Bonds

[Mattflynn]

Hi everyone.

I am new to investing. As part of my portfolio I would like a percentage of my investments to be in bonds. Can anyone recommend any bonds which are worth looking at to keep things ahead of inflation?

Looking forward to hearing any thoughts.

[johnhemming]

There are very few bonds that are specifically linked to inflation. The UK government issue some, but with otherwise a low yield.

[Alaric]

The UK government issue some, but with otherwise a low yield.

The current prices would under perform inflation (if measured by RPI) by about 1/2%.

Outside of government borrowings, almost no other potential issuer is prepared to risk the open ended, out of control commitment that inflation linking can represent.

National Grid are one of the few exceptions. Being a monopoly might help. Note that it's only got 3 years more to run.

http://www.hl.co.uk/shares/shares-searc ... -bond-2021

[Mattflynn]

Thank you.

Can anyone recommend any bonds or gilts that are worth looking at?

[GoSeigen]

Hi everyone.

I am new to investing. As part of my portfolio I would like a percentage of my investments to be in bonds. Can anyone recommend any bonds which are worth looking at to keep things ahead of inflation?

Looking forward to hearing any thoughts.

Very hard to answer without knowing why you want to invest in bonds. The bond world is extremely varied and you can get virtually any outcome you could imagine depending which bond(s) you choose. So what sort of outcome do you want? You could break it down into:
-when you need liquid access to the invested capital
-how much volatility you can stomach -- low volatility low return, or wild but possibly lucrative or ...
-what cashflow you need: bullet bond or vanilla or a ladder are some broad categories
-do you want to be involved in bond investing and maintain the allocation or just buy and forget?
-is inflation-linking important as others have assumed or do you just want to beat an assumed inflation target as the BoE are required to do?

GS

[Spet0789]

If you’re new to fixed income investing, my strong recommendation would be that you should not even consider investing in individual bonds.

There is a wide range of bond ETFs which will allow you to pick between:

(1) long dated or short dated bonds (high or low exposure to interest rates)
(2) U.K. bonds, Eurozone bonds, US bonds or a mix
(3) government bonds (Gilts or Treasuries), EM bonds (eg Brazil, South Africa), investment grade corporate bonds (eg Diageo or BT) or high yield / sub investment grade bonds
(4) fixed-rate bonds, floating-rate bonds or inflation-linked bonds.

Until you can safely and confidently make choices between these different options consistent with your own investment objectives, don’t even consider individual bonds, with the possible exception of bog-standard Gilts (U.K. government bonds).

[Mattflynn]

Thanks everyone.

Currently I am invested in a range in indexed funds and I am looking to invest in to some bonds as so then I can access to the capital to invest in stocks and shares when the market conditions are favourable. Basically, having it in bonds rather than cash

[johnhemming]

The real difficulty is that to make suggestions as to what you should do really means understanding more about your situation and what you are trying to achieve. For example investing in Lloyds would potentially give a dividend of 6% and potentially a growth in share price. A bond may give a lower yield/dividend and a relatively static in cash terms price.

This is where we get into the debates about what "risk" actually is. Warren Buffet has been good on this.

[Alaric]

Basically, having it in bonds rather than cash

Short duration ETFs perhaps, or anything with less than 5 years to maturity. You get a bit more interest than on cash, but not dramatically so unless you increase the default risk.

[GoSeigen]

Thanks everyone.

Currently I am invested in a range in indexed funds and I am looking to invest in to some bonds as so then I can access to the capital to invest in stocks and shares when the market conditions are favourable. Basically, having it in bonds rather than cash

Thanks Mattflynn, that gives a much better idea. What you want is
-something uncorellated to shares so that if they fall the bonds don't or not as much;
-something liquid even in turbulent markets
-something which returns a bit more than cash or has more favourable hedging ability
-nothing which "ties you" in long-term.

Is that right?

I'm guessing the cash is in an account where you cannot access decent rates or you can only do so by being "tied in". If neither of these is true you can often get better term rates in a bank-type account than from the sort of bonds you're after.

I think you're basically looking at short term, senior, solid coporate bonds or funds of them, or gilts of any tenor, depending on what volatility you can tolerate. Short-term gilts will be like cash but you may get a lower return than in the bank or even a negative return if not careful. Upside is that you can be up a few % when the market tanks badly. The longer gilts you get the better yield you can expect but also your "turbulance dividend" could be larger too. Neither of these is guaranteed if you sell back into the market though, and even buying longer dated gilts, yields are pretty paltry now.

An option is to buy US treasuries which yield close to 3% but you have currency exposure then.

Tax can be an issue with many bonds. Don't forget to consider it.

You might have to accept that most safe bonds offer a return close to cash. That is the current investment climate. I would laud your principle of keeping some cash available for opportunities. Perhaps don't over-think the whole bond thing. Cash is not bad.

Poster 1nv35t has also posted. He is knowledgeable and has a long history with ladders, gold and other interests. His posts might take some deciphering but are often valuable and backed up with data.

Finally, have you considered that NOW might be the favourable time to buy shares?


Good luck.

GS

[Mattflynn]

Thanks so much for this advice.

So far I've found everyone on here to be really helpful and I appreciate your time in responding. I am new to investing and finding the strategy from 1nv35t a little hard to get my head around but will have a go.

As mentioned, I am currently invested in some index funds fidelity UK index, fidelity europe and ubs snp 500 index. If there are any other tips you may have regarding index funds or stocks which are worth looking at right now, I am most definitely all ears.

Cheers.

[Mattflynn]

-something uncorellated to shares so that if they fall the bonds don't or not as much;
-something liquid even in turbulent markets
-something which returns a bit more than cash or has more favourable hedging ability
-nothing which "ties you" in long-term.

Is that right?

Yes GoSeigen that's exactly what I am after. I will be sure to have a look at some US treasury bonds as they sound spot on. Are they still protected from tax within a stocks and shares isa?

Cheers

[Alaric]

Are they still protected from tax within a stocks and shares isa?

UK Tax yes, US Tax no.

At least 15% of the interest, but 30% if your Broker doesn't ask for and file a form called W8-Ben.

[Mattflynn]

Hi,

Thanks for this. Can you recommend any 2 x leveraged ETFs? What bonds are your personal preference or do you have a wide spread? Are leveraged Etfs and bonds both available via the likes of hargreaves lansdowne?

Cheers for the help.