How does Yield work in mutual funds?
mameha
Posts: 64 Forumite
I am trying to choose a mutual fund for my kids JISA.
There's about 7 years left.
I am looking for something lower risk than an index tracker.
I am attracted to these Bond/Gilt funds that have a yield of 4-5%, but I am confused how they work.
Example:
Historic yield = 4% paid monthly
Growth = 2% over last 12 months
If I had invested £1000 12 months ago in this fund, would I now have +2% (£1020) or +6% (£1060)?
The above example is based on this fund, I have simplified the numbers:
https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/b/baillie-gifford-high-yield-bond-class-b-accumulation
There's about 7 years left.
I am looking for something lower risk than an index tracker.
I am attracted to these Bond/Gilt funds that have a yield of 4-5%, but I am confused how they work.
Example:
Historic yield = 4% paid monthly
Growth = 2% over last 12 months
If I had invested £1000 12 months ago in this fund, would I now have +2% (£1020) or +6% (£1060)?
The above example is based on this fund, I have simplified the numbers:
https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/b/baillie-gifford-high-yield-bond-class-b-accumulation
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Comments
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Mutual funds is an American term. Some have tried to introduce that term here but its generally not used by most.
An index tracker is an investment style. it doesn't have any impact on risk. What you invest in carries the risk. So, an index tracker in emergigng markets will be very diferent in reisk to a an index tracker in Gilts.I am looking for something lower risk than an index tracker.
Single sector investing (which is what a tracker will usually be) is bad quality investing. A multi-asset fund is more likely to be suitable.I am attracted to these Bond/Gilt funds that have a yield of 4-5%, but I am confused how they work.
Use of one of these would be that single sector investing that is considered bad. They are designed to be held in a portfolio of other single sector funds to build the portfolio you are after. Hence why multi-asset funds would be better.If I had invested £1000 12 months ago in this fund, would I now have +2% (£1020) or +6% (£1060)?
Unit price has gone down, as expected. Income compensates a little. So, total return over 12 months has been 1.68%.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
"total return over 12 months has been 1.68%."
That part I dont understand at all.
How is that calculated? Are you thinking about platform fees etc?0 -
"total return over 12 months has been 1.68%."
That part I dont understand at all.
How is that calculated? Are you thinking about platform fees etc?
That does not include platform charges. So, you need to take those off.
Returns come from the change in the unit price (which will go down as well as up) and the income.
What has happened is that the unit price has fallen. i.e. the value of the investments has gone down. However, the income has come in and covered the loss leaving only a little left over as profit.
There is up and down movement every day. Income is not consistent. We are coming off the top of a cycle where unit prices on bond funds are falling and expected to continue to fall.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Someone described bonds as 'return free risk'. I wouldn't touch them with a bargepole at present.0
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Why is the bond price surely going to come down?0
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Why is the bond price surely going to come down?
Interest rates are low and starting to rise.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Going entirely into bonds carries its own risk so have you considered a low cost target withdrawal date fund such as Vanguard Target Retirement 2025 which will gradually reduce the equity exposure as the withdrawal date approaches? It's currently 62% equities and 38% bonds.
https://www.vanguardinvestor.co.uk/investing-explained/what-are-target-retirement-funds
https://www.vanguardinvestor.co.uk/investments/vanguard-target-retirement-2025-fund-accumulation-shares
Still if the markets remain healthy you might want to start moving some into cash to de-risk further once you get down to less than 5 years as it's questionable whether the child would still have an investment timeframe as sometimes both equities and bonds drop concurrently.
Alex.0 -
I am trying to choose a mutual fund for my kids JISA.
There's about 7 years left.
I am looking for something lower risk than an index tracker.
Seven years left until what, exactly?
The JISA investment can continue indefinitely, until withdrawal is needed.
It doesn't have to be liquidated at the age of 18.Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...THE WAY TO WEALTH, Benjamin Franklin, 1758 AD0
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