New to investing - should I do both ETF and bonds?

EasyToAssemble01

I'm new to investing, and looking to start my journey with index trackers (still working out ideal ratio of S+P, FTSE100 / 250, Whole World etc.).

But, I recently looked into Bond Funds a little more, and it seems that it might be an ideal time to consider these. Apparently, bonds perform best after an interest rate peak, and it seems we may be in that part of the cycle. Have I interpreted that correctly? And does this mean I should split between a tracker, and also some bonds / Money Market funds? 

Also: I should add that some short/medium term returns could be ideal for me, at the moment, which is why I'm wondering about timing and diversifying  They say "time in the market.......". But are we in a period where timing might actually be a worthy consideration?. I was wondering about the S+P500, and whether a correction is due soon.

kempiejon

Absent any other knowledge or insight which I know I do not have a tracker and a pot of cash to see one though 6 months of loss of income was my starting point. As my tracker pot grew I allowed my cash to build up to a fully measure premium bonds which is good for a frisson of fun. I've never been taken by bond funds. I did swap from a FTSE tracker to a global ETF.

If you think you have insight into timing the market timings and are chasing short term returns good luck.
Once I had my pot of cash all excess money earmarked for investing was set aside for a decade in the market or more.
I prefer time in the market, know I can't time it other than with luck and just add each month through think and thin.

EasyToAssemble01

kempiejon said:

If you think you have insight into timing the market timings and are chasing short term returns good luck.
Once I had my pot of cash all excess money earmarked for investing was set aside for a decade in the market or more.
I prefer time in the market, know I can't time it other than with luck and just add each month through think and thin.

Yes, I'm going to do mostly "time in the market" trackers, as that seems wise. But I was also thinking about bonds for additional diversity, and some short term investing.

masonic

"Short term investing" can be fun and educational, but it isn't very lucrative for the vast majority of people. It is best to limit how much of your money is used in this way.

Bonds can be bought and held to maturity for a known return, or you can buy a fund that will have a rolling portfolio of them. In so doing your outcome in real terms will depend on future interest rates, inflation and the general economic picture. Interest rates are still rather low by historical standards, and they've never been as low as they were a few years ago. So what precedent is there for what comes next?

A decision as to whether or not to hold bonds in your portfolio should really come from your objectives and risk tolerance.

If you are interested in how bonds have performed related to other assets in the past, then you might find my ramblings here of some interest: https://forums.moneysavingexpert.com/discussion/comment/81070296/#Comment_81070296

Hoenir

EasyToAssemble01 said:

kempiejon said:

If you think you have insight into timing the market timings and are chasing short term returns good luck.
Once I had my pot of cash all excess money earmarked for investing was set aside for a decade in the market or more.
I prefer time in the market, know I can't time it other than with luck and just add each month through think and thin.

Yes, I'm going to do mostly "time in the market" trackers, as that seems wise. But I was also thinking about bonds for additional diversity, and some short term investing.

Chasing speculative returns is sure fire way of coming unstuck. Investing is best undertaken with long term objectives. 

kempiejon

If new to investing think about your attitude to risk. Make a plan about what portion of your wealth is for the long term. Think about how you'll behave if you investment halves, how much of your hard earned money you would be happy to have that happen to.

I do not have your conviction about timing or this time being better for bonds nor that they necessarily add additional diversity better than cash or will do well in the short term. I hope you do catch the right time with your buys. Investing in equities carries risk, a tracker isn't that likely to wipe out but your investments can fall, bonds perhaps a bit less so but probably not always.

Bonds, well gilts do have useful tax treatment for some investors. Good luck with your plan.

EasyToAssemble01

kempiejon said:

If new to investing think about your attitude to risk. Make a plan about what portion of your wealth is for the long term. Think about how you'll behave if you investment halves, how much of your hard earned money you would be happy to have that happen to.

I do not have your conviction about timing or this time being better for bonds nor that they necessarily add additional diversity better than cash or will do well in the short term. I hope you do catch the right time with your buys. Investing in equities carries risk, a tracker isn't that likely to wipe out but your investments can fall, bonds perhaps a bit less so but probably not always.

Bonds, well gilts do have useful tax treatment for some investors. Good luck with your plan.

Yes, I'm risk averse, so willing to sacrifice returns for greater stability and assurances, over the long term. I'd be OK risking a small portion, for the purposes of trying a separate short term strategy, but I see your point about cash. Present cash rates are decent enough (compared to historic fund returns), so perhaps that's the better short term option.

Albermarle

 I was wondering about the S+P500, and whether a correction is due soon.

Yes there will be a correction at some point soon, depending on what you mean by soon. Could be tomorrow, or in two years, or maybe longer.........
Then more importantly will it recover slowly ( > 5 years) or quickly .

If anybody actually knew what was going to happen, then they would not be contributing to this forum, unless it was from their Billion Pound yacht in the Bahamas. 

SkylineExplorer

I am guessing you are doing some serious research! If you want to grow your equity, but you want some stability too it can be smart to balance your ETFs with bonds. Timing the market can be difficult, but combining both can be a nice combination for short- and long-term goals. May the Lord be with your investments!

Voyager2002

EasyToAssemble01 said:

I'm new to investing, and looking to start my journey with index trackers (still working out ideal ratio of S+P, FTSE100 / 250, Whole World etc.).

But, I recently looked into Bond Funds a little more, and it seems that it might be an ideal time to consider these. Apparently, bonds perform best after an interest rate peak, and it seems we may be in that part of the cycle. Have I interpreted that correctly? And does this mean I should split between a tracker, and also some bonds / Money Market funds? 

Also: I should add that some short/medium term returns could be ideal for me, at the moment, which is why I'm wondering about timing and diversifying  They say "time in the market.......". But are we in a period where timing might actually be a worthy consideration?. I was wondering about the S+P500, and whether a correction is due soon.

Remember that most investors use equities for growth, and bonds for stability (that is, to reduce risk). You can get ETFs that hold equities or bonds.

It is true that bond resale prices change as interest rates change, so if you know what is going to happen to interest rates then you can use bonds to make your fortune! Otherwise, just get a mix of equities and bonds that matches your own risk profile.