Reasons to invest in Bonds / Gilts

intowhere

Hi,
What are the mains reasons for investing in Bonds today, given the low IR and high asset prices? The yield is low and if IR increase the funds value will tumble. If the main reason diversification? Every single article I read suggests that you should have an element of bonds. I do own bonds through my pension (long dated gilts, index lined gilts and corporates - all through a default fund) but in the back of my mind I fear that there won't be much point in investing as they won't provide much protection in the event of a stock market crash and as IR increase their value will decrease nor can they offer decent yield which can be reinvested. Am I missing something, convectional wisdom is still to invest in bonds right?

ColdIron

Here's another thread on the subject with many useful replies including mine
https://forums.moneysavingexpert.com/discussion/comment/74811870#Comment_74811870

Linton

Many people dont invest in safe bonds like gilts for the reasons you suggest. You may as well use cash instead. The problem is to find other things that will behave differently to equity. I use Strategic Bond funds where the manager chooses a wide range of bonds uncluding higher risk /higher return corporate bonds. Other options include Wealth Preservation funds (see another ongoing thread) or directly held property funds (funds that actually own buildings rather than funds which invest in property companies).

george4064

Putting returns to one side, a benefit is that they typically experience lower level of volatility than what you would experience if you were invested in equities and provides a greater potential upside than cash would.

kidmugsy

george4064 wrote: »

... provides a greater potential upside than cash would.

True, but the figures you commonly see quoted don't actually compare bonds to cash but instead bonds to Treasury bills.

The retail customer can usually get higher returns, and more tax-efficiently, on his cash than the professional investment manager can get by buying bills.

Still, cash won't get you a capital gain when interest rates fall, which a bond might.

We used to hold gilts, both fixed interest and index-linked. We don't now: cash is king for the moment.

Zola.

Bonds smooth the ride when stocks fall

EdGasketTheSecond

If you are in a SIPP or S&S ISA then the following won't apply:


"The retail customer can usually get higher returns, and more tax-efficiently, on his cash than the professional investment manager can get by buying bills."


and cash in those tax-efficient vehicles will just lose value to inflation. I agree not much point investing in bonds/gilts however short-dated bond funds are worth a look because as the bonds mature, they get replaced with other bonds that will have fallen in value and hence offer a better return as interest rates rise. Medium and long-dated look a huge risk to me though.

Thrugelmir

Zola. wrote: »

Bonds smooth the ride when stocks fall

Generally too closely correlated at the current time. After a decade of loose fiscal policy.

Thrugelmir

intowhere wrote: »

What are the mains reasons for investing in Bonds today

Bonds come in a wide variety of forms.

rathernot

Remember as well you can't wrap cash in a S&S ISA easily if you want to use the S&S element.

Factor in tax and even in top savings accounts real returns are shocking.

intowhere

Zola. wrote: »

Bonds smooth the ride when stocks fall

Maybe - the bond funds I have invested in have very long dated bonds and I assume they are more sensitive to IR increases. I think I will try and invest in a dynamic fund where someone can decide to reduce the duration of the fund if they think that the best thing to do.


Any suggestions for good dynamic funds or IT