What is your Bond Choices & Allocations for your portfolio

[rjozen]

After Doing quite extensive research on Equities, ETF and specially focusing on the Boggle head mentality, the one piece of my portfolio that I don't have 100% mapped out or confidence is my BOND exposure.

I have a Few questions, also short explanation where my mind is:

1. On EE - Do you buy single Bonds or Bond ETF?
2. If you prefer to Buy ETF Bonds, Which ones would be recommended?
3. What % Split do you do for Region / Types of Bonds?
4. What % of split is BONDS in your portfolio.?
5. Do you add bonds to your TFSA Account as well?

Here is where I am at Currently :

1. I am not planning on buying singles, but Rather ETF bonds.
2. I am looking at the following options, but not sure which to focus on:
   1. 1nvest ICE Treasury short
   2. Satrix Global Aggregate
   3. SA Bond ETF
   4. USD EE - BND
3. Currently i am planning to do 50/50 split USD vs ZAR Bonds
4. My long term EE plan is 90% /10% Bonds
5. No Bonds in my TFSA currently, not sure if should add next year, or rebalance to add some...

Any Inputs or feedback, or some wise knowledge anyone has to share on Bonds would be greatly appreciated. I had a very interesting read on this post here That explains the Risk, and reward ratio for 100% stocks , lowering stocks vs Bonds, and had me thinking what is the best way and allocations ( although will differ for each individual). But made me wonder, maybe I am to short on my BOND allocations on EE plan.

 

[ffriemann]

@rjozen May I just say, I really appreciate the content you’ve been posting on this sub. Asking all the questions many may not have thought about and sharing great, poignant ideas in an easy to understand manner. You’re the kind of person who inspires others to explore their own financial journey. Well done!

 

[rjozen]

@ffriemann Thank you so much for the kind words, Wish I am in a position to pass on more; and share some knowledge even further, but at this stage I am in the acquisition phase, and just asking all the questions, that might be silly for some, but legit stuff that I am thinking off, but could not get clear answers for.

I know investing is not Dry straight cut same for everyone, but some stuff just needs a clear cut answer, and dimmed down for newbies like me to investing. It is never to late to learn or change, only regret is not starting this earlier... If only my 20 year old self, started doing and asking the questions I am now...

So hopefully I can gather knowledge as i progress through my journey and "Pass it Forward" When I can.

 

[vancouverguy]

@rjozen I don't really invest in bonds as I'm in a long term growth stage - I have a high risk tolerance.

I wouldn't put bonds in the TFSA either as we already have a yearly interest exclusion of R23.8k pa, which I get from my emergency fund in HYSA/Money Markets instead - and the contribution limit is capped on the TFSA so max growth is the goal inside the account not reliable returns

 

[rjozen]

@vancouverguy Thanks for inputs.

Mind if i follow up with 2 questions?

1. What and where do you save your EF, in which HYSA or MM?
2. Mind sharing what your TFSA portfolio is made of and %split?

My mindset also has been tp use EE as my high risk vehicle as my RA is the low risk. So was planning to go in tfsa max equity etf.

But just interested to hear other peoples feedback and insights aswell.

 

[vancouverguy]

@rjozen 1) Absa cash invest tracker account and an FNB money market

2) 10X TotalWorld, MSCI S&P, MSCI EuroStoxx, 1Invest InfoTech etc. 100% global diversified ETF. RA is limited to ~60% SA already so TFSA makes up a bit of balance

 

[beerus]

@vancouverguy It is worth noting that the ABSA tracker account provides highly competitive interest rates in comparison to its competitors.
I would like to inquire about your perspective regarding the existence of overlapping stocks within the ETFs you have mentioned.

 

[judasofaustralia]

@rjozen Why go US bonds at all when SA bonds give higher yields? I guess it makes sense if you want to hedge against the Rand getting weaker. The tax advantage of the TFSA kinda negates going the US bond route as well

Bond ETFs are also good because they give you an average return of all the bonds and you don't have to spend time picking the right one for you.

 

[spiritualchristian7]

@judasofaustralia The reason for the higher yields is that SA government bonds are super risky compared to US ones. You may be happy to take that risk, but it's not a free lunch.

 

[judasofaustralia]

@spiritualchristian7 It's the same risk as investing using the Rand in general. The government has to pay that money no matter what

 

[spiritualchristian7]

@judasofaustralia What happens to the fund price if bond rates go up? I'm not talking about default.

 

[judasofaustralia]

@spiritualchristian7 If interest rates go up then bond ETF prices go down

 

[spiritualchristian7]

@judasofaustralia From chat GPT:

When interest rates rise, existing bond prices typically fall. This is because

1. Inverse relationship: Bond prices and interest rates have an inverse relationship. When interest rates rise, bond prices fall, and vice versa.
2. Opportunity cost: When interest rates increase, investors can earn higher yields from newly issued bonds. This makes existing bonds with lower yields less attractive, reducing their market price.
3. Discounting: Existing bonds are discounted at the new, higher interest rate, reducing their present value and market price.

For example, suppose you own a 10-year bond with a 4% coupon rate and a face value of $1,000. If interest rates rise to 5%, the market price of your bond will decrease, as investors can earn a higher yield from newly issued bonds. The exact price decrease will depend on the bond's duration, credit risk, and market conditions.

 

[judasofaustralia]

@spiritualchristian7 Yeah that's why bond ETFs are good as they can change allocations of bonds to newer ones. It takes all the hard work of bond picking away so you get an average yield of all bonds.

Bond funds aren't for capital gains though. They're for getting an income through their coupons

 

[rjozen]

@judasofaustralia I heard about the coupons on bonds.

How does this exactly work? Do you have to stay invested in bond for a specific time?

Or how does the coupons work?

 

[rjozen]

@judasofaustralia Tbh. Im new to bonds... Few months old in the investment scene aswell so still learning right and wrongs...

So your suggestion is no US bonds only ZA bonds? And in TFSA?

Which Bond ETF you reckon?

 

[judasofaustralia]

@rjozen Yeah TFSA is your go to. Max that out (36k per year tax free investment is too much to say no to)

Once you've maxed that out you can look more at US ETFs. But check fees and stuff and compare them to similar South African ones

The Satrix SA Bond Portfolio(STXGOV) ETF is pretty good

 

[rjozen]

@judasofaustralia Yeah i had the Satrix Sa bond on my watchlist aswell. But not sure which was the best local bond out there.

Mind if i ask what all is in your TFSA account? And how they split?

Currently my TFSA is maxed out.. First time using it. But only equity no bonds.

 

[judasofaustralia]

@rjozen The ETF means you don't have to worry about which bond is best. Just get the ETF

In my TFSA I've got a portfolio of only the 10x Total World ETF, the Sygnia S&P 500 and the Satrix multi asset passive portfolio solutions growth in a 30:20:50 ratio

You only really need bonds the closer you are to retirement so don't worry about no bonds

 

[rjozen]

@judasofaustralia Thanks for sharing.

Havent seen much about the satrix multi asset etf. Looks very interesting and a safer solution i see it has some bonds and cash inside. Very interesting. First time actually looking into this ETF

Currently my tfsa is very similiar to yours beside last one:

10x Total World
Sygnia S&P500
1nvest S&p500 info and tech