Bonds are probably the least-fun gizmos in the investing world. They don't tend to move wildly in price as markets fluctuate. They don't tend to get a lot of coverage on the international finance pages unless something goes very wrong. And they don't promise high returns.
Yet bonds also comprise a crucial asset class for investors and savers - even those who justifiably think them a bit boring. They bring a reliable and steady income. They can help investors dial down risk. And because they pay out interest regularly, they can help older and more conservative investors counteract the evil of inflation.
"They are very important," Aadil Kadri says, a financial planner in Dubai. "They are the foundation of your skyscraper, and your foundation has to be strong to build a skyscraper."
Like a stock, a bond is a security that you can buy directly from an issuer or, more commonly, on the secondary market (the bond market, in this case). Unlike a stock, which is an equity security, a bond is a debt security. Stock ownership gives you equity - or part ownership - in a company, while buying a bond gives you a share of debt. When you buy a bond, the issuer of the bond owes you money. When you buy a stock, you are investing in the issuer's business.
Bonds cropped up centuries ago, mainly as a way for governments to finance wars and raise money for large public projects. Yet while a global market for bonds has existed since well before the 19h century, it wasn't until financial mavens like Nathaniel Rothschild perfected the art of investment banking in the 1800s that bond sales took off, leading to their maturation as an investible asset class. Eventually, governments weren't the only players in the bond game; companies large and small jumped into the mix. Today, the global bond market is said to be worth about US$50 trillion (Dh183tr).
The structure of a typical bond is straightforward. It comes with a face value at which it is first sold (also known as its "par value"), a maturity date (the date by which the loan is paid off) and an interest rate, or "coupon". The term "coupon" comes from old-time bonds that actually came with a sheet of coupons that investors could rip off and redeem for interest payments over the life of the bond. A 20-year bond, for example, might be sold for US$100 and come with 20 coupons entitling the bearer to interest payments of 5 per cent a year over 20 years.
Once a secondary market developed for bonds and people started trading them regularly, "yield" came into play. Prices fluctuate when people start to trade, and if an investor buys a bond for US$110 that was sold for US$100, the value of his 5 per cent coupons goes down relative to how much he paid. He gets 5 per cent of US$100, not 5 per cent of the US$110 he actually paid. His yield is now 4.55 per cent.
Yield is thus a key metric for making bond-buying decisions. When bond prices go up - when the bonds of a government or a company are in higher demand - yields go down. And when bond prices go down - when investors get scared about a company going bankrupt and defaulting on interest payments, for example - yields trend upwards.
These days, average investors need not concern themselves too much with the terminology, because there are plenty of ways to invest in bonds that don't entail a lot of analytical work. There are a bevy of mutual funds through which investors can get a diversified exposure to bonds, including the Vanguard Total Bond Market Index, which charges just 0.19 per cent in annual expenses for the privilege.
Bonds are important for investors of all ages, but they are especially crucial in retirement portfolios as investors approach the end of their working lives, when securing a regular income becomes a primary concern. Typically, financial planners advise that people who are close to retirement have roughly 80 per cent of their money in bonds, thus shielding them from the volatility of stock markets as they prepare to stop working and spend down their nest eggs.
In the long run, having money in safe bonds is better than converting it all to cash because of the threat of inflation. If prices go up, the reliable income from a solid bond portfolio can help retirees retain spending power.
Even so, many advisers say retirees should keep a healthy slice of their investing pie in stocks as a further hedge against inflation.
"Bonds are important in everyone's life, depending upon age and risk appetite," Mr Kadri said.
"When someone is retiring, it's a mistake to put all the money into bonds. They do not have to do that. They can keep 20 per cent in riskier funds, which can really give them support against inflation."
afitch@thenational.ae
COMPANY PROFILE
Name: Qyubic
Started: October 2023
Founder: Namrata Raina
Based: Dubai
Sector: E-commerce
Current number of staff: 10
Investment stage: Pre-seed
Initial investment: Undisclosed
Nayanthara: Beyond The Fairy Tale
Starring: Nayanthara, Vignesh Shivan, Radhika Sarathkumar, Nagarjuna Akkineni
Director: Amith Krishnan
Rating: 3.5/5
Company%20Profile
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COMPANY%20PROFILE%20
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The specs
Engine: 3.8-litre V6
Power: 295hp at 6,000rpm
Torque: 355Nm at 5,200rpm
Transmission: 8-speed auto
