Bonds in a pension portfolio

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howard3844 said:

It is a question a lot of people are asking. as said before the price of existing bonds have already reduced to take into account future expectations of inflation / interest rates, so no real reason in selling them ... Nobody knows if rates are going to go up or down  .. If in a multi asset fund with say vanguard LS, the rise in equities should more than compensate ? This is a general view not knowing your circumstances. 

The scenario is a brand new investment, a balanced portfolio. Does it make sense at this point in time to go 60/40 equity/bonds?

masonic

Aged said:

howard3844 said:

It is a question a lot of people are asking. as said before the price of existing bonds have already reduced to take into account future expectations of inflation / interest rates, so no real reason in selling them ... Nobody knows if rates are going to go up or down  .. If in a multi asset fund with say vanguard LS, the rise in equities should more than compensate ? This is a general view not knowing your circumstances. 

The scenario is a brand new investment, a balanced portfolio. Does it make sense at this point in time to go 60/40 equity/bonds?

It depends on your attitude to risk and investment horizon. If you were a 20 year old saving for retirement it might make sense to go 100% equities. If that's too risky for your personal circumstances, then what alternative asset classes to you have available in your pension?

dunstonh

Aged said:

howard3844 said:

It is a question a lot of people are asking. as said before the price of existing bonds have already reduced to take into account future expectations of inflation / interest rates, so no real reason in selling them ... Nobody knows if rates are going to go up or down  .. If in a multi asset fund with say vanguard LS, the rise in equities should more than compensate ? This is a general view not knowing your circumstances. 

The scenario is a brand new investment, a balanced portfolio. Does it make sense at this point in time to go 60/40 equity/bonds?

Depends on the bonds.    It's a term that covers a range of options and if you took a typical 1-10 risk scale, you can buy bond funds that are in risk 2 through to risk 10.  Not all bonds are volatility reducers.

The fixed interest securities class tends to be a wavy lane in terms of unit price (ignoring income).  As interest rates fall, unit prices rise.   And vice versa.   Unlike equities, the fixed interest cycle tends to be over a longer period and not as volatile at the lower risk end.  Not just on the way up but on the way down.   Whereas equity negative periods tend to be 3-4 years or less (more often than not, less than a year).   People have been calling a bonds crash since the months after the credit crunch but it really took until this year to see the first one since then.   It is as unpredictable as equities but once you start a cycle or rising or falling interest rates, you tend to find the trend continues for a period.  So, some types of fixed interest securities will be a bit more predictable.

Type_45

Bonds, schmonds.

Money_Mad

It depends on your investment horizon. If it is more than 10 years I personally would go 100% equity.

Aged

Linton said:

Presumably you are investing in some particular type of bonds to achieve some objective. If we knew the type of bonds you were using and why we could discuss whether under current circumstances those bonds would actually be likely to meet the objective and if not perhaps could suggest alternative investments.

I am invested in two bond funds in my pension portfolio - a Strategic Corporate Bond Fund and an Optimal Income Fund. 

masonic

Aged said:

Linton said:

Presumably you are investing in some particular type of bonds to achieve some objective. If we knew the type of bonds you were using and why we could discuss whether under current circumstances those bonds would actually be likely to meet the objective and if not perhaps could suggest alternative investments.

I am invested in two bond funds in my pension portfolio - a Strategic Corporate Bond Fund and an Optimal Income Fund. 

M&G? These would be at the upper end of the risk scale mentioned by dunstonh. These will tend to be more correlated with equities. Check their performance during the Covid crash last year.

Aged

masonic said:

Aged said:

Linton said:

Presumably you are investing in some particular type of bonds to achieve some objective. If we knew the type of bonds you were using and why we could discuss whether under current circumstances those bonds would actually be likely to meet the objective and if not perhaps could suggest alternative investments.

I am invested in two bond funds in my pension portfolio - a Strategic Corporate Bond Fund and an Optimal Income Fund. 

M&G? These would be at the upper end of the risk scale mentioned by dunstonh. These will tend to be more correlated with equities. Check their performance during the Covid crash last year.

Yes both M&G. On the 1-7 risk and reward profile scale, both are bang in the middle at 4. So the price of both took a dive during the crash, similar to equities, and since then continued on an upward trajectory.