How to get the balance right between equity unit trusts and bond unit trusts
For some investors, the idea of putting a large proportion of their investment money in equity unit trusts doesn't appeal. This is usually due to the higher risks associated with investing in shares.
As well as using unit trusts to invest in shares, you can also invest in unit trusts focusing on bonds.
So how should you go about deciding how to split your unit trusts between shares and bonds?
Read on to find out…
The ins and outs of bond unit trusts
Many investors like the benefits that bonds give over shares. Bonds give you a more regular income and there’s less chance of losing money. In this case bond unit trusts may appeal.
Equity unit trusts, compared to bond unit trusts, may pay out less income over time and will be more volatile, but over the long-term, you should see higher returns.
All asset classes play a role in diversification. Sometimes bonds and equities move in different directions, which is good for your portfolio.
How much to invest in bond unit trusts
By ignoring equities entirely, you remove the chance of making good returns over the long-term. To deal with the higher risk factors involved in shares, you could think about altering your exposure over time.
A good rule of thumb is to base your equity and bond exposure to your age. As you age, you decrease your percentage of money in equity unit trusts and increase your percentage of money in bond unit trusts.
At 25 years old, you hold 25% in bond unit trusts and 75% in equity unit trusts.
At 50 years old, you hold 50% in bond unit trusts and 50% in equity unit trusts.
And at 75 years old, you hold 75% in bond unit trusts and 25% in equity unit trusts.
You can add diversification to your bond unit trust holdings by investing in different bond funds.
So there you have it. How to get the balance right between equity unit trusts and bond unit trusts.
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