Thoughts on Bonds versus Stocks & Shares

Hoenir

Dornfield said:

Sounds to me like you might want to draw a bit more than just that out.  

Use some (perhaps all) of your 20% tax band.  
If you want to keep it saved, then shift to ISA funds, which you can get at with no tax issues : ready for when you are looking at cruises, or indeed to help fund offspring through Uni & beyond 🤷‍♂️
You would want to avoid a point where you do want more out & hit high rate tax…

Heck, you could even consider passing some down into JISA/ISA/pension for those pesky kids🤪

Request for £50,270 withdrawal, 25% of which will be TFLS = £12,567.50, net £37,702.50 taxable income @ 20%

As 25% is withdrawn as a TFLS. The gross amount can be higher. The taxable withdrawl needs to be £50,270. 

bjorn_toby_wilde

incus432 said:

bjorn_toby_wilde said:

Do you buy individual bonds/gilts or a bond fund.  How do you differentiate good bonds from bad? What are the mechanics of actually buying a bond or gilt in a SIPP?  These are the stumbling blocks for me.

A mix for me.

 I created a bond ladder in my SIPP lasting 6 years, which I will hold to maturity and will yield about 4.3%, I can either reinvest the proceeds as each matures or take as income. It was a doddle buying them in AJBell once i had used the ladder builder spreadsheet (by lategenxer) to know what I wanted (there was one gilt not available on the platform but a month change in the start date solved that). I also now hold short dated bond funds IGLS and GLT5 (0-5 year and 1-5 yr respectively) as well as some longer term VGOV (9.3 yr). for money I might need to access.  The former are much less volatile than the the longer bond funds

https://lategenxer.streamlit.app/Gilt_Ladder

This is a guide to bond fund yields (YTM)  - depends if you hold them in a tax shelter or not (if so,no. tax of any sort, but if not you would choose low coupons so the yeild is mostly capital gain and there is no CGT on gilts but you do pay income tax on the coupon income)

https://www.yieldgimp.com/

PS a couple of months ago I was as confused as you are by bonds. Take heart!

That’s brilliant. Thanks, I will take a look at the link.

I’m always learning and this board is the perfect place to do it.

Dornfield

As 25% is withdrawn as a TFLS. The gross amount can be higher. The taxable withdrawl needs to be £50,270. 

You mean withdraw £67,027, so TFLS is £16,757, and the balance £50,270 is taxable at 20%, or is the taxable part (£50,270 - £12,570) @20% as whether or not some of this total income was TFLS, I should still have £12,570 of whatever income is my personal allowance: £7,540 income tax? That is equivalent to 11.25% tax. If that's the case this seems like a very good deal.

This has become quite off topic. My apologies if anyone is feeling increasingly mislead by the "Bonds and Stocks and Shares" title!

bjorn_toby_wilde

cfw1994 said:

Dornfield said:

german_keeper said:

Apologies if I have missed it but are you currently taking full advantage of your PTA?

I'm still getting familiar with the terminology: PTA = personal tax allowance? Do you mean withdrawing £16,760 from the SIPP in each tax year (I have no other taxable ncome), meaning that withdrawal pays no income tax at all? £12,570 personal allowance and £4,190 as a 'tax free lump sum'. I am arranging that at the moment, before the end of the tax year.

Sounds to me like you might want to draw a bit more than just that out.  
Use some (perhaps all) of your 20% tax band.  
If you want to keep it saved, then shift to ISA funds, which you can get at with no tax issues : ready for when you are looking at cruises, or indeed to help fund offspring through Uni & beyond 🤷‍♂️
You would want to avoid a point where you do want more out & hit high rate tax…

Heck, you could even consider passing some down into JISA/ISA/pension for those pesky kids🤪

That’s my plan from 2026 pretty much.

