Some very basic vanguard bond advice please

Hey guys, I am a beginner to investing and a few days ago I opened a Vanguard account and opened it with £500 into the Life Strategy 80 (early 30s). I'm just being boring and putting £250 a month in to the life strategy 80.

I've got about £7000 sitting around, already overpaying a fair bit on the mortgage so I feel like that money is just sitting there but at the same time, I'm not willing to take much risk with it! So, I'm thinking of putting like say £3000 into this

https://www.vanguardinvestor.co.uk/investments/vanguard-uk-short-term-investment-grade-bond-index-fund-gbp-acc?intcmpgn=fixedincomeuk_ukshortterminvestmentgradebondindexfund_fund_link

Now, I'll be honest, I've tried to, but I can't get my head around bonds sufficiently to know if this is actually low risk? I know it says risk rating 2/7 which seems to be the lowest for bonds on there? At the same time, although I don't want to take risk with it, at the same time I won't really be upset if it dropped like 5% or something (I mean that's only £150!) is something like a 5% drop possible on a bond fund like this? And as I say, I'm new to this, could the money from the bond fund be withdrawn by myself at any time? I'm basically looking at it as an alternative place to store cash that's just in my current account. 

Many thanks, I've just read that back and I sound like an idiot - I don't think I actually am though haha. Basically, I'm looking for a place to store a little bit of cash that I wouldn't want to risk with a 'real investment' and might get me the tiniest percent of interest.

Thanks! 
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Comments

  • Albermarle
    Albermarle Posts: 27,320 Forumite
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    It is not the same as cash - This will be less volatile than an equity based fund, but all investments can go down as well as up . 

    Probably better to keep cash in a cash account ( or Premium Bonds ) and invest a bit more in the VLS 60 for the long term .
    Or put more in your pension .
  • Type_45
    Type_45 Posts: 1,723 Forumite
    1,000 Posts Fifth Anniversary Name Dropper Combo Breaker
    Maybe look at NS&I 
  • guitaro
    guitaro Posts: 14 Forumite
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    Thanks a lot for the reply! I think I'm putting the most I can already into my pension ... that's something else I did consider, maybe putting a lump into the life strategy 20 (20 equity, 80 bonds)! But would that be a lot more risk of going down than the bond fund I linked above? 

    Sorry if I'm being a real idiot here. 
  • Linton
    Linton Posts: 18,113 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    edited 26 June 2021 at 10:21AM
    Your VLS80 is moderately high risk with the possibility of a 40% fall in a 2008 severity crash. 

    The bond fund is pretty low risk, even for a bond fund.   Neither it or VLS80 have been around for a long enough time to experience a serious crash, though in the Covid mini crash last year the bond fund dropped about 4% and VLS80 dropped 22%.  They both recovered in about 6 months.

    However over the past 5 years VLS80 has gained about 70% and the bond fund 10%.  So the latter did not quite match inflation.
  • MX5huggy
    MX5huggy Posts: 7,132 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    It went from about £10800 to £10500 last March so about 3% fall. But if this is your only savings/emergency fund Premium Bonds would be better.
  • guitaro
    guitaro Posts: 14 Forumite
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    Great info, Linton! Much appreciated, ok - so looks like the 4-5% drop is possible on the bond fund! Ok, I think you've set my mind at ease - I'll just keep doing the £250 a month into the LS80 fund and take the popular long term approach and keep the rest as cash to enjoy things and not feel stressed! 

    I know I've gone off topic here and I'm at the risk of coming off as a guy who wants to needlessly over complicate things. But say a crash is coming, I'm also considering splitting my £250 deposit between LS80 and this active fund below, thinking that it might offer ever so slightly better protection? 


    https://www.vanguardinvestor.co.uk/investments/vanguard-global-balanced-gbp-accumulation-shares?intcmpgn=blendedglobal_globalbalancedfund_fund_link
  • guitaro
    guitaro Posts: 14 Forumite
    Fifth Anniversary First Post Combo Breaker
    MX5huggy said:
    It went from about £10800 to £10500 last March so about 3% fall. But if this is your only savings/emergency fund Premium Bonds would be better.
    Thanks for setting me straight! 
  • Linton
    Linton Posts: 18,113 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    guitaro said:
    Great info, Linton! Much appreciated, ok - so looks like the 4-5% drop is possible on the bond fund! Ok, I think you've set my mind at ease - I'll just keep doing the £250 a month into the LS80 fund and take the popular long term approach and keep the rest as cash to enjoy things and not feel stressed! 

    I know I've gone off topic here and I'm at the risk of coming off as a guy who wants to needlessly over complicate things. But say a crash is coming, I'm also considering splitting my £250 deposit between LS80 and this active fund below, thinking that it might offer ever so slightly better protection? 


    https://www.vanguardinvestor.co.uk/investments/vanguard-global-balanced-gbp-accumulation-shares?intcmpgn=blendedglobal_globalbalancedfund_fund_link
    How do you know when a crash is coming?  How will you know before everybody else also knows, sells their investments and so the crash comes earlier than you "knew" would happen?
  • guitaro
    guitaro Posts: 14 Forumite
    Fifth Anniversary First Post Combo Breaker
    I don't think my post came off like that at all? I said 'But say a crash is a coming' ... I didn't say I think one is coming, I'd never know that, I don't even know how bonds work, do I? The only reason that thought it is my head is from the chatter of others. I'm still talking about investing in something that is still mostly in the stock market! Thanks for the help though it is appreciated. 
  • JohnWinder
    JohnWinder Posts: 1,862 Forumite
    Fifth Anniversary 1,000 Posts Name Dropper
    No urgency to buy those bonds. Give yourself a couple of weeks to get your head around how bonds, and particularly bond funds, work. Find your own basic bond information, or start here: https://www.bogleheads.org/wiki/Bond_basics. Others will suggest something less US focused, but the principles if not the types of bonds are the same.
    Then, or before then, get a feel for how bond funds change in value and provide returns over long periods, so you can get some mental picture of what might happen to the one you choose. Choose a short term bond fund here: https://www.bogleheads.org/wiki/Bond_basics.

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