Discussion
Now I confess to not knowing a LOT about gilts & bonds, other than in theory they should be more stable then equities in times of big fluctuations....backed up by their reasonable performance last autumn I saw in my pension funds (Blackrock Index ones...)....
(eta although they are still "risk level 5" the Aviva scale!)
I had a suggestion 3rd hand (from someone who is apparently an IFA) that the 15 year gilt is "about to drop as a lot of bad debt futures have been sold....but thinks the 5 year gilt should be okay".
I've not seen any reports in obvious places to suggest this is fact, & suspect it may be moderate nonsense......
So: anyone here got thoughts/views on this?
(eta although they are still "risk level 5" the Aviva scale!)
I had a suggestion 3rd hand (from someone who is apparently an IFA) that the 15 year gilt is "about to drop as a lot of bad debt futures have been sold....but thinks the 5 year gilt should be okay".
I've not seen any reports in obvious places to suggest this is fact, & suspect it may be moderate nonsense......
So: anyone here got thoughts/views on this?
Edited by mikeiow on Sunday 28th April 19:17
mikeiow said:
Now I confess to not knowing a LOT about gilts & bonds, other than in theory they should be more stable then equities in times of big fluctuations....backed up by their reasonable performance last autumn I saw in my pension funds (Blackrock Index ones...)....
(eta although they are still "risk level 5" the Aviva scale!)
I had a suggestion 3rd hand (from someone who is apparently an IFA) that the 15 year gilt is "about to drop as a lot of bad debt futures have been sold....but thinks the 5 year gilt should be okay".
I've not seen any reports in obvious places to suggest this is fact, & suspect it may be moderate nonsense......
So: anyone here got thoughts/views on this?
Rule #1:Ignore anyone that makes predictions, IFA or not.(eta although they are still "risk level 5" the Aviva scale!)
I had a suggestion 3rd hand (from someone who is apparently an IFA) that the 15 year gilt is "about to drop as a lot of bad debt futures have been sold....but thinks the 5 year gilt should be okay".
I've not seen any reports in obvious places to suggest this is fact, & suspect it may be moderate nonsense......
So: anyone here got thoughts/views on this?
Edited by mikeiow on Sunday 28th April 19:17
Rule #2: Ignore anyone that uses what sounds like sophisticated language to suggest they have a way to outsmart the market.
If you follow these I think you will be OK
Tim Hale's book is easy to read and will give you a great starting point. His belief is that a portfolio contains whisky (growth assets such as equities) and water (volatility dampers such as investment grade bonds) in a mix to suit your taste. There's some debate around whether bonds should be short or medium duration, but I've not seen much argument for longer dated. He also discusses other asset classes such as commodities and why he does/doesn't believe they belong in a portfolio. He's well regarded in the profession FWIW.
https://www.amazon.co.uk/Smarter-Investing-Simpler...
If you read it and still have any questions please feel free to post.
Out of interest do you have the ISIN for the bond fund?
Buying gilts/bonds is like buying insurance. There's a "cost" to doing it, in the form of inferior long term performance, but there's peace of mind in having some protection (hopefully) from the 25% drops that equity markets sometimes deliver - and it can take them a long time to recover.
To be honest I hate gilts/bonds but recognise there's a case for holding a proportion in a portfolio. On the other hand I know some investors have done OK with a "gilts/bonds only" approach.
If you take a starting point of May 2018, by the end of the year equities had dropped 15% but bonds were only down 5% - so a 10% "win". However, as of today equities have recovered to last year's level while bonds have gone nowhere.
It's worth remembering that if equities take a real dive people panic and start switching from equities into gilts/bonds, which pushes up the value. So they may appear to be languishing but can suddenly become flavour of the month.
As Derek has implied in his post, successful investing is often about doing the basics and avoiding razzamataz. There's always some snake oil salesman waiting to spin you a line or sell you the "next big thing". A good example is the American SEC's clampdown on thematic ETF's which like to give themselves a sexy sounding name to attract investors but often contain a range of assets which bears little resemblance to that sexy name!
https://www.investmentnews.com/article/20190412/FR...
