I'm taking the plunge.... Retail bonds.

purch

The main difference between holding Bonds directly, or via a Fund is that by owning the Bond you have a maturity date, whereas with a Fund you do not have a maturity.

It is the maturity (redemption) of the Bond that gives the security most of it's lower risk profile as an investment, but by using a Fund you do not have this. In fact, trying to describe a Fund holding Bonds as lower risk than a Fund holding equities is nonsense, as the risk of adverse price movements is the same, as is the default risk.

Of course, the Fund will have a much lower default risk than individual holdings, but in the scheme of things default risk should not be a real issue.

Sceptic001

purch wrote: »

Of course, the Fund will have a much lower default risk than individual holdings, but in the scheme of things default risk should not be a real issue.

Has anyone here had any experience of holding bonds in companies that have defaulted/gone bust? What examples are there, and what have been the consequences for bondholders?

DIY_Income_Investor

Interesting thread.

Readers should be aware that it is also possible to invest (in an ISA or SIPP) in ETFs (Exchange Traded Funds) that focus on bonds - for example

ETF iShares Markit iBoxx £ Corporate Bond ex-Financials (ISXF)

or

ETF iShares Markit iBoxx Euro High Yield Bond (LSE:IHYG)

(described on my website: the-diy-income-investor.com)

or other similar ETFs covering the UK or elsewhere.

The main advantage: lowers cost compared to traditional 'funds'.

Reaper

I am a bit nervous about bond funds for several reasons. Firstly if inflation gets a grip you don't want to be stuck in long dated fixed interest as the price you can get for them on the market will quickly fall. It might not even take inflation to make them fall, a lot of selling would do it too. e.g. http://www.fixedincomeinvestor.co.uk/x/analysis.html?type=bond-blog&cat=analysis-comment&y=2013&aid=908
and you have no control over what type of bonds a fund is buying.

Secondly even if you try to sell at any price if bond markets collapse you may not be able to as there are concerns about liquidity.

So if you want to invest in bonds but feel bearish there is an argument for either short dated individual bonds (so you can hold them to maturity and ignore falls in their price) or if you do go for a fund make it a closed end fund instead of an open one (i.e. buy an investment trust) as you should always be able to get a sell price for them regardless of any liquidity problems.

sabretoothtigger

Bonds are not a great idea when base rates are zero. Its a promise of cash five years or so from now, at least with a fund you gain an average in and out to cash out easy.

The management fee is worth it mostly likely. sounds like a mistake I would
make penny wise pound foolish