Fuel consumption: 10.7L/100km
Price: Dh179,999-plus
On sale: now
The specs
Engine: Long-range single or dual motor with 200kW or 400kW battery
Transmission: Single-speed automatic
Max touring range: 620km / 590km
Price: From Dh250,000 (estimated)
Cricket World Cup League 2
UAE squad
Rahul Chopra (captain), Aayan Afzal Khan, Ali Naseer, Aryansh Sharma, Basil Hameed, Dhruv Parashar, Junaid Siddique, Muhammad Farooq, Muhammad Jawadullah, Muhammad Waseem, Omid Rahman, Rahul Bhatia, Tanish Suri, Vishnu Sukumaran, Vriitya Aravind
Fixtures
Friday, November 1 – Oman v UAE
Sunday, November 3 – UAE v Netherlands
Thursday, November 7 – UAE v Oman
Saturday, November 9 – Netherlands v UAE
Disclaimer
Director: Alfonso Cuaron
Stars: Cate Blanchett, Kevin Kline, Lesley Manville
Rating: 4/5
TEACHERS' PAY - WHAT YOU NEED TO KNOW
Pay varies significantly depending on the school, its rating and the curriculum. Here's a rough guide as of January 2021:
- top end schools tend to pay Dh16,000-17,000 a month - plus a monthly housing allowance of up to Dh6,000. These tend to be British curriculum schools rated 'outstanding' or 'very good', followed by American schools
- average salary across curriculums and skill levels is about Dh10,000, recruiters say
- it is becoming more common for schools to provide accommodation, sometimes in an apartment block with other teachers, rather than hand teachers a cash housing allowance
- some strong performing schools have cut back on salaries since the pandemic began, sometimes offering Dh16,000 including the housing allowance, which reflects the slump in rental costs, and sheer demand for jobs
- maths and science teachers are most in demand and some schools will pay up to Dh3,000 more than other teachers in recognition of their technical skills
- at the other end of the market, teachers in some Indian schools, where fees are lower and competition among applicants is intense, can be paid as low as Dh3,000 per month
- in Indian schools, it has also become common for teachers to share residential accommodation, living in a block with colleagues
RESULTS
ATP China Open
G Dimitrov (BUL x3) bt R Bautista Agut (ESP x5)
7-6, 4-6, 6-2
R Nadal (ESP x1) bt J Isner (USA x6)
6-4, 7-6
WTA China Open
S Halep (ROU x2) bt D Kasatkina (RUS)
6-2, 6-1
J Ostapenko (LAT x9) bt S Cirstea (ROU)
6-4, 6-4
ATP Japan Open
D Schwartzman (ARG x8) bt S Johnson (USA)
6-0, 7-5
D Goffin (BEL x4) bt R Gasquet (FRA)
7-5, 6-2
M Cilic (CRO x1) bt R Harrison (USA)
6-2, 6-0
If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.
When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.
How to get there: Emirates currently flies from Dubai to Orlando five times a week.
Company%20Profile
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COMPANY%20PROFILE
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Wicked
Director: Jon M Chu
Stars: Cynthia Erivo, Ariana Grande, Jonathan Bailey
The specS: 2018 Toyota Camry
Price: base / as tested: Dh91,000 / Dh114,000
Engine: 3.5-litre V6
Gearbox: Eight-speed automatic
Power: 298hp @ 6,600rpm
Torque: 356Nm @ 4,700rpm
Fuel economy, combined: 7.0L / 100km
The biog
Marital status: Separated with two young daughters
Education: Master's degree from American Univeristy of Cairo
Favourite book: That Is How They Defeat Despair by Salwa Aladian
Favourite Motto: Their happiness is your happiness
Goal: For Nefsy to become his legacy long after he is gon
Napoleon
%3Cp%3E%3Cstrong%3EDirector%3C%2Fstrong%3E%3A%20Ridley%20Scott%3Cbr%3E%3Cstrong%3EStars%3C%2Fstrong%3E%3A%20Joaquin%20Phoenix%2C%20Vanessa%20Kirby%2C%20Tahar%20Rahim%3Cbr%3E%3Cstrong%3ERating%3C%2Fstrong%3E%3A%202%2F5%3Cbr%3E%3Cbr%3E%3C%2Fp%3E%0A
Call of Duty: Black Ops 6
Developer: Treyarch, Raven Software
Publisher: Activision
Console: PlayStation 4 & 5, Windows, Xbox One & Series X/S
Rating: 3.5/5
Venue: Sharjah Cricket Stadium
Date: Sunday, November 25
Company%20profile
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The specs
A4 35 TFSI
Engine: 2.0-litre, four-cylinder
Transmission: seven-speed S-tronic automatic
Power: 150bhp
Torque: 270Nm
Price: Dh150,000 (estimate)
On sale: First Q 2020
A4 S4 TDI
Engine: 3.0-litre V6 turbo diesel
Transmission: eight-speed PDK automatic
Power: 350bhp
Torque: 700Nm
Price: Dh165,000 (estimate)
On sale: First Q 2020
THE SPECS
Engine: 2.0-litre 4-cylinder turbo
Power: 275hp at 6,600rpm
Torque: 353Nm from 1,450-4,700rpm
Transmission: 8-speed dual-clutch auto
Top speed: 250kph
Fuel consumption: 6.8L/100km
On sale: Now
Price: Dh146,999
Kanguva
Director: Siva
Stars: Suriya, Bobby Deol, Disha Patani, Yogi Babu, Redin Kingsley
GOLF’S RAHMBO
- 5 wins in 22 months as pro
- Three wins in past 10 starts
- 45 pro starts worldwide: 5 wins, 17 top 5s
- Ranked 551th in world on debut, now No 4 (was No 2 earlier this year)
- 5th player in last 30 years to win 3 European Tour and 2 PGA Tour titles before age 24 (Woods, Garcia, McIlroy, Spieth)
The specs: 2018 Harley-Davidson Fat Boy
Price, base / as tested Dh97,600
Engine 1,745cc Milwaukee-Eight v-twin engine
Transmission Six-speed gearbox
Power 78hp @ 5,250rpm
Torque 145Nm @ 3,000rpm
Fuel economy, combined 5.0L / 100km (estimate)
The specs
Engine: 1.5-litre turbo
Power: 181hp
Torque: 230Nm
Transmission: 6-speed automatic
Starting price: Dh79,000
On sale: Now