To be honest I hate gilts/bonds but recognise there's a case for holding a proportion in a portfolio. On the other hand I know some investors have done OK with a "gilts/bonds only" approach.
If you take a starting point of May 2018, by the end of the year equities had dropped 15% but bonds were only down 5% - so a 10% "win". However, as of today equities have recovered to last year's level while bonds have gone nowhere.
It's worth remembering that if equities take a real dive people panic and start switching from equities into gilts/bonds, which pushes up the value. So they may appear to be languishing but can suddenly become flavour of the month.
As Derek has implied in his post, successful investing is often about doing the basics and avoiding razzamataz. There's always some snake oil salesman waiting to spin you a line or sell you the "next big thing". A good example is the American SEC's clampdown on thematic ETF's which like to give themselves a sexy sounding name to attract investors but often contain a range of assets which bears little resemblance to that sexy name!
https://www.investmentnews.com/article/20190412/FR...
Derek Chevalier said:
Rule #1:Ignore anyone that makes predictions, IFA or not.
Rule #2: Ignore anyone that uses what sounds like sophisticated language to suggest they have a way to outsmart the market.
If you follow these I think you will be OK
Tim Hale's book is easy to read and will give you a great starting point. His belief is that a portfolio contains whisky (growth assets such as equities) and water (volatility dampers such as investment grade bonds) in a mix to suit your taste. There's some debate around whether bonds should be short or medium duration, but I've not seen much argument for longer dated. He also discusses other asset classes such as commodities and why he does/doesn't believe they belong in a portfolio. He's well regarded in the profession FWIW.
https://www.amazon.co.uk/Smarter-Investing-Simpler...
If you read it and still have any questions please feel free to post.
Out of interest do you have the ISIN for the bond fund?
Thx: I kind of felt those rules coming to mind.....Rule #2: Ignore anyone that uses what sounds like sophisticated language to suggest they have a way to outsmart the market.
If you follow these I think you will be OK
Tim Hale's book is easy to read and will give you a great starting point. His belief is that a portfolio contains whisky (growth assets such as equities) and water (volatility dampers such as investment grade bonds) in a mix to suit your taste. There's some debate around whether bonds should be short or medium duration, but I've not seen much argument for longer dated. He also discusses other asset classes such as commodities and why he does/doesn't believe they belong in a portfolio. He's well regarded in the profession FWIW.
https://www.amazon.co.uk/Smarter-Investing-Simpler...
If you read it and still have any questions please feel free to post.
Out of interest do you have the ISIN for the bond fund?
On ISINs: the 15-yr is GB00BYSL8424, the 5-yr is GB00BYSL7T06 - both look (to my amateur eyes!) reasonable over 1/3/5/10 years, I would say, & frankly, pretty similar.
.....but then, I am just an amateur dabbler ;-)
mikeiow said:
Derek Chevalier said:
Rule #1:Ignore anyone that makes predictions, IFA or not.
Rule #2: Ignore anyone that uses what sounds like sophisticated language to suggest they have a way to outsmart the market.
If you follow these I think you will be OK
Tim Hale's book is easy to read and will give you a great starting point. His belief is that a portfolio contains whisky (growth assets such as equities) and water (volatility dampers such as investment grade bonds) in a mix to suit your taste. There's some debate around whether bonds should be short or medium duration, but I've not seen much argument for longer dated. He also discusses other asset classes such as commodities and why he does/doesn't believe they belong in a portfolio. He's well regarded in the profession FWIW.
https://www.amazon.co.uk/Smarter-Investing-Simpler...
If you read it and still have any questions please feel free to post.
Out of interest do you have the ISIN for the bond fund?
Thx: I kind of felt those rules coming to mind.....Rule #2: Ignore anyone that uses what sounds like sophisticated language to suggest they have a way to outsmart the market.
