Gilts - my unanticipated nightmare

coastline

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!!

Here's a chart of the UK 10yr and set it to 1 year. Look at Jan , May , Aug and today.

United Kingdom Government Bond 10Y | 1980-2021 Data | 2022-2023 Forecast | Quote (tradingeconomics.com)

Now look at VGOV set at 1 year in the link. Jan , May , Aug and today.

Vanguard U.K. Gilt UCITS ETF summary price and performance data – Investors Chronicle

valiant24

masonic said:

 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.

Well I'm not sure it is!   The premise is that, as part of a 60% equities to 40% gilts or something deeply unexciting portfolio, I'd like the "something unexciting" to be less exciting than VGOV and ILGT.  Does such a thing, other than cash, exist?

Thrugelmir

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?

Sometimes I do question if people should be vetted before being allowed to manage their own investments. 

Diplodicus

Nightmare? 

You don't want the sum to go up and breach LTA. So what if it goes down 3% initially?  You're not expecting to "touch this dosh" (a spare£1 million) in any significant way for at least 10 years. I'm struggling to see your problem.

Thrugelmir

valiant24 said:

masonic said:

 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.

Well I'm not sure it is!   The premise is that, as part of a 60% equities to 40% gilts or something deeply unexciting portfolio, I'd like the "something unexciting" to be less exciting than VGOV and ILGT.  Does such a thing, other than cash, exist?

All investments carry risk. That's the nature of the beast. I'm struggling with your sole concern over Gilts. When your equity portfolio is likely to be far more at risk. Nor I suspect are your equity holdings as diversified or defensve as you assume them to be. 

masonic

valiant24 said:

masonic said:

 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.

Well I'm not sure it is!   The premise is that, as part of a 60% equities to 40% gilts or something deeply unexciting portfolio, I'd like the "something unexciting" to be less exciting than VGOV and ILGT.  Does such a thing, other than cash, exist?

If you want something guaranteed to lose as little as possible in a steady fashion, then someone already suggested a money market fund. There are also with-profits funds - old fashioned and typically costly in terms of charges, but useful for a certain type of investor who does not want to see the value of their investment moving up an down on a daily basis.

If you choose to hold something that doesn't go up and down according to sentiment, then you'll need to hold proportionally more of it to achieve the same reduction in excitement across your portfolio. What is your purpose for holding 40% of something deeply unexciting? Traditionally it would be to dampen the gyrations in the 60%, which is best achieved with something that tends to go up when equities are crashing. This may, however, not be what you have in mind. Perhaps you feel it doesn't matter if it loses a small amount year on year, because it is more than you'll ever need even after inflation has eaten away at it over the years. If this is the case, then perhaps there is no point in taking any short-term risk at all with it (take a certain annual -0.2% return rather than an average +0.7% return with 5-10% swings along the way). Clarity is needed regarding your objectives for this money. Suitable assets to achieve those objectives can then be considered.

valiant24

Diplodicus said:

Nightmare? 

You don't want the sum to go up and breach LTA. So what if it goes down 3% initially?  You're not expecting to "touch this dosh" (a spare£1 million) in any significant way for at least 10 years. I'm struggling to see your problem.

I guess it was the variance that took me aback.   It's as likely to have lost another 3% in 10 years' time as it is to have recovered its purchase value, isn't it?  

Unless your point is that no one with almost £1m (well, almost £970,000 now ;-)) really has anything to worry about regardless?

Diplodicus

  It's as likely to have lost another 3% in 10 years' time as it is to have recovered its purchase value, isn't it?  

I'm 100% equities (and older than you) but I'm pretty sure the answer to your question is a resounding No. 
Otherwise gilts would not be an investment toted by the industry.

But look on the bright side, valiant24. 
3 or 4 from the IFA chorus line have suggested you employ an IFA. If you avoid hiring one, to "manage" your whole portfolio, you can pretty much guarantee saving £30,000 a year on an ongoing basis.
Good luck.

Thrugelmir

valiant24 said:

Diplodicus said:

Nightmare? 

You don't want the sum to go up and breach LTA. So what if it goes down 3% initially?  You're not expecting to "touch this dosh" (a spare£1 million) in any significant way for at least 10 years. I'm struggling to see your problem.

I guess it was the variance that took me aback.   It's as likely to have lost another 3% in 10 years' time as it is to have recovered its purchase value, isn't it?  

Gilts are redeemed at their nominal value on redemption. Purchase price has no bearing. Likewise the income is fixed for the duration of the term. 

valiant24

Thrugelmir said:

All investments carry risk. That's the nature of the beast. I'm struggling with your sole concern over Gilts. When your equity portfolio is likely to be far more at risk. Nor I suspect are your equity holdings as diversified or defensve as you assume them to be. 

Thanks for your reply.  I don't assume the equity holdings, which are largely in global trackers, to be defensive at all.  I do expect them to be fairly diversified.

My original question was not about the equity portion, which I fully accept is somewhat risky and volatile, at all.   It was about choosing something other than VGOV/IGLT for the defensive portion - to which I have received some fine answers, including yours!