Safe fund beating savings accounts?

bowlhead99

sebtomato said:

I think my requirements are:

• Funds that show a positive return over the last 3/6/12 months
• Preferably 2%+ over the last year (so beating any savings account)
• Funds that have low volatility (so not more than 1.5% variation per 30 days) so that I don't have to drip feed, and investment timing matters less

I wouldn't be forced to sell such investment at very short term (minimum 3-6 months notice), so would only be an issue if a fund was below purchase price for an extended period.
Looks like the "Vanguard Global Bond Index Hedged" fund can fit such criteria, has a low rated risk index and low fee.

It has a low rated risk index because it has not been highly volatile, but the overall yield to maturity of the benchmark it is tracking is  only 1.1% (its own portfolio YTM is 1.0%) as the underlying assets trade higher than par and at the maturity of the bonds held from their current values, there will be a baked in capital loss despite you enjoying 2.5% coupon in the short term. If there is a general increase of interest rates in the market, or increase of credit risk due to general economic conditions, the value of the bonds (which have a 7 years average duration, not super safe super short-dated maturing bonds) will deteriorate faster, so instead of getting the 1% you could get something considerably more negative.

The fact that investors have made more than 1% in recent years is simply that the bond assets were bid up to higher and higher prices due to a reduction in interest rates in the market. That is something that could reverse. You want something that has not more than 1.5% variation per 30 days, yet in the 10 calendar days from 6 March (less than two weeks) its price fell 6%. It rebounded because world governments cut all base rates to pretty much zero and offered trillions of dollars of financial support to companies.  That doesn't happen in every bond crash, far from it.

https://www.vanguardinvestor.co.uk/investments/vanguard-global-bond-index-fund-pound-sterling-hedged-accumulation-shares/portfolio-data

So, the yield on offer is a YTM of 1.0%, and you would hope to get that yield in sterling terms, less hedging costs of ensuring fx rates didn't harm the 1% too much, less the 0.15% product fee. Oh, and less a 0.15% annual fee to hold it on Vanguard's platform (other platform prices may vary).

That sounds to me like a terrible substitute for an instant access bank account paying over 1% (or tax free premium bond account with expected returns of 1.2% a year)

dunstonh

sebtomato said:

I think my requirements are:

• Funds that show a positive return over the last 3/6/12 months
• Preferably 2%+ over the last year (so beating any savings account)
• Funds that have low volatility (so not more than 1.5% variation per 30 days) so that I don't have to drip feed, and investment timing matters less

I wouldn't be forced to sell such investment at very short term (minimum 3-6 months notice), so would only be an issue if a fund was below purchase price for an extended period.
Looks like the "Vanguard Global Bond Index Hedged" fund can fit such criteria, has a low rated risk index and low fee.

No such investment fund exists that could meet that criteria on a rolling basis.

Vanguard Global Bond Index Hedged

Is a single sector fund that is designed to be held in a wider portfolio of single sector funds.  Global bonds are not that attractive at the moment.  It also fails your criteria (the global bond sector has had periods that have suffered losses that have taken years to recover.  And double digit loss periods.

The Vanguard fund hasnt been around long but just in March this year it suffered a 3.6% loss. It spent most of 2016 to 2019 in negative.

MaxiRobriguez

sebtomato said:

Sailtheworld said:

sebtomato said:

Albermarle said:

RCI bank are offering 1.8% on a 5 year fixed rate , which is about as close as you will get to what you want.

Thanks, but I don't want my "savings" to be stuck for 5 years just to earn 1.8%. Doesn't seem to be a good return. 
If I wanted to lock the money down for 5 years, I think I would just drip feed into the stock market, and probably would have a high chance of earning the same amount (or more).

Unless you've got a mortgage or other debt to pay down then it's unlikely you'll do any better. 

Something else to think about is what you're actually saving for and whether there are any benefits to bringing that spending forwards. If, say, it's a new kitchen then buying it earlier would at least give you some utility value.

Drip feeding the stock market seems like a good idea if the money's spare and you don't need it. On the other hand if you don't need it and you've got plenty of money maybe you don't need to take any risk whatsoever and just take what's on offer?

Depends what risks you want to take but either way it's not the end of the world - plenty of people in the graveyard would be glad of this problem.

I do have a fairly small mortgage, but at a rate of 1.64% for the next 5 years, so not worth paying back quicker.

Reconsider.

You're looking for 2% returns and accepting volatility and no guarantees. Such investment will also come with fees which reduce the headline performance. 

Yet your mortgage is 1.64%. If you pay it off, that 1.64% is guaranteed. No volatility, no risk, no fund costs to account for. Apart from the 5 year 1.8% interest rate bank account someone pointed out, this will get as close to what you're seeking as feasible. 

The difference between your mythical safe 2% and a guaranteed 1.64% in a year is £72 on £20,0000. Is it really in your interest to introduce risk funds in order to try and generate that, at the risk of potentially losing hundreds, maybe thousands, more?

EdGasketTheSecond

sebtomato said:

How depressing. So to have a chance to earn 2 or 3% returns per annum nowadays, you need to be willing to have capital going down by 10%??
What's left for investors? 

