The Lemon Fool

You need smarter than I am for all this, but here’s a first order….
If your approach to asset allocation is ‘I’ll take as much risk as I dare but no more’ then you could land on (say) 60/40. That’s the ‘attraction’ of bonds, you just need bonds because equities are too risky. If you only half believe in this approach you spend part of your life regretting you have so much in bonds, and the other part regretting you have so much in equities. Otherwise, you just don’t worry about it.
If you’re someone who believes they can time the market, get out of bonds as interest rates are about to rise or sell equities because you see a recession coming, then bonds have no attraction now.
But you answered your own question yourself earlier: bonds give an equity portfolio some stability of value. Any benefit of low correlation of assets you can get is a different beast. Try this discussion: https://www.bogleheads.org/forum/viewtopic.php?t=285269

So I've decided against using Vanguard's 60/40 or 80/20 products. Instead I've decided to make my own, so to speak, with a couple of bond ETF's, such as VAGP (Global Aggregate Bonds), or IGLH (Global Gov bonds), and maybe VGOV which tracks UK Gilts, (in conjunction with my existing equity investments (IT's).

I get the stability aspects of bonds and that they don't always move as equities do. But I still don't see the attraction if they are yielding 1.0 - 1.9% (and at a time when interest rates and inflation are high). That's quite a sacrifice, as against the 5-6.00% on offer from equities currently. I'm thus trying to determine if there are other upsides that I am not aware of in holding bonds. I think one of those upsides might be that if interest rates fall, then bond yields will fall and their prices will rise*, as investors seek to lock in the higher yields before they fall. But Gov bond ETF's only yield 1.00-2.00% currently!!

* so a capital gain to be had.

richfool wrote:I have to say, I'm not sure I properly see the attraction of bond ETF's such as VAGP, IGLH, or even VGOV, as their dividend yields are so low, (i.e. under 2.00%).

The historical yield when bond prices were higher and yields were lower is not relevant here. The Yield To Maturity (YTM) for VGOV is 4.7%:

https://www.vanguard.co.uk/professional ... stributing

Similarly for other bond funds. It is important to understand what the numbers mean. The yield is what you would have got. The YTM is what you will get.

GeoffF100 wrote:

richfool wrote:I have to say, I'm not sure I properly see the attraction of bond ETF's such as VAGP, IGLH, or even VGOV, as their dividend yields are so low, (i.e. under 2.00%).

The historical yield when bond prices were higher and yields were lower is not relevant here. The Yield To Maturity (YTM) for VGOV is 4.7%:

https://www.vanguard.co.uk/professional ... stributing

Similarly for other bond funds. It is important to understand what the numbers mean. The yield is what you would have got. The YTM is what you will get.

Err, ... but I thought the yield to maturity was only relevant if one holds gilts directly, i.e. not through bond funds or ETF's, as the fund gets the benefit of that. Or is it that because the fund gets the benefit of the YTM it subsequently reflects in the (future) SP??

richfool wrote:

GeoffF100 wrote:The historical yield when bond prices were higher and yields were lower is not relevant here. The Yield To Maturity (YTM) for VGOV is 4.7%:

https://www.vanguard.co.uk/professional ... stributing

Similarly for other bond funds. It is important to understand what the numbers mean. The yield is what you would have got. The YTM is what you will get.

Err, ... but I thought the yield to maturity was only relevant if one holds gilts directly, i.e. not through bond funds or ETF's, as the fund gets the benefit of that. Or is it that because the fund gets the benefit of the YTM it subsequently reflects in the (future) SP??

4.7% is the "YTM (Yield to Maturity) effective", explained as "YTM (Yield to Maturity) effective is the rate of return an investor would receive if the fixed income securities held by a fund were held to their maturity dates." So, yes, I think the 4.7% would be returned partly as dividends, and partly as share price growth.

EthicsGradient wrote:

richfool wrote:Err, ... but I thought the yield to maturity was only relevant if one holds gilts directly, i.e. not through bond funds or ETF's, as the fund gets the benefit of that. Or is it that because the fund gets the benefit of the YTM it subsequently reflects in the (future) SP??

4.7% is the "YTM (Yield to Maturity) effective", explained as "YTM (Yield to Maturity) effective is the rate of return an investor would receive if the fixed income securities held by a fund were held to their maturity dates." So, yes, I think the 4.7% would be returned partly as dividends, and partly as share price growth.

The bonds are all held to maturity in a whole index tracker. They then replaced by a market weighted combination of bonds at the market price at that date. New bonds are added in their market weights as they are issued. You will get a known return from the bonds that were held when you bought the fund, but the return from the new bonds will depend on their market price when they are added. If you sell the fund, the price you get will, of course, depend on the market prices of the bonds when the fund is sold.

So, for exposure to UK Gilts, is there anything to choose between: VGOV or IGLT? Both have the same TER of 0.07%. Noted that VGOV pays its dividend monthly.

OMG! VGOV has dropped by 34% in the last two years and only pays out 1.6% in dividends according to HL.

I think VGOV has about 1 year longer duration, and thus interest rate volatility.

CliffEdge wrote:OMG! VGOV has dropped by 34% in the last two years and only pays out 1.6% in dividends according to HL.

See above. Direct gilt investments are CGT free, whereas VGOV is not. The dividends are not relevant in a tax fee fund. What matters is the likely future total return.