Investing in bonds?

Worried_fool

I think it is time to de-risk my portfolio, held in an S & S ISA. So where do I begin?

I am not interested in the tax advantages that gilts offer, and I don't mind some risk, so I could certainly include some high-yield corporate bonds: they have got to be less risky than Biotech! I am not really interested in a 'gilt ladder': I would like to benefit from the recent yield increases (aka price falls) and make a lower-risk investment that could probably eventually be sold for more than I pay for it.

And what percentage of a bond investment should be index-linked? Or at least, how would you decide on a percentage?

Thank you for your thoughts.

aroominyork

Since you are using an ISA there are no tax advantages - those from low coupon gilts - to benefit from. That means, if you want nominal gilts, you can choose high coupon ones that generally have a slightly higher yield.

ctdctd

I looked at bonds and gilts and ended up moving my de-risk pot to a fixed cash ISA at just over 5% for a while.

I can always move it back into the market when matured, or earlier with a loss of interest should a mega buying opportunity arise!

masonic

You can probably derisk from Biotech within equities, before considering other asset classes. High yield corporate bonds are generally less crashy than equities, but they still tend to crash.

Currently the vast majority of my bond holdings are index linked. But these holdings are earmarked for a specific purpose, which will increase in cost with inflation.

If you share your objectives, then it would be possible to comment on what might be appropriate.

InvesterJones

https://forums.moneysavingexpert.com/discussion/6684414/investing-in-bonds

When do you need the money, and how much do you need it to grow?

phlebas192

I've been selling equities and buying gilts recently to de-risk, although we're still at 71% equities so likely more of them than many other retirees. Been doing this mostly because I looked at just how much our assets have grown in recent years and thinking that we might as well take some of the risk off the table.

Most of our gilts are non-linkers although recent purchases have been 50/50 IL / non-IL. The reason for initially going for non-linkers was simply to be able to generate sufficient regular income for the monthly withdrawals from my wife's SIPP without needing to rely on short-term gilts maturing but that's covered now.

I have briefly looked at corporate bonds but there don't seem to be many available to retail investors these days and the yield premium to gilts isn't high so a single default would likely wipe out any possible gains.

aroominyork

I have briefly looked at corporate bonds but there don't seem to be many available to retail investors these days and the yield premium to gilts isn't high so a single default would likely wipe out any possible gains.

Sounds like you are looking at individual corporate bonds rather than corporate bond funds. As with equities, funds are the safer way to invest.

DRS1

There are some investment trusts which invest in this sort of thing. This should be a list

Compare investment companies | The AIC

GeoffTF

https://forums.moneysavingexpert.com/discussion/6684414/investing-in-bonds

I am not interested in the tax advantages that gilts offer, and I don't mind some risk, so I could certainly include some high-yield corporate bonds: they have…

The yield premium for corporate bonds high yield ones is currently low by historical standards. You are taking on a lot of risk for little additional return if things go well. Investment quality bonds have a low risk of default. They currently pay very little more than government bonds, but offer some extra diversification. Overseas bonds should be hedged into sterling.

And what percentage of a bond investment should be index-linked? Or at least, how would you decide on a percentage?

Conventional gilts return more that index linked gilts unless there is high inflation. People's percentage of conventional bonds depends on how greedy they are and how scared they are of inflation.

The most important factor is the one that you do not mention: the duration of the bond (or bond fund). The longer the duration the more sensitive it is the changing interest rates.

aroominyork

The most important factor is the one that you do not mention: the duration of the bond (or bond fund). The longer the duration the more sensitive it is the changing interest rates.

The OP "would like to benefit from the recent yield increases". That only makes sense if they are looking at longer duration. They also want an "investment that could probably eventually be sold for more than I pay for it". That sounds like they want to trade it rather than hold to maturity (although, of course, holding a gilt to maturity would generate a gain). But they also want a "lower-risk investment" which means not aiming at trading long duration bonds. So we have some internal contradictions and it will be interesting to see their reply.

Linton

https://forums.moneysavingexpert.com/discussion/6684414/investing-in-bonds

I agree with other comments that your objectives are not clear. In my view each investment should be justified by an objective.

For example if you are needing inflation linked income over the next 10 years then IL bonds are an obvious purchase. They would sacrifice the potentially higher gains from equity investment in order to ensure a risk-free income. Having made that decision it would be logical to just buy sufficient IL bonds maturing over the next 10 years to generate the income you need.

If you purely want long term growth over say 10 years or more with no need to take income, why derisk from equities? If you are worried about risk now I would say that you were inappropriately invested in the past unless your circumstances have changed. Crashes can come at any time. Your investment allocations need to be based on that assumption.

My comments are based on the assumption tht you are talking about money that is important for your future well-being. If this is just play money then obviously there will be other factors, perhaps does the thrill of winning more than balance the depression when you lose.