Defensive Strategy - Bonds v's Bullion

Morning !

Hope everyone had a solid 1st week back!

I’m looking for a bit of feedback/guidance if I may…As some may have seen from my other newbie posts, I started my investment journey only a few months back, looking to invest £300pm across aggressive and defensive equities. 2/3 = Aggressive & 1/3 Defensive…Now…I thought/liked the idea of my defensive portion being put in Gold Bullion (£100pm) however, my mind can’t stop me thinking that I should be putting this in Bonds instead given that I’m getting about 0.002g of Bullion for ~£95pm and giving $4pm to BullionVault for the pleasure!

Just wondering if anyone had any thoughts on this? Maybe I should be looking at Bullion when I’ve more spare £ to invest…

If I was to switch to bonds, I’m in this for the long term, so this would be a 5-10yr Bond I guess, so any recommendations would also be nice :stuck_out_tongue:

Thoughts?

I’ve never fully understood bonds for long term investment (so please take this as a plea for people to educate me rather than taking it as advice). Holding them to maturity gets you a guaranteed return but is inflexible and pretty poor returns unless you’re in a high interest rate environment.

Tradable bonds don’t appear particularly defensive to me. Great if you buy at peak interest rates but collapse if rates start rising.

Am I missing something?

I do have instant access savings (and premium bonds) for funds I may need in the next year but the majority of my long term defensives are in stocks like Kellogg, Kimberly Clark, Colgate, FMC etc.

This is a great shout…I was actually looking at these types of stocks yesterday - The always needed types of stocks!

I don’t understand them for long term investment either.

Bond ETFs are passively managed, so what is in them stays in them to maturity, but I presume that they buy new bonds as they become available. I guess that this is why bond ETFs drop in value at when interest rate rises, because the lower value bonds are of no interest to new buyers as newly issued bonds would have higher returns. Buying old bonds before interest rates fall would increase their value.

Maybe it would be better to buy bond ETFs as defensive while interest rates are at their highest expecting them to drop and buy new bonds (not ETFs) when interest rates are high for the best returns as a long hold. Would it make sense not to buy bonds when interest rates are low or when inflation is increasing?

… having said this, I googled to check and came across this article which goes into good detail. The last 3 paras sum it up nicely.

They’re supposed to be a defensive play; when the market sucks and stocks decline rapidly, bonds stay level or go up thereby cushioning the stock decline.

However; that is 1960s theory. There are many articles now showing that bonds decline in line with stocks now, and barely ever seem worthwhile at all for young/middle aged investors. The security they offer is zilch. The growth is non existent. The income a pittance.

It seems the general overall sentiment is that bonds are a relic that does not do what it used to do and that youngs-mid aged investors are better off pushing that money into stocks instead even in the worst case scenarios. Anything advocating bonds tends to do so from either that old philosophy of security or for passive income - but even passive income is better found elsewhere.

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Bonds are excellent choice of you think you know where the top is AND interest rates fall back to 1%. Then you are quids in. Personally I think bank of England will not go below 2.5%. maybe 3%. I can see no need for the low rates of the past.
As an aside I bought international personal finance bond 12% 2027.
Bought at IPO so no costs.
Very good return
Short dated
And the company is doing well.
They don’t come up very often like that!
The only alternative I could think of is emerging market bonds. An ETF of them would probably pay a decent amount and nowadays a lot of emerging markets have low debt to begin with.
A better bet would be some high paying investment trusts.
Oops just checked most have negative share price growth… appears there is some advantages in bonds.
There are plenty of 4% dividend investment trusts with a little share price growth though.
An investment trust in the debt sectors.
The only one on freetrade is VSL and that will probably go into wind down.
Looks like bonds are of little use to the retail investors might as well put it into savings account.