Vanguard Global Bond Index

masamoah

Hi Guys

I am new to investing and am putting a percentage of my salary into a fund and share account, which is with H & L.
I have the Vanguard Global Bond Index fund and i am looking to get some shares in Llyods also.

What i am trying to do is build a strong and diverse portfolio. I am not in a rush for the money so i am just reinvesting my dividends.

I am looking to start using the money in maybe 5 or 10 years. My question is:
1.Is having the vanguard Global Index fund diverse enough? (i have done some research and alot of investors emphasise on diverification on asset allocation)
2. Would 5 years be too soon to even think about withdrawing the money, is it best to wait 10+ years so you can ride out the market?
3. What sort of tax would i be liable to pay if i did cash in?


Any help or advise would be most appreciated.

Regards

george4064

Have you considered opening an ISA? (probably not with H&L with their high charges).

The advantage of an ISA is that you needn't worry about any tax implications.

bowlhead99

masamoah wrote: »

2. Would 5 years be too soon to even think about withdrawing the money, is it best to wait 10+ years so you can ride out the market?

Generally yes. If you are dripping the money in from salary the first payment will have been invested 60 months and the lay payment only 1 month. On average your money will have been invested about 2 and a half years. Way too short to expect to receive any "average" kind of result, given a whole economic cycle is likely to be somewhere from 7-10 years plus.

That said, if most of the money is bonds, it is very unlikely to crash by say, 40% over that time period. But I wouldn't be at all surprised if the global bond fund was at a lower price in five years than it is today. That could be quite likely given current prices and the current weakness of the pound. A bond index is certainly less risky than an equity index over short timescales but as a small investor your choices are not just equities or bonds - you have the choice of lots of high interest current accounts which can't lose money.

1.Is having the vanguard Global Index fund diverse enough? (i have done some research and alot of investors emphasise on diverification on asset allocation)

If you want bonds it has variety of types in different countries. It doesn't have things that are not bonds. Generally people say you should have a mix of asset classes, as you've found in your research, and bonds is just one asset class with perhaps a few sub-classes in that fund.

I don't hold a global bond index as I am not a fan of that strategy, but others would. But generally as part of a proper portfolio.

The equities allocation -one single UK based banking business- is laughably un-diversified, but you probably realise that from your research on diversified allocations. If you haven't done any, do.

3. What sort of tax would i be liable to pay if i did cash in?

The sort of tax you would pay is capital gains tax (10% for a basic rate taxpayer) when you sell and income tax on the annual interest and lloyds dividends as you go along.

Each of those taxes has decent annual allowances - eg the first £11k of any gain you cash out in a tax year is exempt, the first £5k of dividends in a tax year is tax free, there are interest allowances you're probably aware of from having bank accounts, etc.

If you can fit the investments in your £15k a year annual ISA allowance (£20k from next tax year) - ie maybe only investing £1-£1.5k a month out of your salary - then there are no taxes at all.

dunstonh

What i am trying to do is build a strong and diverse portfolio.

Good. So, we know your objective.

1.Is having the vanguard Global Index fund diverse enough? (i have done some research and alot of investors emphasise on diverification on asset allocation)

In most sector allocation models, global bonds account for a small amount of the holding. Typically single digit (irrespective of risk profile).

It is one of the 8-10 funds you should have and with single digit allocations most typical, you would have to say that it is not enough if held in isolation. It would fail your objective.

2. Would 5 years be too soon to even think about withdrawing the money, is it best to wait 10+ years so you can ride out the market?

10 years is around what an economic cycle is nowadays. Any less than 10 years and you are taking increased risks. Plus, regular contributions tend to need a minimum term of 15 years as most of the money wont be in there for long enough otherwise.

What would you do with the money when you drew it out?

3. What sort of tax would i be liable to pay if i did cash in?

Zero if using an ISA (which is the logical thing to do).

masamoah

True. on second thoughts, ten years way too short! Thanks though

masamoah

The equities allocation -one single UK based banking business- is laughably un-diversified, but you probably realise that from your research on diversified allocations.

Please explain more of the above, i am not sure what you mean?

Also, i am only investing £%00 a month so i think i really do not have to worry about tax at all yet!

Linton

masamoah wrote: »

The equities allocation -one single UK based banking business- is laughably un-diversified, but you probably realise that from your research on diversified allocations.

Please explain more of the above, i am not sure what you mean?

Also, i am only investing £%00 a month so i think i really do not have to worry about tax at all yet!

On the equity side you are only proposing one share. One share is highly risky - look what happened to the banks in 2008. If you invest in equities you should be looking at a broad coverage including all major geographic areas and industries. For a small/medium investor that means investing in general funds, not one specific company's shares.

masamoah

The biggest holding is like 0.5%. So in addition to this fund, do you mean that i would need to get atleast 7 other funds that have this sort of holding to achieve diversification?

also, OK. Ultimate goal is to get a mortgage. i am in my mid 20's so kind of feel like time is against me. But yes, mortgage is the main reason for investments. But if i need to wait 15 years, i may change my plan and use salary to save for mortgage and investments for income and children when i get some.

jimjames

masamoah wrote: »

The biggest holding is like 0.5%. So in addition to this fund, do you mean that i would need to get atleast 7 other funds that have this sort of holding to achieve diversification?

also, OK. Ultimate goal is to get a mortgage. i am in my mid 20's so kind of feel like time is against me. But yes, mortgage is the main reason for investments. But if i need to wait 15 years, i may change my plan and use salary to save for mortgage and investments for income and children when i get some.

Holding one share alongside a bond fund isn't diversification. What about equity in the rest of the UK that isn't Lloyds and all other companies worldwide?
But if you are in your 20s why would you look to only have a bond fund and one share? Normally you'd have more equity than bonds at a younger age but if you are saving for a mortgage then unless you have flexibility over when you buy it wouldn't normally be recommended to use investments.

masamoah

Thanks! What is an example of a general fund? I need to compare this to what i have, that way i can see how it is made up and get funds alike.

masamoah

Good point- i think that is where i am going wrong. I need to readjust my investments and take up more equity, as well as more diversification.