Help please in selecting a bond fund?

InvesterJones

itwasntme001 said:

incus432 said:

itwasntme001 said:

I just do not see the point fo bond funds for me personally.  I understand how bonds works, my platform enables me to buy direct gilts and direct gitls are a lot more tax efficient than bond funds given I hold them in a GIA.  Also no fees to pay.

If you want to reduce volatility while in accumulation, you have to ask why.  Far better to think in terms of money you need short-medium term, and money you need long term.  For long temr money invest in equities.  For short.medium term, buy bonds.  Keep the pots separate.  Avoid multi-asset.  I do not understand why people prefer multi-asset, is it because they see just one number that goes up and down less?  It is purely psychological, and this can be overcome.

Agreed on both points. I view multi-asset as a cynical marketing ploy

I did not read the whole of the Vangaurd marketing posted by OldScientist, but just looking at the comparison between bonds and bond funds, i find it interesting they think bond funds have lower fees!

I suppose you can not get more biased than that.

You mean where they suggest that bonds funds have smaller bid-spread because they're buying at larger scale?

OldScientist

itwasntme001 said:

I just do not see the point fo bond funds for me personally.  I understand how bonds works, my platform enables me to buy direct gilts and direct gitls are a lot more tax efficient than bond funds given I hold them in a GIA.  Also no fees to pay.

If you want to reduce volatility while in accumulation, you have to ask why.  Far better to think in terms of money you need short-medium term, and money you need long term.  For long temr money invest in equities.  For short.medium term, buy bonds.  Keep the pots separate.  Avoid multi-asset.  I do not understand why people prefer multi-asset, is it because they see just one number that goes up and down less?  It is purely psychological, and this can be overcome.

Transaction fees (e.g., iweb £5 per time) and bid-ask spreads (although to be fair, the spreads are quite small on gilts).
Tax efficiency outside of ISA and SIPP: Definitely

Reduction in volatility. Given the quantity of panicky messages on this thread with the recent 20-30% drop in bond prices, a 50+% drop in equities may result in people exiting the stock market and not getting back in (to the long-term detriment of their retirements). Even on bogleheads, among the strongest advocates of buy and hold, there were long discussions in 2008 onwards around 'Plan B' (i.e., selling out in the middle of a crash with, contemporaneously, no end in sight to the downward march in prices). What asset allocation should be at what age is not clear cut (historically, for the UK and the US, 100% equities in accumulation virtually always gave the largest pot at retirement, but this is not true for other countries, e.g., Japan)

Multi-asset. For those who have no interest in investing or their pensions (i.e., the majority of people) these represent a convenient way of not having to think about asset allocation, risk, etc. The 'target date' versions of these perhaps even more so. With auto enrolment for workplace pension platforms the money has to be invested in something by default, so a multi-asset fund makes some sense (my guess, without evidence, is that the vast majority of people in the UK are invested in their pension providers default offering). In the three pension platform examples I noted earlier, the default funds has allocations of 60%, 65%, and 100% equities, varying with age in each case.

OldScientist

InvesterJones said:

itwasntme001 said:

incus432 said:

itwasntme001 said:

I just do not see the point fo bond funds for me personally.  I understand how bonds works, my platform enables me to buy direct gilts and direct gitls are a lot more tax efficient than bond funds given I hold them in a GIA.  Also no fees to pay.

If you want to reduce volatility while in accumulation, you have to ask why.  Far better to think in terms of money you need short-medium term, and money you need long term.  For long temr money invest in equities.  For short.medium term, buy bonds.  Keep the pots separate.  Avoid multi-asset.  I do not understand why people prefer multi-asset, is it because they see just one number that goes up and down less?  It is purely psychological, and this can be overcome.

Agreed on both points. I view multi-asset as a cynical marketing ploy

I did not read the whole of the Vangaurd marketing posted by OldScientist, but just looking at the comparison between bonds and bond funds, i find it interesting they think bond funds have lower fees!

I suppose you can not get more biased than that.

You mean where they suggest that bonds funds have smaller bid-spread because they're buying at larger scale?

