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P933alilli

masonic said:

Collyflower1 said:

Has the outlook for bonds improved only for money being invested now? Will money invested in bonds via lifestrategy funds be stuck with the lower yields they were bought at the time earlier in the year or does it depend on the duration?

Those already invested in bond funds have taken the capital hit, but they will enjoy the same uplift to the yield to maturity as someone investing new money today. A long term holder has just seen their returns pushed out into future income - the reverse of what happened when interest rates were slashed to historic lows and returns were pulled forward into capital value.  It's regrettable that those investing earlier this year have had to suffer predictable capital losses while interest rate expectations rapidly rose, but that ship has sailed and what they hold today is the same as anyone investing new money.

If you take a look at Vanguard's own 10 year return expectations, bonds are anticipated to return only a couple of percent less than equities, but with less than half the volatility:

https://www.vanguard.co.uk/professional/insights-education/insights/vanguard-economic-and-market-update

The current yield curve implies higher returns than this, which suggests bonds are now looking fair value - cheap based on this analysis. The figures at end of 2021 were 0.8-1.8% 10 year annualised returns for bonds. This is effectively what someone buying at that time would have locked into and is the origin of the capital loss they are now seeing.

See also https://monevator.com/rising-bond-yields-what-happens-to-bonds-when-interest-rates-rise/ for further explanation.

Thanks Masonic, so i suppose i should be buying more VLS60 now that its better value. I had, however, considered pausing for now to see how it goes and put some into FTSe global all cap. This would take me over my risk profile, however, but give more potential for growth with it being less UK orientated. Maybe put some into both?

masonic

Vanguard aren't predicting much difference between UK and global markets over the next 10 years according to the graphic in my earlier post. More equities vs bonds would give you more growth potential, but also increased volatility. You would need to decide if that's within your comfort zone.

P933alilli

Thanks Masonic! 

P933alilli

4.8% annualised returns, at best, before inflation isnt a great projection though unless i'm missing something? Maybe 5.1% annualised return on a 60/40! I may need to take more risk!