We’d like to remind Forumites to please avoid political debate on the Forum.

This is to keep it a safe and useful space for MoneySaving discussions. Threads that are – or become – political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.

📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

NS&I Index Linked Certificates - Stick or Twist?

I have around £20K of NS&I Index Linked Savings Certificates which I let roll over a month ago as they matured.

It was more an act of indecision than decision and I'm now wondering whether letting them roll over is such a good idea.

They've rolled over based on CPI of course.

I have around £275K split roughly 50/50 between a S&S ISA and an unwrapped account and around £25K as instant access cash in the bank.

The investments are pretty much this give or take the odd fraction of a percent.

Stock name % Weight Sector

1 Fundsmith Equity Class I 29.7% Global

2 Ruffer Investment Company Red Ptg Pref Shs GBP0.0001 28.8% [N/A]

3 Capital Gearing Trust Plc Ord GBP0.25 20.8% [N/A]

4 SDL UK Buffettology General 10.2% UK All Companies

5 Smithson Investment Trust Plc Ord GBP 10.0% [N/A]

6 Cash 0.5% [N/A]

I'm adding to the ISA from monthly salary and should max that out.

I don't want to tie my "cash" up in a SIPP or pension so my thinking would be possibly just keep it simple and go open a Vanguard account and chuck it in LifeStrategy 60.

I know this is not risk free unlike cash :)

I hear lots of commentary that the linkers are like rocking horse poo and to keep them at all costs but I think a lot of those comments tend to come from older posters who perhaps might be keen on the inflation linking.

Thoughts welcome :)

«1

Comments

  • masonic
    masonic Posts: 27,828 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 3 September 2021 at 6:32PM
    These are far preferable to index linked or conventional government bonds IMHO, so if you were thinking holding bonds anywhere in your portfolio, such as within LS60, then it would probably be better to keep your linkers and invest in a higher equities version of VLS. You'll obviously have some bond exposure within CGT and RICA but don't have the option of reducing the bond weighting there.
    £25k in instant access cash seems high and this will almost certainly perform worse than your linkers. If you could use some of this to purchase your VLS60 and keep the linkers that would seem a more optimal solution also. The linkers could be considered readily accessible cash, so as long as you have enough to see yourself through the withdrawal period, could make up part of an emergency fund.
  • tebbins
    tebbins Posts: 773 Forumite
    500 Posts Name Dropper
    edited 3 September 2021 at 10:10PM
    Index linked savings certificates are, IMHO gold dust. They are no longer available, I wish they were.
    They make up a relatively small part of your portfolio and seem to compliment and add diversification to your other holdings.
    Personally £25k cash seems high and I would look to do something with say £20k of that (even if only premium bonds, which are basically cash), before touching the index linked savings certificate.
    Your certificates are (very) likely to outperform index-linked gilts (the next best thing), and are the only asset-class guaranteed to match CPI with 0 volatility and essentially no risk.
    You are lucky to have got some before NS&I stopped offering them and if you post later on that you sold them I may act out the ending of Planet of the Apes.
  • MX5huggy
    MX5huggy Posts: 7,168 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Stick inflation is only going one way.
    Shortage of workers
    Shortage of micro chips
    cost of shipping
    increasing NI
    NMW is going up again 
    Power cost gas & electric.
  • Thanks all so in no particular order :)

    Cash in the bank (literally instant) lets me sleep at night.  Not sure that's an easy personality trait to change.

    I'm in my 40's with a salary so perhaps don't put the same value on that inflation linking that someone older and/or without that income might.

    My reasoning was that I've never dipped into that NS&I pot it's just been there in the background since 2015 as "emergency cash" so if it was in Vanguard (or anywhere else to be fair) I wouldn't plan on needing it.
  • Stubod
    Stubod Posts: 2,619 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    ..Stick....we have been rolling ours over ever since we had them
    .."It's everybody's fault but mine...."
  • masonic
    masonic Posts: 27,828 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 4 September 2021 at 10:12AM
    masonic said:
    These are far preferable to index linked or conventional government bonds IMHO, so if you were thinking holding bonds anywhere in your portfolio, such as within LS60, then it would probably be better to keep your linkers and invest in a higher equities version of VLS. You'll obviously have some bond exposure within CGT and RICA but don't have the option of reducing the bond weighting there.
    £25k in instant access cash seems high and this will almost certainly perform worse than your linkers. If you could use some of this to purchase your VLS60 and keep the linkers that would seem a more optimal solution also. The linkers could be considered readily accessible cash, so as long as you have enough to see yourself through the withdrawal period, could make up part of an emergency fund.
    Just wanted to add to my previous response above that I'm in my early 40s and salaried and if I could I'd buy your linkers off you in a heartbeat (I should really be encouraging you to sell them as the more people who do that the more likely there will be a new issue on sale that I could buy).
  • Could I ask why though?