If you follow these I think you will be OK
Tim Hale's book is easy to read and will give you a great starting point. His belief is that a portfolio contains whisky (growth assets such as equities) and water (volatility dampers such as investment grade bonds) in a mix to suit your taste. There's some debate around whether bonds should be short or medium duration, but I've not seen much argument for longer dated. He also discusses other asset classes such as commodities and why he does/doesn't believe they belong in a portfolio. He's well regarded in the profession FWIW.
https://www.amazon.co.uk/Smarter-Investing-Simpler...
If you read it and still have any questions please feel free to post.
Out of interest do you have the ISIN for the bond fund?
On ISINs: the 15-yr is GB00BYSL8424, the 5-yr is GB00BYSL7T06 - both look (to my amateur eyes!) reasonable over 1/3/5/10 years, I would say, & frankly, pretty similar.
.....but then, I am just an amateur dabbler ;-)
https://www.reddit.com/r/UKPersonalFinance/comment...
https://www.reddit.com/r/UKPersonalFinance/comment...
and bogleheads is a great resource
Derek Chevalier said:
Similar discussions
https://www.reddit.com/r/UKPersonalFinance/comment...
https://www.reddit.com/r/UKPersonalFinance/comment...
and bogleheads is a great resource
Interesting......the numbers on those reddit posts suggest an entirely different (ie, much lower!!) level of return for those gilts compared with the ones I can chose from.https://www.reddit.com/r/UKPersonalFinance/comment...
https://www.reddit.com/r/UKPersonalFinance/comment...
and bogleheads is a great resource
Given the Aviva Blackrock ones are rated risk 5.....maybe my gilts are some dangerous ones!!
(see....said I didn't understand gilts ;-)
mikeiow said:
Interesting......the numbers on those reddit posts suggest an entirely different (ie, much lower!!) level of return for those gilts compared with the ones I can chose from.
Given the Aviva Blackrock ones are rated risk 5.....maybe my gilts are some dangerous ones!!
(see....said I didn't understand gilts ;-)
If you hold a gilt until maturity, it is low risk and you will receive a known return.Given the Aviva Blackrock ones are rated risk 5.....maybe my gilts are some dangerous ones!!
(see....said I didn't understand gilts ;-)
If you purchase a gilt fund, the manager is typically trading these bonds in order to outperform a benchmark and the return you get will be linked to manager skill, but more importantly to changes in interest rate expectations over the holding period - this could result in significant negative returns.
spare_change said:
If you hold a gilt until maturity, it is low risk and you will receive a known return.
If you purchase a gilt fund, the manager is typically trading these bonds in order to outperform a benchmark and the return you get will be linked to manager skill, but more importantly to changes in interest rate expectations over the holding period - this could result in significant negative returns.
Thanks, yes, I was loosely aware of this (although I recall being told there were 'insurance bonds' you could buy with guarantees - around 5% pa? - hadn't associated those with gilts, but then I have never bought individual gilts): hadn't clocked the latter point about funds.If you purchase a gilt fund, the manager is typically trading these bonds in order to outperform a benchmark and the return you get will be linked to manager skill, but more importantly to changes in interest rate expectations over the holding period - this could result in significant negative returns.
Must say (& I *know* past performance is *no* indication of future!!) the past 5 years I can see for these funds (both individually and cumulatively) have all been pretty decent.
mikeiow said:
Thanks, yes, I was loosely aware of this (although I recall being told there were 'insurance bonds' you could buy with guarantees - around 5% pa? - hadn't associated those with gilts, but then I have never bought individual gilts): hadn't clocked the latter point about funds.
Must say (& I *know* past performance is *no* indication of future!!) the past 5 years I can see for these funds (both individually and cumulatively) have all been pretty decent.
Past returns have been decent as future interest rate / inflation expectations have been low. If / when the economy picks up, inflation increases and interest rates start going up then returns will be very different.Must say (& I *know* past performance is *no* indication of future!!) the past 5 years I can see for these funds (both individually and cumulatively) have all been pretty decent.
There are no bonds that are paying 5% without risk to your capital. This is very different than investing in government bonds (gilts).
mikeiow said:
spare_change said:
If you hold a gilt until maturity, it is low risk and you will receive a known return.
