Gilts - my unanticipated nightmare

MX5huggy

I’m by no means an experienced investor but I would sell. You haven’t bought what you thought you had bought and if I gave you £500k today you would not buy it so why hold it. 

I think I would be seeking professional advice in your situation.

A quick look at graph for VGOV shows it bounces around all the time and it has a risk score of 4 (out of 7) the same as life strategy 60.

This has a risk score of 1 and appears never to change in value, however I doubt it covers the fee. https://www.vanguardinvestor.co.uk/investments/vanguard-sterling-short-term-money-market-fund-investor-gbp-income-shares/overview?intcmpgn=moneymarketnull_sterlingshorttermmoneymarketfund_fund_link

Thrugelmir

valiant24 said:

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

The Gilts ETF needs to be viewed in the context of your overall portfolio not in isolation. Losses are part and parcel of managing ones own money. A decade long bull market has made investing seem easy, without risk. Complacency abounds. Whereas the real risks are mounting everyday.

If you don't understand your investments sell them. Sit on the cash until you've formulated a plan that you are comfortable with. 

masonic

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.

If you think a 4% drop over 3 months is "highly volatile", then you might need to reconsider your "large exposure to equities elsewhere".

aroominyork

masonic said:

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.

If you think a 4% drop over 3 months is "highly volatile", then you might need to reconsider your "large exposure to equities elsewhere".

Isn't that a bit like complaining about paying £8 for a plate of thrice cooked beef dripping chips at The Ivy because you can get a bag of chips for £1.40 from the local chippie?

masonic

aroominyork said:

masonic said:

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.

If you think a 4% drop over 3 months is "highly volatile", then you might need to reconsider your "large exposure to equities elsewhere".

Isn't that a bit like complaining about paying £8 for a plate of thrice cooked beef dripping chips at The Ivy because you can get a bag of chips for £1.40 from the local chippie?

I have no idea what that means, but one selects investments based on risk tolerance. If a 4% drop can cause such emotional distress, imagine what a 30% drop in an equity fund would feel like. I hold a bit of VGOV, and it is my second best performing fund today.

valiant24

masonic said:

If you think a 4% drop over 3 months is "highly volatile", then you might need to reconsider your "large exposure to equities elsewhere".

I consider a 4% drop in 3 months highly volatile for gilts!!

valiant24

masonic said:

Isn't that a bit like complaining about paying £8 for a plate of thrice cooked beef dripping chips at The Ivy because you can get a bag of chips for £1.40 from the local chippie?

I have no idea what that means, but one selects investments based on risk tolerance. If a 4% drop can cause such emotional distress, imagine what a 30% drop in an equity fund would feel like. I hold a bit of VGOV, and it is my second best performing fund today.

I think what aroominyork means is that there's little logic in advancing a principal argument against a 3% drop in gilts being volatile by pointing to an utterly different asset class (equities) and saying these are more volatile!

I chose gilts with the objective of them retaining value, on the understanding that they wouldn't grow much either.   But this hasn't happened.   Citing that equities might have been even higher risk is not really addressing the question raised.

Nonetheless, I do see the point you're making.

masonic

valiant24 said:

masonic said:

If you think a 4% drop over 3 months is "highly volatile", then you might need to reconsider your "large exposure to equities elsewhere".

I consider a 4% drop in 3 months highly volatile for gilts!!

The average gilt fund fell over 8% in 2 months between January and March this year. Highly volatile for gilts is a >10% drop. Such an event is quite rare. A 4% drop from time to time is fairly typical for gilts. Sustaining a 4% loss should not deter you from moving out of an unsuitable investment into a suitable one. That you've sustained a 4% drop in a lower risk asset while your higher risk assets have performed well is not in and of itself a good reason to sell the poorly performing asset. Different asset classes perform differently under varying market conditions. The reason to sell it is because your premise for investing in the first place (don't want to pay tax on higher returns) is flawed.

masonic

valiant24 said:

I think what aroominyork means is that there's little logic in advancing a principal argument against a 3% drop in gilts being volatile by pointing to an utterly different asset class (equities) and saying these are more volatile!

I chose gilts with the objective of them retaining value, on the understanding that they wouldn't grow much either.   But this hasn't happened.   Citing that equities might have been even higher risk is not really addressing the question raised.

Nonetheless, I do see the point you're making.

For the avoidance of doubt, the point I was making was not that equities might have been even higher risk. It is that you are putting one asset class under the microscope and worrying about short-term wobbles in price, when apparently ignoring another asset class you currently hold, which has presumably been doing rather well but could shock you in the future. In a balanced portfolio, there will often be something underperforming. That's the nature of diversification. In your case the question is whether you have a balanced portfolio - probably not based on what you have said.

The minimum recommended holding period for a gilt fund is the average duration of the fund, although a holding period of as little as 3-5 years should see the risk of a nominal loss reduced to insignificance in normal times (i.e. not right now!). While you did misunderstand the possibility of gilt funds moving up and down in the short term, you were not wrong about them retaining value over the medium to long term. Even with the interest rate risk, over your stated holding period, you would expect to see them hold their nominal value and generate a very small return. I would suggest that's not sufficient reason to add them to a portfolio, but where a case can be made is in their inverse correlation to equities, where they can be used to dampen volatility in a more effective way than cash. I would therefore question whether or not you have good reason for getting rid of them in the context of your overall portfolio of investments.

If your objective is to hold a single investment that will stand the best chance of retaining value and be minimally volatile, then a multi-asset fund with ~20% equities and the rest in bonds and other defensive assets would be the way I'd go. Inclusion of a small amount of equities reduces volatility.

Prism

valiant24 said:

masonic said:

If you think a 4% drop over 3 months is "highly volatile", then you might need to reconsider your "large exposure to equities elsewhere".

I consider a 4% drop in 3 months highly volatile for gilts!!

VGOV has a standard deviation of around 8% which is pretty high. A 4% drop (or rise) in a few months is pretty normal.