DIY portfolio: Which one bond fund to buy longterm?

Linton

“Bonds” cover a wide range of investments with different benefits and drawbacks. What is the purpose of your bond tranche? Every investment choice should be based on an objective.

Why have a set of global government bonds? If it solely low risk bonds why go outside the UK? Under current conditions wont the bonds effectively provide pure currency risk? You are already diversified in your currency risk by your global equity. And why 10%? If you see the bonds as mitigation for a major equity crash is that enough to make sufficient difference to be worth the effort?

[Deleted User]

Linton wrote: »

“Bonds” cover a wide range of investments with different benefits and drawbacks. What is the purpose of your bond tranche? Every investment choice should be based on an objective.

Why have a set of global government bonds? If it solely low risk bonds why go outside the UK? Under current conditions wont the bonds effectively provide pure currency risk? You are already diversified in your currency risk by your global equity. And why 10%? If you see the bonds as mitigation for a major equity crash is that enough to make sufficient difference to be worth the effort?

Thanks. You raised good points there. 10% would not save my capital much in case of market crash. Why global bonds? Because that's part of Rational Investing strategy, as per Monevator, Lars Kroijer "Investing Demystified" book, and many more sources. Even Warren Buffet wants his inheritance invested in 90% equity/10% bonds proportion. So maybe there is a point in that.

cogito

Linton wrote: »

“Bonds” cover a wide range of investments with different benefits and drawbacks. What is the purpose of your bond tranche? Every investment choice should be based on an objective.

Why have a set of global government bonds? If it solely low risk bonds why go outside the UK? Under current conditions wont the bonds effectively provide pure currency risk? You are already diversified in your currency risk by your global equity. And why 10%? If you see the bonds as mitigation for a major equity crash is that enough to make sufficient difference to be worth the effort?

Indeed. Bonds are extremely expensive at present and have been described as a return free risk. I'd rather keep my money in cash at the moment and lose it more slowly.

Linton

pioruns wrote: »

Thanks. You raised good points there. 10% would not save my capital much in case of market crash. Why global bonds? Because that's part of Rational Investing strategy, as per Monevator, Lars Kroijer "Investing Demystified" book, and many more sources. Even Warren Buffet wants his inheritance invested in 90% equity/10% bonds proportion. So maybe there is a point in that.

Are Warren Buffets objectives the same as yours? For example WB cannot hold the odd spare $billion in cash at his local high street bank.
Are the recipes in the necessarily simplistic investment popularisations appropriate given the current state of the safe bond market?
Do you know why your references advocate bonds in the proportions they do? Do their reasons match your objectives and circumstances?
If you are going to invest in safe bonds one key benefit of single bonds is that you know exactly how much they will return from now until the known maturity date at which point you know you will get the face value returned. This can make them vet valuable for some investors. With a broad bond fund this benefit is completely lost. If WB holds bonds I would expect them to be denominated in $s with specific maturity dates, not an effectively random assortment of dates and currencies.
I am not saying you should not hold 10% in a random assortment of safe bonds as I don’t know your circumstances, , but rather you should know how it will benefit your financial future and why it is the best use of your money for achieving your objectives. This will help you choose the most appropriate fund.

MK62

pioruns wrote: »

Thanks. You raised good points there. 10% would not save my capital much in case of market crash. Why global bonds? Because that's part of Rational Investing strategy, as per Monevator, Lars Kroijer "Investing Demystified" book, and many more sources. Even Warren Buffet wants his inheritance invested in 90% equity/10% bonds proportion. So maybe there is a point in that.

I believe WB wrote that back 2014......whether his advice is still the same today I don't know.

He also suggested the 90% was invested in a low cost S&P 500 tracker, with the 10% going into short term govt bonds.....turns out it was decent advice then, but that was 5 years ago and a lot has changed in the world since then.

You also have to consider that if Mr Buffet lost half his net worth, he, or his family, would then be reduced to scraping an existence on the remaining $45Bn.;).........not quite the same situation I expect most of us would be in if we suffered a similar loss.......

