S&S ISA - Talk to me abt Bonds pls

[xyz123]

Hi - As part of setting up long term (10+ yrs) investment i have couple of tracker funds (100% equity). Amount is not massive by PH standard but it is important enough for me. I wanted to diversify and add some bonds. I realise there are mixture of equity/bonds funds out there (e.g. Vanguard lifestrategy) but i am specifically looking to add one or two bond fund. I had a look on moevator website for the low cost bonds and I have also done my due diligence on the tracker funds and happy with choices but i am confused with bonds.

I understand there are different types of bonds as in UK government, global government and corporate bonds.

1. There are some "inflation linked" bonds. What the catch here as in this case most of us can simply get these bonds to protect against inflation and not have any money in "high street bank" even after consideing the fund charge.

2. How does one go abt deciding whether to get bonds hedged to £ or not? No one has the crystal ball but just trying to see the rationale behind this "hedging"?

Thanks

[bitchstewie]

There's a reason a lot of people just go for something like LifeStrategy.

Bonds aren't easy.

[Simpo Two]

bhstewie said:

Bonds aren't easy.

But neither are equities...

I look forward to learning more about inflation-linked bonds; though greatly doubt they are linked to same inflation I was thinking of.

Edited by Simpo Two on Monday 8th August 21:34

[Percy Cushion]

Great question, OP. I’m also interesting inflation linked bonds

[chip*]

xyz123 said:

Hi -
I understand there are different types of bonds as in UK government, global government and corporate bonds.

1. There are some "inflation linked" bonds. What the catch here as in this case most of us can simply get these bonds to protect against inflation and not have any money in "high street bank" even after consideing the fund charge.

This old (and relevant in our current rising interest rate climate!) article gives a good overview on the "catches" with holding linkers.

https://monevator.com/why-uk-inflation-linked-fund...

[bitchstewie]

Simpo Two said:

But neither are equities...

I look forward to learning more about inflation-linked bonds; though greatly doubt they are linked to same inflation I was thinking of.

No that's true but I think it's pretty fair to say that it's easier to buy an "all world" equity tracker and be confident what you're buying than it is to buy what may look like a bond tracker but not be sure whether you've got gilts, TIPS, corporate covered etc.

Look at how many "bondy bits" make up "bonds" in LifeStrategy for example though I guess you could make the same case for the number of equity funds they use that overlap.

[thekingisdead]

Bonds are arguably, a little counter intuitive compared to equities.

FWIW during accumulation I’d ignore index linked bonds.
Likewise corporate - ignore. They aren’t inversely correlated with equities to be a significant diversifier.

If you’re investing in foreign govt bonds - I’d recommend hedging, otherwise you’re bringing FX risk into your ‘safe haven’ asset, which isn’t really desirable.

Both monevator and “occam investing” have produced some good articles on bonds and what you need to consider. Have a Google.

[Phooey]

I guess it all comes down to an individual's appetite to risk but if you like your curry spicy I don't see why you'd want bonds in a 10+yr portfolio

[Panamax]

Percy Cushion said:

I’m also interesting inflation linked bonds

I bought inflation linked bonds 18 months ago thinking they'd give protection against inflation. They're now down 20-25%.

Make of that what you will.

It's arguable the damage has already been done so it might be a good time to buy....

Or not.

[btdk5]

Phooey said:

I guess it all comes down to an individual's appetite to risk but if you like your curry spicy I don't see why you'd want bonds in a 10+yr portfolio

Neither do I, who cares about near term volatility when you’re thinking of a 10 year horizon.

Inflation linked bond funds will still be effected by the capital valuation of the underlying bonds, which in turn typically move inversely to interest rates.

[bitchstewie]

I would guess a lot of people who dislike volatility simply dislike volatility and find it difficult to unlink the short term from the long term.

Psychology is a massive thing.

[Simpo Two]

Panamax said:

I bought inflation linked bonds 18 months ago thinking they'd give protection against inflation. They're now down 20-25%.

Make of that what you will.

Arse, back to the drawing board then. I can lose 20-25% quite easily without their help...

[Mazinbrum]

Go for something like the Jupiter Strategic Bond fund?
https://www.jupiteram.com/uk/en/individual/product...