So am I saying that all such retail bonds should be avoided? No, of course not. Many will make sound investments and in the current economic environment where banks are reluctant to loan at all, let alone at the sorts of interest rates available in the corporate bond market, businesses should be looking at other means of raising finance, and retail bonds are a sensible option. However, what is important is that issuers do not follow the easy path of tapping existing customers for investment when those customers do not understand what it is they are buying, and what the risks really are. This is a process of investor education and the responsibility sits with issuers. But equally we can all do our bit: diversification is the key to any successful investment strategy and we should never cease to warn our clients of the dangers of putting too many eggs into one basket. Bonds, as with all investments, should bring long-term rewards, but they can only do this in a well-constructed portfolio. While points may mean prizes, the substance of those prizes may take quite some judging.
James Bateman is head of multi-manager and multi-asset portfolio management of Fidelity Worldwide Investment
