Reasons to invest in Bonds / Gilts

kidmugsy

EdGasketTheSecond wrote: »

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."

Only a loony would plan to hold cash for any sustained period in an S&S ISA or a SIPP, unless it was one of those rather specialist SIPPs set up to offer reasonable deposit interest rates.

EdGasketTheSecond wrote: »

and cash in those tax-efficient vehicles will just lose value to inflation.

History shows long spells when cash has beaten inflation, including our own savings/investment history. I don't understand why people keep uncritically repeating that cash must lose to inflation - it's simply a falsehood, if history is any guide.

Naturally you'd want to store your cash tax-efficiently - currently so as to use your Savings Allowance, Starting Rate for Savings, and so on. It's not very hard to get interest at above the CPI rate of inflation at the moment, or indeed the RPI rate, on useful sums. Of course if you were rich you probably wouldn't bother.

Thrugelmir

intowhere wrote: »

Maybe - the bond funds I have invested in have very long dated bonds and I assume they are more sensitive to IR increases.

Not just interest rate rises. The nominal value of the stock could well be trading above par. Resulting in a default capital loss at maturity. When the stock is redeemed.

ColdIron

intowhere wrote: »

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

Equities are your rocket fuel and bonds are your parachute

Of course, they also serve a useful income function as I opined on in the thread linked above, there are many high yielding fixed income investments. You might find strategic bonds useful as they can range across the bond universe as conditions dictate

You won't find much in the IT space except for High Yield and sub Investment Grade bonds (which will have equity like movements and offer little downside protection). Trackers are also little use as by definition strategic funds need to be managed so look for UT/OEIC strategic bond funds

A couple of well known funds are M&G's Optimal Income and Jupiter's Strategic Bond but there are many others. Have a look on Trustnet

https://www.trustnet.com/fund/price-performance/o/ia-unit-trusts?sector=O%253ASTERSRT&tab=fundOverview

Linton

Zola. wrote: »

Bonds smooth the ride when stocks fall

A|nd so does anything else which isnt stocks. The question is what is the best "anything else" in current circumstances.

MaxiRobriguez

We've spent too many years at ZIRP, prices are high, yields low and there's really only one way bank rates are going to go.

Personally if I wanted 'safer' investments as part of a portfolio, I'd be building cash reserve, not moving equity to bonds.

intowhere

Linton wrote: »

A|nd so does anything else which isnt stocks. The question is what is the best "anything else" in current circumstances.

What would be the anything other - direct property funds, gold? I wouldn't want to buy funds that invest in the equity of property companies but this bloke has a very different view.


Direct property funds are “dangerous”, warns Tiltman
https://www.trustnet.com/news/666385/direct-property-funds-are-dangerous-warns-tiltman

intowhere

MaxiRobriguez wrote: »

We've spent too many years at ZIRP, prices are high, yields low and there's really only one way bank rates are going to go.

Personally if I wanted 'safer' investments as part of a portfolio, I'd be building cash reserve, not moving equity to bonds.

Didn't IR rates go negative somewhere? Or a gov took 10% of all cash deposits from the banks...

Linton

intowhere wrote: »

What would be the anything other - direct property funds, gold? I wouldn't want to buy funds that invest in the equity of property companies but this bloke has a very different view.


Direct property funds are “dangerous”, warns Tiltman
https://www.trustnet.com/news/666385/direct-property-funds-are-dangerous-warns-tiltman

Direct propery funds can be dangerous, but they are dangerous in a different way to equity funds. Property company funds are funds of equities.

Thrugelmir

intowhere wrote: »

What would be the anything other - direct property funds, gold? I wouldn't want to buy funds that invest in the equity of property companies but this bloke has a very different view.

Like bonds. Property is a broad generalisation. With many facets. Investing in equity that holds property rather than direct ownership. At least enables one to hold a liquid position in the asset class.

Not suggesting that now is the the time to invest. Though a diversified portfolio should have some exposure.

EdGasketTheSecond

kidmugsy wrote: »

Only a loony would plan to hold cash for any sustained period in an S&S ISA or a SIPP, unless it was one of those rather specialist SIPPs set up to offer reasonable deposit interest rates.

History shows long spells when cash has beaten inflation, including our own savings/investment history. I don't understand why people keep uncritically repeating that cash must lose to inflation - it's simply a falsehood, if history is any guide.

Naturally you'd want to store your cash tax-efficiently - currently so as to use your Savings Allowance, Starting Rate for Savings, and so on. It's not very hard to get interest at above the CPI rate of inflation at the moment, or indeed the RPI rate, on useful sums. Of course if you were rich you probably wouldn't bother.

So if you are in a S&S ISA or SIPP and want some 'risk off', where do you suggest investing other than cash? Cash will always lose to inflation unless you can get an inflation-beating return on it and you can't in a S&S ISA or SIPP. That leaves gilts/bonds or gold as an alternative to equities all of which carry risks.



Therefore it is not 'loony' at all to hold cash in a S&S ISA or SIPP if you expect markets to fall or want to be out of the market e.g. over Brexit, or you want some reserve funds in case of a market crash so as to buy in at lower prices.