DIY Investor Magazine
|
June 2017
33
WHAT IS THE PRICE OF THE RISK YOU ARE TAKING?
This is simply the gap between what you receive as a
lender and what the borrower pays.
What is the price of the risk you are taking: is it the 5%
you receive in your P2P wallet or the 8% the borrower
pays?
This formula can be good rule of thumb guide how to
price the risk and return.
CORPORATE BONDS: AN OLD SOLUTION THAT
NEEDS TO BE OPENED TO DIRECT INVESTORS
When Italy’s motorway operator wanted to connect
northern and southern Italy they borrowed from
international investors to complete the road in 1964.
The bond paid a coupon of 5.5% and the first Eurobond
was born; this corporate bond market is now worth
EUR1.7trillion.
Sadly as an asset class, Eurobonds are largely closed
to all but pension funds and institutional fund managers;
these securities do not trade on an exchange, require a
typical minimum £100,000 investment per security and
there are no ‘retail friendly’ access points.
This is the instrument that the LSE are trying to bring
to ORB (Order book for Retail Bonds), but corporate
treasurers are satisfied with the main market so are not
sadly queuing for the retail market.
Given demographic shift and demand for investments to
provide a ‘salary’, there is a national appetite for income
which needs more solutions; and which the corporate
bond market should play an important part.
Cash and gilts are the secure income side of the story
with alternative finance there as a riskier, higher reward
solution.
For DIY investors the security of owning a piece of
corporate bond from a big, well known firm could be a
nice halfway house to add to the asset mix.
Lawrie Chandler is the founder of
a new
platform to bring fractional ownership to everyday
investors that need income.
