Gilts - my unanticipated nightmare

valiant24

Cheers, coastline!

Albermarle

Is there anywhere you can recommend that I can read up on all this, because although I believe myself to be pretty clued-up, I don't completely follow your explanation?

There is another LTA thread on the go at the minute , also with a lot of explanations of how it works and the various intertwining scenarios possible 

Should I go over the SIPP lifetime allowance? — MoneySavingExpert Forum

valiant24

Down another 1.19% today btw.   My SIPP will be down to zero soon, so the LTA discussions will be moot ;-).

Per original post, certainly not the volatile I was expecting when I invested 3 months ago in these Gilt ETFs.   Should have researched it better of course.   Would people in my position cut their losses now?

cheers
V

aroominyork

It's easy to say "yes, cut your losses" but less easy to do. What others say they would do is not necessarily what they would do. So do you want to be guided by what others say, or what they would do? (Sorry if that's a bit Rumsfeldian.)

Malthusian

valiant24 said:

I have considered this, and taken some advice.   It's swings and roundabouts: it could work well for me but is sub-optimal from an IHT perspective so I've done nothing thus far.

That is a good reason to be careful as paying tax on 40% of the whole lot is worse than 55% on further income and growth. But if the money is going to end up in the hands of your heirs you could consider just handing some or all of the tax free cash to them, or investing it in high-risk assets which would be exempt from IHT after two years.

aroominyork

But perhaps more usefully than my last post (or perhaps not) VGOV is pretty volatile and it is easy to buy at the top. Below it is in blue and compared to IGLH (yellow), a developed world govt bond ETF, and Vanguard's global bond index (red) which is about 65% govt bonds, 35% corporates.

valiant24

aroominyork said:

It's easy to say "yes, cut your losses" but less easy to do. What others say they would do is not necessarily what they would do. So do you want to be guided by what others say, or what they would do? (Sorry if that's a bit Rumsfeldian.)

Very Rumsfeldian!   What they would do I suppose.  I feel that made a classic mistake and invested in something I didn't understand properly - I had no idea that a Gilt ETF could fall 4% in 3 months, which to me is highly volatile.  I'm tempted to say "Sod it" and bail, but that's in part because I am unable to see the circumstances in which it could recover coming about.

EdSwippet

Malthusian said:

valiant24 said:

I have considered this, and taken some advice.   It's swings and roundabouts: it could work well for me but is sub-optimal from an IHT perspective so I've done nothing thus far.

That is a good reason to be careful as paying tax on [presumably you meant "of" here] 40% of the whole lot is worse than 55% on further income and growth. But if the money is going to end up in the hands of your heirs you could consider just handing some or all of the tax free cash to them, ...

Assuming my reading of your post is correct, you have not accurately stated the trade-off. Crystallising alone will move 25% of the amount into an area at risk from IHT, but the remaining 75% is still in the pension, and so not (currently) subject to IHT. The correct comparison is paying tax of 25% of 40% = 10% of the whole lot, versus 55% on further income and growth.

Agreed on gifting while alive as a likely better way to mitigate both IHT and LTA issues.

jamesd

valiant24 said:

I may not have made the best gilt selection - I chose the ones I did because their nominal time period (10-15 years) are consistent with the timescale over which I expect to hold them, in accordance (I think!) with the Lars Kroijer approach.

Such approaches normally require buying gilts with matching durations and you bought a fund instead. The two act differently. I don't know the exact details of that specific approach, though. A particularly important difference is that a gilt with 15 year duration fully matures on the specified date, while a fund with 15 year average duration keeps on replenishing its stock of higher rate bonds to keep around half of its duration longer than 15 years.

Direct holding of gilts inside pension funds is permitted but whether they are available and the charges for buying, holding and selling them depends on the specific platform.

Albermarle

valiant24 said:

aroominyork said:

It's easy to say "yes, cut your losses" but less easy to do. What others say they would do is not necessarily what they would do. So do you want to be guided by what others say, or what they would do? (Sorry if that's a bit Rumsfeldian.)

Very Rumsfeldian!   What they would do I suppose.  I feel that made a classic mistake and invested in something I didn't understand properly - I had no idea that a Gilt ETF could fall 4% in 3 months, which to me is highly volatile.  I'm tempted to say "Sod it" and bail, but that's in part because I am unable to see the circumstances in which it could recover coming about.

You need to think about what you would invest in as an alternative.

If you want a very defensive low growth portfolio , then it will in any case normally contain a high % of gilts . Just maybe not 100% .....