Sensible low risk investment

apb123

Two things stands out for me with the investment strategy.

You have invested in the UK which is a tiny proportion of the world market. It makes the risk very high. Why not just buy a world tracker. I think you have been lucky so far.

Never try to beat the market or time the market. No one can do this. The trick is to try and track the market.

The best strategy I think long term is to drip feed into a world tracker consistently over 10,20 or 30 years via a low cost platform and low cost tracker....or possibly use Vanguards Life strategy funds which have a mixture of bonds and world tracker.

eskbanker

apb123 said:

The best strategy I think long term is to drip feed into a world tracker consistently over 10,20 or 30 years via a low cost platform and low cost tracker....or possibly use Vanguards Life strategy funds which have a mixture of bonds and world tracker.

Vanguard's LifeStrategy funds don't contain a 'world tracker' as such, they include a collection of individual trackers in proportions selected by the fund manager (notably with more of a UK focus than natural cap-weighting), whereas a genuine 'world tracker' would be a single fund tracking a named world index.  Either approach is valid but they are different....

benbay001

Billycock said:

benbay001 said:

jake_jones99 said:

jimjames said:

jake_jones99 said:

jimjames said:

jake_jones99 said:

Thanks Jim, my family won't ask for the money back. 

Whats the point in investing it then?

Try reading the thread instead of jumping to conclusions mate!

Im not your mate and i have read it.

jake_jones99

benbay001 said:

jake_jones99 said:

jimjames said:

jake_jones99 said:

jimjames said:

jake_jones99 said:

Thanks Jim, my family won't ask for the money back. 

Whats the point in investing it then?

Because, as stated before, they have an expectation of me to buy something, I could oppose them but it would feel awkward given it's their money. And waiting until I decide where I want to live would lead to erosion due to inflation.

jake_jones99

apb123 said:

Two things stands out for me with the investment strategy.

You have invested in the UK which is a tiny proportion of the world market. It makes the risk very high. Why not just buy a world tracker. I think you have been lucky so far.

Never try to beat the market or time the market. No one can do this. The trick is to try and track the market.

The best strategy I think long term is to drip feed into a world tracker consistently over 10,20 or 30 years via a low cost platform and low cost tracker....or possibly use Vanguards Life strategy funds which have a mixture of bonds and world tracker.

It depends on the strategy. FTSE 100 represents a snapshot of the heavy lifters in the UK economy. They were hit badly because of the loss in investor confidence due to COVID. My prediction, which I found very likely and it actually happened, was that the economy was going to recover. It always does. I invested because I understood that the drop in FTSE 100 was simply due to human fear against something they did not fully understand. After the index reached ~7000 I backed off because my horizon of predictability had gone to 0. Yes, I read even before embarking on this journey that you should not time the market. Still I did it and I don't regret one bit. Because I am also able to admit when I have no idea what's gonna happen next, such as now, and thus I stay away from it.

jake_jones99

What do you guys think of investing in inflation linked bonds? I am thinking of this for the chunk of my savings that I would need inflation protection for. Either purchasing a govt bond, or investing in an ETF tracker:
https://www.ishares.com/uk/individual/en/products/251717/ishares-indexlinked-gilts-ucits-etf?switchLocale=y&siteEntryPassthrough=true

masonic

jake_jones99 said:

What do you guys think of investing in inflation linked bonds? I am thinking of this for the chunk of my savings that I would need inflation protection for. Either purchasing a govt bond, or investing in an ETF tracker:
https://www.ishares.com/uk/individual/en/products/251717/ishares-indexlinked-gilts-ucits-etf?switchLocale=y&siteEntryPassthrough=true

Do you understand index linked gilts, their volatility and loss potential, and prospects (including potential impact of the forthcoming change of inflation measure)? There was a thread a few months ago about someone who bought a gilt ETF and went through some clear emotional distress when it fell 6+% without warning over a few weeks, when the loss potential is ~10%, so well within the expected range.

