Understanding how Bonds normally pay a pre-agreed regular income bond prices can You should then get the initial investment back when the loan expires rise or fall continued Are bonds right for you? Achieving some growth A key advantage of investing in bonds is that you could As we explained on pages 5 and 6, there are a number receive a stable income and your original investment of factors that can cause the price of a bond to go up or back at the end of the loan. There is also the potential down. While this rise or fall tends not to be as significant for a profit if you sell the bond at a higher price than you as the changes in price that you see with shares, it could paid when you bought it. still allow you to make a profit on a bond if you buy and sell it at the right time. Equally, if a bond falls in value and A stable income you buy it for less than its original cost, you could hold it Because the interest is fixed when you buy a bond, you’ll to maturity and you would make a profit in addition to generally know exactly how much you’ll receive and when any income you receive. (In both cases, it is also possible it will be paid. If you are relying on your investment for to make a loss.) income, the regular interest payments from bonds can The value of your income make it much easier for you to plan ahead – though there Because the price of a bond can change, but the income is always a chance the company or government who you payments are fixed, the return on the bond (often referred have lent your money to will fail to keep up the payments. to as the yield) can vary. For example, a bond issued at Preserving your savings £1 with a 5p coupon, has a yield of 5%. However, if the If you hold your bond for the life of the loan (and nothing price rises to £2, the coupon is still 5p, so the yield falls goes wrong in the meantime), you should get back what to 2.5%. This means that if you are buying bonds from you originally put in. It’s as simple as that. other investors and you need a certain level of income, the price you pay is very important. 7