Pension recovery from covid

itwasntme001

Deleted_User said:

Thrugelmir said:

Deleted_User said:

Linton said:

Deleted_User said:

Thrugelmir said:

Deleted_User said:

Linton said:

Deleted_User said:

Thrugelmir said:

cfw1994 said:

garmeg said:

Deleted_User said:

garmeg said:

Looking at my crystallised SIPP, I am down 6% from when i crystallised it in 2019 and down 15% from its February 2020 peak. It was 40% down from February at its worst (having ASEI Aberdeen Standard Equity Income and TMPL Temple Bar ITs didnt help alongside too much UK generally) so it is recovering.

Large movements like this do make it hard to make a decision about when to retire. Guess I will be a perpetual "One More Year" employee.

If it was me, I would consider a more defensive portfolio. Now that things calmed down could be a good time. In March/April would have been bad time. 

Potentially this fund has to last 30 years plus as i am 56 so needs a high equity allocation.

Maybe 80% in equity ETF and keep 20% in cash as bonds not good value now.

Something like VWRL or the HSBC and Fidelity ETFs?

A friend told me his FA (I have no idea if an IFA or FA) had suggested 15yr gilts were going to take a drop some time back.   Some of my “less risky” money is in a blackrock 25yr gilt tracker: it looked better than the similar bond option I had.  I left it there....

I can now see the past year has managed to muster 7.5% growth, which I am happy with. 

Partly makes me wonder where finance “specialists” get their ideas from!

Gilts offer fixed yields to redemption.  They don't offer growth potential. Other than reinvestment of the income. Market prices will fluctuate daily won't impact the eventual outcome. 

If you look at a chart of historic returns for a gilt fund over the last 30 years you will find that the total return far exceeds the yields. What was the reason for that difference? 

Lets do some arithmetic which will make it clear...

10 years ago there was a 4% 50 year gilt issued.  So with £100 invested over 50 years it will generate £200 interest (gilts dont compound)  and return your £100.

This gilt is now worth £204.  So a 104% capital gain in 10 years - whoopee!!  And then there is £40 of interest on top!!    Who needs equity!

The gilt will generate £160 interest in the next 40 years. take off the £104 loss in capital value which leaves £56 gain.  And oddly enough £144+£56 profit=£200 which is what we calculated originally.  So the increase in capital value now is just prepayment of the future returns you would have got anyway.

But now look to the future.  In May this year there was a 41 year gilt issued with an interest rate of 0.5%.  Clearly there is very little profit that can be brought foward to justify a rise in the capital value.  Indeed, it is currently priced at £88, which represents a 12% loss in 6 months.

This is why I am veryt wary of gilts for the non-equity part of my portfolio.

See https://fixedincomeinvestor.co.uk/x/bondtable.html?groupid=3 for source of this data and a lot more.

You are correctly illustrating that capital gains on bonds (“growth”) are possible and in fact that is exactly what we have seen over many decades (contrary to what Thrugelmir claimed) . 

Um. Goes without saying that market prices have risen as interest rates have fallen. However a Gilt is issued at a nominal par value of £100. 30 years later it is redeemed at maturity for £100.  There's no growth involved. Ultimately any notional capital gain thanks to market pricing will evaporate as the Gilt approaches maturity.  In fact the value of the Gilt has been devalued thanks to inflation. 

Reinvesting a 17% yield for 30 years into further new Gilt issuance and repeating the process. Will result in a benefit from compounding. That's pure mathematics. However long dated Gilt yields are now on the floor.  Impossible for history to repeat itself anytime soon. 

1. Sell your gilts today. Nominal value becomes irrelevant. You have capital gain. Congrats.
2. Take any one year period. Take 5 year gilts. Show me when total return equalled the interest rates.  Good luck. 

3. Pretty sure if I were to search this site you would have said the exact same thing 1, 2 and 3 years ago. The bonds have appreciated nicely since then. At some point bonds will fall. We just don’t know when. But at some point you will be right. Thats how the market works. 

