Suggestions for bond funds
Discussion
Hi, Happy new year everyone.
I am looking to diversify my investments and out maybe 10% or so in bonds. Rest of the money is will.remain in equity using global passive trackers. I understand equity trackers hut am clueless abt bonds. Any suggestions for low fee bonds preferably government or other less risky options (maybe marge corporations???).
Thanks for reading my message..
I am looking to diversify my investments and out maybe 10% or so in bonds. Rest of the money is will.remain in equity using global passive trackers. I understand equity trackers hut am clueless abt bonds. Any suggestions for low fee bonds preferably government or other less risky options (maybe marge corporations???).
Thanks for reading my message..
Personally I'd buy individual bonds and hold to maturity (no CGT to pay on the 'gain') and chose the bond maturity date that suits you
https://www.yieldgimp.com/
PoorCarCollector said:
Personally I'd buy individual bonds and hold to maturity (no CGT to pay on the 'gain') and chose the bond maturity date that suits you
https://www.yieldgimp.com/
That chart must mean something to some people but I don't understand it at all. I've never bought bonds but I'd like to know a product that if I invest X, after the relevant period redeeming it I would get X+Y. https://www.yieldgimp.com/
Armitage.Shanks said:
PoorCarCollector said:
Personally I'd buy individual bonds and hold to maturity (no CGT to pay on the 'gain') and chose the bond maturity date that suits you
https://www.yieldgimp.com/
That chart must mean something to some people but I don't understand it at all. I've never bought bonds but I'd like to know a product that if I invest X, after the relevant period redeeming it I would get X+Y. https://www.yieldgimp.com/
How about something like these ETFs? I prefer ones like these that track the Bloomberg Global Aggregate Float Adjusted and Scaled Index, as compared to others, iirc, they hold fewer near-zero yielding bonds like Japanese Government ones.
https://www.vanguardinvestor.co.uk/investments/van...
https://www.vanguardinvestor.co.uk/investments/van...
Absolute high level bonds are a loan and you get repaid interest for the loan so pick a bond i.e. TG31.
Right now it shows a price of 77.32 on Yieldgimp so let's assume you can buy it for that.
It matures on July 31st 2031 so if you hold it until then you should get 100 back.
What you get back is made up of capital gain and dividend payments (yield) which on that bond are 0.25%
Capital gain on UK Government Bonds isn't taxable.
Dividend payments are subject to tax (assuming you're holding outside a tax wrapper like an ISA).
So if you're specifically looking for income you might look at a bond that pays a high yield which will give you income (see how some bonds offer almost 5%) but you may need to pay tax on the income.
If you're looking to be tax efficient you might look for a bond that has a low yield (see how some bonds offer 0.125%) as most of the gain will be capital gain which isn't taxed.
In very broad terms the longer the date to maturity the more volatile the price of the bond to things like interest rates - see 2022.
People think bonds are risk free and to some degree they are i.e. if you hold it until maturity the chances of the Government defaulting are pretty much zero (they never have yet).
Volatility is a different matter - see 2022 again.
Right now it shows a price of 77.32 on Yieldgimp so let's assume you can buy it for that.
It matures on July 31st 2031 so if you hold it until then you should get 100 back.
What you get back is made up of capital gain and dividend payments (yield) which on that bond are 0.25%
Capital gain on UK Government Bonds isn't taxable.
Dividend payments are subject to tax (assuming you're holding outside a tax wrapper like an ISA).
So if you're specifically looking for income you might look at a bond that pays a high yield which will give you income (see how some bonds offer almost 5%) but you may need to pay tax on the income.
If you're looking to be tax efficient you might look for a bond that has a low yield (see how some bonds offer 0.125%) as most of the gain will be capital gain which isn't taxed.
In very broad terms the longer the date to maturity the more volatile the price of the bond to things like interest rates - see 2022.
People think bonds are risk free and to some degree they are i.e. if you hold it until maturity the chances of the Government defaulting are pretty much zero (they never have yet).
Volatility is a different matter - see 2022 again.
PoorCarCollector said:
Personally I'd buy individual bonds and hold to maturity (no CGT to pay on the 'gain') and chose the bond maturity date that suits you
https://www.yieldgimp.com/
The problem with individual GBP corporate bonds is the min denom size is often 50K or higher. https://www.yieldgimp.com/
The total return will be a mix of capital gains on the bond and the coupon (dividend/yield).
Coupon is taxable if it's held outside a wrapper - depends on your specific situation - any capital gain is tax free.
This might be worth a read.
https://www.moneysavingexpert.com/savings/uk-gilts...
