Posted by
Retired
15 yrs ago
In the current market situation, would you favour buying a bond fund or an individual bond? Any short duration (like 5 years) bonds to recommend?
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The bond market in HK is pretty bad. There aren't that many bonds available and those that are are thinly traded, which means prices are not readily available i.e. there isn't much of a secondary market.
Getting your hands on individual bonds is difficult and many only come in minimum lot sizes of around HK$100,000. So, unless you've got a fair bit of money, it's going to be difficult to get any diversification.
Given all the above difficulties you're better off with a bond fund unless you already own a well diversified portfolio containing stocks and bonds and are now trying to set up a bond ladder for yourself.
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Chris, you are right about little secondary market and the minimum investment size. I think most people hold the individual bonds till they mature and they are pretty long term - like 8 to 10 years. Given such long duration, I think that why endowment policies like HSBC's Retirerich products are getting so popular.
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Hi Retired,
Getting your hands on individual bonds is easier said that done in HK. It's much easier over in the US. Makes setting up a bond ladder much more difficult here.
Are you talking about HSBC's RetireIncome Annuity Plan? It's similar to many other products that banks and insurance companies have and it's not the highest paying one out there either. Though, of course, because it's HSBC many people will go for it. Also, most people don't know how to calculate the returns to compare it against others (including the people selling the product).
Given the lifespan over here I believe retired people still need a percentage of their portfolio in stocks to provide some growth and combat inflation. I'd only buy something like RetireIncome after I'd built a diversified stock, bond and alternative investments portfolio.
Of course individual circumstances would differ so I'd adjust things to suit the person.
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Chris, well, I'm one of those who is really bad at calculating returns or anything to do with numbers and I prefer to sleep better at night by choosing to buy annuity plans from HSBC and other larger banks than others whilst knowing there is better return out there. One thing I will be doing is to add on to my stock portfolio which currently only has 5 blue chip companies. However, I am very long on stocks I buy which is why I stick to stable stocks giving reasonable dividends. With US stocks, there is a tax on dividend which is really depressing. Retired life is so hard as inflation rises and interest is low. Really challenging to maintain accustomed lifestyle though I don't live lavishly at all. Thankfully, they remove the tax on wine and so that is still affordable!
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Being able to sleep at night is very important and it sounds like you've got a very sensible approach to your retirement. Being long in stable dividend yielding stocks is a good idea. Just need to see if they extend the tax relief on US dividends or if the with holding tax rate is going up.
However, I'm not sure if you or someone has worked the numbers for you to figure out what your asset allocation should be as hopefully with many years of retirement to go, you do need a component of your stocks to be more growth oriented as otherwise you run the risk of running out of money further down the road.
You can't be too conservative but you don't want to take on more risk than you should as it's a different ball game in retirement when you're no longer earning a regular paycheck.
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Thks for the advice. I am certainly going to increase on the stock component and look for more growth oriented stocks. (Which reminds me of growth oriented funds which I don't really favour given their fees). Before I made my decision on retiring, I ran numbers on the available retirement calculators and participated in various forums. In HK, there's very little valuable, realistic and affordable advice available for decisions like these. Most of the people I know adopt a DIY approach and always prepare for worst case scenario. Some who have gone through financial advice also suffered similar fate of having their portfolio cut by 30% or so following the recent financial meltdown. But that's not to say they have the wrong advice because hopefully, we won't have these meltdowns often. When I first joined this forum, I was hoping to find discussions covering financial planning, investment strategies and financial independence. Hope there wil be more threads on such subjects.
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