100% Equity vs Equity/Bond

Ray_Singh-Blue

If a bond is currently yielding 0% and has a duration of 5 years, then it will cost you £1 today and you will get back £1 in 5 years.

If interest rates rise tomorrow and suddenly there are bonds available yielding 2%, then those are what people are going to buy with their 1£ instead. And your 0% bond is now worth 90p. It has dropped in value by 10%, which is the rise in interest rate multiplied by the bond duration.

You can say, "ah, but I intend to hold it to maturity and therefore will not lose capital" - but if interest rates have risen it is likely that inflation will have risen also, and in real terms you will lose.

I see no reason why bond funds will not behave in the same way when interest rates rise. IMHO one of the reasons 0% bonds even exist is that, under quantitative easing, central banks are buying government bonds and somehow this creating a false market. Personally I won't be dipping a toe in those waters while that's going on, as consider cash a valid alternative for my purposes,

So I think it is very right to be worried about bond yields, & would be grateful if anyone could correct me if I have this wrong:

StellaN

MPN wrote: »

Which strategic bond/s and property fund did you settle on?

I assume the equitiy part of your portfolio is an All World Tracker as you previously mentioned?

I personally feel this sounds a fairly well balanced asset allocation for somebody of your age but I'm still learning about my own investments so I think the more experienced investors on this forum will be able to comment much better than I can at this stage.

I finally decided to go with an all world tracker for 70 and then 10 in an Artemis Strategic Bond, 10 in an Invesco perpetual Monthly income Bond and 10 in the Blackrock Global Property Tracker.

I decided to spread the bond element between 2 strategic bonds but I really think the bond element will nearly always be the weak part of the portfolio but who knows?