Bonds vs Equities

Lozballa wrote: »

Ive been advised to hold a portion of my funds in bonds as a hedge on equities as their prices move in opposite directions. However what i see by intuition is that rising interest rates make both equities and bonds relatively less attractive. Rising interest rates usually denite tge end of a business cycle and a slump in equity prices. But rising interest rates also make fixed income bonds less appealing so where is the hedge?. Of I realise this is only my intuition as my knowledge of this is far from perfect.
One thing that confuses me is when the financial press talk about bond performance I cant tell if they mean price or yield.
Any light thrown on both these questions would be appreciated.
Thanks.

I share your concerns.

My concern is that this advice reagarding bonds/equity proportions doesn't seem to have changed since QE from 2008 onwards.
I don't think bonds have actually been tested in a post-QE downturn yet?
I don't know that much about QE - if the govt (BoE) lends money to itself (Treasury dept), is that really 'debt' as we know it anyway? The BoE just created the currency on a computer screen and (apparently?) they're planning to delete it again. Sometime. (QT). It's all just hocus-pocus really.

Other hedges against stock market downturn could be:
gold
farmland (problems here - see my other thread!)
defensive stocks (utilities, pharm, healthcare, household goods - Unilever etc)

and possibly:
forestry - maybe not as packaging and housebuilding decline in recesion - see other thread - not straightforward!
aerospace and defence - the civilian airlines may take a hit in a global downturn (less holidays). Plus maybe less business travel anyway - with improved Skype meetings etc?
Defence companies - probably better off with Chinese than USA, as USA gradually reduces as a super-power (but that's probably very longterm).

[FONT=Verdana, sans-serif]Logically if interest rates rise bond prices should fall and since most investors probably expect interest rates to rise over the next few year why invest in bonds at all at this time and expect to lose money? Keep what you would have put in bonds as cash for the time being.[/FONT]
[FONT=Verdana, sans-serif]Others might argue that since interest rates are already forecast to rise rather than fall, that rise will already be factored in to today's bond price so its only an unexpected larger rate rise which will catch bonds out.[/FONT]

But rising interest rates also make fixed income bonds less appealing so where is the hedge?

If both equities and bonds fall at the same time, the fall in equities will be two to four times greater than bonds (caveat being you dont say what bonds).

Bonds are there to reduce the volatility of a portfolio. Not to make the more money. No is unhappy when portfolios grow. The test is when they fall in value and how you react. If you cant handle a 45% loss in value, then that is where bonds come into play.