Vanguard LifeStrategy Funds

bostonerimus

If you are investing for 10, 20 or 30 year time scale why would what happened last week or what might happen next week be of any concern.

JohnWinder

I’m going away to work on this, and cry. 

Current nominal yields on linkers are below 3%

I’ll work on the assumption that this means if one of those linkers were issued today, and realised a price on the first day of issue of £100, that its coupon would be ‘below 3%’ let’s say 2%. That would be a profit making bond for my money, 2% real return whatever happened to inflation in the future.

[Deleted User]

JohnWinder said:

I’m going away to work on this, and cry. 

Current nominal yields on linkers are below 3%

I’ll work on the assumption that this means if one of those linkers were issued today, and realised a price on the first day of issue of £100, that its coupon would be ‘below 3%’ let’s say 2%. That would be a profit making bond for my money, 2% real return whatever happened to inflation in the future.

No. The word “real” means “corrected for inflation”. Your 2% return isn’t “real”. Its nominal.  If you get 2%  coupon annually and inflation is 9%, your return in real terms is minus 7%.  If inflation jumps to 15%, you still lose 7% to inflation annually (in real terms).  If inflation drops to 8%, you still lose 7% to inflation annually.  Thats how linkers work. And I am assuming you will hold to maturity, to simplify. Sometimes there is “bottom” which changes the equation but lets not make it more complex. 

Forget about yield.  In simpler terms, if you buy a linker today in account A andhave no other investments in that account, if inflation and interest rates stay exactly the same as today, then next year the account will be worth less than today in 2023 pounds. 

hara____

John/Mordko -

You might find it useful to see the brief mention of index-linked gilts in today's Monevator article

https://monevator.com/capital-gains-tax-on-gilts/

[Deleted User]

hara____ said:

John/Mordko -

You might find it useful to see the brief mention of index-linked gilts in today's Monevator article

https://monevator.com/capital-gains-tax-on-gilts/

This talks about “guaranteed return over inflation” in UK linkers. If true than John is right. 

JohnWinder

Deleted_User said:

JohnWinder said:

I’m going away to work on this, and cry. 

Current nominal yields on linkers are below 3%

I’ll work on the assumption that this means if one of those linkers were issued today, and realised a price on the first day of issue of £100, that its coupon would be ‘below 3%’ let’s say 2%. That would be a profit making bond for my money, 2% real return whatever happened to inflation in the future.

No. The word “real” means “corrected for inflation”. Your 2% return isn’t “real”. Its nominal.  If you get 2%  coupon annually and inflation is 9%, your return in real terms is minus 7%.  

Sometimes I see it, sometimes I don’t. Slippery customer.
Here’s another take on my £100 linker with 2% coupon. After 1 year of 9% inflation, the linker is now worth £109 because the principal is inflation adjusted, and it’s paying a coupon of 2% on £109, or £2.18. My bread which last year cost £100 now costs £109, and I’m laughing. 
But I do concede that it’s sensible to talk about real yield for linkers, since I see it described everywhere, although I can’t see the sense of it.

[Deleted User]

JohnWinder said:

Deleted_User said:

JohnWinder said:

I’m going away to work on this, and cry. 

Current nominal yields on linkers are below 3%

I’ll work on the assumption that this means if one of those linkers were issued today, and realised a price on the first day of issue of £100, that its coupon would be ‘below 3%’ let’s say 2%. That would be a profit making bond for my money, 2% real return whatever happened to inflation in the future.

No. The word “real” means “corrected for inflation”. Your 2% return isn’t “real”. Its nominal.  If you get 2%  coupon annually and inflation is 9%, your return in real terms is minus 7%.  

Sometimes I see it, sometimes I don’t. Slippery customer.
Here’s another take on my £100 linker with 2% coupon. After 1 year of 9% inflation, the linker is now worth £109 because the principal is inflation adjusted, and it’s paying a coupon of 2% on £109, or £2.18. My bread which last year cost £100 now costs £109, and I’m laughing. 
But I do concede that it’s sensible to talk about real yield for linkers, since I see it described everywhere, although I can’t see the sense of it.

Yes, you are right. And the 2% return will stay “real” because it will be 2% of 109.  My wires got crossed. 

JohnWinder

Glad we got it sorted. I’m so clever I sometimes don’t understand most of what I write. (Sorry Mr Wilde.)

Altior

Can anyone explain this:
 
Vanguard U.K. Inflation-Linked Gilt Index Fund (Inc) price as at date 14 Oct 2022 £125.13

Vanguard U.K. Inflation-Linked Gilt Index Fund (Acc) price As at date 14 Oct 2022 £125.68

Distributing and accumulation versions are practically the same price, but they were incepted over 10 years ago ? 

zagfles

I've been looking into index linked gilts - as I understand it it's trivially easy to check if yields are positive or negative for the post 2005 bonds with 3 month indexation lag as they always seem to be priced "clean", ie excluding the inflation uplift since issue. So if the "clean" price is below 100, then the real yield to maturity is positive even if the coupon is zero, or just covers charges.

Pre 2005 gilts (with an 8 month indexation lag) seem to always be priced "dirty", ie including the inflation uplift, which means you know what you're paying but need to use the current "index ratio" to understand the "real" price.  

It looks like most post 2005 gilts are under 100 except ones maturing in the next couple of years. 

Not sure how brokers value your holdings with the post 2005 ones, as using the clean price means the current value is wrong! HL warn about this.