Managed Funds Vanguard Diversified Bond Fund

Hi - was thinking about getting into this fund with $5000 for my 19 y.o. son
with monthly contributions thereafter of $100.

In the medium term, say next 3 years, will this outperform holding this in a bank deposit ? He currently gets around 4% in a BankWest Saver A/c.

He will also put $5000 pa into the First Home Saver Account and look to enter the property markets around 2012.

Or is investing in an ETF 'stw' or 'vas' a better option ?

Appreciate your thoughts.

Many thanks,
Amelia

 

Fund

Hi Amelia,

A fund is a better option if you are considering making regular contributions.

With an ETF you have to pay brokerage everytime for each additional investment, with funds you do not get charged for each transaction and can set up regular contributions.

A bond fund should return better than a bank a/c especially as most online savings accounts are paying approx 4% at best.

 

I'll start by saying that I have never bought into a bond fund and don't know a whole lot about them to be honest, but my understanding is that when it comes to bonds as yields rise the capital value of the bond itself falls. So even if bond yields were higher than your standard bank account you are running the risk of having a capital loss in 3 years time if bond yields continue to spiral upwards.

I don't know what the future holds, but I know I'm personally going to be steering away from bonds for the next few months at least until things are a little clearer, and I expect that bonds, which have been a good investment over the last 20 years, will probably be a sub par performer in the short and medium term. Just my two cents.

 

Thanks Wallis and Chris

I did some further reading into bonds and came to Chris' understanding
that that as yields rise the capital value of the bond itself falls, so will steer
clear of this for now.

Have started buying some shares.

 

I don't have a crystal ball, nor am I a big believer in putting all your eggs in one basket. So please seek multiple points of advice and correlate them with your own interpretation.

The reality is if this recession takes another nasty turn for the worse (not saying it will, and despite me being one of the most bearish people on these forums I think we may well be through the worst part of it - the credit crunch), however bonds may well prove to still be the best investment decision if this recession lingers for a long time as bonds are generally a good bet in times of deflation.

I guess my key point is, at this stage I reckon I know enough to know that I don't know enough to be confident about the likely outcome at this stage.



I definitely have my beliefs but I'll be just as ready to quickly switch camps if things start going the other way.