Cash better than bonds?
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For lower earners certainly I think cash can get good enough rates to render bonds obselete, they'd be better with equities:cash instead
Its less clear for people with more savings, but I feel cash is more useful for market timers and a rebalancing bonus, the interest rate risk that bonds introduce isn't enough I feel to justify any small negative correlation with equities it may have. In addition, cash covers you against interest rate rises.
I certainly wouldn't leverage vls20 over holding vls100 + cash
Thoughts appreciated
Its less clear for people with more savings, but I feel cash is more useful for market timers and a rebalancing bonus, the interest rate risk that bonds introduce isn't enough I feel to justify any small negative correlation with equities it may have. In addition, cash covers you against interest rate rises.
I certainly wouldn't leverage vls20 over holding vls100 + cash
Thoughts appreciated
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I have never owned gov bonds I just don’t see the point right now in this cycle when you can get more interest from cash deposits and better return from equities. Plus peer to peer. I’m all cash and stocks.
Even when rates were high pre crisis cash deposits offered good returns without the rates risk.0 -
“Bonds” covers investments with a very wide range of risks and returns. I assume you are only talking about very low risk developed country government bonds.
People with portfolios held in pensions and ISAs won’t have flexible access to high interest rate cash accounts, Cash will probably give them areturn not very different to safe bonds, it could be lower. It will certainly be lower than medium term inflation.
Over the past few years the interest on low risk bonds is at its lowest value in history. At times in the past gilts have provided a viable option for people living off a cash lump sum.
We haven’t had a decent crash for nearly 10 years. Many investors who haven’t experienced one appear not to take the possibility seriously. For those investors who do want some protection there is no one single completely satisfactory alternative investment to equity. The best answer in my view is to diversify. Possible options include allocations of cash, low risk bonds, higher risk bonds, REITs and funds which directly hold property, P2P lending, wealth preservation funds, and gold.0 -
MatthewAinsworth wrote: »For lower earners certainly I think cash can get good enough rates to render bonds obselete, they'd be better with equities:cash instead
Its less clear for people with more savings, but I feel cash is more useful for market timers and a rebalancing bonus, the interest rate risk that bonds introduce isn't enough I feel to justify any small negative correlation with equities it may have. In addition, cash covers you against interest rate rises.
I certainly wouldn't leverage vls20 over holding vls100 + cash
Thoughts appreciated0 -
Linton -Possible options include allocations of cash, low risk bonds, higher risk bonds, REITs and funds which directly hold property, P2P lending, wealth preservation funds, and gold.
You could but:
High risk bonds - correlated to equities, unless someone wanted a kind of halfway house
Funds directly holding property - indirect would have better liquidity
P2P - advantage over high risk bonds?
Wealth preservation funds - hold the same underlying asset classes we can
Gold - a wild card, I'd have it more for a rebalancing bonus than as something to rely on.
But the negative correlation gold has does interest me, I'll have to think of it more. Still though cash has no correlation
Audaxer - all in the presentation I think, not panicking important and bonds might work for that psychology
Fund managers wouldn't like people deserting bonds!0 -
MatthewAinsworth wrote: »Linton -
You could but:High risk bonds - correlated to equities, unless someone wanted a kind of halfway houseFunds directly holding property - indirect would have better liquidityP2P - advantage over high risk bonds?Wealth preservation funds - hold the same underlying asset classes we canGold - a wild card, I'd have it more for a rebalancing bonus than as something to rely onStill though cash has no correlation0 -
With cash, you know where you are. For example, if today you put £20,000 into a certain cash ISA with a certain Building Society with a fixed interest rate of 2.15%, then you can map out its exact value from now until 30th November 2022 when it will be worth £22,440. But quite what £22,440 will buy in 2022 is a different question, and this makes me wary of cash.
With bond funds, I don't quite know where I am. Take a bond fund like Vanguard's $8 billion Global Bond Index. Despite the underlying bonds offering a yield of around 1.7%, in the past 4 years, total return of the fund has been 7.1%, 2.3%, 2.8%, 2,7%. Why has the total return has been higher than the yield? For how long can this continue, and is a reversion to the mean inevitable? I don't know the answer to these questions but it makes me a little wary of bond funds.
Edit: Despite being wary of both cash and bonds, I recognise that I want this sort of asset to reduce the volatility of my portfolio. Because whether they return in real terms +1%, -1%, +5% or -5%, that doesn't really matter as much as the fact that they could be dampening 50% swings in the value of equities. To me that is their real purpose and putting all these things together I have opted to hold both cash and bonds.0 -
MatthewAinsworth wrote: »
Fund managers wouldn't like people deserting bonds!
UK investors have been buying bonds at the expense of equities recently.0 -
You can also reduce risk during a crash by diversifying with pure equities. For example japan smaller companies went up during the last financial crisis (party due to the Yen), and emerging markets recovered much more quickly than developed. The global health sector between 2007 and 2010 was roughly on par with UK government bonds although was more volatile over a month to month basis0
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I have never owned gov bonds I just don’t see the point right now in this cycle when you can get more interest from cash depositsbetter return from equities.“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair0
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I like the idea of using equities defensively, although again I couldn't rely on them
I think at least the emergency fund has to be cash, although I don't think I'd ever be more than 2 months from a paycheck in a new job if I needed one (agency work, etc) so any more in that pot is overkill. And I think cash beyond that is either to tame a scary portfolio or for, basically, market timing (by rebalancing) - and that's something gold might be more appropriate for
I'm wary of direct property being suspended again, I hope the equities of those things still have some relation to NAV in a crash. I own some indirect for diversification
How come P2P lower risk? To me it looks like lending money to strangers in a concentrated way, but in truth I don't know much about it
Derivatives are like futures on commodities? Like gold?
And PE is equities?
Sadly as ray says there is expected real terms loss for this part of the portfolio, hard to get around0
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