As far as I can tell, the Vanguard paper is only considering rolling ladders of individual bonds (i.e., where maturing bonds and coupons are reinvested) and no new money or withdrawals, so there will be periodic reinvestment fees in the ladder and the fund. For a collapsing ladder, the fees are one-off, so to build a 20 bond linker ladder would cost a one off £100 on iweb.

Total bond market (in the US) and global bond funds (in the UK - depending on what index they are following) also include investment grade corporate bonds in the belief that this will provide additional returns. I think this is what Vanguard are considering. Holding individual corporate bonds with sufficient diversity would be an interesting challenge (IIRC, my father's portfolio had one corporate bond, issued by a UK bank, with an 8% coupon which, together with dividends, formed part of a natural yield approach to retirement income).

itwasntme001

InvesterJones said:

itwasntme001 said:

incus432 said:

itwasntme001 said:

I just do not see the point fo bond funds for me personally.  I understand how bonds works, my platform enables me to buy direct gilts and direct gitls are a lot more tax efficient than bond funds given I hold them in a GIA.  Also no fees to pay.

If you want to reduce volatility while in accumulation, you have to ask why.  Far better to think in terms of money you need short-medium term, and money you need long term.  For long temr money invest in equities.  For short.medium term, buy bonds.  Keep the pots separate.  Avoid multi-asset.  I do not understand why people prefer multi-asset, is it because they see just one number that goes up and down less?  It is purely psychological, and this can be overcome.

Agreed on both points. I view multi-asset as a cynical marketing ploy

I did not read the whole of the Vangaurd marketing posted by OldScientist, but just looking at the comparison between bonds and bond funds, i find it interesting they think bond funds have lower fees!

I suppose you can not get more biased than that.

You mean where they suggest that bonds funds have smaller bid-spread because they're buying at larger scale?

That is true, forgot about the spread.  How much is it though for the bond funds?  I can see on retial platforms it is about 1%, but if you buy and hold to maturity (so without actual selling), then that cost becomes around 0.5%.  Not immaterial on a large holding, but with bond fund OCF of say 0.12%, that cost difference becomes 0.38%, assuming no spreads for the bond funds.  Seems an immaterial difference, especially if you spread out the 0.5% over more than a year.

masonic

Spread in practice is generally quite a bit lower than indicated by platforms.

itwasntme001

itwasntme001 said:

InvesterJones said:

itwasntme001 said:

incus432 said:

itwasntme001 said:

I just do not see the point fo bond funds for me personally.  I understand how bonds works, my platform enables me to buy direct gilts and direct gitls are a lot more tax efficient than bond funds given I hold them in a GIA.  Also no fees to pay.

If you want to reduce volatility while in accumulation, you have to ask why.  Far better to think in terms of money you need short-medium term, and money you need long term.  For long temr money invest in equities.  For short.medium term, buy bonds.  Keep the pots separate.  Avoid multi-asset.  I do not understand why people prefer multi-asset, is it because they see just one number that goes up and down less?  It is purely psychological, and this can be overcome.

Agreed on both points. I view multi-asset as a cynical marketing ploy

I did not read the whole of the Vangaurd marketing posted by OldScientist, but just looking at the comparison between bonds and bond funds, i find it interesting they think bond funds have lower fees!

I suppose you can not get more biased than that.

You mean where they suggest that bonds funds have smaller bid-spread because they're buying at larger scale?

That is true, forgot about the spread.  How much is it though for the bond funds?  I can see on retial platforms it is about 1%, but if you buy and hold to maturity (so without actual selling), then that cost becomes around 0.5%.  Not immaterial on a large holding, but with bond fund OCF of say 0.12%, that cost difference becomes 0.38%, assuming no spreads for the bond funds.  Seems an immaterial difference, especially if you spread out the 0.5% over more than a year.

Actually I can see spread being 0.1% for the shorter maturity gilts, and this spread seems to get higher the longer the maturity.  Seen as much as 0.5% for maturities out to 2040ish.

So seems to more or less cancel eachother out - fees for the bond fund vs. spread for buying gilts directly.