Where is the FTSE going?
Discussion
I don't really get bond trackers at all. I can kind of get my head around buying a bond directly and having a small risk of total default, but I don't really understand how they move in relation to stock market. I have a random chunk of "Baillie Gifford Investment Grade Bond" in my portfolio, but honestly I don't know why. It's just peer pressure.
- I hear they are a hedge, but they still go up it seems in bull years. So are they inversely correlated with stocks, or correlated but in some dilluted way?
- So are they just 'stocks light'? In which case, is the risk proportional? If so why not just rejig proportion of stocks to cash to get desired risk without the added bond management fee?
- Or are they different altogether? Should I expect better returns than the 2% odd I can get in fixed 2 yr savings or similar?
- I hear they are a hedge, but they still go up it seems in bull years. So are they inversely correlated with stocks, or correlated but in some dilluted way?
- So are they just 'stocks light'? In which case, is the risk proportional? If so why not just rejig proportion of stocks to cash to get desired risk without the added bond management fee?
- Or are they different altogether? Should I expect better returns than the 2% odd I can get in fixed 2 yr savings or similar?
Edited by zubzob on Friday 19th October 14:58
red_slr said:
I just don't see the point holding 25% cash.
In the ongoing "low interest rates" environment I completely agree with you.No point holding more of anything with a guaranteed loss on it than you absolutely need to. When interest rates are lower than the rate of inflation cash has guaranteed negative real returns.
zubzob said:
I don't really get bond trackers at all. I can kind of get my head around buying a bond directly and having a small risk of total default, but I don't really understand how they move in relation to stock market. I have a random chunk of "Baillie Gifford Investment Grade Bond" in my portfolio, but honestly I don't know why. It's just peer pressure.
- I hear they are a hedge, but they still go up it seems in bull years. So are they inversely correlated with stocks, or correlated but in some dilluted way?
- So are they just 'stocks light'? In which case, is the risk proportional? If so why not just rejig proportion of stocks to cash to get desired risk without the added bond management fee?
- Or are they different altogether? Should I expect better returns than the 2% odd I can get in fixed 2 yr savings or similar?
The traditional argument for bonds is that they are in portfolios to damp equity volatility. However....it all depends on the type of bond. - I hear they are a hedge, but they still go up it seems in bull years. So are they inversely correlated with stocks, or correlated but in some dilluted way?
- So are they just 'stocks light'? In which case, is the risk proportional? If so why not just rejig proportion of stocks to cash to get desired risk without the added bond management fee?
- Or are they different altogether? Should I expect better returns than the 2% odd I can get in fixed 2 yr savings or similar?
Edited by zubzob on Friday 19th October 14:58
High yield bonds tend to behave similar to equities in times of crisis - Investment grade bonds much better
Longer duration bonds may suffer if we have a global spike in interest rates, shorter duration less so.
Suggest maybe reading this.
https://www.amazon.co.uk/Smarter-Investing-Simpler...
rockin said:
In the ongoing "low interest rates" environment I completely agree with you.
No point holding more of anything with a guaranteed loss on it than you absolutely need to. When interest rates are lower than the rate of inflation cash has guaranteed negative real returns.
I would guess for those in retirement, you perhaps want enough 'cash' (easy access) to ride out a year (or perhaps up to 5, depending on your risk profile?) to account for market dips. & also perhaps to account for emergency funds (boiler/car/other major unplanned for events).No point holding more of anything with a guaranteed loss on it than you absolutely need to. When interest rates are lower than the rate of inflation cash has guaranteed negative real returns.
Almost 7% dropped from my funds this month (although now gently tracking up....who knows how turbulent the next few months may be) - if you were relying on drawdown, you might now want to touch it for some time....
But, yes, I'd expect that to be less than 25%. Maybe up to 15%.
FredClogs said:
b
hstewie said:
hstewie said: I read a lot (always good to have lots of opinions/options) and there's something called the "Harry Browne Permanent Portfolio" which is an interesting approach.
One of the bloggers on Monevator essentially has this portfolio, 25% global stocks, 25% bond tracker, 25% gold, 25% cash. It's not going to get you rich quick though. Over a lifetime I'm sure it's a safe option.
