Bond allocation advice please!

kidmugsy

In the past I've just ticked a box: as punch says, perhaps your service requires you to phone.


If your capital isn't in a tax shelter (ISA or SIPP) it would probably be tax-efficient not to buy a conventional gilt, but instead an index-linked gilt, chosen so that most of the gain comes as untaxed inflation uplift, rather than as taxed interest.


If the yields disappoint you, then your obvious alternative is just to hold cash.
http://markets.ft.com/research/Markets/Bonds

FatherAbraham

baffledben wrote: »

I am not too sure about corporate and high yield bonds. As the rest (80%) of my investment will stay in equities, I wanted the 20% bonds to provide the steadying safe haven.

I agree with your sentiment. Gilts are safer than anything else for a UK investor, as far as paying the coupon and principal are concerned. Seeking higher yield with the non-risk part of one's portfolio is counter-productive.

Index-linked gilts are, of course, slightly riskier for a UK investor, since the state cannot just print money to repay (since that would raise inflation, leading to a vicious circle). Although index-linked gilts protect against inflation risk, they should be viewed in a similar way to foreign-currency-denominated bonds issued by the UK -- the debtor does not control the currency, so the risk of default is higher.

Warmest regards,
FA

baffledben

FatherAbraham wrote: »

I agree with your sentiment. Gilts are safer than anything else for a UK investor, as far as paying the coupon and principal are concerned. Seeking higher yield with the non-risk part of one's portfolio is counter-productive.

Index-linked gilts are, of course, slightly riskier for a UK investor, since the state cannot just print money to repay (since that would raise inflation, leading to a vicious circle). Although index-linked gilts protect against inflation risk, they should be viewed in a similar way to foreign-currency-denominated bonds issued by the UK -- the debtor does not control the currency, so the risk of default is higher.

Warmest regards,
FA

Thank you.

bigadaj

FatherAbraham wrote: »

I agree with your sentiment. Gilts are safer than anything else for a UK investor, as far as paying the coupon and principal are concerned. Seeking higher yield with the non-risk part of one's portfolio is counter-productive.

Index-linked gilts are, of course, slightly riskier for a UK investor, since the state cannot just print money to repay (since that would raise inflation, leading to a vicious circle). Although index-linked gilts protect against inflation risk, they should be viewed in a similar way to foreign-currency-denominated bonds issued by the UK -- the debtor does not control the currency, so the risk of default is higher.

Warmest regards,
FA

I'd agree with your point about being unable to print money until a few years ago, now we have quantitative easing in play then money is being effectively printed in any case.

kidmugsy

Here are a couple of funds invested in short term bonds, as used by John Redwood in the portfolio he writes about in the FT.

iShares GBP Corporate Bond 1-5 ETF
Vanguard UK Short Term Investment Grade Bond Index Fund Inc