Why hold bonds at all?

puk999

coyrls wrote: »

Two examples that I hold:

Royal London Corporate Bond Fund M Acc: 8.2%
Fidelity Moneybuilder Income Y Acc: 7.8%

Just took a look and see there's two similarly named funds; [URL="

coyrls wrote: »

Two examples that I hold:

Royal London Corporate Bond Fund M Acc: 8.2%
Fidelity Moneybuilder Income Y Acc: 7.8%

Just took a look and see there's two similarly named funds: Fidelity MoneyBuilder Income Fund Y-Accumulation-Gross"]Fidelity MoneyBuilder Income Fund Y-Accumulation-Gross[/URL] and the Fidelity MoneyBuilder Income Fund Y Accumulation. I'm wondering what the difference is?

Radiantsoul

I think normal retail investors might well decide that bank accounts, with various deposit protections are better value at the current time.

Eco_Miser

puk999 wrote: »

Just took a look and see there's two similarly named funds; [URL="

Just took a look and see there's two similarly named funds: Fidelity MoneyBuilder Income Fund Y-Accumulation-Gross"]Fidelity MoneyBuilder Income Fund Y-Accumulation-Gross[/URL] and the Fidelity MoneyBuilder Income Fund Y Accumulation. I'm wondering what the difference is?

Probably the gross version is for holding in ISAs/SIPPs and doesn't deduct tax from interest distributions.

Freecall

You have to remember that the high(ish) interest bearing current accounts are really intended as a way of winning business. Attracting new customers always has a cost and an enhanced product offering is just part of the marketing mix. For some of the main high street backs it has been, and continues to be, very successful.

If you are a small investor/saver and you are prepared to put in the effort then you can take advantage of this to obtain a good return but this is not how the providers intended them to be used. In fact they make it rather difficult by putting obstacles in the way such as minimum deposits/withdrawals each month but as I say, if you are prepared to play the game then you can turn them to your advantage.

As part of a long term portfolio however they are seriously limited. Can you use them in an ISA? or a SIPP? Are they available as part of a drawdown strategy so that you can keep them wrapped for the next tax year etc? The answer to all these questions is of course no and that is where low volatility investments come in.

Traditionally bonds have filled this role although I am not so sure that they still do. QE has changed the landscape somewhat which has resulted in the rapid growth of the retail bond market.

I think that there is definitely room for products which fulfil the role that bonds did a decade or so ago. That is, short to medium term low-volatility investments which are readily liquidated and can be held within the various wrappers.

So the answer to your question is the same as is often the case, it depends on what you are trying to achieve. If you are looking for a reliable couple of percent with capital safety for unwrapped funds and you are prepared to put in a little bit of effort then the high street accounts will suit your needs but if on the other hand you are looking for longer term, wrapped investments then you are still pretty much stuck with bonds.

Of course, like many on here, you may find that a bit of both may end up fitting your needs best.

Glen_Clark

The-Joker wrote: »

Looking at the debt burden of the UK, there is no way they way all those bonds, sell out now. The first to sell will get paid the last ones trying to get out won't.

Sell out and put the money where exactly?
Everything else is looking about as expensive as bonds, thats the problem.

kidmugsy

Glen_Clark wrote: »

Sell out and put the money where exactly?
Everything else is looking about as expensive as bonds, thats the problem.

Some gold might not go amiss.

racing_blue

Bonds are said to provide income and stability.

But with yields at record lows they are not providing much income right how.

Corporate bonds provide more income, but this comes at the price of default risk. Default is most likely to occur during periods of trauma in the stock market- meaning they provide least stability when stability is most needed.

Also, I question how much stability even government bond funds provide. What will happen to the price of bond funds when interest rates rise?

In my view cash provides better stability, and similar income for the private investor in ISA territory. My asset allocation is:
25% cash (saving)
25% global stock market (investing)
25% commodities (speculating)
25% individual companies (gambling...)