Guaranteed Bonds - a good idea?

jamesd

polybear, try a fund in the UK Equity Income sector instead, something like Invesco Perpetual Income Accumulation version. If it performs as it has historically it'll grow by an average of more than 12% a year and that would be 1.76 times the starting value after five years. It would take a 44% drop in the market to take you below the starting value after that sort of growth. That's a bigger fall then expected from that type of fund but it could happen.

For more certainty, do a split between that type and a UK corporate bond fund. This will reduce the upside but the steady income payments and the reduced up and down potential of corporate bonds would make it almost impossible for a 50:50 or even 30 bonds: 70 equity income mixture to end up below where you start. It'd take something like the long term bull market that started in 1929. Not impossible, but really unlikely.

If you do a split, each year move some of the money around so that the split percentage stays the same, locking in some of the gains or exploiting temporarily lower prices.

If you're investing more than a few thousand Pounds you might want to do a full cautious sector allocation instead of these rather crude (but still useful and effective) splits.

If you don't actually need the money at the end of a fixed term and it does happen that the markets are at a low point you could always leave the money invested. These sorts of loss potential calculations are really most significant with those who have a fixed end time. The rest can just wait a few years for the next recovery, or take money from the bond portion.