How to Create Income Using Bond ETFs

[@entrant36]

Thanks for the video and clear explanation. In a market like ours where I can get 4.6% for locking away my money for 12 months in a savings bond with no volatility why would I want bonds? What am I missing?

[@chrisbourne-retirementplanner]

You lose access to the money for a year, so bonds are more liquid. You also have the potential for capital growth as well as just income. You can also contribute to bond funds on a monthly basis.

[@moniapoznan8156]

Do what everybody else is doing if you are okay with only having what everybody else has.Information that will pay you everyday, you've got to stop saving all your money. Venture into investing some, if you really want financial stability. Choose to grow and elevate your mind by studying audios, videos, attending conferences that will give you the edge!

[@antoniomehrez9524]

@@moniapoznan8156 In situations like this,I always recommend to people on getting guidance at least from someone that understands price action and all that while you strive on improving yourself by watching videos and learning fundamental analysis.

[@jamieferguson4991]

Such an informative comment!Hope it is okay with you and that you don't mind sharing tips on how to invest. I have watched a lot of videos on YT but still can't understand nor set my mind at one thing.

[@stevenwalker2117]

@@jamieferguson4991 I totally understand , I was able to grasp enough knowledge and got profits through successful investing with Daniel Christopher Downes . I would recommend him to anyone who is confused or has zero knowledge on what and how to invest.

[@mccannger]

More relevant than ever as we approach rate cuts in the UK (finally!!!)... Thanks Chris

[@johnporcella2375]

Just read your explanation of the Truss Government/Kwarteng Budget. First time that I have understood it...thanks!

[@kevinu.k.7042]

Thank you. This was so very informative and it has helped me on my first steps beyond managed funds with their higher fees.

[@chrisbourne-retirementplanner]

That’s really good to hear Kevin! Thank you very much for watching.

[@parth3502]

Hi Chris, Pls guide which websites we can use to track our portfolio on daily basis

[@nobodyinparticular1093]

A great Vanguard salesman, thank you

[@timlodge8267]

How does inflation affect bonds if a bond is maturing in 5 years and inflation is 10% will bond lose 59% value.

[@aaravsamardh7089]

Great video, informative, thank you.

[@chrisbourne-retirementplanner]

Thank you, much appreciated.

[@billmccreath9930]

Thanks Chris, really helpful. Dodgy jumper though! 😂

[@chrisbourne-retirementplanner]

It looks better in the flesh Bill 😄

[@minimad8793]

Hi chris and thanks for the video. One question, would a global bond fund be worth having in a pension portfolio to boost the funds towards retirement?

[@chrisbourne-retirementplanner]

Possibly in light of how entry valuations have improved, but the main purpose of bonds is to reduce risk rather than increase return.

[@minimad8793]

@@chrisbourne-retirementplanner 👍👍

[@torus186]

Was that Invest Engine I saw

[@TheKetan8]

Im 23 and got my mortgage at 19. Next year interest rates will go through the roof, what is the best way to approach these next few years? Ive only just started looking into investing, would it be worth starting a portfolio or making overpayments on my mortgage? Or vcts? I dont really have anyone around me that is in the know, your videos have given me a new outlook on increasing my wealth. I dont want to work past 50 at the most. Its hard trying to decipher the best route to financial independence with the amount of information out there.

[@chrisbourne-retirementplanner]

Hi there. I’m really pleased my videos have been a useful resource for you. Are you on a fixed rate deal with your mortgage or is it variable? It’s often the case that interest rate rises, although painful, don’t increase payments as much as you may fear. For example, a doubling of interest rate from 1% to 2% doesn’t double your mortgage repayment - it increases it by around 10%. Currently, it looks like the BoE base rate is heading towards about 4.75% (although this is a moving situation). Work out what your payments will be when rates are at that level so you can budget for the movements. This will allow you to plan ahead. Regarding investments, at this stage, it is probably worth focusing on maximising mainstream tax efficient investment strategies rather than higher risk vehicles like VCTs, although they may play a role for you if you have a lot of excess capital.

[@tancreddehauteville764]

You're very lucky to have started your mortgage at 19. You won't be able to retire at 50 though, as the earliest retirement age is due to rise to 57. Stop rushing through your life and pace yourself in a more relaxed way.

[@chrisbourne-retirementplanner]

It's important to know that you don't have to wait until 57 to retire... 57 may be the earliest age at which a pension can be accessed, but your retirement date and the pension access age are two entirely different things. A pension is not the only vehicle available to provide income in your future. Really, you can retire at any age you want if you've built sufficient assets and income channels to do so.

[@glumbags]

Thanks for another great video Chris. One question...where would you recommend to buy ishares Global Aggregate Bond Fund? Not sure you can buy directly from the ishares site. Anyway thanks again.

