Is there a point in holding bonds?

Hello fellow Mustacians,

is there a point in holding bonds? Government bonds offer no interest and corporate bonds are correlated with the SP500.

I wanted to do an allocation 65% VWRL, 35% bonds but now I am thinking instead of bonds I should just keep 35% cash and re-balance every 3 months.

What do you have in your portfolios, bonds or cash? Which UCITS ETF is recommended to buy? I saw Vanguard is offering the following:
Global Aggregate Bond UCITS ETF (VAGP)

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Cash + mostly counting pillar 2 as “bond”.

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You’d likely want something hedged to CHF (with the expected return being that of the negative CHF yield).

That is fine.

My current and future salary is in CHF (I am under 30y. old), my pillar 2 is in CHF. I would be fine with losing money in a bond due to CHF getting stronger since I will offset this with my salary being worth more.

My original question is related to the 2-fund advice often given to people, that government-bonds do not correlate well with stocks or correlate negatively.

So in a market collapse you can sell bonds which rise in value over time in order to buy stocks to re-balance your portfolio.

Since interest rates are 0 or near 0 does this still hold? Is there any benefit over holding cash that I am overlooking?

AFAIK that advice might only be useful if you hold bonds your “base” currency, otherwise it’s not really a stable/safe investment.

https://www.institutional.vanguard.ch/documents/institutional/going-global-with-bonds-uk-eu-ch.pdf should explore that a bit (but there’s lots of similar pdfs from e.g. vanguard).

I have a bit of cash parked into Vanguard’s BND and I kind of like it as it is quite stable and still gives back some return. Just look at March this year where VT was down over 30% BND was down 5%. I also consider my 2nd pillar as bonds but to be honest have no clue what instrument is behind them…

Anyone knows if trading view can show total returns? If so something like https://www.tradingview.com/chart/?symbol=NASDAQ%3ABND*USDCHF (but with total returns) should be a good demonstration of USD bonds vs. CHF cash.

I see the inclusion of bonds and cash as a way to prevent us from selling stocks at the worst possible time. With less volatility in the portfolio, it is less tempting.

Whether cash or bonds are better, there are pros and cons on both sides. I see a pro with bonds for the diversification of the counterparty risk, especially when the cash amount becomes higher than the guarantee.

This means if you have over 100,000 CHF in your cash bank account buy bonds just in case of a bank default ? (My cantonal bank has a government guarantee for 100,000)

I think it’s a personal decision. I would myself not feel comfortable having more than the guarantee in cash at the same bank. In general, I diversify my assets all I can to keep risk under control. I also diversify the same asset class over several fund management companies. I even have several brokers. :smiley:

Nothing is fully safe, also not bonds and not even cash. In fact, if I were to sleep for a century and then be back, I would put 100% in stocks, as I am pretty sure 100% cash would end up practically worthless. But that’s because I wouldn’t be tempted to sell. And even with 100% in stocks, it’s almost certain half of the companies will have gone bankrupt by then so I’d take an indexed ETF. And that’s assuming the asset management provider survives, etc. :slight_smile:

Or open several bank accounts?

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