The objective is to move money out of the pension, making the most of the 20% tax band, and into pretty much the same investments but within an S&S ISA before my main DB pension and state pension kick in.

bjorn_toby_wilde

Dornfield said:

As 25% is withdrawn as a TFLS. The gross amount can be higher. The taxable withdrawl needs to be £50,270. 

You mean withdraw £67,027, so TFLS is £16,757, and the balance £50,270 is taxable at 20%, or is the taxable part (£50,270 - £12,570) @20% as whether or not some of this total income was TFLS, I should still have £12,570 of whatever income is my personal allowance: £7,540 income tax? That is equivalent to 11.25% tax. If that's the case this seems like a very good deal.

This has become quite off topic. My apologies if anyone is feeling increasingly mislead by the "Bonds and Stocks and Shares" title!

It’s a very useful thread - off topic or not!

Albermarle

Dornfield said:

As 25% is withdrawn as a TFLS. The gross amount can be higher. The taxable withdrawl needs to be £50,270. 

You mean withdraw £67,027, so TFLS is £16,757, and the balance £50,270 is taxable at 20%, or is the taxable part (£50,270 - £12,570) @20% as whether or not some of this total income was TFLS, I should still have £12,570 of whatever income is my personal allowance: £7,540 income tax? That is equivalent to 11.25% tax. If that's the case this seems like a very good deal.

This has become quite off topic. My apologies if anyone is feeling increasingly mislead by the "Bonds and Stocks and Shares" title!

Many threads go off topic, some in a positive way, some less so.........

aldershot

Further to my post above regarding concentration risk in global equity funds, here are a couple of new observations curtesy of Charlie Bilello who writes a weekly chart blog (US centric but worth following).....

Apple, Nvidia, and Microsoft now each have a higher weighting in the global equity market than every country outside the US except for Japan.

The 18.6% combined weighting of the Magnificent Seven in the global equity market is more than the entire weighting of Japan, the UK, China, Canada and India … combined



I think global equity funds that follow the MSCI or FTSE global are carrying higher and higher risk that is not really being discussed. It makes me think of "safe" bond funds when interest rates were near zero. They weren't safe at all and lost around 30% in 2022 when rates returned to more normal levels. They're much safer now (at current prices and yields) and should have a place in your portfolio (just my opinion of course!).

Cus

You are thinking of value. Of course Microsoft is not as valuable as France for example, so one would assume that because it is overvalued, it will revert. But imo due to the sheep mantra of invest and forget, buy index trackers, never sell, never time the market, never question value, US and other western countries people just pumping money into trackers, more and more goes into the bigger companies based on market share, this will just continue until.... something...I don't know what but it could be nasty.

noclaf

incus432 said:

. I also now hold short dated bond funds IGLS and GLT5 (0-5 year and 1-5 yr respectively) as well as some longer term VGOV (9.3 yr). for money I might need to access.  

Interested in the two ETFs bolded and in particular reasons for holding both? I use AGBP stand-alone for bonds exposure in my S&SISA and also taking a bit more interest in bonds generally.

Alexland

aldershot said:

I think global equity funds that follow the MSCI or FTSE global are carrying higher and higher risk that is not really being discussed. It makes me think of "safe" bond funds when interest rates were near zero. They weren't safe at all and lost around 30% in 2022 when rates returned to more normal levels. They're much safer now (at current prices and yields) and should have a place in your portfolio (just my opinion of course!).

I agree but then the question is what to do about it across the portfolio without placing a big bet and going too heavy into bonds/cash and losing the possible long term outperformance of equities. A few years ago I was happy with avoiding overpriced bonds and going 100% equities but switching now to 100% bonds feels like betting on a lower long term return asset and then having the problem of when to switch back again.

I have so far been tilting around 30% into bonds (formerly 'a return free risk', a term that might apply to equities soon or already at least in the medium term perhaps) but if this keeps going equal weight indexes are looking attractive. There might be a good argument to having your global equities allocation always 50/50 split between market cap and equal weight anyway (as they both historically have similar long term returns) and harvesting any rebalancing alpha that may occur.