    All I see is something that seems to have turned £19,100 into £19,900 in five years.

    If the reasoning is "switch" the emergency funds so there's less in the bank and the linkers are the emergency fund then yes I get that.

    I think that one comes down to my own comfort level about emergency cash accessibility :)
  • masonic
    masonic Posts: 27,828 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 4 September 2021 at 10:48AM
    Aminatidi said:
    Could I ask why though?

    All I see is something that seems to have turned £19,100 into £19,900 in five years.

    If the reasoning is "switch" the emergency funds so there's less in the bank and the linkers are the emergency fund then yes I get that.

    I think that one comes down to my own comfort level about emergency cash accessibility :)
    Like you my investments are not 100% equities. Bonds are currently return free risk, with YTM of ~0.7% and potential for short-term capital loss. Even over the last 5 years where inflation has been particularly low, your annualised return has been 0.82% (from figures provided). As discussed above, there are multiple drivers of higher inflation that have come into play recently, so inflation will not be as low over the next 5 years as it has in the prior 5 years.
    Currently I am using a mixture of cash and premium bonds as a proxy for part of my government bond allocation, but these are both inferior to NS&I linkers. I expect cash, PB and government bonds all to have negative real returns (vs CPI) in the coming years.
  • tebbins
    tebbins Posts: 773 Forumite
    500 Posts Name Dropper
    Aminatidi said:
    Could I ask why though?

    All I see is something that seems to have turned £19,100 into £19,900 in five years.

    If the reasoning is "switch" the emergency funds so there's less in the bank and the linkers are the emergency fund then yes I get that.

    I think that one comes down to my own comfort level about emergency cash accessibility :)
    Inflation has been quite benign the past few years but consensus is it's probably going to be higher in future, but how much higher and for how long is debatable. If you read the Great Demographic Reversal (you don't need to but it's interesting) the authors suggest that the low inflation and high growth of the past 30 years caused by the end of the Cold War, globalisation, falling interest rates, technology, and a demographic dividend, is about to go into reverse - slower or de-globalisation. This could be caused by climate change/decarbonisation, shrinking labour pool as a % of the population demanding higher wages, ageing populations to care for, shrinking capital and savings pool as Boomers divest their savings pushing up interest rates, forcing creditors to earn more...
    Who knows

    What you have is basically something with the security, safety and 0 volatility and almost 0 real risk of a bank account that is linked to inflation. The only investment that could possibly be better currently is a public sector pension, or making voluntary National Insurance contributions to increase your state pension upto the max.

    It is likely that a diverse portfolio of equities will beat inflation over the long run. What you have is about 7% of your portfolio in an asset as good as cash in terms of safety and volatility, but the interest it is earnings is equal to inflation. If you hold £25k cash for peace of mind think of this as holding £45k cash - which is fine btw. However I would hold this for the long run and see it as being in the part of the portfolio you don't touch . It's inflation insurance, as safe as cash, it will probably beat any cash savings rates.
  • Rollinghome
    Rollinghome Posts: 2,732 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 4 September 2021 at 11:56AM
    Aminatidi said:
    2 Ruffer Investment Company Red Ptg Pref Shs GBP0.0001 28.8% [N/A]
    3 Capital Gearing Trust Plc Ord GBP0.25 20.8% [N/A]

    I hear lots of commentary that the linkers are like rocking horse poo and to keep them at all costs but I think a lot of those comments tend to come from older posters who perhaps might be keen on the inflation linking.

    Thoughts welcome :)

    You've more than half of your portfolio in RICA and CGT.  Ruffer has around 20% in linkers and CGT has 29% - despite yielding close to nothing. If Peter Spiller could swap most of those for zero risk NS&I I/Ls, he'd likely do it in a shot.  
    And you've got them without paying a 1-2% OCF.

Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 352K Banking & Borrowing
  • 253.5K Reduce Debt & Boost Income
  • 454.2K Spending & Discounts
  • 245K Work, Benefits & Business
  • 600.6K Mortgages, Homes & Bills
  • 177.4K Life & Family
  • 258.8K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.2K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.