If you purchase a gilt fund, the manager is typically trading these bonds in order to outperform a benchmark and the return you get will be linked to manager skill, but more importantly to changes in interest rate expectations over the holding period - this could result in significant negative returns.
Thanks, yes, I was loosely aware of this (although I recall being told there were 'insurance bonds' you could buy with guarantees - around 5% pa? - hadn't associated those with gilts, but then I have never bought individual gilts): hadn't clocked the latter point about funds.If you purchase a gilt fund, the manager is typically trading these bonds in order to outperform a benchmark and the return you get will be linked to manager skill, but more importantly to changes in interest rate expectations over the holding period - this could result in significant negative returns.
Must say (& I *know* past performance is *no* indication of future!!) the past 5 years I can see for these funds (both individually and cumulatively) have all been pretty decent.
Derek Chevalier said:
I think it's key to first get clear in your head what you'd want your ideal portfolio to look like, what the building blocks what be and what purpose they would each serve in the portfolio (e.g. are bonds there to dampen volatility or to provide a return?) and then select the best options from your (I assume) limited range of workplace pension offerings.
Thanks for the reply, Derek.TBH, my ideal portfolio was one that gives me options from the age of 55 to chose what I do....
I’m a simple person, and like most people, I just want the portfolio to grow exponentially
I took a closer interest about 15 years ago: looked at factsheets, & “spread my bets” beyond the default option.
Our limited range of funds total over 80. To me, that seems plenty of choice, and manageable: nothing I hate more than going into a subway with a thousand choices (technically I gather there are 37 *million* combinations available there
) - I’d rather just have a decent selection of ones I can understand.I’m using the bond and gilt ones mentioned above as a buffer to the more overtly equity-based ones - as you say, to “dampen volatility”.
They proved themselves last autumn to me by reducing the “correction” in the markets to below 10% overall to me (I suddenly developed a more frequent interest in tracking things!)
I am a bit confused as to why they remain “risk 5” in the Aviva bucket of fund choices....but the lower risk options are limited, and whilst past performance is not guarantee etc, poorer performing.
Perhaps I’m just a bit of a gambler at heart....
mikeiow said:
I am a bit confused as to why they remain “risk 5” in the Aviva bucket of fund choices....but the lower risk options are limited, and whilst past performance is not guarantee etc, poorer performing.
Perhaps I’m just a bit of a gambler at heart....
Regarding risk 5, I would assume (without looking more closely) they are looking at volatility relative to a given benchmark (and not taking drawdown into account) such as global equities, and when judged on that basis it's understandable why the number is relatively high (a combination of long duration and a focus on UK only). Perhaps I’m just a bit of a gambler at heart....
Assume it's based on this
https://www.aviva.co.uk/retirement/fund-centre/inv...
It all goes back to the role each element plays in the portfolio - do you want the equity component to deliver the vast majority of the returns or for bonds to have a input?
Derek Chevalier said:
Regarding risk 5, I would assume (without looking more closely) they are looking at volatility relative to a given benchmark (and not taking drawdown into account) such as global equities, and when judged on that basis it's understandable why the number is relatively high (a combination of long duration and a focus on UK only).
Assume it's based on this
https://www.aviva.co.uk/retirement/fund-centre/inv...
It all goes back to the role each element plays in the portfolio - do you want the equity component to deliver the vast majority of the returns or for bonds to have a input?
It looks as though the risk level is based on historic (absolute) volatility, not relative to a benchmark.Assume it's based on this
https://www.aviva.co.uk/retirement/fund-centre/inv...
It all goes back to the role each element plays in the portfolio - do you want the equity component to deliver the vast majority of the returns or for bonds to have a input?
”Our risk ratings go from 1 to 7, with 1 being the lowest and 7 the highest. As a point of reference, a fund with a risk rating of 4 (medium volatility) would typically experience the volatility you would expect from a fund invested in a range of different types of investment (for example shares, property and bonds) without any bias to a particular investment type. ”
Probably a useful time to resurrect this thread bearing in mind recent events.
The "conventional" role of bonds in a portfolio is to dampen down volatility in a portfolio, especially when equities undergo periodic drawdowns.
