Direct gilts or bond tracker ?

Decisions_Decisions

I currently have my SIPP Split 50:50 between Vanguard 80 life strategy and Vanguard 20 life strategy. I am concerned that global equities will decline soon and then provide poor return vs risk over next 3-5 years. So have been looking at gilts where it looks like I can get a guaranteed 5%. So I am thinking I shove everything to various gilts that can mature annually over next 10 years. 1) is this a good idea 2) should I just simply move more £ from the 80 to the 20 3) Is it better to be directly invested in gilts or a tracker ? 

JohnWinder

I’ll get you started. The average investor loses out by their timing of buying and selling funds. The Dalbar research finds that, and here’s this week’s corroboration from Morningstar.

“Mind the Gap” study. The study estimates the return of the average dollar invested in funds and exchange-traded funds (that is, “Investor Return”) and compares it with the average fund’s total return, with any difference attributable to the timing of investors’ purchases and sales...What this means is that investors missed out on about one fifth of their fund investments’ average net returns, a significant shortfall.’ https://www.morningstar.com/funds/bad-timing-cost-investors-one-fifth-their-funds-returns

How much luckier or unluckier are you than the average investor?

JohnWinder

Individual bonds pay a known coupon on a known date, and return the known principal (usually £100) on a known date; the value of the bond will vary between when you buy and sell or redeem. Does that meet your needs? A fund’s value will vary in many ways which you can easily see examples of from looking at any chart of any bond fund price or total return history; look them up on trustnet etc. That might meet your needs better; only you’ll know.

Linton

You say you want a set of gilts that mature annually. There are no gilt funds that provide this facility, you would have to buy specific gilts for each maturity year.

Gilt index funds just contain a constant range of gilts some of which will mature this year, others could be 50 years away from maturity. The latter can vary significantly n price in the meantime.

However as @JohnWinder suggests, your reason to buy into bonds is suspect. You could well lose out by trying to time the future of the equity market. Your ladder of bonds would be more appropriate if you need annual income

Decisions_Decisions

Thanks both. I guess I was trying to get a sense of whether global equities will still grow net 4% pa over next 10 years or not. 

Aminatidi

Nobody knows that and I don't think equities and gilts are comparable in behaviour or when each is a suitable choice tbh.

Gilts are 100% nailed on return of capital plus coupon by a known date but the road may be a little bumpy.

Equities have historically done that but who know by when and the road may turn out to be a roller coaster ride.

I have a similar predicament where I'm considering gilts for the 100% safe part of my portfolio.

MK62

JohnWinder said:

I’ll get you started. The average investor loses out by their timing of buying and selling funds. The Dalbar research finds that, and here’s this week’s corroboration from Morningstar.

“Mind the Gap” study. The study estimates the return of the average dollar invested in funds and exchange-traded funds (that is, “Investor Return”) and compares it with the average fund’s total return, with any difference attributable to the timing of investors’ purchases and sales...What this means is that investors missed out on about one fifth of their fund investments’ average net returns, a significant shortfall.’ https://www.morningstar.com/funds/bad-timing-cost-investors-one-fifth-their-funds-returns

How much luckier or unluckier are you than the average investor?

The Dalbar research is presumably their QAIB papers.........in fairness it has to be said that many disagree with the conclusions they draw from their research........here's Michael Kitces view.....https://www.kitces.com/blog/does-the-dalbar-study-grossly-overstate-the-behavior-gap-guest-post/#disqus_thread.

JohnWinder

Thanks. Something for the tempted trader to try to tease the truth from.

EthicsGradient

Decisions_Decisions said:

I currently have my SIPP Split 50:50 between Vanguard 80 life strategy and Vanguard 20 life strategy. I am concerned that global equities will decline soon and then provide poor return vs risk over next 3-5 years. So have been looking at gilts where it looks like I can get a guaranteed 5%. So I am thinking I shove everything to various gilts that can mature annually over next 10 years. 1) is this a good idea 2) should I just simply move more £ from the 80 to the 20 3) Is it better to be directly invested in gilts or a tracker ? 

Have you already retired, and the 10 years is the time for which you think you need income, or is it something else?