Gilts - my unanticipated nightmare

valiant24

Thrugelmir said:

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. 

I don't own gilts though.  I own UK Gilt ETFs.   The value of the these when I come to redeem them in 10 years' time could be anything by then.  No-one knows.  But it's statistically more likely that they will be at today's value than the value they were when I bought them 3 months ago .. or in fact any other named value!

valiant24

Diplodicus said:

  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.

What's the "IFA Chorus Line"?? ;-)

aroominyork

valiant24 said:

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!

Exactly this.

This thread is running away with itself! Basically, the OP didn't realise a gilt index fund can be volatile and it's run to 60 comments (including Thrugelmir's usual knee jerk criticisms of anything I post, which is getting a bit tedious).

These days, more people than usual think fixed interest does not provide the risk-adjusted returns and diversification of the past and favour, say, 80% equities + 20% cash instead of 75% + 25% fixed interest. With savings rates rock bottom and inflation rising, that means seeing a guaranteed loss of value as the least worst option, which is difficult to accept. The way to rationalise it is, of course, by a 'whole portfolio' perspective with, hopefully, the extra equities gaining in value and compensating.

Thrugelmir

aroominyork said:

valiant24 said:

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!

Exactly this.

This thread is running away with itself! Basically, the OP didn't realise a gilt index fund can be volatile and it's run to 60 comments (including Thrugelmir's usual knee jerk criticisms of anything I post, which is getting a bit tedious).

These days, more people than usual think fixed interest does not provide the risk-adjusted returns and diversification of the past and favour, say, 80% equities + 20% cash instead of 75% + 25% fixed interest. With savings rates rock bottom and inflation rising, that means seeing a guaranteed loss of value as the least worst option, which is difficult to accept. The way to rationalise it is, of course, by a 'whole portfolio' perspective with, hopefully, the extra equities gaining in value and compensating.

Put me on ignore them. I won't be offended. This a forum for grown up's to discuss investments.  When people have misconceptions there's no harm in challenging them. I'd prefer to at least get people thinking , to do some proper research for themselves. Than make flawed judgement calls that ultimately could lose a considerable sum of capital. 

Diplodicus

valiant24 said:

Diplodicus said:

  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.

What's the "IFA Chorus Line"?? ;-)

A bunch of posters distinct from actual IFAs (who may have 100k posts in support of their trade) because

1) They employ IFAs themselves and want to justify their fees.
2) They are DIY investors who like to think themselves more experienced/skillful than "ordinary" posters - as evidenced on this thread - they like to feel superior.
3) They want to keep on the right side of the real IFAs on this board, because they value their free advice. 

valiant24

aroominyork said:

These days, more people than usual think fixed interest does not provide the risk-adjusted returns and diversification of the past and favour, say, 80% equities + 20% cash instead of 75% + 25% fixed interest.

Would you care to suggest any cash or fixed-interest investments that can be bought through a SIPP (some others have already done so) - thanks!

aroominyork

valiant24 said:

aroominyork said:

These days, more people than usual think fixed interest does not provide the risk-adjusted returns and diversification of the past and favour, say, 80% equities + 20% cash instead of 75% + 25% fixed interest.

Would you care to suggest any cash or fixed-interest investments that can be bought through a SIPP (some others have already done so) - thanks!

Fixed interest refers to corporate bonds or government bonds (gilts). The terminology can confuse because although the interest/coupon is fixed, the price of the instrument rises and falls - as you have experienced!
There are lots of cash funds you can buy in a SIPP. Go onto HL and, in the Funds section, search on 'cash'. At the foot of the page it should say whether you can buy it in a SIPP. Of course, if you use HL (or another platform which charges on a percentage basis), their fees will probably be more than your earnings.

jamesd

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?  

No. To think that's possible requires misunderstanding of market expectations.

It's expected that over the next few years interest rates will gradually rise. End point may in ten years be around 5%. What this means is that it is expected that an investment in medium and long term gilts will see continuing falls with occasional blips upwards for the next ten years or more, with the time and magnitude depending on how fast rates rise.

And that's the problem that you have which Diplodicus was struggling to see. While some things are a random walk, when central banks tell you their interest rate intentions, you'd better believe them because they have the power to make them happen. Just when things happen will have lots of variability, but not the long term intention.

Don't bet against the BoE interest rate plans.

Thrugelmir

jamesd said:

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?  

Don't bet against the BoE interest rate plans.

BOE has no need to do anything. Inaction inself is sufficient to drive rates higher as matters currently stand. Fiscal tightening is going to come as a shock to investors. 

masonic

Deleted_User said:

Some people have far too much confidence about where bank base rate is going.

Better to plan on the basis that one doesn't know.

Indeed. It seemed unthinkable in 2011 that interest rates wouldn't have been hiked considerably above the then 0.5% rate 10 years later in 2021. Many held out for that expected outcome and were severely disappointed. I have no reason to disbelieve the current plan for a small increase rise in late 2021/early 2022, and perhaps a second small increment in late 2022, but beyond that who knows. All of this is already priced into the markets, so to have have an impact on bond prices, rises would need to be unexpected.