Been investing for 6 months and finding my feet. Having researched setting up a suitable portfolio for the future I am keen to start getting money into bonds (I am 37 so looking around 40% of portfolio increasing every 5 years).
What should I be looking for in terms of ETFâs with the Ishares - is a high yield the best option if the money is to be left alone?
Also how does Freetrade pay the dividend yield? Is this paid every quarter in the same way as the UK Dividend ETF.
Any advice would be greatly appreciated.
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Hi @Will255
Yes FT handle this is the same way as other brokers, given your age and assuming youâre not looking to use the dividends as income right now then looking for a fund that reinvest dividends would unlock additional compound interest. Otherwise theyâll be paid in line with the ETF rules and appear on your activity feed.
This all depends on your time horizons and when youâre planning to access this money. If youâre thinking long term (5-10 years minimum) then a weighting towards more stocks and less bonds is typically favoured. I would suggest that attempting to earn 8% a year with any exposure to bonds is highly unlikely, bonds are often preferred later in your investing cycle for lower returns with more safety. As for the specific ETFâs thatâs one for your down research and youâre unlikely to find anyone here recommending anything specifically. There is this thread started by @Cameron would be a great starting point for you - Passive Investors - ETF Portfolio Discussion
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High Yield bonds are also called âjunkâ bonds and thatâs because there is higher credit risk of the issuer defaulting. In order to issue bonds (borrow) the companies offer a higher coupon (higher yield). The question for you is what purpose they have in your portfolio?
HY Debt use to yield >7.5% but this has fallen to <5% since the pandemic.
The credit spread is currently as narrow as it gets. This essentially means the relative return to a risk-free asset (govt bonds) is low but can also mean there is less volatility. The only thing to worry about is if this spread starts to increase rapidly as the price will tank. This often happens during a market sell off.
In summary, I canât answer if itâs the best option for you. If youâre looking for income then I think itâs pretty good since it wonât be as heavily impacted when the Fed starts to taper and/or increase rates.
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