However, over the last 7 days even good quality bonds have started to suffer given the market events, and it's useful to compare the different flavours to see how they have fared.
1. High quality, short duration bonds are down over 1%
https://www.hl.co.uk/funds/fund-discounts,-prices-...
2. High quality, longer duration are down over 3%
https://www.hl.co.uk/funds/fund-discounts,-prices-...
3. UK inflation linked gilts are down 16% which might explain why they have such a high risk rating.
https://www.hl.co.uk/funds/fund-discounts,-prices-...
As previously mentioned, it's key to really understand what each part plays in a portfolio, and start with the potential downsides rather than just focusing on the upside.
The "conventional" role of bonds in a portfolio is to dampen down volatility in a portfolio, especially when equities undergo periodic drawdowns.
However, over the last 7 days even good quality bonds have started to suffer given the market events, and it's useful to compare the different flavours to see how they have fared.
1. High quality, short duration bonds are down over 1%
https://www.hl.co.uk/funds/fund-discounts,-prices-...
2. High quality, longer duration are down over 3%
https://www.hl.co.uk/funds/fund-discounts,-prices-...
3. UK inflation linked gilts are down 16% which might explain why they have such a high risk rating.
https://www.hl.co.uk/funds/fund-discounts,-prices-...
As previously mentioned, it's key to really understand what each part plays in a portfolio, and start with the potential downsides rather than just focusing on the upside.
A couple of articles around bond markets
https://www.ft.com/content/d78ce2a4-6932-11ea-800d...
https://www.etf.com/sections/features-and-news/why...
https://www.ft.com/content/d78ce2a4-6932-11ea-800d...
https://www.etf.com/sections/features-and-news/why...
Sambucket said:
I've no idea what gilts are tbh. But I had a gilt fund in my monkey picked portfolio. I checked in mid march and it was up 30% in 6 months so I sold it.
I've literally no idea what a gilt is, but if it's up 60% annualised then pretty sure it's not what I thought it was.
To keep it simple:I've literally no idea what a gilt is, but if it's up 60% annualised then pretty sure it's not what I thought it was.
- you buy a corporate bond (the corporate is borrowing from you, hence pays you interest incme)
- you buy a gilt (the government is borrowing from you, hence pays you interest income)
You really can't get better credit risk than the UK government, plus holders of corporate bonds are generally higher in the food chain of creditors if the SHTF (compared to the ordinary equity shareholders who are last in the queue). Combined with the fixed return on income interest, investors are attracted to bonds/gilts during unsettled period we have right now.
More useful info on gilts:
https://en.wikipedia.org/wiki/Gilt-edged_securitie...
Edited by chip* on Monday 23 March 10:22
Edited by chip* on Monday 23 March 10:40
Some miscellaneous thoughts about gilts.
As with any financial matter, it usually pays to only get involved with things which we understand.
With gilts, buying below 100 then holding until maturity, would appear to be risk free. One aspect to consider though is inflation, which might cause a loss. Ignoring inflation though, you do know exactly what the deal is, when holding to the maturity date.
I remember a time when inflation was very high, but my RPI chart showed a suddden drop in the past six month annualised figure. Inflation had fallen sharply during the previous 6 months, but the news always talk about the past year, so were not reporting a reduction. I bought gilts and made 40% in eighteen months. Of course gilt prices rise as gilt yields decline. When interest rates fall you can make money, but remember it works the other way round
One of the famous gilts was War Loan 5% (an undated gilt). It might be the only case where the government has actually defaulted. They altered the terms by reducing the interest paid from 5% to 3.5%.
It was eventually redeemed not too long ago, because the government was then able to arrange new borrowing at less than 3.5%.
Imagine putting £100 into War Loan 5% in 1916 to be patriotic, then cashing-in in 1960. At the beginning you could probably have bought a house. In 1960 perhaps a few months groceries.
No prospect of long-term above inflation growth with gilts, but the government do well, because inflation means they always pay back less than they borrow.
Edited by Jon39 on Monday 23 March 12:12
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