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Bond Dilema

edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
6 replies 340 views
Sheriff_FatmenSheriff_Fatmen Forumite
29 posts
10 Posts
edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
Firstly, thanks to all who post their thoughts and opinions on this forum; it's a great help.

Secondly, if you had an equities/low-risk-asset appetite of 80/20, which of the following would you choose for the low-risk-asset (assuming you were allowed no cash reserves, and did not need access to the money from the portfolio for 20 years)

Option A: Vanguard Global Bond Index Fund - Hedged Acc
Option B: Vanguard U.K. Long Duration Gilt Index Fund - Gross Acc

:beer:

Replies

  • zerogzerog Forumite
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    Why not lifestrategy 80?
  • bowlhead99bowlhead99 Forumite
    10.6K posts
    Part of the Furniture 10,000 Posts Name Dropper Post of the Month
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    This might seem like a useless answer but if the purpose of discussion forums is to make you think and help you learn...

    You ask us to imagine we have an 80:20 risk appetite. And then you ask what we would use for the 20.

    But you haven't told us what sort of bonds to imagine we have an appetite to buy.

    If you have first decided somewhat arbitrarily that we should buy '20' bonds with no context at all, how do you expect us to know what type of bonds we would prefer to use to fill up the 20?

    Personally I wouldn't choose either option and while this might just be a thought experiment for you, in practice you are not limited to just those two choices.

    There are all sorts of bonds. Government bonds, investment-grade corporate bonds, high yield corporate bonds. UK bonds, international developed-world bonds, emerging market bonds. Bonds paying in sterling or in other currencies, or bonds paying in other currencies but hedged to sterling. Bonds that expire in 30 years and whose prices are highly geared to market interest rates. Bonds that expire in 30 days and whose prices are not really affected by market interest rate changes because they'll mature soon. Bonds whose return includes an index-linked component (tied to UK or US inflation rates). Direct lending and other private credit strategies. And so on.

    It is unlikely that the type of bonds that are perfect for your strategy are the same type as are perfect for the average worldwide bond investor such as an institutional pension fund or insurance company So, a global bond index tracker doesn't make a lot of sense to me (allocating your money across all bonds that happen to exist).

    I mean, you *might* decide you should allocate your capital in line with how the average global investor allocates his capital, based on the market capitalisation of what exists and could be bought on a market. But if you are doing that you would not be at 80:20 equities:bonds, because a greater value of bonds exists than equities, and you are choosing to buy four times as many equities than bonds because your needs are not in line with the 'average' global investor, you have your own goals and objectives.

    So, decide those objectives and then consider what bonds you want and why they will help. Or decide you don't know and employ a fund manager to make strategic decisions for you. To just take a random bond index doesn't stack up, for me.
  • Sheriff_FatmenSheriff_Fatmen Forumite
    29 posts
    10 Posts
    zerog wrote: »
    Why not lifestrategy 80?

    Point taken, but I am already oversubscribed to UK equities, in my opinion.
  • AnotherJoeAnotherJoe Forumite
    16.9K posts
    10,000 Posts Fourth Anniversary Name Dropper Photogenic
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    Well unsubscribe then
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
  • Sheriff_FatmenSheriff_Fatmen Forumite
    29 posts
    10 Posts
    Well unsubscribe then
    Thanks;  I am in the process of doing so, by investing more into a fund that excludes UK equities. The current UK bias is due to my workplace pension, and with the options available on their platform, there is little I can do about it there. 
  • SonOfSonOf Forumite
    2.6K posts
    1,000 Posts Second Anniversary
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    Global bonds are out of favour generally.  They increase the risk compared to gilts but do not have the upside to make it worthwhile.  You may as well slightly increase you equity content and hold gilts instead.


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