gilts and corporate bonds

danster

hi all,
im currently paying into an invesco high income fund. i havnt yet maxed out my cash isa allowance yet (alliance and liester are dragging their heels!)
ive been given advice that, given the state of the markets, its best to move my investments as close to cash savings as possible (without actually putting it all in cash as a lot of my stocks and shares are past isas, so i dont want to lose the tax free savings).
my friend believes (as i do) that the market is going to get worse before it gets better. i know i cant predict when it will flatten out, but i think we're on a downward slope. im probably not even going to max out my s&s isa until later this year when the market will (or may) drop further, so that i get more for my money.
he mentioned moving my investements into gilts or corporate bonds.
can anyone offer any advice on this? im obviously an investments novice and dont even know what gilts are!
many thanks.

cheerfulcat

Hi, danster,

Gilts and corporate bonds are loans to government and companies respectively. Gilts are specifically loans to the UK government and are probably the safest place ( bar inflation risk ) for your cash as the likelihood of default is minimal. Unfortunately, this is reflected in the return you get from them which is also minimal. Corporate bonds can be riskier than gilts by a considerable margin.

There is a good explanation on Incademy.

danster

thanks cheerfulcat,
do you agree with the advice?

Frugality_2

Whats the difference between a gilt and a gov. bond (ns&i) then?

kingmonkey

those NS&I products aren't true bonds - many bank products have bond in their title which confuses many people. It usually means a fixed interest/term type product

Gilts are traded and therefore there is a risk to capital.

cheerfulcat

Hi, danster,

danster wrote: »

thanks cheerfulcat,
do you agree with the advice?

You're welcome!

Do I agree with the advice from your friend to move money out of equities and into gilts and bonds? No, I don't, for several reasons. Firstly, I think that the perceived safety of bond funds is an illusion. You can lose capital as easily as with equity-based funds. Bear in mind too that the biggest problems in the markets right now involve debt ( bonds ). FWIW I think that yields will have to rise further ( = bond prices coming down ).

Having said that, if your only investment currently is the Invesco fund, a bond fund to complement that would be fine, as long as it is " as well as " and not " instead of ". IMO, of course.

Remember that investing is a long-term proposition. Over an investing lifetime you will see many, many booms and busts - if you hold your nerve and continue your regular investments without trying to time the market you should do reasonably well.

Frugality,

Whats the difference between a gilt and a gov. bond (ns&i) then?

Gilts are tradeable - NS&I products do the same job ( raise money for the Treasury as cheaply as possible ) but cannot be traded, though in the case of Premium Bonds they can be " sold " back to NS&I.

danster

thanks cheerfulcat. ive just been going thru incademy.com. looks really good for an investing novice such as myself!

purch

Gilts are traded and therefore there is a risk to capital

.......unless held to maturity !!

jon3001

cheerfulcat wrote: »

You can lose capital as easily as with equity-based funds.

Really? Which corporate bond fund (not 'high yield'/junk) or gilt fund has lost over half its value like the equities did after dot-com crash?

cheerfulcat wrote: »

Bear in mind too that the biggest problems in the markets right now involve debt ( bonds ).

I'm sure some CDOs have dramatically fallen in value. I doubt as a retail investor the OP is looking to get involved in those.

cheerfulcat

jon3001 wrote: »

Really? Which corporate bond fund (not 'high yield'/junk) or gilt fund has lost over half its value like the equities did after dot-com crash?

That's a bit of a non sequitur. OP wrote

ive been given advice that, given the state of the markets, its best to move my investments as close to cash savings as possible [...] he mentioned moving my investements into gilts or corporate bonds.

I simply pointed out that corporate bond funds are not as safe as some seem to think. There is no comparison with the mug punter behaviour of people during the dot.com ridiculousness. But would you seriously suggest that danster moves all of his or her investments into corporate bond funds now? Especially given the assumption that this is " as close to cash savings as possible "?

dunstonh

purch wrote: »

.......unless held to maturity !!

not unless they were bought above the redemption price. i.e. buy a gilt at 120p and it matures at 100p. The only way to guarantee capital security is to buy from the start and hold until the end or buy you where the price is below 100p and has a maturity date that is realistic.