Getting rid of bonds: would that be a silly thing to do?

Only you can decide. Its what I do though

gif1 wrote: »

Hi all,
I am 45, investing 1000 monthly in a 75% (global) equity /25% (strategic) bond, active portfolio. As it seems that bonds are going nowhere I am considering replacing that entire 25% with an equity global small-cap fund (small-cap are not currently catered for in my allocation). Apart from that, I have one-year worth of salary in saving accounts.
Would this be a crazy idea to implement?
I would appreciate your expert opinions and suggestions.
Thank you

You'll be increasing the volatility of your portfolio. If you hold a bond to term you'll get the income and your capital back. If you hold bond funds you might expect the price to fall for a few years, but if you reinvest the income you'll do ok if you hole the funds long enough.

A few months ago I was watching a video with Shaun Port the chief investment officer at Nutmeg (those fees are paying his salary) and after yapping about the benefits of share/bond portfolios he mentioned that 'as a professional investor' he is 100% equities.

It did leave me wondering if you are investing long term (with no need to withdraw) and understand the nature of market ups and downs so would not be tempted to sell low - then there might be a case for going 100% equities. However it is a higher risk strategy and you would have to spend a lot of time getting comfortable with the potential paper losses you will see along the way.

When you first start a new regular investing account it seems a good time to go 100% equities as you have very little to lose while the balances are low. Then you get to a middling point where you have enough money that you worry it might be lost. However if you can 'break through' maybe you get to a point where you have excess money for your needs in any reasonable scenario the so volatility matters less again.

Efficient frontier theory might say you are getting a sub-optimal return for your risk with 100% equities however if you are likely to end up with more money at the end then does that really matter?

Alex.

You haven't mentioned which bond fund(s) you are in, but presumably you originally bought into them in the knowledge they wouldn't gain you as much in an equity bull market, but they wouldn't then lose as much when that bull market goes south - and that's what they are there for really, to dampen the volatility in your overall portfolio.

It's all too easy to look at your portfolio and decide this or that isn't doing too well at the moment, so I'll switch to something performing better - chasing returns. Making the switch now would mean selling a lower performer and buying a higher performer - and with the equity markets currently at or near record highs, it sounds an awful lot like selling low(ish), buying high......

I share your current concerns about bonds, but I also have similar concerns over equities at the moment too, especially in the US (usually a large chunk of most global equity funds). I have no crystal ball though, and so I can't tell you definitively, one way or another, what the markets are going to do.

In the end, it has to be your call - it's your money after all......however, in your shoes, I think I'd be adopting a "steady as she goes, let's see where this leads" approach at the moment.

If you decide to switch, I might consider doing it in stages rather than in one hit (though I accept this too could go either way), but at 45, you may well have the time to recover if the equities market does turn south in a big way.....

Look at how Vanguard's US Lifestrategy funds have performed since their inception. There are 4 funds: 80% equities, 60% equities, 40%, 20%. Over time everything converges - at the moment equities is the place to be but maybe not when the next crash happens.