Best Corporate Bonds to Invest In

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Best Corporate Bonds to Invest In

Among all the different types of bonds you can invest in, corporate bonds have racked up some serious promise in recent years, with investors seeing the potential for growth within the market.

Without different investment options, investors wouldn’t be able to create a balanced portfolio, which ultimately leads to great asset allocation and the potential for more wealth creation over time.

That’s why in this article, we’re going to look closer into what a corporate bond is, the best corporate bonds to invest in, and how you can invest in them to get ahead of the game today. Keep reading to learn the ins and outs.

 

What Are Corporate Bonds?

Corporate bonds are essentially investments representing the debt of a company, where the buyer of the bond helps the company raise capital. In simple terms, they are loans that companies take out from investors with the promise to pay back the initial investment amount along with interest over a specified period of time.

These bonds are generally considered less risky than stocks, as companies are legally obligated to repay the bondholders. They are a popular investment option for anyone seeking a steady stream of income.

In regards to how you’re paid interest over time (known as coupon rate), they are often paid either quarterly or semi-annually, depending on the company you invest in. An example of how this could work is as follows:

A description of how corporate bonds work.

NOTE: The image we provided above shows that if you invest £2000 into a corporate bond and the coupon rate is at 5%, you will receive £100 annually from the bond for as long as maturity lasts (on top of the £2000 you get paid back at the end of maturity).

 

How do Corporate Bonds Work?

As we’ve discussed in the above section, the bond issued by the company needs investors for external funding so they can show their skills and potential during the time you’re invested in them.

Although you know that you receive coupons (fixed interest payments), along with your initial investment to guarantee profit when the bond matures, there are better and worse corporate bonds to invest in.

If you are planning to invest/lend money to corporate bonds, it’s important to keep in mind that bonds with higher ratings will have lower coupon rates. On the other hand, if you choose a bond with a higher credit risk, it must offer higher yield return rates to entice investors.

 

The Benefits and Risks of Purchasing Corporate Bonds

With every type of bond issuer, there are benefits and drawbacks, but some investments just suit the idea of the customers’ asset allocation. To get a greater understanding of the benefits and risks of purchasing corporate bonds, we’ve broken it down here:

 

Benefits

  • Corporate bonds offer a regular stream of income through interest payments
  • Compared to government bonds, corporate bonds typically offer higher yields, making them appealing for those looking to maximise returns
  • They have many types, terms, and structures to suit different strategies
  • Allows investors to diversify their investment portfolio

 

Risks

  • There’s a chance the issuing company might fail to make interest payments or repay the principal amount to people invested in the bonds
  • Changes in interest rates and the overall financial health of the company can impact the value of corporate bonds
  • The returns aren’t as great as those with the ability to endure the risk of the stock market

 

The Different Types of Corporate Bonds You Can Invest in

There are two types of corporate bonds that you can invest in on a short-, medium-, or long-term basis:

  1. Investment-grade corporate bonds
  2. Speculative-grade corporate bonds (high-yield or junk bonds)

 

1. Investment-Grade Corporate Bonds

Investment-grade corporate bonds are the type that are less risky for those looking to invest their money. These are higher-rated bonds, meaning they’re more likely to be paid on time, but they provide a lower yield of returns than speculative-grade bonds.

 

2. Speculative-Grade Corporate Bonds (High-Yield)

Speculative-grade bonds, on the other hand, are typically more risky for an investor, meaning the investor is less likely to be paid on time. However, with much higher interest rates compared to investment-grade bonds, this makes up for the risk you’re taking as an investor.

 

What Corporate Bonds Should You Invest in?

At the current moment in time, there are some corporate bonds on the market doing extremely well. Below, we’re going to show you the best corporate bonds to invest in based on data, return rate, market share, and trustworthiness.

Before we show you the top-performing bonds you should invest in, remember that not all of these bonds will be suited to everyone, and you should always do individual research before making purchase decisions.

Best UK Corporate Bonds Fund’s Total Size Distribution Yield (as of 2024) Fund Name
iShares $ Treasury Bond 20+yr UCITS ETF Over £2.8 billion 4.04% iShares $ Treasury Bond 20+yr UCITS ETF
Janus Henderson Strategic Bond Fund £2.55 billion 3.8% Janus Henderson Strategic Bond Fund
Amundi UK Government Inflation-Linked Bond ETF Over £70 million 0.51% Amundi UK Government Inflation-Linked Bond ETF
SPDR Bloomberg High Yield Bond ETF (JNK) Just under £7 billion 7.00% SPDR Bloomberg High Yield Bond ETF (JNK)
Vanguard Total Bond Market ETF Just under £70 billion 3.20% Vanguard Total Bond Market ETF

[A quick note:] —> These are as of 2024, meaning they are always changing, whether they are going up or down. However, we have chosen these corporate bonds based on previous performance, future potential, and the trustworthiness of the bond. The performance you’re seeing now isn’t a reflection of future expectations.

 

How to Buy Corporate Bonds?

In order to buy a corporate bond, as we’ve mentioned previously, the most important factor is to do your research and align yourself with the corporate bond that makes sense for your goals within investing. However, here, we will show you how to buy a corporate bond, step-by-step, if you want to get into the market today:

  1. Buying corporate bonds directly: You can either invest in corporate bonds via the primary market, using brokerage firms, bond traders, banks, or individual brokers.
  2. Buy the corporate bond over-the-counter (OTC): Some corporate bonds can be purchased on the over-the-counter market, making it easy to buy and sell bonds.

 

Before you make your final purchase, we believe it is important to speak to specialists on the matter, watch as much video content as possible on the topic, and read as many articles as you can to make the best decision. This way, your views will be your own and your vision for what you want won’t be skewed.

Are you searching for investments which outperform bank interest rates?​

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