Are bonds still worth having ?
Discussion
The better known "wealth preservation" funds still hold bonds but usually index linked and often US TIPS.
Mostly because inflation now seems to be the primary concern.
With more traditional bonds a phrase that's stuck in my mind (I don't know much about bonds at all!) is they've gone from being "risk free return" to "return free risk".
There's a rather scary anecdote about how you could have held German treasury bonds which are considered one of the safest in the world through the global Covid pandemic (to date) and have actually lost money.
Mostly because inflation now seems to be the primary concern.
With more traditional bonds a phrase that's stuck in my mind (I don't know much about bonds at all!) is they've gone from being "risk free return" to "return free risk".
There's a rather scary anecdote about how you could have held German treasury bonds which are considered one of the safest in the world through the global Covid pandemic (to date) and have actually lost money.
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hstewie said:
hstewie said: The better known "wealth preservation" funds still hold bonds but usually index linked and often US TIPS.
Mostly because inflation now seems to be the primary concern.
With more traditional bonds a phrase that's stuck in my mind (I don't know much about bonds at all!) is they've gone from being "risk free return" to "return free risk".
There's a rather scary anecdote about how you could have held German treasury bonds which are considered one of the safest in the world through the global Covid pandemic (to date) and have actually lost money.
Exactly so if its a return free risk then you either risk the lot on equities and ride the market out or just take the least risky option and buy actual gold knowing that it won't make you money but it won't loose it either.Mostly because inflation now seems to be the primary concern.
With more traditional bonds a phrase that's stuck in my mind (I don't know much about bonds at all!) is they've gone from being "risk free return" to "return free risk".
There's a rather scary anecdote about how you could have held German treasury bonds which are considered one of the safest in the world through the global Covid pandemic (to date) and have actually lost money.
We're in iffy times where the traditional money pyramid (equities, bonds,cash) just doesn't seem suitable anymore.
LeoSayer said:
What's your definition of safe? Gold is more volatile than equity markets.
Traditionally you'd have bonds and cash to protect your short term (less than 5 years) spending needs. That won't keep pace with inflation but surely safety trumps returns over this time period.
That's easily remedied by gearing up the corporate bonds. Put down £100k, run a £1m position on 3% funding on bonds yielding about 6/7%. What's that? Around 30% return. Nice and easy. Traditionally you'd have bonds and cash to protect your short term (less than 5 years) spending needs. That won't keep pace with inflation but surely safety trumps returns over this time period.
Portfolio of bonds (inc) bought May 2019 has lost 3.7% of capital value as of today. Worst performer has been UK gilts, down 8%.
Lowest valuation was March 2020, so this portfolio of bonds moved the SAME way as equities in the Covid dip, but less severely. The low was down about 8% compared with equities down 20%
Taking income yield into account the portfolio has delivered a very slight, positive return over the period.
Does it continue to serve a purpose as "something that isn't equities and may hopefully give a better return than cash?" Yes, because if inflation is going to be the problem then cash will be shrinking anyway.
Lowest valuation was March 2020, so this portfolio of bonds moved the SAME way as equities in the Covid dip, but less severely. The low was down about 8% compared with equities down 20%
Taking income yield into account the portfolio has delivered a very slight, positive return over the period.
Does it continue to serve a purpose as "something that isn't equities and may hopefully give a better return than cash?" Yes, because if inflation is going to be the problem then cash will be shrinking anyway.
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