Should I Buy Bonds

atlanticspan

Hello everyone,
I would be grateful for your views on whether to buy bonds or choose equities only.
I am 58 years old and wish to invest approx £100k.
I realise that for someone of my age the perceived wisdom would be to own their age in bonds.
However as I have other means of supporting myself and no deadline by which this money must be used, I am interested in investing the lump sum in equities with a view to leaving it to my children. As such, I was thinking of investing 45% UK FTSE100 tracker fund 40% Developed World tracker fund 10% UK property tracker fund or ETF and 5% i cash.
Your views would be most welcome.
Thank you.

dunstonh

I would be grateful for your views on whether to buy bonds or choose equities only.

Most people have both. The average UK consumer risk profile tends to require a portfolio made up of both. However, you capacity for loss would impact on that decision as well as your ability to understand investments and how you would act in a downturn.

I realise that for someone of my age the perceived wisdom would be to own their age in bonds.

No its not. That is just a throw away line given by some. It is no more accurate than saying you should save half your age in pension or that you should have £35k in a pension by age 35. It is just something to get you thinking.

As such, I was thinking of investing 45% UK FTSE100 tracker fund 40% Developed World tracker fund 10% UK property tracker fund or ETF and 5% i cash.

Why so heavy in such a poor value index?
What research have you done to calculate your optimal asset allocations?

kidmugsy

Suppose shares crash and become excellent value. With what would you buy more if you don't hold bonds or cash?

It might be worth your while looking at this
http://earlyretirementextreme.com/wiki/index.php?title=Permanent_Portfolio

I also recommend that you google "volatility harvesting".

atlanticspan

dunstonh wrote: »

Most people have both. The average UK consumer risk profile tends to require a portfolio made up of both. However, you capacity for loss would impact on that decision as well as your ability to understand investments and how you would act in a downturn.



No its not. That is just a throw away line given by some. It is no more accurate than saying you should save half your age in pension or that you should have £35k in a pension by age 35. It is just something to get you thinking.

If you count John C Bogle, as just throwing random comments out,you could be right.

Why so heavy in such a poor value index?
What research have you done to calculate your optimal asset allocations?

I would answer with a question of my own. Why do you consider the FTSE 100 and a Developed World tracker fund 'such poor value' ?

Thank you for taking the time to reply.

dunstonh

I would answer with a question of my own. Why do you consider the FTSE 100 and a Developed World tracker fund 'such poor value' ?

The FTSE 100 has consistently underperformed the other developed world indexes for the last 20 years. It is poorly weighted index focused on too few industries.

C_Mababejive

I think every investor should have a proportion of good quality investment grade bonds in their portolio as an anchor in troubled times.

There..im beginning to sound like a salesman for HL now

atlanticspan

dunstonh wrote: »

The FTSE 100 has consistently underperformed the other developed world indexes for the last 20 years. It is poorly weighted index focused on too few industries.

Hence my decision to place 40% of my equity allocation in an Developed World tracker.

atlanticspan

C_Mababejive wrote: »

I think every investor should have a proportion of good quality investment grade bonds in their portolio as an anchor in troubled times.

There..im beginning to sound like a salesman for HL now

No not at all,the more information I have the better !

Although, I have a basic understanding of what bonds are, I have to admit to being a little unsure as to which way to go,as I keep hearing that interest rates are likely to rise in the next 1-2 years.
If I do end up buying them to add balance to my investment,
I would probably buy index funds made up of equal measures of Index Linked Gilts and something like a Vanguard Global Bond fund.
What do you think?
Thanks v much.

Glen_Clark

atlanticspan wrote: »

Hence my decision to place 40% of my equity allocation in an Developed World tracker.

Why not 100%.
Plenty of Diversity there already
And if you do pop your clogs its less hassle and expense for your executors to just deal with one fund.

dunstonh

Hence my decision to place 40% of my equity allocation in an Developed World tracker.

but still have 45% in such a poor one? Why not FTSE all share instead?

I would probably buy index funds made up of equal measures of Index Linked Gilts and something like a Vanguard Global Bond fund.

IL gilts would reduce volatility significantly allowing you to increase the higher risk element of your portfolio more. However, unless you rebalance that benefit will be wasted (as it would be if you didnt include more volatile areas). Strategic bonds, corp bonds and high yield bonds should be considered as well.

bigadaj

To be fair the all share is little better than the 100 if split by cap size/ value as is normal, it matches the ftse 100 by about 80% I believe.