Exchange Traded Funds, an alternative way to invest.

winkler

First post for me hi all.

Very interesting this thread and it has answered a lot of questions that I had stacked up in my head, would it be ok if we touched on the subject of Bonds.

If I understand things correctly there are Corporate bonds issued by companys, and government bonds issued by the government, and they are in basic terms an IOU, so you give them a £100 and they agree to pay you a set amount of interest each year they seem to call this a coupon. I understand that there is a higher risk with corporate bonds as th company could fail, however I am led to understand that if this did happen as a bond holder you are in a better position than a shareholder as you are classed as a creditor. Treasury bonds are less risky as the idea is the government will honor the debt. (we hope). The bond starts at what they call par and at the end of the term returns back to par, so invest £100 for 15 years at a coupon of 5% you will get 5% each year for 15 years then your £100 back at the end, the bit I dont get is running yield.

Any help or guidance with regard to this particular investment would be a great help.

Many thanks
Winkler

purch

The running yield is basically the value of the coupon payments compared with what you paid for the Bond, and what you will get back at maturity.

If you bought a 25 year Bond or Gilt with a Coupon of 5%, at issue at PAR (100), the running yield would also equal 5%, as would the yield to maturity.

If you bought the Bond at 105, the equivalent running yield would be about 4 3/4%, and the Yield to Maturity just over 4 1/2%

If you bought the Bond at 95, the equivalent running yield would be just over 5 1/4%, and the Yield to Maturity just under 5 1/2%

winkler

Thanks for that purch,
any perils & pitfalls you know of?

Cheers
Wink

purch

Other than the Bond issuer defaults......:eek: and you do not get your capital returned.....not really.

Remember with the magic of Compounding.....you will get a much higher return (depending on the time to maturity) than just the headline coupon rate.

winkler

Thanks again,
Well I hope to avoid the ones that default.. but if interest rates increase this will push the value of bonds down, am I right?. I really don't know what is for the best.

Wink

purch

but if interest rates increase this will push the value of bonds down, am I right?

Yes, that comes under Peril !!!!!

winkler

Thanks again,

Its a worry where to put your money at the moment, I keep expecting the market
to correct but every day it just seems to push on.

Cheers

Wink

ses6jwg

I am looking at the Ishares UK Commercial Property ETF for my self select ISA.

Any opinions?

sabretoothtigger

Thats new as of earlier this year ? It was a good buy at that time I believe as it caught the march rally nicely but right now not so much unless you are prepared to hold for ten years if sentiment should switch

Whats the YTD rise

If I was going to track something right now I'd be more interested in emerging markets, commoditys or some development of those two like infrastructure and water especially or maybe commercial property in emerging markets is a good deal but it would have to be a managed fund since ive not a clue

Its a worry where to put your money at the moment, I keep expecting the market
to correct but every day it just seems to push on.

dont aim to catch the bottom or the top, your'll never find and will only cut yourself up trying.
in a growing market eventually it wont matter if you paid the worst price, it'll be in the past and lower then future value.

cloud_dog

sabretoothtigger wrote: »

...in a growing market eventually it wont matter if you paid the worst price, it'll be in the past and lower then future value.

Ah, never a truer word spoken (typed).

I recently missed bottom feeding on some stocks but I'm still making money out them.