Bond fund as alternative to savings?

C_Mababejive

As savings rates are now rubbish and will likely be so for a long time ( i think at least another decade) , is it now time to consider various flavours of bond funds as an alternative? I'm thinking the risk of leaving a lot of cash lying around doing nothing is now less than investing in debt which the whole world is now wallowing in from personal to corporate and all points in between?

My first thought is strategic bond funds though of course there's a balance to be made between cost/risk/reward

Swipe

With interest rates on zero I don't see any upside on bonds and current rates are very low. Inflation linked bonds might be worth a look at though.

Linton

Why have you got a lot of cash lying around doing nothing?  If you need it in the < 5 year  term keep it as cash as the guarantees could be more important than the interest you would get. If you dont need it in the next 5 years or so invest it, accepting that there are no guarantees.  I believe strategic bond funds could be useful as part of a broader diversified portfolio, depending of course on your objectives.  However they are capable of moderate falls in value - Jupiter Strategeic Bond, which seems to be a relatively cautious one, dropped about 10% in March and has not quite recovered to its previous value.

Linton

Swipe said:

With interest rates on zero I don't see any upside on bonds and current rates are very low. Inflation linked bonds might be worth a look at though.

Current rates are very low on Inflation Linked Bonds as well. If inflation continues at its current level and you hold them to maturity you will lose money.

dunstonh

My first thought is strategic bond funds though of course there's a balance to be made between cost/risk/reward

In a portfolio, bonds are used to reduce volatility.   However, investment-grade bonds are pretty much out of favour at the moment due to liquidity/credit and default risks.    That doesn't mean all will be but as a risk reduction instrument, gilts and cash are being used more as the least worst option.
With interest rates on zero I don't see any upside on bonds and current rates are very low. Inflation linked bonds might be worth a look at though.(quote playing up so had to use code).
Index linked gilts are even more out of favour the investment grade.

aroominyork

dunstonh said:

My first thought is strategic bond funds though of course there's a balance to be made between cost/risk/reward

In a portfolio, bonds are used to reduce volatility.   However, investment-grade bonds are pretty much out of favour at the moment due to liquidity/credit and default risks.

How do short duration bond funds fit into this picture? I am trying to weigh up that on the one hand they are historically less volatile than longer duration funds (is that solely because they are interest rate insensitive?); on the other hand, the underlying holdings might run into trouble because they need to be repaid or refinanced before the economy has rebounded.

MaxiRobriguez

Bonds are ultimately capital at risk. They are not a suitable alternative to savings accounts. If you want alternatives to savings accounts, try Premium Bonds, or increase payments off your mortgage.

Notepad_Phil

C_Mababejive said:

I'm thinking the risk of leaving a lot of cash lying around doing nothing is now less than investing in debt which the whole world is now wallowing in from personal to corporate and all points in between?

Personally I'm staying clear of bonds - but then I'm early-retired and my current retirement strategy is based on taking the yield from my portfolio backed up by several years of income held in cash to (attempt to) mitigate any drops in yield (such as is happening now).

I enjoy the chase of getting 'decent' rates for my cash so for me it is definitely not just lying around - e.g. we've got umpteen regular savers, fixed term accounts, notice accounts, etc, etc, and being able to use both Mrs Notepad and myself means that we can shelter quite a bit in accounts that are paying above current inflation and have been beating them since I retired. This might of course change, but then everything can change.

C_Mababejive

Linton said:

Why have you got a lot of cash lying around doing nothing?  If you need it in the < 5 year  term keep it as cash as the guarantees could be more important than the interest you would get. If you dont need it in the next 5 years or so invest it, accepting that there are no guarantees.  I believe strategic bond funds could be useful as part of a broader diversified portfolio, depending of course on your objectives.  However they are capable of moderate falls in value - Jupiter Strategeic Bond, which seems to be a relatively cautious one, dropped about 10% in March and has not quite recovered to its previous value.

Lots of cash doing nothing ...> Well the issue is that im hearing all these messages;
1)The stockmarket is heading toward the end of a long bull run/there might be a post covid crash,,,shouldi  push a big lump of money into investments at this time? if so,into what? more in my global tracker? put money into actively managed funds?

2) Bonds are no good because of the reasons stated by some in this very thread

3) savings rates seem to be rubbish all round and on top of that, id have to pay 20% income tax

Plan/Strategy? non in particular,,i keep getting paid/generating money so i seek to increase wealth because what else can you do other than give it away ?

coyrls

Buy something?

[Deleted User]

C_Mababejive said:

Linton said:

Why have you got a lot of cash lying around doing nothing?  If you need it in the < 5 year  term keep it as cash as the guarantees could be more important than the interest you would get. If you dont need it in the next 5 years or so invest it, accepting that there are no guarantees.  I believe strategic bond funds could be useful as part of a broader diversified portfolio, depending of course on your objectives.  However they are capable of moderate falls in value - Jupiter Strategeic Bond, which seems to be a relatively cautious one, dropped about 10% in March and has not quite recovered to its previous value.

Lots of cash doing nothing ...> Well the issue is that im hearing all these messages;
1)The stockmarket is heading toward the end of a long bull run/there might be a post covid crash,,,shouldi  push a big lump of money into investments at this time? if so,into what? more in my global tracker? put money into actively managed funds?

2) Bonds are no good because of the reasons stated by some in this very thread

3) savings rates seem to be rubbish all round and on top of that, id have to pay 20% income tax

Plan/Strategy? non in particular,,i keep getting paid/generating money so i seek to increase wealth because what else can you do other than give it away ?

Active funds are a good option if you can stay invested long term. Leave the headache of analysing and managing risk to the fund managers. Spread it across 4 or 5 funds that have a good track record.