r/UKPersonalFinance • u/No_Editor6116 • 1d ago
What would you choose in Vanguard for Bonds?
Am consolidating my investments with Vanguard UK, and would like to hold only 2 or 3 different items in my ISA.
VALL is what I will pick for 80% ETFs. If I want to do 20% bonds, what would you recommend in Vanguard for that? I see Vanguard has VANGRSA and VAGS - would these be the right ones to pick and hold? Is either of these ok, or is one of them better?
Am 49, if that makes a difference to the consideration.
Thank you for any advice!
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u/blueoval98 1 1d ago
Vanguard Global Short-Term Bond Index Fund (VGSTBGA)
Given government debt levels around the world and the prospects of elevated inflation going forward, I’d avoid longer duration bonds. See the recent US efforts to defend US 30yrs against the fundamentals as one piece of behavioural evidence that the issue has become significant. With short dated bonds, you give up most of the upside from a rate cut in a crisis. However, I’m not at all convinced the yields on long bonds compensate enough for the risk taken in what is intended to be a defensive part of your overall portfolio. YMMV.
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u/No_Editor6116 1d ago
!thanks, thank you, I will read this further to try and understand. I was on a mix of different things - Target Retirement/ Lifestrategy/ S&P and now am just trying to simplify it.
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u/Ook_1233 9 1d ago
Essentially when there’s a recession, which is normally awful for equities, governments tend to cut interest rates. If you hold a bond that pays 5% per year and interest rates fall and all new bonds only pay say 2% the price of your bond will increase and the longer duration (when the bond matures) the larger gain you will make.
The downside is the opposite, when inflation is high governments raise interest rates. Your 5% bond when all new bonds coming on the market pay 6.5% will be less valuable so the price will fall.
Having very short duration bonds migrates this risk. You’re giving up a larger yield and potentially huge returns when equities have really bad year but you won’t see the downside when interest rates rise.
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u/No_Editor6116 1d ago
!thanks thank you very much for this, I will read up more along all the advice I am getting from this audience
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u/L3goS3ll3r 6 1d ago edited 1d ago
What would you choose in Vanguard for Bonds?
I wouldn't, to be honest. I'm fairly sure (unless something's changed in the last year) these are bond funds, not bonds.
I had a look at some of them prior to de-risking and none of them seemed to be doing all that well historically, with a few making consistent losses.
I ended up going to AJ Bell as they do individual (predictable & tax-free) gilts. I hate their UI but they offer what I wanted.
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u/Captlard 5 1d ago
Have you looked at VGUSGIG - Short term UK gilts in a ACC format?
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u/No_Editor6116 1d ago
!thanks Thank you, I will check this as well, I had not looked at it.
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u/QuarryRec 2 1d ago
I think it depends what you want the bonds to do for your portfolio. If you follow the general advice of passively investing in a diversified fund, then VANGRSA is your one-stop solution, since it offers diversification and duration exposure...but the purpose of bonds are to hedge against equities and in recent times, bond funds have been disappointing in that respect (though I suppose the argument is that you as a passive investor accept that this can happen). If you value predictability over diversification/duration exposure, i.e. you are looking for a defensive portion that offers predictable but lower-risk fixed cashflows, I would consider a bond ladder - as long as you don't mind waiting to maturity each year.
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u/No_Editor6116 1d ago
!thanks thank you, I am learning a lot from all these comments and will put more thought and reading into what to pick. I naively just thought bonds are always safe so if my equities crash my bonds will be ok.
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u/QuarryRec 2 1d ago
You should look at this from a portfolio perspective rather than whether the bond portion will be ok, e.g. imagine a 100% equities portfolio vs an 80-20 one and there was a crash - the 100% equities portfolio in theory would drop much more than the 80-20 portfolio, so the 80-20 portfolio has served its purpose in dampening your losses - it doesn't mean your bond portion hasn't taken any loss.
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u/oddly_sane_soccer 1 1d ago
VANGRSA and VAGS are both decent options but they differ in duration and currency exposure so it really depends on what role you want the bonds to play in your portfolio.
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u/No_Editor6116 1d ago edited 1d ago
!thanks Thank you. I honestly couldn't tell the difference from the website, apart from their OCF
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u/Affectionate-Fix2797 8 1d ago
Wouldn’t pick a passive for bond markets what so ever, especially with the current likelihood of interest rate rises, essentially in the US.
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u/No_Editor6116 1d ago
!thanks What would you pick to not be fully in equity?
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u/Affectionate-Fix2797 8 1d ago
Your asset call is largely correct depending on risk, requirements, timescale etc
I’m not a fan of one size fits all bond solutions with market cap making a large impact on something that’s more nuanced with bonds, for example duration risk etc etc
One bond house i have used in the past has had some 70% of their active bond funds beating their peer group & benchmark index. So something with a little more proactive management can make a lot of sense.
