Alternatives to VGOV

masonic

coyrls said:

The argument about matching the duration of your bonds to the projected length of your investment just doesn't apply to bond funds, if you buy a bond fund with an average duration of 14 years, after 14 years the bond fund will likely still have an average duration of about 14 years and certainly not a duration of 0 years.

While this is true, if held for longer than the average duration, the volatility will result in you simply exchanging capital for income or vice versa, and you would be able to sell having achieved total returns comparable to a bond ladder over the same period. Not that the returns from a ladder of bonds bought today would be particularly desirable!

aroominyork

valiant24 said:

coyrls said:

The argument about matching the duration of your bonds to the projected length of your investment just doesn't apply to bond funds, if you buy a bond fund with an average duration of 14 years, after 14 years the bond fund will likely still have an average duration of about 14 years and certainly not a duration of 0 years.

So, what are other people doing in this respect as an alternative to VGOV?

Why not IGLH, 8-9 years duration, developed world, govt bond. It's a bit more expensive in fees than VGOV but, unless you only want UK bonds, it seems to fit your bill.

masonic

OP, I've just taken a trip down memory lane, reviewing all of the suggestions and discussion in the thread you posted last September: https://forums.moneysavingexpert.com/discussion/6300243/gilts-my-unanticipated-nightmare/p1

To be honest, I think there is lots of useful stuff there and I don't think there is much to add. If you decide to sell up again, maybe bookmark that thread and this one so that you can refer to them if you are ever seduced by VGOV again in the future.

Looking on the bright side, LTA must be less of a concern now, so perhaps you can opt for options with better returns prospects.

valiant24

masonic said:

Looking on the bright side, LTA must be less of a concern now, so perhaps you can opt for options with better returns prospects.

Well yes indeed - every cloud and all that!! :-)

Thrugelmir

Prism said:

valiant24 said:

coyrls said:

The argument about matching the duration of your bonds to the projected length of your investment just doesn't apply to bond funds, if you buy a bond fund with an average duration of 14 years, after 14 years the bond fund will likely still have an average duration of about 14 years and certainly not a duration of 0 years.

So, what are other people doing in this respect as an alternative to VGOV?

For comparision, a standard US government bond index fund has a duration of less than 7. I have no idea why gilts have ended up with such a long duration on average.

UK Gilts are issued with a longer average duration than the majority of developed economies. Longest duration recently is 55 years. Whereas long dated US Treasuries are normally in the region of 20-30 years. 

GeoffTF

coyrls said:

The argument about matching the duration of your bonds to the projected length of your investment just doesn't apply to bond funds, if you buy a bond fund with an average duration of 14 years, after 14 years the bond fund will likely still have an average duration of about 14 years and certainly not a duration of 0 years.

Lars Kroijer was clearly making that recommendation for bond funds. For consistency, he should recommend switching to a shorter duration fund towards the end of the investment period. It is interesting to compare this approach with Vanguard's approach in its target date retirement funds. Their US literature is less dumbed down:

https://www.vanguard.com/pdf/s167.pdf

Vanguard increases the percentage of bonds with age, but does not shorten their duration. Shortening the duration towards the target date would make sense for buying and annuity, but most people do not do that. We usually do not know how long we will live when we enter draw-down.

JohnWinder

The argument about matching the duration of your bonds to the projected length of your investment just doesn't apply to bond funds, if you buy a bond fund with an average duration of 14 years, after 14 years the bond fund will likely still have an average duration of about 14 years and certainly not a duration of 0 years.

That's an important observation, but there's a work-around to give you a more favourable conclusion.

It's to hold both the long duration bond fund and a cash fund in suitable proportions to match your investing time frame.

If you need the 'bond' money in 15 years time, you hold the 14 year duration fund and no cash (not counting cash being held for any other sensible reason like an emergency fund). When you get 12 years away from needing the 'bond' money, you move some of the 14 year bond fund money into cash, in a suitable proportion taking account of the cash having no duration. When you're 7 years from needing the 'bond' money, that money should now be half in the bond fund and half as cash, and so you progressively convert the bond fund into cash as you move closer to 'the end'.  Formulae for bond fund duration are complex, but that proportioning is good enough.