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Is now a good time to buy more Bonds?

I like a lot of people have seen the value of my portfolio drop due to the falling bond prices. So although I am hoping to retire in the next couple of years, as I will probably go the Drawdown/UFPLS route I will be able to pick and chose where I take my money from in the first few years so can leave the bonds alone in the hope they bounce back in the next 5 years or so. So with that in mind is it actually worth buying more now? I still have some of the 60k annual pension contribution allowance left this year so just considering my options. Do bonds looks like good value at the moment?

Thanks in advance.

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Comments

  • The purpose of having bonds in a portfolio is to act as a diversifier to equities and to reduce volatility. They didn't really do that job last year though, but that was exceptional.

    It's hard to give an meaningful help without knowing your current holdings, your retirement income requirements and what type of bonds you are referring to.

    For what its worth, I held only equities (via index funds) until end of last year when I started investing my ongoing contributions into the Vanguard short-term bond index fund as I was within 5 years of retirement. Before that I didn't consider bonds at all because the yields were so low.
  • grumpsthegit
    grumpsthegit Posts: 30 Forumite
    10 Posts First Anniversary
    edited 7 November 2023 pm30 2:29PM
    My question is more of a generic one (I thought anyway :-)) but for context 17.5 % of my portfolio is Bonds (64% Sterling, 26% Dollar plus some Euro). Mainly in Royal London Sterling Extra Yield Bond Class Y and Artemis High Income Class MI.
  • Beddie
    Beddie Posts: 942 Forumite
    Part of the Furniture 500 Posts Photogenic Name Dropper
    Bonds are back to "normal" whatever that means. If you look at one year returns, most bond funds have done pretty well. Therefore 12 months ago was a better time, hindsight eh? Unless base rate shoots up, unlikely, then bonds will continue their steady returns.
    Personally I'd pay into the pension keeping the proportions of bonds/equities the same, no need to favour bonds unless you want to lower the overall risk of the portfolio. If you do want to reduce risk, then bonds are probably the better choice.
  • Linton
    Linton Posts: 17,942 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    My question is more of a generic one (I thought anyway :-)) but for context 17.5 % of my portfolio is Bonds (64% Sterling, 26% Dollar plus some Euro). Mainly in Royal London Sterling Extra Yield Bond Class Y and Artemis High Income Class MI.
    "Extra yield" and "high income" bonds are likely to be  corporate or riskier government (eg Emerging Market) bonds and can behave very differently to gilts which are what is normally meant in say a 60/40 equity/bond portfolio.  They may well fall in an equity crash because of the risk of the issuers going bust during an economic down-turn.

    In my view it makes more sense to buy them for income if that is what you want rather than as a diversifier in a broad portfolio.
  • michaels
    michaels Posts: 28,805 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    Bonds are now less expensive relative to equities so if you were to make an allocation decision now then you might choose a higher proportion of bonds.

    Also your previous allocation decision proportions probably no longer hold if your bonds are down more than your equities so again you would need to rebalance even just to get back to the mix you purchased originally.
    I think....
  • artyboy
    artyboy Posts: 1,382 Forumite
    1,000 Posts Second Anniversary Name Dropper
    I asked a similar question a while ago, because if there was any objective data to suggest that bonds had been oversold then it might have been worth hanging on to them (given they were initially bought at the high point) in the hope of a bit of a bounce.

    Unfortunately these discussions tend to gravitate back to 'bonds do what bonds do' and 'if you want want bonds do, then hold bonds' type comments rather than any meaningful analysis of whether there's any short term upside potential following last years bloodbath. 

    It may be there's no easy answer to that, but I think it's a fair question to ask regardless.
  • Albermarle
    Albermarle Posts: 26,023 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
    edited 8 November 2023 am30 11:49AM
    artyboy said:
    I asked a similar question a while ago, because if there was any objective data to suggest that bonds had been oversold then it might have been worth hanging on to them (given they were initially bought at the high point) in the hope of a bit of a bounce.

    Unfortunately these discussions tend to gravitate back to 'bonds do what bonds do' and 'if you want want bonds do, then hold bonds' type comments rather than any meaningful analysis of whether there's any short term upside potential following last years bloodbath. 

    It may be there's no easy answer to that, but I think it's a fair question to ask regardless.
    Investment Outlook | Expert Market Analysis & Opinion | Fidelity

    Scroll down to the 'Bonds' part.

    Basically Fidelity's investment analyst thinks it is a good time to invest in Government bonds, and maybe very high grade corporate bonds.
  •  but I think it's a fair question to ask regardless.

    I don’t think fairness comes into it. It’s a tempting question, but pointless, and the reason you get the unsatisfactory answers of ‘bonds are bonds’ is because predicting whether their yields will rise, fall or stay largely unchanged in the future, even the short term future is an impossible guess to confidently get right.

    Exhibit 1: https://www.marketwatch.com/story/yes-100-of-economists-were-dead-wrong-about-yields-2014-10-21

    Exhibit 2: bond yields for next month or next year are set by the market. The market has decided that the yield on 6 month maturity government bonds is (say) 2%/year, and on 12 month maturity bonds (say) 2.2%/year. If you want to earn better than market returns on those bonds, you have to know that in 3 weeks time the 6 month yield will actually be 2.5% and the 12 month yield will be 2.8%, such that you hold off buying those bonds for 3 weeks. Similarly, if you know the yields will fall in 3 weeks, you buy the bonds now. But remember, the yields, and thus prices, are what they are because they have been determined by the combined wisdom of all players in the market. If the market thought yields would rise in 3 weeks the market would have already poured its money into those bonds pushing the price up and the yields downward, to a steady state level it’s at now.

    Asking what we think bond prices will do in the coming months/years is to assume any of us know more than the market as a whole. Forget it.

  • I like a lot of people have seen the value of my portfolio drop due to the falling bond prices. So although I am hoping to retire in the next couple of years, as I will probably go the Drawdown/UFPLS route I will be able to pick and chose where I take my money from in the first few years so can leave the bonds alone in the hope they bounce back in the next 5 years or so. So with that in mind is it actually worth buying more now? I still have some of the 60k annual pension contribution allowance left this year so just considering my options. Do bonds looks like good value at the moment?

    Thanks in advance.

    What's your desired asset allocation? If you have diverged from that then sell and buy appropriately to get you back on track. ie let rebalancing be your guide.
    And so we beat on, boats against the current, borne back ceaselessly into the past.
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