Suggestions for Bond funds to de-risk into retirement

GazzaBloom

JohnWinder said:

OK. It involves a lot of approximations and assumptions, so false precision is an alluring waste of time, but the idea is….Longer bonds should yield more, so get long ones. But they’re more volatile and may be well down in value when you need to cash some in, so get shorter ones. The compromise point (least interest rate risk) is when the bonds’ duration equals your spending duration. If you’ll spend all the bond money in one go in 10 years, the spending duration is 10 years; if you’ll trickle spend over 10 years it’ll be less than 10 years (roughly half of however many years you’ll be roughly equally cashing in each year). So 20 years of that spending has a duration of about 10 years.

Your funds are about 7 years duration which is close enough. When you get to 15 years from dying, move to a shorter duration fund or money market fund if you can be bothered.

https://www.financialwisdomforum.org/forum/viewtopic.php?t=119663&start=50

I can only hope that I haven't passed that point yet...

Beddie

The simplest passive suggestion is probably something like:

https://www.vanguardinvestor.co.uk/investments/vanguard-global-bond-index-fund-gbp-hedged-acc/overview

However my personal opinion is that bonds do benefit from active management, more than making up for the fees. Many on here will of course disagree! Perhaps something like:

https://www.trustnet.com/factsheets/O/E29P/royal-london-global-bond-opportunities-z-inc

Not advice of course, but a starting point to look at suitable funds. I'd be using more than one fund for that amount too, mixing it up a bit, looking at Sterling bond funds too - no currency risk at least!

And as someone else said above, short term money market funds are paying over 5% at the moment, with very low risk. Good for now until rates start dropping again (if they do.)

dunstonh

However my personal opinion is that bonds do benefit from active management, more than making up for the fees. Many on here will of course disagree! 

I tend to somewhat agree to a point.    When I look at the portfolios with underlying passives only vs the hybrid portfolios (mix of  active and passive) - I ignore the fully active - then generally, you often fund the hybrid does better in negative or volatile periods and the passive does better in positive periods.  Its a big generalisation as not all negative events work out like that.  Plus, the hybrid portfolios still typically use a load of passives but spread them wider but use some managed funds to utilise areas where there is no tracker.

aroominyork

dunstonh said:

However my personal opinion is that bonds do benefit from active management, more than making up for the fees. Many on here will of course disagree! 

I tend to somewhat agree to a point.    When I look at the portfolios with underlying passives only vs the hybrid portfolios (mix of  active and passive) - I ignore the fully active - then generally, you often fund the hybrid does better in negative or volatile periods and the passive does better in positive periods.  Its a big generalisation as not all negative events work out like that.  Plus, the hybrid portfolios still typically use a load of passives but spread them wider but use some managed funds to utilise areas where there is no tracker.

Are we talking here about corporate bonds, or govt ones too?

Bostonerimus1

With more than enough to support your lifestyle in retirement you might consider an equity and cash/money market fund portfolio. If you want some income then maybe move your satellite funds into a dividend index fund, or just go with a global bond index fund. You don't need to make things difficult.

dunstonh

aroominyork said:

dunstonh said:

However my personal opinion is that bonds do benefit from active management, more than making up for the fees. Many on here will of course disagree! 

I tend to somewhat agree to a point.    When I look at the portfolios with underlying passives only vs the hybrid portfolios (mix of  active and passive) - I ignore the fully active - then generally, you often fund the hybrid does better in negative or volatile periods and the passive does better in positive periods.  Its a big generalisation as not all negative events work out like that.  Plus, the hybrid portfolios still typically use a load of passives but spread them wider but use some managed funds to utilise areas where there is no tracker.

Are we talking here about corporate bonds, or govt ones too?

Yes, including other things and other durations.

ColdIron

A cautionary word about bond indexes to consider by Jim Leaviss from M&G's Bond Vigilantes

• Let me start by restating our opposition to index investing when it comes to corporate bonds (we would say that, wouldn’t we). An equity index is an index of success – as the company prospers and its market capitalisation rises, its weighting in the index increases. Bond indices are buckets of failure. The more a company borrows, the greater its weighting in the bond index. If you follow a bond index, and a company within it doubles its leverage, making its failure more likely, you will have to increase your exposure to that company.

NB This applies to corporate debt and not sovereign debt

Bostonerimus1

ColdIron said:

A cautionary word about bond indexes to consider by Jim Leaviss from M&G's Bond Vigilantes

• Let me start by restating our opposition to index investing when it comes to corporate bonds (we would say that, wouldn’t we). An equity index is an index of success – as the company prospers and its market capitalisation rises, its weighting in the index increases. Bond indices are buckets of failure. The more a company borrows, the greater its weighting in the bond index. If you follow a bond index, and a company within it doubles its leverage, making its failure more likely, you will have to increase your exposure to that company.

NB This applies to corporate debt and not sovereign debt

This is why you keep your bond indexes broad ie government and corporate and keep your debt quality high, don't buy high yield corporate bond funds. I'd also advise keeping duration in the medium range of less than a decade.

Hoenir

aroominyork said:

dunstonh said:

Many people, who are more active in their portfolios are using short term money market funds at the moment for a lot or all of their defensive allocation with a view to returning to gilts in the future.     With interest rates as they are, a short term period in STMM is not a bad thing.

On the basis that the base rate has probably peaked and might start falling next year? Does the market have a view on where the base rate will settle?

That's why historically bonds have formed an important component of portfolio's.  The markets view can change very rapidly as events unfold. Investing should be undertaken with a long term view. A settled base rate doesn't address the host of other fundamental issues that exist. Unwinding the QE era is going to spring many surprises. 

Dh6

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