Slow and steady wins the race is one viewpoint.
mikeiow said:
I would guess for those in retirement, you perhaps want enough 'cash' (easy access) to ride out a year (or perhaps up to 5, depending on your risk profile?) to account for market dips. & also perhaps to account for emergency funds (boiler/car/other major unplanned for events).
.
The rule of thumb I've seen is three years..
https://www.amazon.co.uk/Living-Off-Your-Money-Ret... or
https://www.amazon.co.uk/Beyond-4-Rule-retirement-...
may well be worth reading for those who have reached this stage.
FredClogs said:
Looks like the Italy thing is starting to bite, Hang Seng down 3% in one session today though as well, looks like the tide is going out....
The Italy 'thing' has been a long time coming, like watching an HD video of a train wreck one frame at a time. IMHO it has the potential to be huge for the following reasons:- France: also at the receiving end of repeated criticism of it's budgetary policy by EU and IMF, and also heavily exposed to Italian debt through it's banking system (€44 billion).
- Germany: whilst benefiting from a weaker currency due to sharing with the likes of Italy, it is not immune to the downsides, not least the Target 2 liabilities, which no one really knows how will be resolved.
- Euro: All of the above is enough to put significant strain on the single currency, even without an Italexit.
Quite selective which always suggests not much panicking going on so more of a debasement than sell-off.
The techs are getting battered seemingly on the grounds that humans have been asking themselves if they really need to borrow more money to buy more st they don’t actually need. 
In the wider market the stocks that seem to be being targeted generally are those that have synthesised growth over the last decade by using debt.
Lots of execs seem to have been departing and I wonder if they are those who specialises in loading their firms up with debt to create pseudo growth and to bank huge bonuses and rewards but are now reckoning the jig is up and the model no longer works.
So far it looks like a healthy rebasing. Obviously that can change in a moment.
The techs are getting battered seemingly on the grounds that humans have been asking themselves if they really need to borrow more money to buy more s
t they don’t actually need. In the wider market the stocks that seem to be being targeted generally are those that have synthesised growth over the last decade by using debt.
Lots of execs seem to have been departing and I wonder if they are those who specialises in loading their firms up with debt to create pseudo growth and to bank huge bonuses and rewards but are now reckoning the jig is up and the model no longer works.
So far it looks like a healthy rebasing. Obviously that can change in a moment.
DonkeyApple said:
Quite selective which always suggests not much panicking going on so more of a debasement than sell-off.
The techs are getting battered seemingly on the grounds that humans have been asking themselves if they really need to borrow more money to buy more st they don’t actually need.
In the wider market the stocks that seem to be being targeted generally are those that have synthesised growth over the last decade by using debt.
Lots of execs seem to have been departing and I wonder if they are those who specialises in loading their firms up with debt to create pseudo growth and to bank huge bonuses and rewards but are now reckoning the jig is up and the model no longer works.
So far it looks like a healthy rebasing. Obviously that can change in a moment.
It's been "interesting" as I only opened my ISA in February or thereabouts so I was very lucky to catch most of the upside of the downturn back then.The techs are getting battered seemingly on the grounds that humans have been asking themselves if they really need to borrow more money to buy more s
t they don’t actually need. In the wider market the stocks that seem to be being targeted generally are those that have synthesised growth over the last decade by using debt.
Lots of execs seem to have been departing and I wonder if they are those who specialises in loading their firms up with debt to create pseudo growth and to bank huge bonuses and rewards but are now reckoning the jig is up and the model no longer works.
So far it looks like a healthy rebasing. Obviously that can change in a moment.
Being in a minor downturn has been eye-opening and actually helpful in making me focus on risk.
It did make me wonder if the sheer volume of commentary and news and opinion is always a good thing though, dead investors and those who do nothing statistically often doing best and all that.
FredClogs said:
The economics is one thing, I think the change in political will and the language of politicians in Italy is what's causing the real heebegeebees.
Management summary:UK: we will 'fix' the EU by being outside the tent, pissing in.
Italy: we will 'fix' the EU by being inside the tent, pissing in it.
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