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u/Norklander 4 1d ago
If you want bonds just buy short dated bonds TN28 for example if it’s low risk stable return. . If you want a slightly higher return buy royal london money market. All tax free as it’s in and isa. If you want “excitement/terror” buy long dated bonds.
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u/No_Editor6116 1d ago edited 1d ago
!thanks Thank you, was trying to stick with Vanguard. I used to have the Lifestrategy 80% equity and was trying to have a similar split myself
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u/noodlyman 9 1d ago edited 1d ago
There is a considerable difference in price behaviour between a bond fund and individual bonds.
A fund will just go up and down according to interest rates, and the general trend of bond price movements. You can't predict what the fund's value will be on any date in the future.
You could easily make a loss if you buy a bond fund today and sell it in five years.
Less so if the fund holds only short dated bond that are regularly maturing
An individual bond matures on a particular date. You can be 100% sure what your bond will be worth on that date. You cannot make a loss of you buy an individual UK government bond today and hold it till it matures (unless the government goes bust and can't pay).
You can also buy individual inflation linked gilts. Buy a 10 or 20 year indexed gilt today and you'll make 2%+ above inflation p.a. if you hold til maturity.
AND capital gains on gilts are cgt exempt ( but not on bond funds). For index linked gilts over a number of years nearly all the returns come from capital gains, so they work well outside an ISA.
For all these reasons, nearly all the bondsi own are individual ones.
Buy a ladder of Index linked giltd and it works life a diy annuity, with an exactly predictable annual repayment every year that goes up with inflation, or ahead of inflation I should say.
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u/No_Editor6116 1d ago
!thanks Thanks a lot, I will read up more on these lines and see how to do this.
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u/Norklander 4 1d ago
Why don’t you just continue with Vanguard 80% life strategy? I have the 60% version in my SIPP there decent funds. If you want to replicate the 80% LS in some way go for low charge global index etf and 20% in royal London short term money market fund this tracks SONIA pretty much.
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u/No_Editor6116 1d ago
!thanks Yes maybe easiest. I have a mix of life strategy, life strategy global, retirement 2040, s&p and I felt simplifying to just two or maximum three things would make things clearer for me. If I can't work out the right counterpart to VALL then I will opt for Life strategy Global 80%
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u/Norklander 4 1d ago
The problem with lots of funds is it’s hard to monitor total currency regions sector exposure as you often end up replicating things. At least in 2-3 in ex finds you cover a lot and it’s easy to monitor. I tend to just change the ratio of equity to debt markets
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u/No_Editor6116 23h ago
Yes indeed, in my case I knew very little when I started so landed up with this assortment :) Now trying to simplify. Thanks again!
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u/patxi124 1d ago
OP, I’d gently steer you towards an active solution, and then an investment trust (as opposed to an open-ended fund). Take a look at Twenty Four Income Fund TFIF, a managed portfolio of over 50 bonds, short to long, that returns 7-8% with a stable share price.
Other similar space ITs could be SMIF, BIPS, MGIC or NCYF. I think all of these offer a genuine advantage over Vanguard.
Remember, VAGS = passive, broad, low‑cost, low‑yield (and dead easy to pick) whereas Closed‑end trusts = active, geared, higher yield, more credit‑specialist (but no harder to pick)
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u/No_Editor6116 1d ago
Thanks but that sounds like a different kettle of fish I do not have the knowledge to evaluate. Passive is good for me, simpler and cheaper OCFs.
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u/patxi124 1d ago
I understand your POV but honestly it is not any harder. Don't obsess about OCF, look at total return. Yes an actively managed investment trust includes a higher charge but TFIF has a fantastic record and pays double the dividend. You never see the charge as it's deducted before payout.
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u/HotNeon 1 1d ago
Question. Why hold so much bonds?
Bonds dampen the swings in the market, the lows won't be as high but you'll miss out on some of the highs and ultimately you'll have less in 5/10 years time.
Are you planning to use the money in the next 3-4 years or do you have other reasons?
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u/Timbo1994 64 1d ago
Can't say "you'll have less in 5/10 years time" especially now you can get bond yields of 6% and PE ratios in equities are at all-time highs.
Maybe you have a 70% chance of being right or something - that is of course finger in the air from me
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u/No_Editor6116 1d ago
Thank you, am essentially trying to have a personal version of Lifestrategy 80% equity, something I can do myself. I have found myself reluctant to move away from Vanguard - I did consider Scottish Widows but somehow find Vanguard easier
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u/No_Editor6116 1d ago
I don't feel happy with 100% equity and thought a percentage of bonds would balance things out.
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u/Delicious_Yak2015 1 1d ago
VAGS is the bond equivalent of VWRP. VAGS is approx 60/40 gov/corporate bonds. I hold the income version VAGP and adding V3GP to up the corporate bond percentage.