moneybagz wrote:I'm confused which bonds to choose. Should I go short/intermediate/long or a combination of them all?
A central bullet, such as 10 year, or a 1 year and 20 year 50/50 shorter/longer dated barbell broadly tends to compare in overall rewards. With the barbell however you have added optionality - such as you could decide to bottom draw (hold until maturity) some longer dated gilts bought, with hindsight, at very good yield levels.
Some investors look to jump in and out of assets, timing, where often that timing/beliefs are proved to be wrong. A simpler method is to set fixed percentage weightings to individual assets and periodically rebalance back to those target weightings when sizeable drift becomes apparent.
Many for instance are shying away from longer dated gilts, saying they've no more upside, only one way to go ...etc. but that's been a common mantra since 2009 and longer dated gilt returns have been over 100% since then.
In the Permanent Portfolio for instance each of the four stock, gold, long dated gilt and short dated gilts assets are assigned 25% weightings each. Usually one of those four will be doing or expected to do poorly, but other assets will counter that and usually more. I'm expecting long dated gilts to lose out as/when interest rates rise, but in including that in a portfolio at least you will rebalance (trade) to add more as the price declines, and potentially buy some at what will with hindsight have turned out to have been a great time to have bought some.
Whilst long dated gilts might lose a lot in isolation, the hit relative to the total Permanent Portfolio's portfolio value might be relatively light, and that could lock into having bought some gilts at great prices. If for instance recent 0.7% yields on 20 year gilts, sees yields rise to 8% perhaps in reflection of high inflation from all of the money printing we've seen, but that subsequently sees yields drop back down to more 'normal' 4% levels, the the PP might see a overall -3% portfolio value hit for that overall 0.7% up to 4% yields transition, and where some gilts were bought at 8% yield levels.
A similar situation occurred with gold over the 1980's/1990's. Whilst stocks did well, gold prices declined, so with rebalancing you accumulated multiple times more ounces of gold over those years, of the order 6 to 10 times more ounces of gold, which more than offset the price declines in gold, and set you up well for when gold did perform well such as in more recent years. Simple rebalancing is trading, with a tendency to add-low/reduce-high naturally.
If you're clever/lucky enough to rotate into assets that do well over the period in which you hold them and can do that consistently, then fine. Most can't, and most will more often get it totally wrong. Otherwise just assign weightings and rebalance periodically. Even that however can be difficult as often emotionally your head might be screaming that its crazy to be selling some of A to buy some more of B. Whether you prefer to gold a broad stock index and a total bond fund, or opt for more focused holdings within that is a simple case of personal preference. Personally I don't like bond funds, paying a manger to manage holdings that I can quite easily do myself such as holding a bunch of high street cash deposits for the 'shorter dated bond' and a single 20 or 30 year gilt as the longer dated bond, in around equal measure as a alternative to a 10 year bond bullet (or bond fund).