Question on Funds/Bonds..

cashbackproblems

hi

just need some advice, i currently invest monthly into 5 funds and realised i dont actually know much about how they really work (wealth 150 list makes up most of my portfolio and has done well!)

I have a spare 1-2k and i currently pay into Newton Asian Income and Kames High Yield Bond bond paying good interest but as i understand Newton also being about growth.

I was wondering when these people such a good rate why dont more people invest in them e.g. 6/7% interest and fees of 1.5% is a no brainer?

Also how come people dont mention the Marlborough High Yield fixed interest income paying 9%...is it high risk? What is the difference between this fund and my other 2 i hold and which would be better for me to top up 2k into bearing in mind i am happy to take some risk and income is not essential as i invest it elsewhere, but would be nice to get 9%.

jimjames

Good question why people don't invest more in bonds or shares.

I guess fear of the unknown is one reason and worry about values dropping as your capital isn't guaranteed. It is much easier to see the drop in the price of a share or the FTSE but not so easy to see the drop in your money sitting in a bank being eroded by inflation.

bigfreddiel

cashbackproblems wrote: »

.... would be nice to get 9%.

high yields could indicate a problem with the fund - it could have dropped in value thus causing a spike in the so called yield

no such thing as a free lunch

and you say a ter of 1.5% is a no brainer - well it is for the trust manager but it will rip the guts out of your investment over time -look for ters of 0.5% or less

cheers

fj

Linton

cashbackproblems wrote: »

hi

just need some advice, i currently invest monthly into 5 funds and realised i dont actually know much about how they really work (wealth 150 list makes up most of my portfolio and has done well!)

I have a spare 1-2k and i currently pay into Newton Asian Income and Kames High Yield Bond bond paying good interest but as i understand Newton also being about growth.

I was wondering when these people such a good rate why dont more people invest in them e.g. 6/7% interest and fees of 1.5% is a no brainer?

Also how come people dont mention the Marlborough High Yield fixed interest income paying 9%...is it high risk? What is the difference between this fund and my other 2 i hold and which would be better for me to top up 2k into bearing in mind i am happy to take some risk and income is not essential as i invest it elsewhere, but would be nice to get 9%.

The difference between high yield bond funds and lower yield ones is that the higher yield ones hold bonds from riskier companies. They are more likely to go bust in the bad times. The last really bad time was when the market crashed 5 years ago. During 2008 the Marlborough fund dropped 34%, comparable with many pure equity funds. The Marlborough Bond Income fund with a yield of just under 5% dropped 6%.

The problem I have with these very high return bond funds is that if you really are prepared to accept large falls in a bad year you could have done much better by investing in a higher risk equity fund in areas such as the Far East, Emerging Markets etc.

Its a fundamental rule of investing that if you chase high returns you must accept the occasional large fall. You have to chose a balance which you can live with.

Totton

I'd reduce the risk and opt for lower yielding funds, perhaps aim for 3 to 4% if you need the income. Higher yield can often mean higher risk. There are plenty paying 4% which is often stated as the optimum amount to take out of a portfolio although an article I read today suggests 3% may be a better choice now.

HTH,
Mickey

cashbackproblems

Linton wrote: »

The difference between high yield bond funds and lower yield ones is that the higher yield ones hold bonds from riskier companies. They are more likely to go bust in the bad times. The last really bad time was when the market crashed 5 years ago. During 2008 the Marlborough fund dropped 34%, comparable with many pure equity funds. The Marlborough Bond Income fund with a yield of just under 5% dropped 6%.

The problem I have with these very high return bond funds is that if you really are prepared to accept large falls in a bad year you could have done much better by investing in a higher risk equity fund in areas such as the Far East, Emerging Markets etc.

Its a fundamental rule of investing that if you chase high returns you must accept the occasional large fall. You have to chose a balance which you can live with.

thanks.

im confident we wont see another 2008, but the fund also more than recovered since while paying a high dividend.

2008 -34%
2009 +77%
2010 +16%
2011 -5%
2012 +14%


bigfriedel: i know the high TER's do add up over time BUT you dont get the sorts of returns on a tracker as you do on Aberdeen Emerging markets for example which grows 10-20%+ per year, making a 1.5% TER v a 0.5% TER on a tracker growing 5% seem well worth it. ALso you get initial comm rebated on HL so are saving a ton that way as well. However i have added Blackrock European tracker which has a low TER to my portfolio