You also need to consider the tax implications and how you invest. If you invest inside a SIPP or ISA then the bond is very attractive, if it's purchased at a reasonable rate (as close to PAR as possible). You can buy a 6% Gilt for £107 that matures in 2028, so 5 years at 6% in a tax free rapper is a better bet than your example below (in a savings account protected up to £85k). You can also get much higher rates 10-13% on Corporate bonds but these are obviously higher risk and the buy prices can be a lot higher than Par.
Thanks Ian. Very clear video - I've always been sceptical of those rules of thumb for bonds and I feel vindicated now. Seems much more relevant to think about cash vs bonds than stocks vs bonds.
Thanks for this video. I just don't understand bonds like I understand how equities work so I invest in investment trust and funds. Ive heard people say they're good for safety but I don't understand what makes bonds go up and down, but your explanation in the video has helped, thank you.
13:15 personal savings allowance here means your taxed on the interest (in theory ) via bank while you could get a gilt instead with low rate so it’s return is capital (cgt exempt). So I’d argue gilt is better.
... what is the risk associated with MM funds? Volatility is extremely low right? And they have never actually suffered any meaningful capital loss? They are just ultra-short duration government bonds?
The best use case for bond funds is as a hedge against a real downturn... and it would need to GOV only bonds. These were the only asset class to go up during the GFC 2008. Corp bonds and all other asset classes crashed. I believe US Gov bonds could provide a double whammy with the USD acting as a flight to safety.
Are fixed rate bonds safe? In the UK there is a 6.2% 1 year fixed government growth bond available now. Will putting my money into this bond protect my money if there is an economic crisis like back in 2008? The banks are not safe anymore, since they changed the bail out rule into a bail in, where by people's bank accounts will be raided to prop up the banks this time.
I’ve invested in this 6.2% NS&I Growth Bonds. Its Government backed, so all invested is protected. That bail out rule means have no more than 85k per bank for protection.
Hi Ian. New subscriber. Thanks for the video. I am nearing retirement within the next 5 years so I am looking at allocating around 30%-40% of my portfolio in individual government bonds. The question I have, which I never seem to find anywhere is the following. If I bought a 10year Gilt which pays 4.3% interest and the buy price is at par (£100 per bond), and I invest £10,000 to buy 100 bonds. Each year, I would earn £430 in interest. If I hold the bond to maturity and at the end of 10 years, the price of the bond on the market is below par (e.g. £95), will my principal investment that is returned to me be £10,000 or £9,500? I think it will still be £10,000 because I am holding to maturity and not selling the bond at the £95 market price - but I can't find any information online that confirms this, because all the info out there is geared to investors who buy and sell bonds before maturity and not towards investors who want to follow a bond laddering strategy and will hold purchased bonds to maturity. Thanks in advance if you can answer this question.
