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ChainsawCharlie

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Thrugelmir

Time to do some research if you are managing your own portfolio. Here's a starter for you to read. 

Is the 60/40 Dead?

https://www.gsam.com/content/gsam/uk/en/advisers/market-insights/gsam-connect/2021/is-the-60-40-dead.html

Albermarle

I'm not too knowledgeable about Bonds

You are not the only one and I am the same .One issue is that there many different types.  However it is clear that they are negatively affected in the current financial climate ( although they first dipped early in 2021, if we ignore a Covid related dip earlier ). I think since the start of 2022 some bond funds are nearly 10% down.

On the other hand they will offer some protection if equities crash, and probably 20% holding is a reasonable compromise.

As indicated in the link supplied above some diversification away from equities and bonds can be a good idea ,although some of the suggestions made are not risk free. I like infrastructure funds/IT's and property funds , although not everyone will agree of course.

InvesterJones

It's hard for any of us to define what a good investment is for someone else. Best performance is hard to predict and may come with higher risk, so many of us diversify knowing that we're chasing potentially lower outright returns for some gain in security of not having all eggs in one basket (or type of basket).

When the performance of different asset classes falls it just means that the penalty for diversification is higher, however they may still hold value to the investor for those diversifying reasons, but so may other asset classes.

MX5huggy

Your “bonds” won’t become worthless and wither away. They may drop in value significantly. 

They are bond funds, here’s a link for the first 1 https://www.trustnet.com/factsheets/o/00pb/blackrock-corporate-bond-d-acc

The manger of the fund has chosen 150 ish government and corporate bonds they will buy and sell bonds as they see fit to maintain the funds aims.
 

You can get index bond funds that are cheaper. You have 3 bond funds to increase diversity but 1 simple index bond fund would do this. 

Basically I think the IFA has tried to make things look more complicated than is needed, interesting to see the equity allocations. 

GeoffTF

Nobody knows what will happen. Inflation has exceeded market expectations. The market now expects future interest rates to be higher than it did previously, but the market still expects interest rates to decline after that. Bonds have taken a hit. The market's expectations of future interest rises are already in the price. The market could be wrong in either direction.

Clearly to OP could have done better if he had anticipated this outcome, but the damage has now been done. He could move into short dated bonds and index linked bonds, but it may be too late for that.

Equities are worth the net present value of their future earnings. Equities become worth less when bond yields increase, because the discount rate has increased. When bonds are hit, equities are usually hit as a result, but so far they have been gravity defying. The OP should perhaps be more worried about his 80% equities, but nobody knows the future.

P933alilli

This is what concerns me about VLS60. A proportion of the portfolio are inflation linked bonds but its only about 4%. 

GeoffTF

Collyflower1 said:

This is what concerns me about VLS60. A proportion of the portfolio are inflation linked bonds but its only about 4%. 

The point of buying VLS60 is that you leave it all to Vanguard. Vanguard can be expected to sit on their hands:

https://www.vanguardinvestor.co.uk/articles/latest-thoughts/markets-economy/can-investors-count-on-stock-bond-diversification

The bond allocation of VLS60 is not materially different to that of other 60% equity packaged portfolios. IIRC about 45% of investable securities are bonds. Passive investors trust the market to set the relative valuations of equities and bonds. Active investors think they know better, but they have only luck chance of being right.

JohnWinder

A bond is a contract to return exactly however much was borrowed (and pay some interest, or collect some interest in the days of negative yields).

If the borrower doesn’t default there can be no fizzling out. Some corporate borrowers default in difficult times (one of the Virgin airline group did as the pandemic started) leaving bond holders with big, permanent losses. Governments do this less often, so diversification of lender is less important than for corporate bonds.

Why one would complicate a bond portfolio with corporate bonds when you can take risk for returns with stocks, and hold only safe bonds is a bit beyond me, but plenty of smart people do it (perhaps because the fund is big, cheap and well established with other suitable characteristics eg duration).

From the ‘contract’ feature of bonds, you can see that bad inflation is going to trash the value of the principal that is returned to you (or the bond fund manager) as it has the same face value. That’s why one ignores inflation linked bonds at one’s peril.

coastline

Nobody knows the answer to inflation and bond prices . From this link the US 10 year treasury yield is 2.55% and is expected to reach 3-3.5%. Those purple dots are the FED's dot plot in the next few years. The markets think a little lower but not much. All eyes on inflation and economic growth.

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UK's M&G gilt fund and inflation below. Set to 5 and 10 years. 10 years looks a bit better but  inflation is moving up recently.

Chart Tool | Trustnet

Looking at VGOV there's spikes in price during 2016 for brexit and pandemic in 2020 although rates were rising in 2018 worldwide . When you set to 10 years there's not much difference in the price of the units. 2012 they were 20.5 and today 22.1. Add in the income of course . Basically things have been pretty flat for good while but the pandemic situation kind of skewed things. I doubt rates would have been cut during those periods in general. ?

Vanguard U.K. Gilt UCITS ETF summary price and performance data – Investors Chronicle

GeoffTF

JohnWinder said:

Why one would complicate a bond portfolio with corporate bonds when you can take risk for returns with stocks, and hold only safe bonds is a bit beyond me, but plenty of smart people do it (perhaps because the fund is big, cheap and well established with other suitable characteristics eg duration).

Because they are there, and offer diversification. If everyone took your view, corporate bonds would be dirt cheap. As it is, the market pays what it thinks they are worth. If you think corporate bonds are are risky, you can hold a few less equities to compensate.