Nothing once inflation takes away the value of your cash. It's how gov'ts are handling the crisis; debase currency and tax savers through inflation. See where food prices are in a year's time and you will see I was correct.

kinger101

sebtomato said:

How depressing. So to have a chance to earn 2 or 3% returns per annum nowadays, you need to be willing to have capital going down by 10%??
What's left for investors? 

The headline interest rate isn't that important anyway.  It's the margin between that and the inflation.  While this has been negative in recent times, it quite possible that April's CPI figure might reverse this.  

AnotherJoe

sebtomato said:

I perfectly understand investing on the stock markets and bonds, thanks. I never said I was expecting a guarantee.
I am not sure you understand fully investing yourself: higher risk = higher interest/returns. Therefore, there must be some lower risks options with lower returns (but still a bit higher than 1.3%)... I just don't know what those are currently.

Not correct. If that was right, then there would be no risk ! If you "knew" you coudl get (say) 2%, theres no risk.

So maybe you'd get 2%. But you might get  -10%. Thats what "risk" means, its not certain.

Higher risk sometimes gives a higher chance of higher returns.

But sometimes its just riskier.

And sometimes the risk element means the returns are lower than something else you might think is lower risk.

RG2015

kinger101 said:

sebtomato said:

How depressing. So to have a chance to earn 2 or 3% returns per annum nowadays, you need to be willing to have capital going down by 10%??
What's left for investors? 

The headline interest rate isn't that important anyway.  It's the margin between that and the inflation.  While this has been negative in recent times, it quite possible that April's CPI figure might reverse this.  

Have you measured your personal inflation rate? The chances are that it will differ from CPI, CPIH, RPI or any other generalised measure.

Sailtheworld

AnotherJoe said:

sebtomato said:

I perfectly understand investing on the stock markets and bonds, thanks. I never said I was expecting a guarantee.
I am not sure you understand fully investing yourself: higher risk = higher interest/returns. Therefore, there must be some lower risks options with lower returns (but still a bit higher than 1.3%)... I just don't know what those are currently.

Not correct. If that was right, then there would be no risk ! If you "knew" you coudl get (say) 2%, theres no risk.

So maybe you'd get 2%. But you might get  -10%. Thats what "risk" means, its not certain.

Higher risk sometimes gives a higher chance of higher returns.

But sometimes its just riskier.

And sometimes the risk element means the returns are lower than something else you might think is lower risk.

Assuming the risk is being correctly assessed the risk / reward curve will move to the right with reward increasing with risk on average but with increased divergence from the mean. The returns from cash under the mattress will be concentrated around the mean of minus inflation (apart from the odd outlier who gets it nicked). The returns from investments will, on average, be about 4% higher but with much more divergence from the mean.

If risk / reward didn't work like this nobody would take a risk in the first place unless they don't mind being fully compensated for the risk being taken; BTL being a case in point.

SFindlay

sebtomato said:

SFindlay said:

sebtomato said:

Yes, I know no funds are as safe as savings accounts.
However, some funds are more risky than others, and some funds must have performed well during the recent crisis while still giving small returns (e.g. 2% pa).
I am ideally looking for something that doesn't swing too much, and has moderate returns above savings account.

You clearly don't understand, there is NO magical fund like you are seeking, don't you think everyone would be investing there if there was?!?!? 
Stick with the 1.2 or 1.3 % that you're getting and research investing until you understand the risks and accept there is no fund that will guarantee you a better rate than your savings accounts.  

higher risk = higher interest/returns. Therefore, there must be some lower risks options with lower returns (but still a bit higher than 1.3%)... I just don't know what those are currently.

I think you just showed in that one paragraph that you dont understand!! 

bowlhead99

Sailtheworld said:

Assuming the risk is being correctly assessed the risk / reward curve will move to the right with reward increasing with risk on average but with increased divergence from the mean. The returns from cash under the mattress will be concentrated around the mean of minus inflation (apart from the odd outlier who gets it nicked). The returns from investments will, on average, be about 4% higher but with much more divergence from the mean.

If risk / reward didn't work like this nobody would take a risk in the first place unless they don't mind being fully compensated for the risk being taken; BTL being a case in point.

I think the nuance in the exchanges above yours, is that s

- Sebtomato thinks you should be able to get your preferred level of return simply by changing the risk ; picking where you want to be on the curve you describe.

- While AnotherJoe is saying that it's not the case that you can get a known amount of return simply for taking a particular level of risk. It is the other way around, that you may need to take a certain level of risk to have a chance of getting the return, which you might not get. I agree with that and I think it's in line with what you're (Sailtheworld) saying too.

Effectively the risk return curve is saying that for taking a particular level of risk being taken, rational investors would demand a certain level of expected return. 

This does not mean that if someone like sebtomato has a particular level of return in mind that he wants, and is somewhat inflexible about it (i.e. a variety of other potential return profiles would be unacceptable to him if they were to happen) that he would be able to find any suitable product. There may simply not be sufficient demand or market conditions available to create such a structured product that incorporates the necessary insurances and hedges to deliver the return requested at reasonable cost.