Portfolio rebalancing - question re bonds

AlwaysLearnin

Firstly apologies if this is perhaps a naive question, or if it has already been covered - I did have a look around, but couldn’t see anything obvious.

I’m fairly new to the investing game, taking a passive approach with a mixture of equity tracker and bond funds in both pension and ISA wrappers, and I’m currently looking at my first round of rebalancing. I’m thinking of using lump sums in both cases to a) use up the 12-13 ISA allowance, b) avoid needing to sell anything and c) use available cash that is otherwise basically making nothing in real terms.

My issue is that I feel as though putting more money than I already have in to government bonds/gilts isn’t a good idea in the current climate, and find myself wondering if corporate bonds, although traditionally a higher risk than gilts, may be a better option for my new bond allocation purchases. I could then build the government bond side up again when I feel more confident that it’s a good investment. I appreciate that this is arguably ‘timing the market’, which isn’t in line with the passive philosophy, but surely there’s an argument that it’s folly to invest in something you think is due a fall when alternatives may be available?

Does this thinking sound reasonable? Or am I way off the mark and/or missed something? I would really appreciate people’s views.

Thanks

grey_gym_sock

it's not fully passive, but it seems reasonable to me.

i take it that you'd leave the total fixed interest (bonds + gilts) desired percentage where it is?

AlwaysLearnin

Yes, keeping the equity/bond ratio the same, just avoiding adding what I think could be a (very?) top heavy element within a portfolio. I know there's the debate about equity highs, but I'm more comfortable with that at the moment.

Thanks for the response. I was starting to think it must of been a really stupid question! I don't want to be monitoring my portfolios every day, but I've realised I don't want to (can't?) leave it alone completely! That may or may not be a good thing, time will tell, but it's certainly interesting learning (hence the user name...) and we all presumably want the best out of what we have, within our tolerance levels.

Thanks again
We've all got to start somewhere!

srcandas

AlwaysLearnin wrote: »

We've all got to start somewhere!

And we never stop. No one knows it all

As even the most passive strategy is not actually very passive at all I think your logic is sound. Throwing your money into something you believe is a loser because of some unwritten law just has to be crazy IMHO.

Perelandra

I understand your pain... I have exactly the same issue (with the same possible solution).

I guess this will depend on how correlated with equity you think corporate bonds are- if there is a correlation, then using these won't really work in your rebalancings.

Haven't decided myself what to do this year yet... one side of my is screaming "don't think too much!" the other side of me really, really doesn't want gilts.

AlwaysLearnin

Perelandra wrote: »

I understand your pain... I have exactly the same issue (with the same possible solution).

I guess this will depend on how correlated with equity you think corporate bonds are- if there is a correlation, then using these won't really work in your rebalancings.

Haven't decided myself what to do this year yet... one side of my is screaming "don't think too much!" the other side of me really, really doesn't want gilts.

Thanks. That sums up nicely where I am.

I know what you're saying about correlation but IMHO, apart from perhaps companies going bust (which I hope I'm at least partly diversifying against by being in funds), there is enough differentiation for them to play their different parts in a portfolio. Besides, I'm not aware of any other suitable alternative?!

I'm just trying to be sensible and provide for a reasonable future, but the current climate makes things rather challenging (or perhaps more positively; 'interesting'...:))

Perelandra

AlwaysLearnin wrote: »

Thanks. That sums up nicely where I am.

I know what you're saying about correlation but IMHO, apart from perhaps companies going bust (which I hope I'm at least partly diversifying against by being in funds), there is enough differentiation for them to play their different parts in a portfolio. Besides, I'm not aware of any other suitable alternative?!

I'm just trying to be sensible and provide for a reasonable future, but the current climate makes things rather challenging (or perhaps more positively; 'interesting'...:))

*nods*

My understanding is that they're not particularly correlated anyway if you're looking at the total view (rather than individual companies), but don't take my word for that...!

If you do go down this route, the Blackrock ones are the cheapest trackers I've found.