1 - The capital gain reflected a rise fall in interest rates.  If interest rates had fallen risen you would make a capital loss.  In either case what do you do next?  Do you think that interest rates can fall forever or will they rise and fall around some average point?  This is very different to equity where in principal capital values can rise forever thanks to inflation.
2.  We have never before had such a long sustained fall in rates.  I dont think any very long term data is available.
3.  A few years ago the long term gilt rates were much higher compared with short term rates.  Over time the fall in rates towards  zero has moved towards longer durations.  There is little more space left now.

5 years ago, in November 2015 gilt rates stood at between 1.3 and 2.5%, depending on duration.  Many said they cant go lower.  Now they are .5 to 1%.  Since then IDFC, a gilt fund, returned 60%. Not bad. How do you explain it? Certainly not just compounding on 2% as Thrugelmir claims. 

I'm beginning to wonder if you actually even know what Gilts actually are and how they work. You keep talking about now. With no at all reference to the past. Which dates back far longer than 5 years. 

That’s what I think about you, so its fair. I think you are clueless about the impact of duration, changes in interest rates and market sentiment. 

If you go back you may find out that real returns on gilts were negative for a large chunk of the 20th century. Which does not align with your claims either. 

Bonds are not that easy to understand for the average.  Requires a level of maths and logic skills not many have unfortunately.

german_keeper

Play nicely now children. For what it's worth I haven't got a clue what either of you are on about. To be honest only because I have zero interest in investments.

quirkydeptless

cfw1994 said:

Curious what your  'wealth preservation' investments are.

Troy Trojan X and its IT equivalent, PNL. They are both on the chart, I think PNL is the red line, and you can just about see Troy Trojan X peeking out along side it if you look carefully at my chart, but they track pretty closely

Depending on where it's held one can more cost effective than the other. 
Other  'wealth preservation' investments are available   

Linton

What's the problem? A remarkably steady linear decrease in interest rates for 40 years, another 40 they'll be at -14%.

itwasntme001

Just to add confusion to the debate, equities can also be though of as long duration for a subset.  So they can be (indirectly) influenced by changes in interest rates, particularly in the long end.  Stocks that are pricing in earnings growth far out into the future.

If you do not like long duration bonds at current levels, you should also be thinking twice about investing in that "growth" fund.

Linton

Deleted_User said:

Thrugelmir said:

Deleted_User said:

Linton said:

Deleted_User said:

Thrugelmir said:

Deleted_User said:

Linton said:

Deleted_User said:

Thrugelmir said:

cfw1994 said:

garmeg said:

Deleted_User said:

garmeg said:

Looking at my crystallised SIPP, I am down 6% from when i crystallised it in 2019 and down 15% from its February 2020 peak. It was 40% down from February at its worst (having ASEI Aberdeen Standard Equity Income and TMPL Temple Bar ITs didnt help alongside too much UK generally) so it is recovering.

Large movements like this do make it hard to make a decision about when to retire. Guess I will be a perpetual "One More Year" employee.

If it was me, I would consider a more defensive portfolio. Now that things calmed down could be a good time. In March/April would have been bad time. 

Potentially this fund has to last 30 years plus as i am 56 so needs a high equity allocation.

Maybe 80% in equity ETF and keep 20% in cash as bonds not good value now.

Something like VWRL or the HSBC and Fidelity ETFs?

A friend told me his FA (I have no idea if an IFA or FA) had suggested 15yr gilts were going to take a drop some time back.   Some of my “less risky” money is in a blackrock 25yr gilt tracker: it looked better than the similar bond option I had.  I left it there....

I can now see the past year has managed to muster 7.5% growth, which I am happy with. 

Partly makes me wonder where finance “specialists” get their ideas from!

Gilts offer fixed yields to redemption.  They don't offer growth potential. Other than reinvestment of the income. Market prices will fluctuate daily won't impact the eventual outcome. 

If you look at a chart of historic returns for a gilt fund over the last 30 years you will find that the total return far exceeds the yields. What was the reason for that difference? 

