I just want a return above inflation, best option?

System

Thanks but why would anyone but if it gives a yield of minus 0.6? Why not just keep it in a savings account?

What is my best option? I would be delighted with a secure, 1% above CPI inflation return for life (well 35 years)

masonic

berbastrike wrote: »

Thanks but why would anyone but if it gives a yield of minus 0.6? Why not just keep it in a savings account?

Gilts are bought up by institutional investors running investment and pension funds. They don't have access to consumer savings accounts. Index linked gilts are also a hedge against high inflation. If RPI is 15%, you probably won't care about "only" getting a 14.4% return.

What is my best option? I would be delighted with a secure, 1% above CPI inflation return for life (well 35 years)

At today's CPI, most savings accounts will deliver CPI+1%, but if inflation rises, then you'll struggle. There are no options that will give you the security you desire. Perhaps in the future, Index Linked Savings Certificates will become available again. Until then, if you want a low-no risk option, then the best you can do is chase the best savings rates and on average you should beat CPI by 1% over the long term, but there will be periods where you do better and others where you do worse.

System

Ok, that is what I thought.

I can't believe people are buying these gilts when they are losing money though, bizarre

System

What do you think of corporate bonds?
http://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/gbp-bonds

Provident, 1 year 2 months, gross yield 3.71%

Is that not quite good? and very safe?

masonic

berbastrike wrote: »

What do you think of corporate bonds?
Is that not quite good? and very safe?

Many people are using corporate bonds instead of gilts in their portfolios at the moment, but they are higher risk and you could suffer a capital loss if the business defaults on its debt. You would want to diversify your investment among many bonds and accept that one or two may go bad (or more if there is a serious economic crisis). Or you could buy a fund. Peer to peer lending is also worth considering if you are comfortable taking this level of risk.

Edit: Also, from just over a year ago... http://uk.reuters.com/article/2014/06/05/fitch-revises-provident-financial-plcs-o-idUKFit70372620140605

grey_gym_sock

there's definitely some risk in provident financial's corporate bonds. however, IMHO, they are paying quite an attractive rate, for the level of risk. and i have a bit of money in 1 of provident's other bonds (there are several). but that is 1 of about 14 different corporate bonds (all from different companies) which i'm holding. and only part of my total money is in corporate bonds.

as masonic says, a bond fund (or ETF) is a simple way to get more diversified exposure to corporate bonds.

some of your capital in corporate bonds might make sense, but not all.

is your objective to draw an income, or preserving the real value of the capital? and on what timescale? because if you might want to use the capital for something else after a couple of years (e.g. to buy a house), then you want relatively stable investments. but if it's for the very long-term (decades), then even a risk-averse investor might be better off putting a small proportion of the capital (20% or so) in shares (which again could be via a fund).

System

ggs,

I'm young but want to live off the £500k. I am mortgage free. I am just looking for a return where it beats inflation

I am lucky just now because CPI is 0 but when it goes up...


I really like the idea of the index linked gilts but it seems they are not as good as they sound (neg yield)

mvarrier

What about P2P. You can get rates above current inflation with even the 'safer' lower return platforms like ratesetter or wellsley

System

mvarrier wrote: »

What about P2P. You can get rates above current inflation with even the 'safer' lower return platforms like ratesetter or wellsley

I have thought about it but if they go bust, then my life would be ruined!

Credit-Crunched

berbastrike wrote: »

ggs,

I'm young but want to live off the £500k. I am mortgage free. I am just looking for a return where it beats inflation

I am lucky just now because CPI is 0 but when it goes up...


I really like the idea of the index linked gilts but it seems they are not as good as they sound (neg yield)

£500k in corporate bonds....not a good idea.

You really need to seek professional advice.

You should look to maximise your ISAs, where possible take advantage of deposit accounts paying 3%+, possibly max out premium bonds (returns are pretty poor but seem to match your attitude to risk)