Boring german fund(s)?

Albermarle

Quite happy with £22,320 of growth on my "hmrc fund", with a final cash pot of £111,690 for when my state pension kicked in (perhaps buy a small annuity)

I presume that you have taken account of the fact that by holding cash/ low yield bonds, then your pot will have dropped significantly in value by the time you buy that annuity , due to inflation.
So by not taking any investment risks, you are actually almost guaranteeing that your money will decrease in value every year . Maybe by 50% in 20 years.

Malthusian

Was thinking.... regarding government bonds (again more complicated than i realised), do the following bonds guarantee my full SIPP monies back, on the sole provision that the UK doesn't go to negative interest rates, or am I missing something?

https://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/uk-index-linked-gilts

Most of them guarantee that you get less back - ignoring the coupon. The 2068 gilt is currently trading at £252 for a par of £100, so for every gilt you buy at £252, you will get £100 back at the end. Of course you will have payments equivalent to inflation plus 0.125% per year, which you hope will make up for that.

Bank of England interest rates have absolutely no effect on the Government's commitment to return £100 at the end of the term for every gilt you buy. They will however affect the price of the bond on the open market if you sell before maturity.

There is a significant possibility of capital loss if you stick all your money in the one basket of index-linked gilts. If interest rates rise (or are expected to), the value of index-linked gilts will fall.

Because of the high premium attached to index-linked gilts, they provide very little protection against inflation compared to a diversified multi-asset portfolio.

As your level of knowledge of finance and investment is very low (nothing wrong with that, everyone's knowledge of most things is very low), you should be looking at a globally diversified multi-asset fund to start off with. Not trying to pick a single basket which seems low risk because you don't fully understand it.

As Albemarle said, by trying to avoid investment risk you are running high inflation risk and shortfall risk. Would you be happy in 15 years' time when you found that your £111,690 was actually £76,000-odd? Because that is what 15 years of inflation at 2.5% will do to it.

Thrugelmir

harrys66 wrote: »

Assumed that the German economy... having no deficit, a healthy push on renewable's etc would be a safer bet, looks more complicated now

Never assume. Much of German infrastructure is crumbling (literally) . Following a decade of under investment.

The benefits of unification may be wearing off.

harrys66

those gilts are a complicated instrument .... cant imagine the complexity of say trying to work out potential future losses/gains based of different RPI guesstimates over differing time periods!

from all the above comments i think yes, a boring passive low fee global tracker is the best bet

i actually view the tax relief added to my sipp as a "zero fee passive fund with 20% guaranteed growth", so psychologically quite happy with a very "low performing" fund

question ofcourse is ..... which global tracker best meets my criteria ??

londoninvestor

Malthusian wrote: »

Most of them guarantee that you get less back - ignoring the coupon. The 2068 gilt is currently trading at £252 for a par of £100, so for every gilt you buy at £252, you will get £100 back at the end. Of course you will have payments equivalent to inflation plus 0.125% per year, which you hope will make up for that.

That's basically the economic equivalent of the return you get, but the way the literal cashflows work is:

- At maturity, for each par £100, you get back £100 scaled up by the increase in RPI between the issue date (2018?) and the expiry date (2068).

- Each 6-monthly coupon is 1/2 x 0.125% x the "accreted par value" of the bond (i.e. £100, scaled up by the increase in RPI between the issue date and the date* the coupon becomes due).

Looking at the current yield curves...
https://www.bankofengland.co.uk/statistics/yield-curves ("UK instantaneous implied real forward curve (gilts)" is the relevant one)

...you can see that the overall return you'll get relative to inflation is negative - you end up receiving somewhere between RPI-1.5% and RPI-2.0% depending on the maturity of the gilt. So yes, in inflation-adjusted terms, absolutely they guarantee that if you hold them to maturity, you'll get back less than you invested.

* There is some variation between gilts as to exactly what month's RPI is used, relative to the coupon date. Very technical detail here: https://www.dmo.gov.uk/media/1953/igcalc.pdf