Index-linked Gilts

sabretoothtigger

masonic wrote: »

This thread is about index linked gilts. Don't the yield of these rise in line with inflation?

Bogle is american. They are fairly unique to the uk thanks to our history

The yield is linked but the actual capital value will already be inflated for uk debt beyond its worth in future most likely.

If it were possible to buy index linked at face value then sure. I think certificates are maybe more relevant



RPI will be higher then expected, market prices being badly wrong is very likely. Deliberately skewed by government, currency manipulated by its own creators we know that happens but almost all of us are uncertain what occurs as the results. My guess do not be in bonds, I think the conclusion is reasonable

If I'd been investing over a different ten years, might have been quite a different result. As I'm now at retirement I may never be able to make up my losses.

Approaching a fixed time the investments would have to reverse into paying out large amounts should have had a large influence on any investment taken. It snips short the whole 'long term' reasoning

I would have hoped people would be advised to reduce risk drastically. I just dont agree bonds are low risk, our currency is not stable.
Bonds are a promise to receive that currency in future, so if its unstable now that means the future is risky and I want a higher rate for my risk taking.
Thats why I took foreign bonds which pay 7% but their gdp growth is also 10%, seems alot fairer

JamesU

12tonelizzie wrote: »

Hang on, I'm a relative newbie but, as several posters here have made clear, a lot of experienced folks suggest holding index-linked gilts in a portfolio. Tim Hale's widely-recommended book "Smarter Investing" has 6 portfolios along a risk spectrum, with the IL gilt holding ranging from 100% (1 = low risk) to 0% (6 = high risk), but even portfolio 4 is 25% IL gilts.

This nice post on the excellent Monevator blog shows a range of pundits' portfolios, in which IL gilts repeatedly occur.
http://monevator.com/2010/10/19/9-lazy-portfolios-for-uk-passive-investors-2010/

Hale's book is excellent, but it is just a guide to strategy and is not up to date with markets and events.

The whole point of X% index linked gilts as part of asset allocation within a portfolio is to hedge against inflation, provide a defensive role in crisis, and less volatility depending on risk profile and objective. That does not mean ILGs are a compulsory purchase to tick a box on a portfolio allocation at the present time.

As others mention on thread, I see no merit in purchasing ILGs when they are overpriced, when there is risk of capital loss (including low cost ILG funds such as INXG etf, L+G ILG index fund etc) and when they do not provide a cost effective hedge against inflation at purchase price. All this can be avoided by purchasing X% index-linked certificates instead.

JamesU