Bonds newbie

chucknorris

ams25 wrote: »

Very much relate to your post...as a relative bond newbie also but having recently stopped work, needed to move from a very high equity allocation to something safer. Ie around 55% in equities.

Currently have c.20% in bonds, c.12% cash, 4% property (funds) and 8% absolute return and wealth preservation funds. About a third of the cash is p2p earning decent returns to date (4-10%).

I'm glad that I started this thread, it has made me start thinking about where my portfolio needs to change when I retire, last September I dropped down to working one day per week, so I am partly there now. But I have yet to dispose of my investment property and of course start receiving my state pension, as both will occur approximately at about the same time in 7 years, I would like to have my retirement portfolio in place by then.

I have learned two things from this thread, bonds are probably not for me (unless something changes), at least not as much as I thought that they might be. Not great news, but at least I am now more informed. I also learned that buying additional pension in the Teachers' Pension Scheme is even better value than I had previously thought, I thought that it was fantastic value, now I think that even 'fantastic value' doesn't do it justice. I did buy about the max allowed in the pre 2015 scheme (£6,200 annual pension). When I join the new scheme in August 2020 I can start to buy another £6,500. BUT now that I only work one day per week my 'relevant income' is less than £11k, so I will not be able to buy the max before the deadline of my 67th Birthday (my state pension age). I don't really want to start working more, so I can't see how I can increase my 'relevant income'. I'm not sure about the legitimacy of doing things like managing my wife's investment properties to add to my relevant income. It looks a bit too manipulative, and the inland revenue might not like that, but I need to start looking at that, and come to a conclusion.

ams25

If you have enough of your income covered by DB/SP pensions and rental income there is an argument for a higher level of equities with a decent cash buffer (2 or 3 years expenses) and forgetting the bond allocation. You can argue that the pensions are fulfilling that safe role. And if you can buy more in your DB you are indeed fortunate (amazed you can).

My DB is 7 years away so my equity allocation is lower right now...but as it gets nearer I plan to increase it..probably to around 70% once in payment.

You should look more closely at p2p, especially the asset backed providers, such assetz capital, moneything etc. Not without risk but decent returns from a diversified portfolio are achievable with 10% after bad debt possible. I am achieving less than this (due to less risk and effort) but so far have not been disappointed. I have about 4.5% of my portfolio in p2p.

ams25

http://money.cnn.com/2017/03/01/retirement/bonds-retirement/index.html

this article kind of says how I feel about bonds. (Disclaimer: I know nothing about bonds!)

could we be in for repeats of 1994, 2013...maybe. Could it be worse ? Maybe. Could it be less worse? Maybe.

If I had invested in m&g optimal income (a decent strategic bond fund) 5 years ago in 2012 I would have seen about a 6% drawdown in 2013 when the last bond 'massacre' occurred and similar volatility in 2016 but over 5 years I would be up 30%. If I needed to sell within a 12 month time horizon at any time during the 5 years I could have avoided any capital loss as recovery was within this timeframe.

I realise the next 5 years could be very different.....or not. No one knows.

Given the options, I think there is still a place for bonds in a portfolio.

MPN

Another vote for Wealth Preservation IT's such as Capital Gearing, Rutter, Personal Assaets and RIT Partners instead of bonds. I know the dividend yields are fairly low I think between 0.5 and 1.6 per cent however for capital preservation and indeed some growth I would favour these type of funds to bonds. The only other point is that if you would like 25 per cent bonds in your portfolio, to match this you would most probably require 50 per cent in a Wealth Preservation IT to water down the equity mix in these funds.

ams25

MPN wrote: »

Another vote for Wealth Preservation IT's such as Capital Gearing, Rutter, Personal Assaets and RIT Partners instead of bonds. I know the dividend yields are fairly low I think between 0.5 and 1.6 per cent however for capital preservation and indeed some growth I would favour these type of funds to bonds. The only other point is that if you would like 25 per cent bonds in your portfolio, to match this you would most probably require 50 per cent in a Wealth Preservation IT to water down the equity mix in these funds.

I hold such funds but worth noting that those mentioned typically hold around 50% in bonds and cash. So by holding you are quite substantially investing in bonds.

chiang_mai

An interesting and useful grid here which shows portfolio performance based on its composition,

"This chart shows annual returns for eight broad-based asset classes, cash, and a diversified portfolio ranked from best to worst. Notice how the “leadership” changes from year to year, and how competitively the diversified portfolio performed over 20 years (see the “average” column)."

Another take away perhaps is how scattered bond performance is throughout the life of the grid, perhaps this is because the terms "bonds" is all-encompassing and includes everything from high risk, high yielding junk bonds through to T' Bills, each of which behaves differently.

https://www.mfs.com/wps/FileServerServlet?articleId=templatedata/internet/file/data/sales_tools/mfsvp_20yrsb_fly&servletCommand=default

coyrls

For a retail investor, you’re probably better off putting money into fixed term savings accounts, rather than buying individual corporate bonds and holding until maturity. The return is likely to be higher and, so long as you stay under £85,000 with any one institution, you’ll have gilt levels of security.

ColdIron

chiang_mai wrote: »

Another take away perhaps is how scattered bond performance is throughout the life of the grid, perhaps this is because the terms "bonds" is all-encompassing and includes everything from high risk, high yielding junk bonds through to T' Bills, each of which behaves differently

Indeed, you need to choose the right vehicle for your objective just like any other asset class

MPN

ams25 wrote: »

I hold such funds but worth noting that those mentioned typically hold around 50% in bonds and cash. So by holding you are quite substantially investing in bonds.

Yes, agreed and point taken. Maybe I should have said I favour the mix of equities with bonds in a wealth preservation fund rather than invest solely in bonds for this asset class.

ams25

chiang_mai wrote: »

An interesting and useful grid here which shows portfolio performance based on its composition,

"This chart shows annual returns for eight broad-based asset classes, cash, and a diversified portfolio ranked from best to worst. Notice how the “leadership” changes from year to year, and how competitively the diversified portfolio performed over 20 years (see the “average” column)."

Another take away perhaps is how scattered bond performance is throughout the life of the grid, perhaps this is because the terms "bonds" is all-encompassing and includes everything from high risk, high yielding junk bonds through to T' Bills, each of which behaves differently.

https://www.mfs.com/wps/FileServerServlet?articleId=templatedata/internet/file/data/sales_tools/mfsvp_20yrsb_fly&servletCommand=default

Here's Another interesting chart....this one from Finalyti.... it has so much information... but the performance of a global balanced portfolio of 50:50 global equities and bonds over the longer term is the stand out for me.. decent return with less volatility. wouldn't we love that over the next 10 years!