If you hold them to redemption date (which might be 5, 10, 30 years away) you get a guaranteed return. If you sell them early, you might do better or worse.
Crucially that misses out the subject here - short term ones which can have maturities between 6 months and a couple of years.
They are attractive to people who have enough money to pay high rates of income tax
No, people paying
basic rate tax find them attractive too. As I set out in
#296, for basic rate tax payers:
Building society 3.9% net pa, bond 4.55% net pa. And the bond has more security and no upper limit.
Stock Market "drawdowns" (crashes) happen, and can be severe and take years to recover. That's absolutely fine when you're 30, stats show you
should accept it and hold on
- unless you need the money. They could be a life-affecting problem when you're old. Therefore the move towards safer investments is appropriate.
Nor I, really, I'd rather trade with the money. But being old and tired having something which will keep pace with inflation or a little better with no surprises, is OK.
Some investment gurus say you have to diversify diversify diversify . Buffet said you diversify when you don't know where to put your money.
The majority say that bonds/fixed interest has a place in any portfolio.
All investments can drop exactly when you need to sell them, except BS accounts, but even those impose a penalty or
impossibility, if you're locked in for a fixed period.
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I checked a few things since 1999. That's a bit random, it just happens to be when ISAs really got going. You could only put 3k into them until '08.
If you had put the max every year into a Top rate Isa ISA (That's a total of ~£301k, and I used Moneyfacts average rates, +0.75%) since then, you would now have
from a
Cash ISA, about
£400k.
For a
Stocks and Shares Isa in the S&P 500, £1.3 million (exchange rates accounted for but in the calcs, alter it a bit, so it's +/-)
Straight Growth:
If you put 1000 into a cash Isa in 1999, you would have £2090
If you put 1000 into the S&P 500, you would have £10,070.
If you put 1000 into UK property, you would have £4400, on a straight house price comparison.
If you used it as a 10% deposit for a house and had an interest-only mortgage, then, taking off the 9000 and all the "simple" interest payments, you'd have about £23,000. But with a load of costs, possible big repairs, etc etc.
If you had rented it out, You would have collected about 27000 in net income, coming out with about £52000, but with a load of caveats. Bad tenants could have wrecked the place, etc.
That's why a lot of the very rich people git there in property.
But a lot of the very rich got there in the stock market, too
This is where it gets complicated - you're using LEVERAGE in the house model. If you apply just SOME of that to the stock market, it wins by miles.
I've used Leverage, a lot, which I've explained
The figure you get for "some modest leverage" by my standards, is north of £300k.
It's free and easy to go 2x or 3x or 5x for short periods.
EVEN WITHOUT it, if you follow a trend once it has established, you wonder why anyone uses the S&P500. I almost never have.
Three years ago I was 2/3rds in Jupiter India and it grew 50% in a year, which I recorded at the time, here.
That was the black dotted line, The others are all "instruments" I've used, some of them leveraged on top.
I'm not pretending anyone can get it all spot on, but something which has been running for a month is worth easing into, and by the time it's 3 months, it's easy.
This is not madly sitting at a terminal all day, this is 'check it a couple of times a week', stuff:
Sorry the black date marker is irrelevant. The % figures by the names are, too.
Now imagine stacking up some of those rising dotted lines. The longer they are, the easier they were to pick, obviously.
I've used all of them, though not as precisely perhaps as marked! I've made massively more in leveraged Day Trading, than sitting in things like these. If you put something like 3x PLTR on the chart, it flies off the top, it goes up to 18000%..
Some will ask why Fund Managers don't do particularly well - it's simply because they aren't allowed to do things like put 2/3rds of client money into one fund.
