Anyone buying gilts right now?

matasymbol

DRS1 said:

jimjames said:

In your forties having £1.4m in bank savings seems somewhat high if you need that money to last 40 odd years. Are you planning to add to the investments at all?

I think what he is proposing to do is move some of the cash savings into gilts on the basis that he will get similar returns but as a higher rate tax payer will pay less tax on those returns from gilts than he would on the interest from cash savings.  I suspect he also regards it as a bad time to invest in equities.  But I do not think he is proposing to switch out of his investments.

yes exactly that. I'm comfortable with my % of investments at this stage I know I should increase given my age but I want to be more risk averse at this point.  

My question / point is really shouldn't anyone invest a lot more in gilts than savings if they are pushed to the 40% tax bracket. eg for a gross return of the TN26 is 4 / 0.6 is  6.66% far better as I said.  

DRS1

I confess I could not find a TN26 but there is T26 paying out in just over a year's time - the gross redemption yield is 4.1% which yieldgimp says is equivalent to 6.75% for a 40% tax payer.  Of course the coupon is only 0.125% so you won't see much income at the end of January or July.

jimjames

DRS1 said:

I confess I could not find a TN26 but there is T26 paying out in just over a year's time - the gross redemption yield is 4.1% which yieldgimp says is equivalent to 6.75% for a 40% tax payer.  Of course the coupon is only 0.125% so you won't see much income at the end of January or July.

And TN28 paying gross yield on 7.06% for 40% taxpayer with equally low coupon.

matasymbol said:

DRS1 said:

jimjames said:

In your forties having £1.4m in bank savings seems somewhat high if you need that money to last 40 odd years. Are you planning to add to the investments at all?

I think what he is proposing to do is move some of the cash savings into gilts on the basis that he will get similar returns but as a higher rate tax payer will pay less tax on those returns from gilts than he would on the interest from cash savings.  I suspect he also regards it as a bad time to invest in equities.  But I do not think he is proposing to switch out of his investments.

My question / point is really shouldn't anyone invest a lot more in gilts than savings if they are pushed to the 40% tax bracket. eg for a gross return of the TN26 is 4 / 0.6 is  6.66% far better as I said.  

Yes, the way gilts are now definitely seems like a good way to go. I guess historically we've not had this magnitude of switch from low to high coupon rates that gives such a good capital gain with low income. The TN28 as well seems like a very good yield.

InvesterJones

matasymbol said:

DRS1 said:

jimjames said:

In your forties having £1.4m in bank savings seems somewhat high if you need that money to last 40 odd years. Are you planning to add to the investments at all?

I think what he is proposing to do is move some of the cash savings into gilts on the basis that he will get similar returns but as a higher rate tax payer will pay less tax on those returns from gilts than he would on the interest from cash savings.  I suspect he also regards it as a bad time to invest in equities.  But I do not think he is proposing to switch out of his investments.

yes exactly that. I'm comfortable with my % of investments at this stage I know I should increase given my age but I want to be more risk averse at this point.  

My question / point is really shouldn't anyone invest a lot more in gilts than savings if they are pushed to the 40% tax bracket. eg for a gross return of the TN26 is 4 / 0.6 is  6.66% far better as I said.  

If the time frame suits them, yes. But you're giving up the flexibility to access savings when you like and not be at the whim of interest rates at the time if you need to access before maturity. I.e. they have different use cases - if you need savings then you need savings.

jimjames

InvesterJones said:

matasymbol said:

DRS1 said:

jimjames said:

In your forties having £1.4m in bank savings seems somewhat high if you need that money to last 40 odd years. Are you planning to add to the investments at all?

I think what he is proposing to do is move some of the cash savings into gilts on the basis that he will get similar returns but as a higher rate tax payer will pay less tax on those returns from gilts than he would on the interest from cash savings.  I suspect he also regards it as a bad time to invest in equities.  But I do not think he is proposing to switch out of his investments.

yes exactly that. I'm comfortable with my % of investments at this stage I know I should increase given my age but I want to be more risk averse at this point.  

My question / point is really shouldn't anyone invest a lot more in gilts than savings if they are pushed to the 40% tax bracket. eg for a gross return of the TN26 is 4 / 0.6 is  6.66% far better as I said.  

If the time frame suits them, yes. But you're giving up the flexibility to access savings when you like and not be at the whim of interest rates at the time if you need to access before maturity. I.e. they have different use cases - if you need savings then you need savings.

But some people take out 5 year fixed rate savings accounts, this would appear to be a better option for some people.

poseidon1

matasymbol said:

Hi All,

Appreciate if you can provide any thoughts on my circumstances.  I'm in my fourties and thinking of retiring in the next few years and have approximately the following 

1. £900,000 - Various index fund equities although mostly US
2. £1,400,000 - UK bank interest savings spread across many account to ensure the 85,000 protection limit isn't breached
3. £500,000 - UK Gilts Mostly T26 maturing Jan 2026 with a large capital gain ~ 4%. from now and low coupon
4. £200,000 - Investment ISA global index fund

Only in the last few months I've purchased gilts as I know as a 40% tax payer even with 4% CGT the net interest to compare for a bank would be 6.6% which currently compares against ~4.5-4.7% so much more favourable. 