Lets do some arithmetic which will make it clear...

10 years ago there was a 4% 50 year gilt issued.  So with £100 invested over 50 years it will generate £200 interest (gilts dont compound)  and return your £100.

This gilt is now worth £204.  So a 104% capital gain in 10 years - whoopee!!  And then there is £40 of interest on top!!    Who needs equity!

The gilt will generate £160 interest in the next 40 years. take off the £104 loss in capital value which leaves £56 gain.  And oddly enough £144+£56 profit=£200 which is what we calculated originally.  So the increase in capital value now is just prepayment of the future returns you would have got anyway.

But now look to the future.  In May this year there was a 41 year gilt issued with an interest rate of 0.5%.  Clearly there is very little profit that can be brought foward to justify a rise in the capital value.  Indeed, it is currently priced at £88, which represents a 12% loss in 6 months.

This is why I am veryt wary of gilts for the non-equity part of my portfolio.

See https://fixedincomeinvestor.co.uk/x/bondtable.html?groupid=3 for source of this data and a lot more.

You are correctly illustrating that capital gains on bonds (“growth”) are possible and in fact that is exactly what we have seen over many decades (contrary to what Thrugelmir claimed) . 

Um. Goes without saying that market prices have risen as interest rates have fallen. However a Gilt is issued at a nominal par value of £100. 30 years later it is redeemed at maturity for £100.  There's no growth involved. Ultimately any notional capital gain thanks to market pricing will evaporate as the Gilt approaches maturity.  In fact the value of the Gilt has been devalued thanks to inflation. 

Reinvesting a 17% yield for 30 years into further new Gilt issuance and repeating the process. Will result in a benefit from compounding. That's pure mathematics. However long dated Gilt yields are now on the floor.  Impossible for history to repeat itself anytime soon. 

1. Sell your gilts today. Nominal value becomes irrelevant. You have capital gain. Congrats.
2. Take any one year period. Take 5 year gilts. Show me when total return equalled the interest rates.  Good luck. 

3. Pretty sure if I were to search this site you would have said the exact same thing 1, 2 and 3 years ago. The bonds have appreciated nicely since then. At some point bonds will fall. We just don’t know when. But at some point you will be right. Thats how the market works. 

1 - The capital gain reflected a rise fall in interest rates.  If interest rates had fallen risen you would make a capital loss.  In either case what do you do next?  Do you think that interest rates can fall forever or will they rise and fall around some average point?  This is very different to equity where in principal capital values can rise forever thanks to inflation.
2.  We have never before had such a long sustained fall in rates.  I dont think any very long term data is available.
3.  A few years ago the long term gilt rates were much higher compared with short term rates.  Over time the fall in rates towards  zero has moved towards longer durations.  There is little more space left now.

5 years ago, in November 2015 gilt rates stood at between 1.3 and 2.5%, depending on duration.  Many said they cant go lower.  Now they are .5 to 1%.  Since then IDFC, a gilt fund, returned 60%. Not bad. How do you explain it? Certainly not just compounding on 2% as Thrugelmir claims. 

I'm beginning to wonder if you actually even know what Gilts actually are and how they work. You keep talking about now. With no at all reference to the past. Which dates back far longer than 5 years. 

That’s what I think about you, so its fair. I think you are clueless about the impact of duration, changes in interest rates and market sentiment. 

If you go back you may find out that real returns on gilts were negative for a large chunk of the 20th century. Which does not align with your claims either. 

The issue isnt negative real returns, it's negative returns in absolute £ terms which is rather different.  Does your data show that?  If so it would be interesting to see the behaviour of gilt funds during that period.

itwasntme001

Linton said:

Deleted_User said:

Thrugelmir said:

Deleted_User said:

Linton said:

Deleted_User said:

Thrugelmir said:

Deleted_User said:

Linton said:

Deleted_User said:

Thrugelmir said:

cfw1994 said:

garmeg said:

Deleted_User said:

garmeg said:

Looking at my crystallised SIPP, I am down 6% from when i crystallised it in 2019 and down 15% from its February 2020 peak. It was 40% down from February at its worst (having ASEI Aberdeen Standard Equity Income and TMPL Temple Bar ITs didnt help alongside too much UK generally) so it is recovering.

