Bond fund in pension

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Steiny

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My pension fund with Irish Life (work provided) is invested in a bond fund (60%) and various equity funds for the rest. While the equity funds recovered in the last year, the bond fund has lost 20pc of its value in the last 18 months or so (my pension fund is now worth a little less than the contributions). I'm 25 years off maturity so I'm aware that I should be mainly in equities.

I understand the correlation between rising interest rates and bond values. Given that the big hit has been taken, should I wait a while and see if there is a downturn in equities and also monitor the interest rate news, being prepared to move some funds at least out of the bond fund if interest rates go higher. There is much talk of recession in 2024.

Also, if interest rates just stay high for the medium term, what is likely to happy to bond funds in this scenario - do they just stay low or are they likely to recover at all?

What questions should I be asking about the bond fund details (i believe it's a mixture of corporate and govt bonds)? I'm aware no-one has a crystal ball, I'd just like to get some insight into this.
 
60% bonds seems wrong, even old days bonds would be 40% and that number was reduced over past 20 years

Is it the case that falling interest rates will make bonds rise?
In which case worth holding onto bonds (if we think interest rates are due to start falling... Maybe premature)
 
Ya, I had moved the funds into that particular fund some time back so it was my choice. My lack of insight really... Didn't realise the fund was entirely bonds - it's called pension for life or somesuch with a lowish risk profile.

Personally from my limited knowledge and what's in the news, it looks like interest rates are not coming down soon and may even go up a little more. At the same time, I'm reading that bonds are becoming popular again now with investors. I'm wondering in the event of interest rates just staying high in medium term, if bond values will just stay stagnant too...
 
Steiny said:
What questions should I be asking about the bond fund details (i believe it's a mixture of corporate and govt bonds)?
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People talk about 'bonds' as if they're all one generic thing like cash. To have taken a 20% hit, these must have been fixed rate long dated bonds?
If they are, and interest rates don't change, then the yield on the bonds will be c. 3% from the current price, i.e. they will return to 100% as they get closer to their maturity dates.
 
Ya the 5 year cumulative performance is down 20%.

Ya, the fund is broken down as:
Indexed AAA > 15 Yr Eurozone Govt Bond Fund 59.3%
Indexed > 10 Yr Euro Large Corp Bond Fund 40.7%

Wondering if I should transfer out of this fund now or just wait a while and see what general situation is like in a few months (in terms of major downturn in equities and interest rate environment). Sounds like I need to move out of this fund though at some stage as it's not really going to give me yields that equities will over longer period of time, given that i'm still a ways off pension maturity.

I realise I'm still in active management mode here which obviously I've made a hames of so far - it just seems like a bad time to do anything drastic given the performance of this has bottomed out and talk of slowdown? Apologies if I'm not making sense!
 
Steiny said:
Ya, that would have been my own fault. Im wondering should i jump now to equities given the talk of downturn or wait and see?
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Timing the market is a mug's game.
Time IN the market is more important.
In general if you are not close to retirement then you should probably be in mostly or all equities.
Even if you are close to retirement then this may still apply if you are rolling into an ARF and have a good life expectancy.
 
based on what you're saying.. i would say allocate 40% bonds
60% equities

40% on the basis that bonds having dropped will bounce back especially when interest rates start to drop.. we can't time that but it will happen

and so move some funds into the equities fund to get the right balance
 
Steiny said:
My pension fund with Irish Life (work provided) is invested in a bond fund (60%) and various equity funds for the rest. While the equity funds recovered in the last year, the bond fund has lost 20pc of its value in the last 18 months or so (my pension fund is now worth a little less than the contributions). I'm 25 years off maturity so I'm aware that I should be mainly in equities.
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Yet:
Steiny said:
Ya the 5 year cumulative performance is down 20%.
...
Wondering if I should transfer out of this fund now or just wait a while and see what general situation is like in a few months....Sounds like I need to move out of this fund ... given that i'm still a ways off pension maturity.

I realise I'm still in active management mode here which obviously I've made a hames of so far - it just seems like a bad time to do anything drastic given the performance of this has bottomed out and talk of slowdown?
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This is all sunk cost fallacy. If you were starting from scratch, what would you do? Then assess the pros and cons of moving from here to there.

Steiny said:
Ya gotcha... Definitely lesson learned...
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In fairness, the fund does what it says on the tin - although I would seriously question the classification of this fund as 'Medium Risk' if they were buying AAA's at 0 or negative rates in 2020/2021.

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moneymakeover said:
based on what you're saying.. i would say allocate 40% bonds
60% equities

40% on the basis that bonds having dropped will bounce back especially when interest rates start to drop.. we can't time that but it will happen

and so move some funds into the equities fund to get the right balance
Click to expand...

With 25 years to retirement... I'm sure they'll see rates fall but at what opportunity cost? If your thesis is that rates will fall, why wouldn't that be a tailwind for equities? And rates falling impact the short rate, this fund is all long duration assets. In any case, the funds' objective is inconsistent with the OP's objective.
 
moneymakeover said:
based on what you're saying.. i would say allocate 40% bonds
60% equities

40% on the basis that bonds having dropped will bounce back especially when interest rates start to drop.. we can't time that but it will happen

and so move some funds into the equities fund to get the right balance
Click to expand...
25 years to retirement plus hopefully a good few years living off an ARF... That could well be a half a decade investment timeframe. Forget about bonds and trying to time the bond market and just get into mostly or all equities.
 
Bonds may be an investment strategy but this fund is still not the right one. The funds objective is to track the annuity rate, not to generate returns from bonds. It specifically invests in high quality, long duration bonds which are a play on long run interest rate expectations. The purpose of this particular fund is to hold funds that you intend to use to purchase an annuity with (it’s basically a cash deposit account, after fees). It’s a component of their lifestyling investment products and as part of that, funds are transitioned into this fund as one approach’s retirement, not 25 years from retirement. If bond investment for returns are required, then purchase a balanced fund with the appropriate level of asset allocation to them.
 
Itchy said:
The purpose of this particular fund is to hold funds that you intend to use to purchase an annuity with (it’s basically a cash deposit account, after fees). It’s a component of their lifestyling investment products and as part of that, funds are transitioned into this fund as one approach’s retirement, not 25 years from retirement. If bond investment for returns are required, then purchase a balanced fund with the appropriate level of asset allocation to them.
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I've had this problem with Irish Pension funds. The "Bond Fund" is just as itchy described, i.e. a vehicle for transferring to annuities, not a vehicle to invest in Bonds. For a DIY investor who wants to choose their own risk profile (rather than relying on the Balanced portfolio), it makes it extremely difficult to work around.
 
Steiny, at 25 years to retirement, I would recommend somewhere between 85 and 95% equities. Ideally in the world index fund.

Personally at 25 years to retirement, I was 100% equities
 
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