I know everyone indicates to have a diversified portfolio however I'm thinking I should purchase a lot more gilts at least until I'm only a 20% low rate tax payer eg perhaps another 600,000 of gilts at least.  There is a risk of course that the UK defaults on paying them bank perhaps marginally more than the FCFS protection ever fails however it seems very neglible. I don't feel comfortable with more equities at this stage and the balance feels right I just think I should assign more to gilts than bank savings

If others are in a similar situation I'd appreciate your thoughts

Although you clearly have an understanding of gilts from a tax efficiency point of view and evidently capable of making and acting on your own decisions, nonetheless you might benefit from delegating the gilts aspect of your investment portfolio to a specialist stockbroker who can build the fixed income component of your portfolio in accordance with your requirements.

A number of stockbroker gilt portfolio management services have been emerging of late, with a few examples in the links below.  This is not an endorsement of any of these services, but for someone in your position they could add value notwithstanding the fees involved. Might be worth a conversation with a couple of them.

https://www.canaccordgenuity.com/wealth-management-uk/investment-management/fixed-income-investing/

https://www.adamandcompany.co.uk/insights/investing-in-gilts/

https://killik.com/what-we-offer/investment-management/specialist-investment-services/gilt-saver-service/

https://www.wcgplc.co.uk/MarketNews/News/510

masonic

jimjames said:

InvesterJones said:

matasymbol said:

DRS1 said:

jimjames said:

In your forties having £1.4m in bank savings seems somewhat high if you need that money to last 40 odd years. Are you planning to add to the investments at all?

I think what he is proposing to do is move some of the cash savings into gilts on the basis that he will get similar returns but as a higher rate tax payer will pay less tax on those returns from gilts than he would on the interest from cash savings.  I suspect he also regards it as a bad time to invest in equities.  But I do not think he is proposing to switch out of his investments.

yes exactly that. I'm comfortable with my % of investments at this stage I know I should increase given my age but I want to be more risk averse at this point.  

My question / point is really shouldn't anyone invest a lot more in gilts than savings if they are pushed to the 40% tax bracket. eg for a gross return of the TN26 is 4 / 0.6 is  6.66% far better as I said.  

If the time frame suits them, yes. But you're giving up the flexibility to access savings when you like and not be at the whim of interest rates at the time if you need to access before maturity. I.e. they have different use cases - if you need savings then you need savings.

But some people take out 5 year fixed rate savings accounts, this would appear to be a better option for some people.

The fact you can access money invested in a gilt in an emergency, albeit at a market price, means it is potentially more valuable than a fix at an equivalent after tax return if held to maturity. The last time gilts were even worth considering I don't believe they could be traded online, so it is great to have them as an option now.

TheGreenFrog

masonic said:

I made a couple of purchases this morning averaging 14 years to maturity. That seemed to be the sweet spot for me. All flat, but I am using the "up to 10 years" fund for exposure to index linked gilts (I already hold a chunk of this and all my future contributions will be going into it for at least the next year or so).

I held various shortish dated linkers last year but sold them pre-budget (worried about CGT being reintroduced so wanted to realise the gain) and reinvested in nominal gilts.  I have dipped my toe back into linkers but they are quite expensive now compared to 12 months ago.  Even in the last few weeks the T29 real yield (for example) has not really moved whereas yields for similar duration nominals have gone up - maybe an increase in inflation expectations rather than govt borrowing pressures, but who knows.  So am more tempted by nominals at the moment.

masonic

TheGreenFrog said:

masonic said:

I made a couple of purchases this morning averaging 14 years to maturity. That seemed to be the sweet spot for me. All flat, but I am using the "up to 10 years" fund for exposure to index linked gilts (I already hold a chunk of this and all my future contributions will be going into it for at least the next year or so).

I held various shortish dated linkers last year but sold them pre-budget (worried about CGT being reintroduced so wanted to realise the gain) and reinvested in nominal gilts.  I have dipped my toe back into linkers but they are quite expensive now compared to 12 months ago.  Even in the last few weeks the T29 real yield (for example) has not really moved whereas yields for similar duration nominals have gone up - maybe an increase in inflation expectations rather than govt borrowing pressures, but who knows.  So am more tempted by nominals at the moment.

Yes, this is the reason why I've put lump sums into nominals and am dripping into linkers.

matasymbol

jimjames said:

DRS1 said:

I confess I could not find a TN26 but there is T26 paying out in just over a year's time - the gross redemption yield is 4.1% which yieldgimp says is equivalent to 6.75% for a 40% tax payer.  Of course the coupon is only 0.125% so you won't see much income at the end of January or July.

And TN28 paying gross yield on 7.06% for 40% taxpayer with equally low coupon.

matasymbol said:

DRS1 said:

jimjames said:

In your forties having £1.4m in bank savings seems somewhat high if you need that money to last 40 odd years. Are you planning to add to the investments at all?

I think what he is proposing to do is move some of the cash savings into gilts on the basis that he will get similar returns but as a higher rate tax payer will pay less tax on those returns from gilts than he would on the interest from cash savings.  I suspect he also regards it as a bad time to invest in equities.  But I do not think he is proposing to switch out of his investments.

My question / point is really shouldn't anyone invest a lot more in gilts than savings if they are pushed to the 40% tax bracket. eg for a gross return of the TN26 is 4 / 0.6 is  6.66% far better as I said.  

Yes, the way gilts are now definitely seems like a good way to go. I guess historically we've not had this magnitude of switch from low to high coupon rates that gives such a good capital gain with low income. The TN28 as well seems like a very good yield.

thanks yes the TN28 matures in 3 years so I thought T26 was a good compromise comparing against a 1 year fixed interest account.