Large movements like this do make it hard to make a decision about when to retire. Guess I will be a perpetual "One More Year" employee.

If it was me, I would consider a more defensive portfolio. Now that things calmed down could be a good time. In March/April would have been bad time. 

Potentially this fund has to last 30 years plus as i am 56 so needs a high equity allocation.

Maybe 80% in equity ETF and keep 20% in cash as bonds not good value now.

Something like VWRL or the HSBC and Fidelity ETFs?

A friend told me his FA (I have no idea if an IFA or FA) had suggested 15yr gilts were going to take a drop some time back.   Some of my “less risky” money is in a blackrock 25yr gilt tracker: it looked better than the similar bond option I had.  I left it there....

I can now see the past year has managed to muster 7.5% growth, which I am happy with. 

Partly makes me wonder where finance “specialists” get their ideas from!

Gilts offer fixed yields to redemption.  They don't offer growth potential. Other than reinvestment of the income. Market prices will fluctuate daily won't impact the eventual outcome. 

If you look at a chart of historic returns for a gilt fund over the last 30 years you will find that the total return far exceeds the yields. What was the reason for that difference? 

Lets do some arithmetic which will make it clear...

10 years ago there was a 4% 50 year gilt issued.  So with £100 invested over 50 years it will generate £200 interest (gilts dont compound)  and return your £100.

This gilt is now worth £204.  So a 104% capital gain in 10 years - whoopee!!  And then there is £40 of interest on top!!    Who needs equity!

The gilt will generate £160 interest in the next 40 years. take off the £104 loss in capital value which leaves £56 gain.  And oddly enough £144+£56 profit=£200 which is what we calculated originally.  So the increase in capital value now is just prepayment of the future returns you would have got anyway.

But now look to the future.  In May this year there was a 41 year gilt issued with an interest rate of 0.5%.  Clearly there is very little profit that can be brought foward to justify a rise in the capital value.  Indeed, it is currently priced at £88, which represents a 12% loss in 6 months.

This is why I am veryt wary of gilts for the non-equity part of my portfolio.

See https://fixedincomeinvestor.co.uk/x/bondtable.html?groupid=3 for source of this data and a lot more.

You are correctly illustrating that capital gains on bonds (“growth”) are possible and in fact that is exactly what we have seen over many decades (contrary to what Thrugelmir claimed) . 

Um. Goes without saying that market prices have risen as interest rates have fallen. However a Gilt is issued at a nominal par value of £100. 30 years later it is redeemed at maturity for £100.  There's no growth involved. Ultimately any notional capital gain thanks to market pricing will evaporate as the Gilt approaches maturity.  In fact the value of the Gilt has been devalued thanks to inflation. 

Reinvesting a 17% yield for 30 years into further new Gilt issuance and repeating the process. Will result in a benefit from compounding. That's pure mathematics. However long dated Gilt yields are now on the floor.  Impossible for history to repeat itself anytime soon. 

1. Sell your gilts today. Nominal value becomes irrelevant. You have capital gain. Congrats.
2. Take any one year period. Take 5 year gilts. Show me when total return equalled the interest rates.  Good luck. 

3. Pretty sure if I were to search this site you would have said the exact same thing 1, 2 and 3 years ago. The bonds have appreciated nicely since then. At some point bonds will fall. We just don’t know when. But at some point you will be right. Thats how the market works. 

1 - The capital gain reflected a rise fall in interest rates.  If interest rates had fallen risen you would make a capital loss.  In either case what do you do next?  Do you think that interest rates can fall forever or will they rise and fall around some average point?  This is very different to equity where in principal capital values can rise forever thanks to inflation.
2.  We have never before had such a long sustained fall in rates.  I dont think any very long term data is available.
3.  A few years ago the long term gilt rates were much higher compared with short term rates.  Over time the fall in rates towards  zero has moved towards longer durations.  There is little more space left now.

