The Fat Wallet Show with Kristia van Heerden

Podcast: The best time for bonds

In Latest, The Fat Wallet by Kristia van Heerden

If you’re a Fat Wallet regular, you know I love thinking about bonds. Despite my fascination with the asset class, I don’t hold any outside of my retirement annuity. If all goes well, I won’t be cashing in my investments for the next 20 years. Bonds are a more conservative asset class. They reduce volatility, but they have an upside limit built in, and I’m a sky’s-the-limit kind of gal.

This week, listener Dale Towert reaches the same conclusion about bonds, “Everyone says a well-diversified portfolio should consist of stocks, bonds, property and cash. At what stage do you think it’s a good idea to start introducing bond ETFs to your portfolio?

I’ve been restructuring my portfolio, and thought it might be a good idea to have at least 10% exposure to bonds. This got me thinking: the purpose of bonds is level out the ups and downs of the rest of the market. At 10%, if things go really badly in the rest of the market, 90% of my portfolio will still go down with the market. At the same time, if things go well, 90% of my portfolio will also go well. In other words, at 10% the effect of the bonds will be fairly minimal.

To have a greater levelling effect, you’d need much more than 10% in bonds – probably closer to 40-50%. But the returns (incl. interest) on bond ETFs is pretty poor over time, so unless you are already, or about to retire, this doesn’t make sense either.

At what stage do you think it’s a good idea to start introducing bond ETFs to your portfolio, and at what percentage (if at all)?”

In this podcast, Simon and I discuss the bond dilemma. We also talk about having more than one retirement annuity, Sygnia funds, what will happen to Steinhoff shares and whether biotech is the future of money.

Fat Wallet listener Jorge Texeira wanted to take out two retirement annuities so he could invest one in a living annuity and one in a life annuity after retirement. We weren’t quite sure about the legalities, but our friends at 10X Investments cleared it up for us.

“Yes, you can take out two or more RAs with one or more service providers. You can take out as many RAs as you wish, although your tax deduction is capped at 27,5% of income/R350,000 pa across all your RAs. But if your aim is simply to split your retirement benefit between a living and a guaranteed annuity, then you don’t have to do that (take out two RAs) – you are allowed to split the benefit of just one RA between the two types of annuities.”

Links and resources

We pre-recorded this episode on 13 September, so we have no idea where the Listener Love Index is, but if past behaviour is a predictor of future behaviour, I’m not hopeful.


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