if the topic of the usefulness bonds as a defensive asset in Australia interests you (ha, get it, interests), you might like this comment I made on a reddit post from someone asking a question about bonds
https://www.reddit.com/r/AusFinance/comments/1q3ku3w/comment/nxlwux1/
@decryption the idea (modern portfolio theory) isn’t that the return of bonds are necessarily good on their own, but that their returns are negatively correlated with that of equities so you can add bonds to a portfolio and reduce risk (volatility) for a given level of expected return. Term deposits can’t do that.
@paulryan that’s the thing though, bonds aren’t working that way the last few years - equities took a shit back in 2021 and so did bonds (the bonds bounced back, but so did equities in a big way). There’s some thinking lately that the traditional relationship between them isn’t as strong these days
@paulryan but then again, others are saying it was just a temporary blip due to unique circumstances (exiting COVID) and to stay the course with bonds as a buffer to equities
@decryption yeah it’s an interesting development. Here’s an article that goes into how the correlation has changed and what it means for optimal portfolio construction https://www.vanguard.co.uk/professional/vanguard-365/investment-knowledge/portfolio-construction/understanding-stock-bond-correlations
@decryption Look at floating rate bond ETF’s as a comparison. Long duration bond ETF’s are mainly under as a defensive asset for when the shit hits the fan in equity markets and you can’t cope with your portfolio falling 40% or so.
@ajbeard Betashare's HCRD has been very interesting to me - seems designed to alleviate the interest rate risk
i did a quick comparison of FLOT vs BOND vs IHHY and this chart is nice. I like that smooth blue line, smooth lines = good, I freak out when week to week or month to month I "have" less money than the previous time period.
@decryption absolutely. On financial advice I had about 7% in bonds. It was less then cash, and this YTD it's actually losing money. I just switched that portion out.
I've looked it up and had it explained to me on multiple occasions, and I still can't quite figure out when they're supposed to be good. The value of bonds has some inverse relationship to interest rates, but I have some sort of conceptual blocker and it's still a bit hazy for me exactly how it works.
@philbetts exactly the reason why I've been looking into them - I need a "defensive" portion of my investments (and I dislike the volatility of equities because I'm a big scared baby that feels like he has too much to lose when the AI bubble pops) and bonds, well bond ETFs at least, performed really crap even when interest rates went up - but they weren't spectacular when they went down either
That said, I've been looking at ETFs, not holding the actual bonds themselves. If there's a A-grade bond that gives me like 5.5% or 6% for 12m or 24m, that could be a better idea than a term deposit.
