100% Equity vs Equity/Bond

point5clue

Thankyou Coastline - the link below was just the sort of thing I needed to understand bond funds vs individual bonds risk.

http://canadiancouchpotato.com/2011/07/07/holding-your-bond-fund-for-the-duration/

Which leads us to the key message for investors: as long as your time horizon is at least as long as the duration of your bond fund, you won’t lose any capital.

(not sure on the etiquette of quoting from a link, please let me know if this is frownable?)

Would anyone disagree with the average duration anaylsis of a bond fund? I've got about 10 years to go, and a reasonable large chunk of cash to put by now that I need to be accessible at retirement in case markets are crashing then (with my luck you can almost guarantee it).
Oh, and my analysis of the bond funds in VLS40 is they are below 10 years on average.

MPN

point5clue wrote: »

Thankyou Coastline - the link below was just the sort of thing I needed to understand bond funds vs individual bonds risk

(not sure on the etiquette of quoting from a link, please let me know if this is frownable?)

Would anyone disagree with the average duration anaylsis of a bond fund? I've got about 10 years to go, and a reasonable large chunk of cash to put by now that I need to be accessible at retirement in case markets are crashing then (with my luck you can almost guarantee it).
Oh, and my analysis of the bond funds in VLS40 is they are below 10 years on average.

I wouldn't worry too much about bonds in general most people IMHO tend to be more concerned with their risk in equities!

Thrugelmir

point5clue wrote: »

Which brings us nicely to the OP's question - 100pc equity or mix in some bonds ? What are the other alternatives that can balance bouncy equites ? :j

With interest rates at record lows. Asset classes have become correlated in a chase for yield (income). Rising interest rates leave few places to shelter from the impending storm.

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?