UK - Bonds

Hello all,

I’m currently in the midst of reading “ The Intelligent Investor” by Benjamin Graham.

In his book he advices about the good balance of having a 80/20 split for more speculative investors or 60/40 for more conservative investors.

I’m currently 23 now and starting to invest money for later on in life.

Personally I’m investing into index funds at the moment e.g VUSA/VFEM and VAPX so I have so decent global exposure to the world markets. (Not financial advice)

What I do want to query now are bonds and why someone would want to invest in bonds and is it worth it at my current age to do so?

What determines whether a bond will do well, is it inflation? Or when Stock Market going through a correction etc?

What is the difference with each bond? I.E a short terms bond 0-5 years or 5 years+ - how does the affect the risk/return?

I am fairly new to this so I’m happy to be given some links etc for me to continue reading up on so I can give more clarity to bonds and whether they are a good option for myself.

Thanks.

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Over 30 years most seasoned investors will agree on one thing and that is a balanced growth & blend equity portfolio will outperform bonds. That’s about as close of a prediction that anybody can make.

Many currently give insights in this changed environment that your parents 60/40 portfolio is dead.

I am not aware of a current book (written this year in 2021) that really dives deep into the logical investment blend for the young 20 year old.

Some experienced long-term investors are saying instead of the 60/40 blend of equity to bonds, that an 80/20 approach of 80% solid stocks or etf’s mixed with 20% speculation.

For insights try:
• Instagram: Grit Capital - Growth/Speculation
• Email list Lyn Alden - Global diversified strategy
• Email list John Thomas - What matters in the USA

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I think these two videos will answer pretty much all your questions:

This covers Government Bonds in general

This video gives a good breakdown of what changing your weighting between fixed income vs equity will do, but in general more equity = greater returns (due to the additional risk) and more volatility.

If your investment horizon is 20+ years it’s hard to imagine equity not giving greater returns over that timescale (in fact it would be unprecedented) provided you are able to ride out the volatility.

If you were 23 but only looking to invest for 5 years (e.g. saving for a house) a 100% equity portfolio would have a decent chance of losing money over that time period (valuations are high and it’s happened many times before). A 60/40 portfolio would have lower expected returns but would likely be preferable as it would present less risk.

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Hmm. Not sure a 100% equity fund pot would have a ‘decent chance’ to lose money over a 5 year period. That would indicate a pretty bad sustained market crash or perhaps a poorly invested fund in a very limited number of stocks. Of course there’s a chance, but with a diverse fund or number of funds and using the index tracker model, I would say one should be earning not losing over 5 years. Of course, the longer you invest and keep contributing, the better the chance of increased and sustained returns.