Voyager2002

This thread has confirmed that my decision not to hold any bonds is the right one for me.


I suppose that a bond fund is usually a good investment for funds that are likely to be needed in the fairly short term, a way of holding on to the value of your investment (after inflation) without putting the capital at excessive risk, but at the cost of sacrificing growth. However, when interest rates are abnormally low and might at any point return to something closer to long-term averages, the value of a bond holding might slump at the very moment when one needs the money. So for me the combination of cash-based investments (high-interest bank accounts) along with different kinds of equity-based investments provides another way to meet my requirement for low-risk but low-growth holdings.

ColdIron

pioruns wrote: »

Yes, I know it's a very low cost already, but nearly the same iShares Core Global Aggregate Bond UCITS ETF takes 0.10 instead of 0.19%. Why pay more if you can pay less.

Because not all bonds are the same? Bonds range from low volatility but low return government bonds through higher risk and higher return corporate bonds to high yield bonds with equity like features. What do you want your bond allocation to do? You say 'Which one, single product would cover most of global bond market' and yet seem to be focussing on sovereign debt, fine if that's what you want. However at just 10% with an apparent volatility blunting objective you might be better in cash. No fees at all with that route. If you put 10% into 'bonds' what do you think they would achieve that cash wouldn't or that cash wouldn't do as well?

I would determine what my objective was and take it from there. If the best solution turned out to be an actively managed Strategic fund (where the manager can range across all the bond types to suit the fund objective and economic situation) then that's what I would use even if the OCF was closer to 0.50%. Don't let the cost tail wag the investment dog. I'm an income investor these days so have little use for government bonds but make use of higher yielding bonds and cost is a secondary consideration. Not much point in trying to unscrew a screw with a chisel even if it was a bargain one. iWeb charge a fiver a pop, if you could get a better solution for your needs with a two fund solution I'd call that a bargain. What I wouldn't do is treat all bonds as the same and reach to the bottom of the clearance basket by the till and consider it 'job done'. Would you buy a car or food like this?

A_T

Worth a mention is Xtrackers II Global Government Bond UCITS ETF 2D - GBP Hedged (XGSG). Available on iWeb.

It's not worth quibbling over 0.1% difference in charges.

chucknorris

Voyager2002 wrote: »

This thread has confirmed that my decision not to hold any bonds is the right one for me.


I suppose that a bond fund is usually a good investment for funds that are likely to be needed in the fairly short term, a way of holding on to the value of your investment (after inflation) without putting the capital at excessive risk, but at the cost of sacrificing growth. However, when interest rates are abnormally low and might at any point return to something closer to long-term averages, the value of a bond holding might slump at the very moment when one needs the money. So for me the combination of cash-based investments (high-interest bank accounts) along with different kinds of equity-based investments provides another way to meet my requirement for low-risk but low-growth holdings.

I've wrestled with investing in bonds for a long time, and have not done so yet (apart from 2% of my portfolio last week). Unless I have misunderstood, what puts me off from bond funds, is that they don't seem to pay anything when the 40% tax and circa 1.9% inflation comes off the interest paid. I'd be happy to be corrected if that isn't the case.

The two individual bonds that I invested in last week have risks, which is why I limited myself to only 1% of my portfolio value for each one. But I have about £300k to invest somewhere, even after storing £170k in two 1 year savings accounts last week, which pay an average of only 2.1% (so they actually lose money after tax and inflation).

But the real problem that I have is that I want to sell my investment property, and at 61 I do not want to be 100% in equities. I like equities but I would like to have money elsewhere so in the event of a market crash I could invest in equities at the post crash level (I realise that might turn out to be only part of the way down to the bottom).

I think possibly I am just going to have to get used to the idea that at my age I need to be looking for lower risk products and accept that they will not be profitable, but offer protection.

[Deleted User]

Thanks for all your insights it provides immense help to me.