Bond Cash-Flow Matching
Use single bonds, not bond funds, to fund known future expenses with certainty.
Bond Cash-Flow Matching uses individual government bonds (not bond funds) held to maturity to fund a specific known liability. Because a bond is worth its par value (typically 100) on its maturity date by definition, you can know today, to the penny, what you will receive when you need the money. This removes the market-timing risk that plagues equity holdings earmarked for short-term goals.
The key insight is that bonds have a 'birth date' (issuance), a 'death date' (maturity), and a fixed coupon. If you buy and hold to maturity, the price fluctuations in between are irrelevant — you collect the coupons and the £100 par value at the end. This makes bonds uniquely useful as a planning instrument across any age, not just for retirees.
Nakisa frames this as bonds being 'sexy' precisely because of this certainty: you trade some return for the ability to know exactly what you will have on a specific date.
- A single bond held to maturity gives you a known terminal value — bond funds do not.
- The maturity date is the bond's 'death date' and is the only date you truly know its value.
- Use bonds to match liabilities, not to chase returns.
- Equity risk premium (~4% over bonds) only matters if your time horizon is long enough to ride out drawdowns.
- Time horizon, not age, determines whether bonds belong in your plan.
- Identify the known future liabilityPin down the date and amount: house deposit in 2 years, £100k; university fees in 5 years; tax bill in 12 months. The more specific, the better the match.Pro tipWrite the date and amount down before you go shopping for bonds — discipline keeps you from drifting into yield-chasing.
- Look up the yield curve for that maturityCheck what UK gilts (or equivalent) are paying for the maturity that matches your liability. The yield curve is currently inverted, so short-dated gilts may pay more than long-dated.WarningInverted yield curves are unusual — don't assume long bonds always pay more.
- Pick a single bond with the right tickerOn a UK platform, gilts have tickers like 'T24' (UK Treasury maturing 2024). The bond's name encodes its coupon and maturity, e.g. '5% of 24' means a 5% coupon maturing in 2024.Pro tipUse platforms that actually offer bond trading: Interactive Investor, AJ Bell, II — Vanguard UK does not.
- Buy at the clean price, pay the dirty priceQuoted prices are 'clean' but you actually pay 'dirty' — clean plus accrued coupon since the last payment. Don't be surprised when the settlement is slightly higher.
- Hold to maturity, collect couponsUK gilts pay every 6 months. Coupons land like dividends. On the maturity date the £100 par value plus final coupon arrives in the account.
- Ignore the price in betweenMark-to-market price will swing with interest rates. As long as you hold to maturity, the swings don't affect your terminal payout — only the issuer's solvency does.WarningIf you are forced to sell early because rates rose, you will realise a capital loss. Match the maturity to the liability so you never have to.
Nakisa's example: you need £100k in 2 years. Buy a 2-year gilt yielding ~5%. You put in roughly 10% less than £100k today and know to the penny what you will get.
Parents in their 40s know children will need fees in 5-10 years. Buying a gilt that matures the year fees start removes the worry of a market crash hitting the year tuition is due.
Companies with a known tax liability use money market funds or short gilts to park cash, earning the short-end rate while preserving certainty.
Nakisa, founder of PensionCraft, repeatedly fields the same misconception: that bonds are only for older investors de-risking before retirement. He developed this framing after seeing investors use 100% equity portfolios for short-term goals like house deposits and getting burned by drawdowns.
His own portfolio is 100% equity for the long term, but he uses single bonds to plan known cash flows — a distinction he repeats throughout his channel because most retail investors conflate bond funds (which never mature) with single bonds (which do).