Bonds – what are you doing?

GeoffTF

Alexland said:

GeoffTF said:

The UK stock market fell to about a quarter of its value and took nine years to recover in real terms.

Just imagine how powerful the dividend reinvestment and regular contributions would be buying more shares at such low prices...

It took nine years (actually ten in the table) to recover WITH reinvestment of dividends:

http://wpfau.blogspot.com/2014/01/greatest-hits.html?m=1

Regular contributions would certainly have helped, but regular withdrawals would have been disastrous. The traditional way funding retirement was to use pound cost averaging to accumulate a large sum, and then buy an annuity. That way, you benefited from pound cost averaging on the way up, but avoided the opposite after retirement.

If you hold safe investments, in addition to equities, you can live off the safe investments when the stock market is bombed out, and avoid your capital bleeding away.

MK62

.....but what are "safe" investments?

(I suppose the answer to that will depend on what we consider "safe" to mean.....in an investment sense)

GeoffTF

MK62 said:

.....but what are "safe" investments?

(I suppose the answer to that will depend on what we consider "safe" to mean.....in an investment sense)

Currently, a "safe" investment is one where the maturity value will not lose value in nominal terms. It will lose value after inflation though. Index linked gilts are currently losing about 3% p.a. after inflation. Currently, safe means that you cannot lose most of your money overnight. Nonetheless, it will drain away steadily after inflation. People are currently flooding into equities in the belief that "this time is different":

https://www.amazon.co.uk/This-Time-Different-Centuries-Financial/dp/0691152640

I am fortunate enough to be able to bet on all the horses in the race.

GeoffTF

aroominyork said:

Prism said:

The only one of my bond funds that has provided any sort of return recently is Lyxor Core Global Inflation-Linked 1-10Y Bond ETF - GISG. My other bond fund, a short term one, is down.

Similar performance to the RL fund I am looking at (GB00BD050F05), perhaps not surprising since RL has effective duration of 4.97 years.

The ticker for the Lyxor fund is GIST. I do not like the 0.4% market spread, but otherwise it looks interesting. It is quoted on the LSE, but the only broker that pops up on a Google search is AJ Bell. iWeb does not have it listed.

masonic

GeoffTF said:

The ticker for the Lyxor fund is GIST. I do not like the 0.4% market spread, but otherwise it looks interesting. It is quoted on the LSE, but the only broker that pops up on a Google search is AJ Bell. iWeb does not have it listed.

I remember being alerted to the new Lyxor range via Monevator soon after launch. The hope was of wide uptake and a narrowing of the spread and improvement in liquidity, but this doesn't seem to have happened, despite the competitive ongoing charges. I do prefer the ability to sell and reinvest immediately, given the difference a day can make in times of high fear, but if you look at the typical volumes traded and impact of larger volumes on price, I don't think these are a good option currently.

Thrugelmir

Alexland said:

GeoffTF said:

The UK stock market fell to about a quarter of its value and took nine years to recover in real terms.

Just imagine how powerful the dividend reinvestment and regular contributions would be buying more shares at such low prices...

That's why investors also held bonds. As provided a better return at the time. 

Good reason why this current period of time is being described as the great reset. Very different investing through a turbulent period than glossing over historical periods in a book , and saying be alright in the end. 

bostonerimus

As interest rates fell...and then fell again I stopped buying bond funds. I retired in 2014 and converted a lot of bonds into a DB pension (a one time opportunity from my government employer) and now the fixed income part of my portfolio is mostly the DB pension and a deferred annuity. The vast majority is in equity index funds and only 10% is still in bonds in a managed income fund. I still reinvest the dividends, but other than that I don't ever expect to buy bonds of bond funds again and as I've stopped rebalancing the proportion of bonds in my portfolio is falling. 

aroominyork

GeoffTF said:

aroominyork said:

Prism said:

The only one of my bond funds that has provided any sort of return recently is Lyxor Core Global Inflation-Linked 1-10Y Bond ETF - GISG. My other bond fund, a short term one, is down.

Similar performance to the RL fund I am looking at (GB00BD050F05), perhaps not surprising since RL has effective duration of 4.97 years.

The ticker for the Lyxor fund is GIST. I do not like the 0.4% market spread, but otherwise it looks interesting. It is quoted on the LSE, but the only broker that pops up on a Google search is AJ Bell. iWeb does not have it listed.

It looks like GIST is unhedged; GISG is hedged to Sterling.

Prism

GeoffTF said:

Alexland said:

GeoffTF said:

The UK stock market fell to about a quarter of its value and took nine years to recover in real terms.

Just imagine how powerful the dividend reinvestment and regular contributions would be buying more shares at such low prices...

It took nine years (actually ten in the table) to recover WITH reinvestment of dividends:

http://wpfau.blogspot.com/2014/01/greatest-hits.html?m=1

Regular contributions would certainly have helped, but regular withdrawals would have been disastrous. The traditional way funding retirement was to use pound cost averaging to accumulate a large sum, and then buy an annuity. That way, you benefited from pound cost averaging on the way up, but avoided the opposite after retirement.

If you hold safe investments, in addition to equities, you can live off the safe investments when the stock market is bombed out, and avoid your capital bleeding away.

Regular withdrawals have been back tested through this period and would have been fine assuming a mix of equities and bonds (even though both dropped at this time) and a moderate withdrawal rate of around 3.5%. There was no need to specifically have a safe investment buffer or pot. Regular rebalancing was enough.

GeoffTF

aroominyork said:

GeoffTF said:

aroominyork said:

Prism said:

The only one of my bond funds that has provided any sort of return recently is Lyxor Core Global Inflation-Linked 1-10Y Bond ETF - GISG. My other bond fund, a short term one, is down.

Similar performance to the RL fund I am looking at (GB00BD050F05), perhaps not surprising since RL has effective duration of 4.97 years.

The ticker for the Lyxor fund is GIST. I do not like the 0.4% market spread, but otherwise it looks interesting. It is quoted on the LSE, but the only broker that pops up on a Google search is AJ Bell. iWeb does not have it listed.

It looks like GIST is unhedged; GISG is hedged to Sterling.

Yes, that appears to be right. The underlying bonds in both versions are linked to the cost of living in each of the countries concerned. That is messy even if you hedge into sterling, which costs money. A small holding of GIST would not do me much harm. Sterling does not have a history of being particularly strong. The spread is wide, but the OCF is much lower than for the Royal London fund. I have no intention to do anything right now. I may be selling some equities to buy bonds to rebalance later on in the year though.