5 years ago, in November 2015 gilt rates stood at between 1.3 and 2.5%, depending on duration.  Many said they cant go lower.  Now they are .5 to 1%.  Since then IDFC, a gilt fund, returned 60%. Not bad. How do you explain it? Certainly not just compounding on 2% as Thrugelmir claims. 

I'm beginning to wonder if you actually even know what Gilts actually are and how they work. You keep talking about now. With no at all reference to the past. Which dates back far longer than 5 years. 

That’s what I think about you, so its fair. I think you are clueless about the impact of duration, changes in interest rates and market sentiment. 

If you go back you may find out that real returns on gilts were negative for a large chunk of the 20th century. Which does not align with your claims either. 

The issue isnt negative real returns, it's negative returns in absolute £ terms which is rather different.  Does your data show that?  If so it would be interesting to see the behaviour of gilt funds during that period.

For investment purposes, anyone should only ever care about real returns.  That is what matters at the end of the day.  I can see a scenario for the next 10 years long dated gilts eeking out a small positive nominal return, yet in real terms suffer very badly.  For example if the BOE enacts some sort of yield curve control to prevent yields from rising whilst there are inflationary pressures.

And the scary thing is your typical equity fund could suffer even worse in real terms over that time frame.

Linton

itwasntme001 said:

Just to add confusion to the debate, equities can also be though of as long duration for a subset.  So they can be (indirectly) influenced by changes in interest rates, particularly in the long end.  Stocks that are pricing in earnings growth far out into the future.

If you do not like long duration bonds at current levels, you should also be thinking twice about investing in that "growth" fund.

Some equities are certainly pricing-in earnings growth into the far distant future and well beyond.  However there are also equities solidly priced on current profits.  Part of diversification is to get a fair proportion of both.

But a key difference between equities and bonds is that with growth equities you can diversify between very different companies.  Some surely will match their promise.

However with gilts there is no diversification or competition.  Each gilt is priced within a fraction of a % by the mathematics based on the known guaranteed % return against the initial price, the known duration and the market interest rates. 

[Deleted User]

Linton said:

Deleted_User said:

Thrugelmir said:

Deleted_User said:

Linton said:

Deleted_User said:

Thrugelmir said:

Deleted_User said:

Linton said:

Deleted_User said:

Thrugelmir said:

cfw1994 said:

garmeg said:

Deleted_User said:

garmeg said:

Looking at my crystallised SIPP, I am down 6% from when i crystallised it in 2019 and down 15% from its February 2020 peak. It was 40% down from February at its worst (having ASEI Aberdeen Standard Equity Income and TMPL Temple Bar ITs didnt help alongside too much UK generally) so it is recovering.

Large movements like this do make it hard to make a decision about when to retire. Guess I will be a perpetual "One More Year" employee.

If it was me, I would consider a more defensive portfolio. Now that things calmed down could be a good time. In March/April would have been bad time. 

Potentially this fund has to last 30 years plus as i am 56 so needs a high equity allocation.

Maybe 80% in equity ETF and keep 20% in cash as bonds not good value now.

Something like VWRL or the HSBC and Fidelity ETFs?

A friend told me his FA (I have no idea if an IFA or FA) had suggested 15yr gilts were going to take a drop some time back.   Some of my “less risky” money is in a blackrock 25yr gilt tracker: it looked better than the similar bond option I had.  I left it there....

I can now see the past year has managed to muster 7.5% growth, which I am happy with. 

Partly makes me wonder where finance “specialists” get their ideas from!

Gilts offer fixed yields to redemption.  They don't offer growth potential. Other than reinvestment of the income. Market prices will fluctuate daily won't impact the eventual outcome. 

If you look at a chart of historic returns for a gilt fund over the last 30 years you will find that the total return far exceeds the yields. What was the reason for that difference? 

Lets do some arithmetic which will make it clear...

