would more likely be more suitable.

From the context, was that first line a typo for £10k+?

Something that comes up quite often is the massive difference, but similar sounding phrase, of

1) an "investment bond" (special type of tax wrapper which can hold lots of different investments) , versus

2) an "investment in a bond" (where the bond is a financial instrument issued by a company or government to help it raise enough money to go about its business and committing them to pay a fixed return) which you can buy and sell on the stock markets for a price that changes several times a day, versus

3) an "investment in a bond fund" (where you are buying a share of a collective investment fund in which your money and other people's money is pooled so that you can own a share of a diversified portfolio of listed bonds - the things in (2). It is a specialist type of fund because it only invests in bonds rather than other things like company shares, property etc), versus

4) an "investment in a retail bond" (which is a subset of (2) where the companies issuing the bonds are fundraising and trying to pitch their investments at members of the public rather than large corporates and institutions; in some cases those bonds might not be listed on a public market so you can't get out before maturity, and in the case of 'mini bonds' might not have a full comprehensive prospectus because they don't have to comply with Listing Rules), versus

5) a "savings bond" (basically a cash deposit with a set return for a fixed period, offered by a bank or building society with full FSCS protection or by the government through National Savings & Investments). Confusingly NS&I have available products called 'income bonds' and an 'investment account' even though both of them are akin to doing a cash deposit and do not really offer any investment risk or special rewards.

The government's Autumn statement announced a forthcoming "Investment Bond" to be made available at NS&I next year with a maximum £3k deposit for a fixed interest return, but it's basically a cash deposit with zero investment risk which can't be sold from one person to another and would fit into category 5 above. Quite different from 1,2,3,4 where people can lose a portion of what they put in because it isn't 100% guaranteed to be repaid.

OP mentions that in the past you have done S&S ISAs. These can hold investments of type 2 and 3 and are tax free. For most people investing for kids, 3 would be more suitable than 2 because most people would find it inefficient to buy individual bonds to build their own portfolio let alone decide how to select them. Holding a fund diversifies the risk by spreading it over more stuff. They are still not without investment risk and if you were looking for the long term you would probably be better off with a mix of funds, or a mixed asset fund, rather than a fund that only holds certain types of bonds.

coyrls

6) "my word is my bond", avoid.

bowlhead99

7) "bond, james bond", exercise caution.

jimjames

It would be useful to know why you've ruled out S&S ISAs and JISAs for the money. Have you already filled them?