[@chrisbourne-retirementplanner]

Hi there. You can access via a number of platforms, but InvestEngine carries no platform charges, so only the fund charge would apply. There is also a £25 bonus if you fund your account with at least £100, but this offer ends on 12th December. Here is a link: investengine.pxf.io/rnYZMy You will I'm sure be aware, but I must just state that investment into such funds means your capital is at risk, values can go up and down, and you can get back less than you invest.

[@glumbags]

@@chrisbourne-retirementplanner Thanks for that Chris... just to let you know that I did some research and found InvestEngine...I have opened an account and they have indeed paid me a £25 bonus! Great videos... please keep them coming.

[@torus186]

Surely if you want to take currency risk out totally you invest into the both the unhedged ETF and the hedged one if available. If you had been in a hedged US 20+ year treasury bond you would have been down 32% over the last year, but only 21% in the unhedged one. So really you either have to chose with currency will become stronger, or take the middle ground and invest in both.

[@chrisbourne-retirementplanner]

Because sterling is the currency that we spend in, taking all other currency fluctuation out just removes another variable. Currency’s can be volatile, and prolonged volatility is not something you would welcome in a fixed income portfolio.

[@adriandutton2051]

Bonds can be really useful for financial planning. This year has highlighted the inherent problem with bond funds vs holding individual bonds though. An investment grade bond that you hold until maturity is very low risk as you almost certainly get your money back, and already know the interest/coupons. Any volatility between purchase and maturity is not relevant - it's only there if you sell the bond before it matures. Bond funds don't carry this benefit - when a bond matures, the fund will buy another one. As an investor, whenever you want your money back, you are exposed to the volatility of bond prices changing due to interest rate changes. It's all too easy to conflate the properties of individual bonds with those of bond funds when thinking about investment strategies. There are an awful lot of people who thought they were buying a safe, cautious investment with their bond fund who were actually exposing themselves to significant interest rate risks without realising it and will now have to wait a number of years to even get all their money back from the increased yields. Interest rates were never going to remain ultra low forever.

[@chrisbourne-retirementplanner]

Hi Adrian. Holding high quality bonds from issue to maturity ceratinly does give better capital protection. The problem is that buying bonds at issue is hard for a private investor to do because as mentioned in the video, they are typically snapped up by large institutional investors buying 10s or 100s of thousands of £ worth. The other problem is that buying bonds from issue doesn't work when you are contributing on a monthly basis. Bond funds are therefore essential and necessary. What was required was for people to understand that the previous decade we had had was abnormal for bond returns... they should not be returning multiple double digit years in a 10-15 year period. From their previous valuations, bonds carried more risk than stocks, which is why I had encouraged even low risk investors to limit their bond exposure over the past few years. We have seen that risk transpire this year - long term returns will eventually revert to mean. The longer term prospects are now much better though.

[@adriandutton2051]

@@chrisbourne-retirementplanner I completely agree. Private investors looking to buy individual government bonds in the UK is much harder, with higher fees, than in the US. I wonder if there is a place for bond funds or ETFs with a duration period targeted at a date rather than constantly rolling maturity period. An investor could build a bond ladder type portfolio out of multiple funds that "mature" in say 2,3,4,5,6,7 years time. The fund provider would have to decide what happens to a fund after the underlying bonds mature. Perhaps they buy in to money market funds instead.

[@torus186]

Yes you will get your money back and the coupon, but how much is that going to be worth 5 to10 years from now with the inflation rate now over 10%.

[@MrJ6000]

Hi Chris, really interesting video. I have a question I wonder if you could help me with, I have no money, but would very much like to have money, as much as possible in fact! In essence, how can I get all the monies? Any tips?

[@chrisbourne-retirementplanner]

Haha well it all starts with learning how to accumulate money. Like anything in life, there is a process that has to be learned. Start by reading The Millionaire Fastlane by MJ DeMarco.

[@CallumHutch1993]

Love the videos Chris, long time follower. I need a little advice if you have a minute (I'm know your time is highly valuable) my in-laws will be receiving a share of a house sale soon (70k) but are unsure how to get the most out of it for their retirement. Both are retired mid 60's claiming State pension only with little savings (£10k). No substantial monthly payments but would be very glad of a few extra quid each month, £300 or so. They are the type to sit it in the bank and take £4k a year or so until it runs out, they wouldn't know what else to do with it. I wanted to suggest keeping £10k emergency aside in a bank, with the rest in combined ISA's over this tax year, and 2023 in something like a Vanguard Life strategy 100 Equity income fund. Just take £300-£400 a month drawdown from it with a good chance of some being there a bit longer than their original plan. The 2% distribution would probably be their holiday money for the year, or something. Thank you for any help in advance.

[@CallumHutch1993]

I had forgotten to add in that maybe a mixture of UK investment grade bond index mixed with lifestrategy 100 to decrease volitility risk as well as currency risk.

