I'm currently making my way through Benjamin Graham's book. He mentions that ± %25 of assets should be held in either cash or bonds.

Could someone clarify the government bonds situation in the UK? Is this statement still relevant today?

Thanks, Charles

1 Answer 1


The 'appropriate' amount of cash/bonds to hold will be largely a matter of opinion, but here are the general reasons why having at least some is a good idea:

  • Cash is very liquid, and bonds are often mostly liquid. This means you can access them very quickly, without taking on losses. To get the most liquidity out of your bonds, you can do what is called 'laddering'. This means that you take out different bond amounts with different maturity dates, and periodically renew them on a schedule, so that you always have some bonds maturing, which you can access without paying an interest penalty. You can look this term up online for more details.

  • Cash and bonds are low risk. If you have absolutely no low-risk assets, then in the event of, say, a market crash, you may have no savings to fall back on. By owning some bonds, and some equities, you are able to earn a modest return, without being too risky. However, note that some bonds are just as risky as equities - any bond which pays an abnormally high interest rate does so because the entity backing the repayment (government, company, whomever) is thought to not be guaranteed to be able to do so.

The 25% figure given by your author is his opinion on the appropriate mix of cash/bonds to equities, but there are many views on the matter. Consider that any 'rule of thumb' in personal finance should be for general consideration only.

  • Thanks for this explanation, I'd never heard of "laddering" which seems like a good strategy. However, I'm looking for more information specific to UK bonds and their current state. Commented Aug 29, 2016 at 13:42
  • "Could someone clarify the government bonds situation in the UK", which is the note you had on this in your question, is not at all clear. General knowledge requests are not great for this format; specific questions are better. Note that my answer reflects the fact that the author of the book is not making a recommendation based on his view of the performance of bonds, but more likely because of the low risk level of bonds. The recommendation to hold some cash/bonds would typically be made for any jurisdiction. If you want to know which bonds are better than others, from a UK perspective... Commented Aug 29, 2016 at 13:48
  • ...then ask a question which specifically identifies what you want to know, about the UK bond market. "Tell me a tale about the UK bond market", or something equally broad, is unlikely to get a great response on this site. Commented Aug 29, 2016 at 13:49
  • Thanks for your advice, I'll be more specific in future questions. I have a question in regards to your first comment; Providing the entity backing the repayment is considered to be guaranteed (UK Gov) and the level of liquidity isn't important to the investor, then can it be advised to convert all cash into bonds? Commented Aug 29, 2016 at 13:54
  • @CharlesFried "... and the level of liquidity isn't important to the investor" Liquidity really should be important to the investor. Giving up liquidity provides you with higher returns, because a low-liquid investment is higher risk, all else being equal. That being said, if you have a solid emergency fund of 6+ months of expenses in liquid assets (ie: cash + 1-month laddered bonds), then there is little point in holding onto more cash. Commented Aug 29, 2016 at 14:00

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