Index linked gilts return inflation minus 2-4% depending on their duration. They will not keep up with inflation. Inflation being RPI for the rest of this decade, then CPI. Buying an individual bond with appropriate duration and holding to maturity will lock in this return, otherwise you'll be at the mercy of the bond markets, where prices are likely to fall if interest rates rise. A series of fixed term savings accounts could conceivably beat the return from index linked bonds over the next 10 years. Trading individual bonds is not a mainstream activity, some brokers will allow you to trade them (often only by telephone), some won't offer them at all. It is not a particularly liquid market.

jake_jones99

masonic said:

jake_jones99 said:

What do you guys think of investing in inflation linked bonds? I am thinking of this for the chunk of my savings that I would need inflation protection for. Either purchasing a govt bond, or investing in an ETF tracker:
https://www.ishares.com/uk/individual/en/products/251717/ishares-indexlinked-gilts-ucits-etf?switchLocale=y&siteEntryPassthrough=true

Do you understand index linked gilts, their volatility and loss potential, and prospects (including potential impact of the forthcoming change of inflation measure)? There was a thread a few months ago about someone who bought a gilt ETF and went through some clear emotional distress when it fell 6+% without warning over a few weeks, when the loss potential is ~10%, so well within the expected range.

Index linked gilts return inflation minus 2-4% depending on their duration. They will not keep up with inflation. Inflation being RPI for the rest of this decade, then CPI. Buying an individual bond with appropriate duration and holding to maturity will lock in this return, otherwise you'll be at the mercy of the bond markets, where prices are likely to fall if interest rates rise. A series of fixed term savings accounts could conceivably beat the return from index linked bonds over the next 10 years. Trading individual bonds is not a mainstream activity, some brokers will allow you to trade them (often only by telephone), some won't offer them at all. It is not a particularly liquid market.

I am still in the process of learning about those type of gilts. Looking at previous behaviour, 10% would not be a shocking drop over a few weeks as it happened a few times, but usually goes back up in a few months. 
What you said makes sense, just a few things unclear:
- what did you mean by inflation being real price index for 10 years then consumer price index?
- buying an individual bond to maturity seems like a decent option to me so i'll look into it more closely
- "A series of fixed term savings accounts could conceivably beat the return from index linked bonds over the next 10 years". A quick search gives me around 2% for fixed savings accounts. Which aspect am I overlooking?

Thanks!

benbay001

Firstly i will start by saying i only know enough about bonds to know i dont know enough to buy them.

Afaik, bond prices have gone up for a long time because interest rates have only gone down since the GFC, so looking at recent price trends doesnt help.

RPI is retail price index, not real price index.

The important thing he said is that current bond yields are significantly below inflation rates, so your real gain is a loss.

Buying and holding bonds until maturity to collect their 1% coupon seems absolutely bonkers to me when the BoE targets 2% inflation, they have actively stated their intention is to lose you money.

Which bonds are you looking at to get an above 2% yield?

masonic

jake_jones99 said:

What you said makes sense, just a few things unclear:
- what did you mean by inflation being real price index for 10 years then consumer price index?

Exactly that. The inflation measure being used to calculate index linking is changing. From one that currently measures inflation at 7.5% to one that measures inflation at 4.8%. Typically CPI is lower than RPI, so as the yield is expected to fall, so would the price.

jake_jones99 said:

- buying an individual bond to maturity seems like a decent option to me so i'll look into it more closely
- "A series of fixed term savings accounts could conceivably beat the return from index linked bonds over the next 10 years". A quick search gives me around 2% for fixed savings accounts. Which aspect am I overlooking?

Taking a worked example, the 0.125% Index-Linked 2024 Gilt matures in March 2024, so has about 2 years left to run. Currently trading at a 9.5% premium (you'll need to pay £109.50 for each £100 gilt), so the Yield To Maturity is about -4.2% due to the capital loss you'll incur. The best fixed term savings account pays +1.6%. So RPI inflation needs to exceed the difference between those values for you to make more money from holding the gilt. That means RPI > 5.8% for the next 2 years. Not impossible, but not very likely. The ONS consensus forecast is for RPI of 5.0% in 2022, with a range of 3.3-6.8%. So it is a bit of a gamble as to which 2 year investment would give the highest return.

Going beyond 2 years, there's an equivalent index linked gilt with a 4 year duration and a 16% premium, so YTM of -3.6%. One would typically avoid 4-year fixed term savings accounts due to the expectation of interest rate rises, so would probably use 2 x 2 year fixes to bridge that gap. Seems very unlikely that BOTH inflation will average over 5.2% over that period AND interest rates will stay at current lows. I'll leave you to explore even longer duration equivalents.