[@chrisbourne-retirementplanner]

Hi Callum. They may well do better long term by investing the money in such funds, but they would need to be prepared for the journey and it sounds as though they haven’t had much prior experience. With that in mind, they probably haven’t seen large fluctuations in the value of their capital before and may not know how to react to that. Most people’s reaction would be to pull out when things get tough, which they undoubtedly will at some point. It also sounds from the description above that they would have a very low capacity for loss, because they haven’t got much other capital and don’t have a high income. My general suggestion to such people would be to not take high risk. If they wanted to, they would have to fully understand what they were doing. There are now some good rates around for fixed rate monthly income bonds with deposit institutions. There are for example 2 year monthly interest bonds paying 4.6%, which would generate £230 a month on £60k, or 4 year bonds paying around 4.2% (£210 a month). Interestingly, this indicates that deposit institutions expect rates to decrease over the medium term. There would be no risk associated with these and they may be more comfortable with them. Check out moneyfacts.co.uk.

[@CallumHutch1993]

Thanks so much for taking the time to respond Chris, you are very correct, they haven't witnessed an investment loss before. I had explained to them the levels of risk with multiple options suck as money market, bonds, savings accounts, funds etc. I will suggest to them your option as it sounds like the best for their circumstances. Thanks again.

[@bluegtturbo]

👍

[@ADHDNurse79]

I have looked for VAGS on Vanguard and can’t seem to find it?

[@ADHDNurse79]

VAGP?

[@mickh1808]

VAGP is there. Look for the global aggregate bond ucits etf.

[@chrisbourne-retirementplanner]

Hi Louise. It appears only VAGP is on Vanguard itself, which is the distributing version of the ETF. VAGS is the accumulation version and it is on other platforms.

[@mattsennett]

Thanks Chris, I hold a 60% bond LS fund with Vanguard which is starting to climb back up and I added on the big dip too. Will check out some of those other ETF's you mention as I also think now is the time to take more bond exposure 👍🏻

[@chrisbourne-retirementplanner]

Thanks Matt. There's probably a rocky road ahead in the short term, but fixed income plays an essential role in investing and this year's reset provides a good long term opportunity.

[@Vanosphere]

Can anyone translate what he said.. sorry.. I'm thick

[@chrisbourne-retirementplanner]

I’m sure you’re not thick, you may just be seeking content that is for a foundation level of understanding, and this isn’t necessarily it. To understand this video you probably first need to have a good grasp of fixed income investments and how they work, including how the creditworthiness of the issuer affects the interest they pay.

[@timlodge8267]

50%

[@NS-pt9rr]

Great vid bit still prwfer income funds over Bonds for long term returns. I am looking at reducing platform charges, any thoughts on invest engine ? Currently using HL & CHARLES STANLEY DIRECT over different years but still paying .45 for hl & .35 for CS, Invest Engine is zero charges but again I like brands I have heard of, any thoughts shared will be appreciated

[@chrisbourne-retirementplanner]

InvestEngine is a new company and won't have the same resources as those you've mentioned, but it still benefits from the same financial protections being a regulated platform provider. You don't have to completely leave the other platforms and can use multiple in order to access the USPs of each. If you were already considering using InvestEngine, there is a reward link you can use in the description of this video.

[@konicky]

iWeb is worth a look, £100 initial set up ( sometimes £50 ) and then no ongoing charges. Part of Halifax/Lloyds.

[@eweng903]

Fundamental problem you have is that in a period when there is a positive correlation between stocks and bonds you will gain little downside protection from your bonds. Another problem with bonds is that their yield is lower than higher dividend stocks. Cash and stocks that pay solid cash dividends is probably a better security blanket than bonds today.

[@chrisbourne-retirementplanner]

Hi Ewen. It's certainly been a tough year for fixed income. High positive correlation is not typical though, and huge companies like Vanguard still don't believe that the role of bonds has changed. Their main purpose is to dampen equity drawdown risk, and long term there still isn't another asset class that has shown itself capable of doing that as well as bonds, with a high level of liquidity. Cash is low risk, but you lose liquidity if you want better returns... if you want to retain liquidity, the return is too low. Stocks that pay high dividends provide absolutely no diversification benefit in a stock market sell off I'm afraid.

[@chrisf1600]

@@aprosdoketon-i9n In the US, there are several periods in history when stocks have failed to produce a real profit after waiting more than 20 years. Over the very long run, bonds (specifically 20Y treasuries) have outperformed stocks for more than 50% of the time. See Rob Arnott's 2009 paper "Bonds: Why Bother ?" for the stats ("Most observers, whether bond skeptics or advocates, would be shocked to learn that the 40-year excess return for stocks, relative to holding and rolling ordinary 20-year Treasury bonds, is not even zero")

[@chrisbourne-retirementplanner]

multiforme... in response to your original question, whether you need to worry about fluctuations or not depends on whether you are in accumulation or decumulation. If you're in retirement and are taking withdrawals, you absolutely need to worry about volatility. It is less of a factor if you're investing to accumulate over many years without withdrawing. That said, current growth forecasts for UK/US bonds are similar to stocks over the next decade with less expected volatility... you always have to pay attention to valuation and there is no point in taking more risk than necessary.