I currently have 7 shares of CSPX.L and 150 shares of IWDG.L. I believe these to be sound investments but this is a belief backed up by little financial understanding. I think these ETFs are good because they diversify my portfolio geographically and by sector but, as I understand, are vested entirely in equities.

I was thinking of buying £1000 worth of an ETF in government bonds (IGLT specifically). I did a bit of research and I've heard of them described as an "insurance policy" against equities leading me to believe that generally when stocks go up, bonds go down and vice versa. Is this the most economical use of my cash? Can I expect the two to be somewhat inversely proportional to each other?


Based on a comment I'm adding more information. I would say I have a slightly above average tolerance for risk. On a scale of 1-10 (ten being riskiest) I would be a 6.

In terms of investment goals I don't have any specific target. I just have some money that I want to put to better use other than an ISA. I may withdraw it in 5 years, 10 years or 40 years.

  • It is not possible to answer your question about the most economical use of your cash, without a full understanding of your investment goals, including your tolerance for risk and how many years or decades you are planning to invest for. – ChrisInEdmonton Feb 12 '18 at 12:05
  • I've amended my question to reflect your questions. – Nanor Feb 12 '18 at 12:14
  • Bonds are certainly not "inversely proportional" to stocks -- proportional (in either a direct or inverse sense) implies that both have similar volatility, and one of the key advantages of bonds (particularly high-grade ones) is their relative stability. – Ben Voigt Jan 19 '19 at 23:41

Your question should probably be closed because it is broad and opinion based. However, I am encouraged by the way you asked it because you are not failing for some get rich quick scheme (like FOREX) which will end up leaving you with less money then when you started.

Only with hindsight can one answer what the most efficient use of your cash would have been.

You are teetering on going down the path of "asset allocation" this was popularized by Jack Bogle of Vanguard. Something like 60-90% of your money in equities, with 10-25% of that being international investments. The rest would go into bond funds. Some really like this approach, others disagree. It is hard to imagine who is correct and who isn't. I should point out the equities that Bogle promoted were in low cost index funds, not those that are actively managed.

For me, and I am in my 50's, I tend to use a pretty aggressive asset allocation model with about 80% in stocks. I use a mix of both actively managed and index funds. I almost exclusively use bond funds, not buy individual bonds. Is this the most efficient use of my investments? It has not been, but I have done pretty well, and I did not own an item that would have enabled me to predict the future.

So to answer your question in the general sense, I think you are on the right track. In the specific sense it is impossible to answer your question and only the charlatans will tell you that they can answer specifically. Don't trust those people.

Keep learning about investments and adjust your portfolio from the information received.

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    I think a better way to phrase part of my question would have been is this an economic use of my money. Thanks for your input! You've given me a lot of information I can research from here. – Nanor Feb 12 '18 at 13:15

Historically bonds have tended to do well in years when stocks did badly. The one exception in the last century was at the beginning of the Great Depression when both fell.

The general recommendation is to match the overall market's allocation. The reason for this is that the overall market (including both stocks and bonds) tends to go up over time. That's roughly 70-75% stocks and 25-30% bonds.

Someone who invests more in stocks and less in bonds will tend to do better over time. However, that time may be counted in decades.

If your time horizon is five years or less, then it is generally recommended not to invest in equities (neither stocks nor bonds). The reason is that there is a reasonably high chance of a market correction in the next five years (not specific to now, although there are particular reasons why this might be true now). You would be better off with some type of cash equivalent then.

If you do invest the money in equities, then you are implicitly saying that you are willing to wait at least five years to access your money. I say five years because most markets recover from corrections in that time. Five to ten years might be more accurate.

  • What do you mean by some type of cash equivalent? – Nanor Feb 12 '18 at 15:53
  • Cash equivalents are things like checking, savings, or money market funds. Low interest, often don't keep pace with inflation. But won't lose half its value overnight in a market correction. – Brythan Feb 13 '18 at 1:40

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