Coupon is taxable if it's held outside a wrapper - depends on your specific situation - any capital gain is tax free.
This might be worth a read.
https://www.moneysavingexpert.com/savings/uk-gilts...
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hstewie said:
hstewie said: The total return will be a mix of capital gains on the bond and the coupon (dividend/yield).
Coupon is taxable if it's held outside a wrapper - depends on your specific situation - any capital gain is tax free.
This might be worth a read.
https://www.moneysavingexpert.com/savings/uk-gilts...
Thanks for the info. I've now read it and used their 'calculator' based on a gilt on ii website, namely this one. However I'm not sure those figures stack up as it sounds too good!Coupon is taxable if it's held outside a wrapper - depends on your specific situation - any capital gain is tax free.
This might be worth a read.
https://www.moneysavingexpert.com/savings/uk-gilts...
If I bought 60,000 units at £0.9395 based on the coupon of 4.25% and redeemed 30/03/2026 the MSE calculator is giving me an annualised return of 8.83%.
I'd put £56,370 in and get £62,520 back ? MSE says as a basic rate taxpayer I'd need an account paying 11.6% to get that much!
Armitage.Shanks said:
Thanks for the info. I've now read it and used their 'calculator' based on a gilt on ii website, namely this one. However I'm not sure those figures stack up as it sounds too good!
If I bought 60,000 units at £0.9395 based on the coupon of 4.25% and redeemed 30/03/2026 the MSE calculator is giving me an annualised return of 8.83%.
I'd put £56,370 in and get £62,520 back ? MSE says as a basic rate taxpayer I'd need an account paying 11.6% to get that much!
8.83% is a fairly chunky yield, and going to be a lot riskier investment compared to a savings account. The bond wouldn't have any consumer protections that a bank account does.If I bought 60,000 units at £0.9395 based on the coupon of 4.25% and redeemed 30/03/2026 the MSE calculator is giving me an annualised return of 8.83%.
I'd put £56,370 in and get £62,520 back ? MSE says as a basic rate taxpayer I'd need an account paying 11.6% to get that much!
Armitage.Shanks said:
Thanks for the info. I've now read it and used their 'calculator' based on a gilt on ii website, namely this one. However I'm not sure those figures stack up as it sounds too good!
If I bought 60,000 units at £0.9395 based on the coupon of 4.25% and redeemed 30/03/2026 the MSE calculator is giving me an annualised return of 8.83%.
I'd put £56,370 in and get £62,520 back ? MSE says as a basic rate taxpayer I'd need an account paying 11.6% to get that much!
It simply boils down to credit risk I.e. you receive higher risk premium from higher risk rated issuer. See HL link below for a decent summary of the different flavours:If I bought 60,000 units at £0.9395 based on the coupon of 4.25% and redeemed 30/03/2026 the MSE calculator is giving me an annualised return of 8.83%.
I'd put £56,370 in and get £62,520 back ? MSE says as a basic rate taxpayer I'd need an account paying 11.6% to get that much!
https://www.hl.co.uk/shares/corporate-bonds-gilts/...
In addition to the fixed income and redemption, corporate bonds are typically collateralised(*) so if the company collapses, you as a secured creditor will likely get paid out before the ordinary equity shareholders. These features (regular income, redemption, CGT free, preferred creditor etc.) are what makes bonds attractive to investors, but the "rewards" are limited.
* Just like your mortgage, the bank has lent you money secured on the property. If you default, the bank can sell your house to repay part/all the loan. Bonds will be collateralised with specific asset ringfenced to repay you if the worse happens.
Edited by chip* on Saturday 4th January 12:41
bhstewie said:
hstewie said: Those are corporate bonds.
Higher risk in the hope of higher reward.
If you're lending money who do you think is most likely to pay it back in full?
You'd usually accept a lower return for a greater certainty of payment in full and on time - same principle here.
Plus on corporate bonds rather than gilts you pay CGT on the gain I believe so worth factoring in if you don’t have any CGT allowance available. Higher risk in the hope of higher reward.
If you're lending money who do you think is most likely to pay it back in full?
You'd usually accept a lower return for a greater certainty of payment in full and on time - same principle here.
lifeisacabaret said:
Plus on corporate bonds rather than gilts you pay CGT on the gain I believe so worth factoring in if you don’t have any CGT allowance available.
I'm not a UK tax payer but I'm not sure that is exactly correct? Maybe with a zero coupon bond but with all corporate bonds? If it is correct, CGT would be lower than income tax for a lot of people so would still make sense?Gassing Station | Finance | Top of Page | What's New | My Stuff