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The idea of a fixed-income investment opportunity is fairly straightforward: you lend money to a borrower, who then makes fixed repayments to you over an agreed period of time (much like a bank loan). Yet what are the reasons to consider fixed income investments (e.g. property loan notes) over other assets, such as stocks?
Here, our investment team here at Bure Valley Group shares 7 advantages to fixed-income investments, for you to consider their inclusion within your portfolio. If you’d like to browse our loan note and other fixed-income investment opportunities after reading this guide, then please visit our portfolio page. For business owners seeking funding, you can reach us via:
+44 160 334 0827
#1 Income generation
Certain investments provide value to investors through capital gains. One nice feature of fixed-income investments such as bonds, property loan notes is the steady income stream they provide. These might take the form of coupon payments on bold holdings, for instance, and can be used to support the investor’s lifestyle or re-invest into assets in their portfolio.
#2 Protection from market risk
As equity investors will know all-too-well right now in light of the COVID-19 outbreak, the stock markets can be very volatile. They are sensitive to geopolitical events and macroeconomic risks. Fixed income investments are not immune, but they are widely seen as less sensitive to these kinds of shocks and fluctuations, allowing you to help offset losses in your portfolio.
#3 Capital preservation
If you are approaching retirement and looking to retain the absolute value of your investments, then fixed-income investments can be attractive for those who are primarily focused on the return of principal. The lower-risk profile of many fixed-income investors also makes them a compelling option for more cautious investors, as well as to investors who have a shorter time window to recoup losses. Be aware, however, that these investments are not risk-free and can be vulnerable to inflation, which lowers the real value of your investments over time.
#4 Potential returns
It is commonly believed that fixed-income investments carry lower potential returns compared to other asset classes, particularly equities. Whilst this is often true for “lower-risk” fixed-income investments such as UK government bonds (i.e. gilts), other investment opportunities such as property loan notes can match or even surpass the returns of many equities. Here at Bure Valley Group, for instance, many of our property loan notes have produced returns of 12-24% over their lifetime. For more information, visit our portfolio page of current projects.
#5 Priority during liquidation
Nobody wants their investment to fail, but even the most experienced investors know that this sometimes happens despite best intentions and due diligence. One advantage of holding fixed income investments is that they tend to get priority over other securities in cases of company liquidation. This is because, in such circumstances, businesses are usually obligated first to their lenders before their shareholders.
One of the maxims of sound portfolio management is to include a range of asset types and investments within your portfolio. Not only does this allow you to take advantage of opportunities which you would not otherwise have access to; it also helps to shield your portfolio from excessive exposure to risks associated with one particular asset.
Fixed income securities, for instance, allow you to ensure relative stability of your principal and avoid taking the needless risks involved with focusing purely on equities, property or commodities. Not only can you diversify across asset classes, however, but you can also diversify within fixed income securities too via gilts, corporate bonds and property loan notes.
#7 Safety of deposit
When you invest in stocks, cash or gold, you will have varying degrees of safety for your deposit depending on the nature of the investment. Fixed income securities, however, tend to come with a specified end-date; at which point the invested amount should be handed back to the investor. If the borrower fails to honour this obligation to the lender, then they will typically face judicial repercussions. Legal action could be justifiably taken against them to recover the original amount. Moreover, fixed income investments such as asset-backed property loan notes can add further peace of mind to the investor, that the principal will be returned by seizing the borrower’s assets in the future, if required. Variable income investments such as equities, however, do not offer this level of deposit safety to their investors. If you invest in a company which later dips in performance, for instance, then your stock value could dip or even be wiped out.
Summary & invitation
Fixed income investments offer a range of attractive benefits to investors, making them a valuable addition to many portfolios. Not only do they offer a valuable means to generate an additional income stream, but they also provide a useful shield against stock market volatility. Fixed income investors tend to get priority over shareholders during liquidation, and the safety of the invested deposit is heightened by legal protections and asset-backed schemes. Finally, some fixed income securities can even surpass the returns of other asset classes (e.g. equities), such as property loan notes.
If you are a successful investor looking for fixed income investment or property loan note opportunities, then we’d love to hear from you. Get in touch today to start a conversation with our team, and discuss some of the investment memorandums we have available:
+44 160 334 0827