Bonds

[bitchstewie]

As with DibblyDobbler I've read of bonds being a "worry".

How I understand it is that with UK Government bonds you want index linking to ensure you don't lose money, beyond that the risk is that the UK government doesn't pay which seems massively unlikely.

There are good quality corporate and other bonds where presumably if you use funds you diversify massively.

I get that if you go and buy a bunch of junk bonds that's a massive gamble but I'm confused how people seem to be talking down UK government backed bonds and other good quality bonds for what's supposed to be the "safer" part of a portfolio

[bitchstewie]

Thank you both

Sidicks as you suggested I'm definitely referring to funds.

So a couple of examples:

• iShares Index Linked Gilt Index Fund - https://www.blackrock.com/uk/individual/products/2...
• Baillie Gifford Corporate Bond - https://www.bailliegifford.com/en/uk/individual-in...

What are the real world risks given nothing is risk free?

iShares is UK government backed and linked against inflation.

Presume with the corporate bond fund you're basically into the credit worthiness of the companies?

Am I overthinking it or have I truly missed something obvious?

[bitchstewie]

sidicks said:

As explained above - the value of the IL government bond fund will fall if interest rates go up and/or inflation falls and/or the credit worthiness of the government deteriorates. The value of the corporate bond fund will fall if interest rates go up and/or inflation increases and/or the credit worthiness of the corporate bond issuer deteriorates.

Thank you

Amazing how with all the reading I've done that single paragraph has nailed it.

[bitchstewie]

No it's all being taken on board. I'm actually finding the process of trying to understand it fascinating

[bitchstewie]

So whilst I'm being cautious not to ask "what should I do?" too directly, I would be interested what people are looking at for the "safe" part of a portfolio?

Everything I read says do a equity/fixed split but when government bond returns sound so risky is it a wise option to just not do any government bonds?

[bitchstewie]

100% bond funds.

Timeline should be 10-15 years plus as the intention is to build this portfolio up i.e. enough pure cash in the bank enough to survive any crisis so it's more about "bottle" than logic

[bitchstewie]

sidicks said:

100% equities then, otherwise you’re trying to time the market as to when to increase / reduce risk. But you might choose to focus on mainstream developed markets rather than emerging markets and / or the riskier stocks within those markets, if you want a lower risk profile.

Edited by sidicks on Tuesday 30th January 12:34

My (sort of) ongoing plan was to throw 50% in a world tracker then have the other 50% in something that's pitched more as "income" but get the accumulation units so it all goes back in.

I think that way I can get some risk but hopefully some stability too albeit at the loss of some return - regardless of the logic I can't guarantee I wouldn't panic if I woke up one morning and found it was 2008 all over again.

I also plan on throwing the odd £5k into something like Fundsmith/Lindsell Train but more as a "punt" than as part of an ongoing plan if that makes sense?

I'd be interested why you've said 100% equities - presume simply because I have pure cash to ride out most storms? Most guides online have come back at around 60-80% equities as suggested number but of course different people have different methodologies.

[bitchstewie]

sidicks said:

bhstewie said:

My (sort of) ongoing plan was to throw 50% in a world tracker then have the other 50% in something that's pitched more as "income" but get the accumulation units so it all goes back in.

Why?!

From my POV a world tracker is diverse v piling into just one area.

With the other "pile" maybe "income" is the wrong word but there appear to be plenty of funds out there who aim to preserve capital i.e. you don't gain as much but you're not 100% exposed to the markets.

That was my logic anyway..

[bitchstewie]

sidicks said:

Sorry, my question was about investing in accumulation units within income funds. I’m not sure I understand the benefits you think you are getting?

More likely I don't understand and you're being polite

When I look at funds there are often "acc" and "inc" versions.

I was going off this http://monevator.com/income-units-versus-accumulat...

I thought that "inc" means returns are paid out directly whilst "acc" means they're reinvested directly into the fund i.e. even with a fund that's classed as "income" the returns are being returned into the fund automatically.

So in my case with no immediate requirement for the returns the "acc" made sense.

Keep in mind I'm only using the word income because it seems many of the more cautious funds are named "XYX income fund".

[bitchstewie]

sidicks said:

Not at all.

I think I understand your approach:
You’ve identified more defensive funds (which happen to be income funds) but you don’t want income so you’d hold the accumulation units. Rather than you’re seeking income funds (because you believe they are more defensive).

I think that's a fair assessment.