Continue to invest in bonds?

SwiftS

I read a post earlier (but can’t find the thread now) which suggested bonds are no longer a popular investment choice. The AVC fund I’m currently investing in is about 50% bonds and 50% shares. I am 47. I want my AVCs to cover me between 60 and 68 (hopefully!) to top up a small final salary pension (starts at 60) before career average DB pension and state Pension begin at 68. I know both bonds and shares have suffered recently, but is there a reason to avoid bonds moving forward? Should I focus on shares? I will want to start to use the fund in about 13 years time. 

george4064

What other funds do you have available at your AVC platform?

How much is this AVC fund worth as a % of your total pension?

SwiftS

It’s the teachers pension AVC scheme with Prudential. There are a lot of options and to be honest I don’t have a clue. About half my fund is in the With Profits Cash Accumulation fund (invested in this September 2017 to March 2020). From March 2020 I invested in Prudential dynamic growth 3 (33% international bonds and 10% uk corporate bonds). Both funds were rated low to medium risk.

JohnWinder

...suggested bonds are no longer a popular investment choice....is there a reason to avoid bonds moving forward?

Some bonds, or lots, or for some folk none can be suitable choices for people at certain life stages, wealth, risk appetite etc. How much bonds you should have should be determined by those types of consideration, no how popular bonds are with other investors (or worse, how popular you're led to believe they are).
Bonds haven't changed their nature recently such that they should be avoided now but not 2 years ago, or in 2 years time (unless they change their fundamental nature). They are still a promise to repay a loan, with interest.

You'd be well served getting a grasp of what 'asset allocation' means, and how to sensibly determine it.

Albermarle

In very simple terms, equities ( shares ) are traditionally more volatile ( going up and down a lot), but give good growth in the long run if you ride out the ups and downs.
Bonds are traditionally more stable, although can go up and down as well, but with lower growth long term.
So a mix of the two has been the classic way to get some growth without too much volatility.
However due to various factors, particularly the increase in interest rates from very low levels, bonds have seen an unusually big drop in the past 12 months. So probably your AVC has taken quite a hit in the last 12 months, with both equities and bonds down significantly.
Most people 'in the know' reduced their bond allocations 12/18 months ago, some to zero.
Going forward bonds have probably seem most of the drop already and if equities were to dive they could be useful in diluting that effect ( something they are traditionally used for) . On the other hand 50% bonds is probably on the high side. As suggested you probably need to do some research into 'asset allocation' 

aroominyork

It’s maybe worth drilling down into what is meant by bonds, since the term covers a multitude of investments. Most simply, it includes government debt and corporate debt, within which are many sub-categories. In global discussions about investing, ‘bonds’ is often proxied by US T-bills, the equivalent of UK gilts. Many people like their bonds only to cover government debt, which is the view of this blog on the excellent Occam Investing website. I agree with his preference for international – rather than just UK – government bonds and find it curious the only way to access this is iShares’ Global Government Bond ETF (IGLH). Personally, I am happy to include investment grade corporate debt in my core bond holdings so an aggregate fund – which includes both government and high quality corporate debt – works for me (although I have temporarily replaced mine with a global short duration index linked bond fund).

Aggregate funds generally hold 60-65% government debt and 35-40% corporate debt. Vanguard’s global aggregate funds include about 4.3% UK holdings; they do not have a UK bond fund equivalent to VLS 0 (zero) as a global aggregate bond fund that is overweight to the UK – I would have thought there is a market for that. In terms of what its composition might be, I have extracted the bonds from VLS20 and adjusted them to total 100; about 35% of holdings are UK:

Moving beyond investment grade corporates, you can increase your risk as far as you want into junk/high yield: Royal London Extra Yield Bond, for example, has over the long term performed very much like a lower volatility version of UK All Companies equity index fund.

When threads like this talk about bonds generally, they mean global – though maybe UK overweight – investment grade government or aggregate funds, but it’s worth bearing in mind the wider range. For a long time I found bonds more complicated than equities to understand but I seem to have settled on an allocation, which is roughly 30% in a global aggregate fund (though temporarily replaced as mentioned above); 30% in the bonds held within Capital Gearing Trust, so largely index-linked; and 40% in a short duration corporate fund which hovers around BBB grade.