10 years ago there was a 4% 50 year gilt issued.  So with £100 invested over 50 years it will generate £200 interest (gilts dont compound)  and return your £100.

This gilt is now worth £204.  So a 104% capital gain in 10 years - whoopee!!  And then there is £40 of interest on top!!    Who needs equity!

The gilt will generate £160 interest in the next 40 years. take off the £104 loss in capital value which leaves £56 gain.  And oddly enough £144+£56 profit=£200 which is what we calculated originally.  So the increase in capital value now is just prepayment of the future returns you would have got anyway.

But now look to the future.  In May this year there was a 41 year gilt issued with an interest rate of 0.5%.  Clearly there is very little profit that can be brought foward to justify a rise in the capital value.  Indeed, it is currently priced at £88, which represents a 12% loss in 6 months.

This is why I am veryt wary of gilts for the non-equity part of my portfolio.

See https://fixedincomeinvestor.co.uk/x/bondtable.html?groupid=3 for source of this data and a lot more.

You are correctly illustrating that capital gains on bonds (“growth”) are possible and in fact that is exactly what we have seen over many decades (contrary to what Thrugelmir claimed) . 

Um. Goes without saying that market prices have risen as interest rates have fallen. However a Gilt is issued at a nominal par value of £100. 30 years later it is redeemed at maturity for £100.  There's no growth involved. Ultimately any notional capital gain thanks to market pricing will evaporate as the Gilt approaches maturity.  In fact the value of the Gilt has been devalued thanks to inflation. 

Reinvesting a 17% yield for 30 years into further new Gilt issuance and repeating the process. Will result in a benefit from compounding. That's pure mathematics. However long dated Gilt yields are now on the floor.  Impossible for history to repeat itself anytime soon. 

1. Sell your gilts today. Nominal value becomes irrelevant. You have capital gain. Congrats.
2. Take any one year period. Take 5 year gilts. Show me when total return equalled the interest rates.  Good luck. 

3. Pretty sure if I were to search this site you would have said the exact same thing 1, 2 and 3 years ago. The bonds have appreciated nicely since then. At some point bonds will fall. We just don’t know when. But at some point you will be right. Thats how the market works. 

1 - The capital gain reflected a rise fall in interest rates.  If interest rates had fallen risen you would make a capital loss.  In either case what do you do next?  Do you think that interest rates can fall forever or will they rise and fall around some average point?  This is very different to equity where in principal capital values can rise forever thanks to inflation.
2.  We have never before had such a long sustained fall in rates.  I dont think any very long term data is available.
3.  A few years ago the long term gilt rates were much higher compared with short term rates.  Over time the fall in rates towards  zero has moved towards longer durations.  There is little more space left now.

5 years ago, in November 2015 gilt rates stood at between 1.3 and 2.5%, depending on duration.  Many said they cant go lower.  Now they are .5 to 1%.  Since then IDFC, a gilt fund, returned 60%. Not bad. How do you explain it? Certainly not just compounding on 2% as Thrugelmir claims. 

I'm beginning to wonder if you actually even know what Gilts actually are and how they work. You keep talking about now. With no at all reference to the past. Which dates back far longer than 5 years. 

That’s what I think about you, so its fair. I think you are clueless about the impact of duration, changes in interest rates and market sentiment. 

If you go back you may find out that real returns on gilts were negative for a large chunk of the 20th century. Which does not align with your claims either. 

The issue isnt negative real returns, it's negative returns in absolute £ terms which is rather different.  Does your data show that?  If so it would be interesting to see the behaviour of gilt funds during that period.

Why would I care about nominal returns?
Basically, bonds perform well if future inflation is less than what people expect and badly if the inflation is higher than the expectations.  Bonds perform according to interest rates if expectations of inflation prove to be accurate.  People get it wrong quite regularly so we don’t know future returns on bonds. 

TBC15

german_keeper said:

Play nicely now children. For what it's worth I haven't got a clue what either of you are on about. To be honest only because I have zero interest in investments.

IMHO you may have picked the wrong forum to peruse.