Investing in -iShares core UK Gilts ETF- is this a good investment?

Cloiner

Hi, I am seeing the IGLT chart and think: WOW that looks like a longterm opportunity. It is ca 50% away from the high and pays dividends too. I don't 100% understand bonds that good. Am i falling foul? Our situation is that we are selling now our flat in London. We would then sit with 600k in cash which 200k are locked in ISA. We have 2 children. I don't want to pay 1mio for a house, nor do I want to pay 40k a year rent, which I would potentially prefer if I can grow my capital. What is the cleverest solution. Will bonds be performing well? ie Cashing in dividends and price rise? I feel houses in London had a very pour growth rate in the last 7 years. Not even inflation cover! Help please. Your thoughts. (I don't want to move to the country side.)

InvesterJones

Firstly, well done for admitting you don't understand. That's actually the hardest step. The next step is not to invest in something you don't understand, but instead, work on your understanding, or you will end up likely disappointed, or at least, surprised.

Investments are never considered for their performance alone, instead, you need to work out what your plans are, and then fit your investments in such a way that they have the right risk-return for those plans. I.e. 'grow capital' is not itself much help - 'grow for x purpose in y timeframe' is more helpful. That will help determine what kind of investments will help, and only then can you consider which individual choices are the best for each type.

masonic

If you hike up to the top of a hill in the morning, then amble back down in the afternoon, does that indicate you'll need to return to higher altitude in the evening?

dunstonh

Hi, I am seeing the IGLT chart and think: WOW that looks like a longterm opportunity. It is ca 50% away from the high and pays dividends too.    I don't 100% understand bonds that good. Am i falling foul? 

Yep, you are falling foul.

Bonds have just had their worst period in over 100 years as a perfect storm of an inflation spike, higher interest rates and the ending of quantitative easing (leading to an unwinding of the gains during quantitative easing) all occurred in a short period.

Your mistake is to believe that the drop means it will go back up again.    However, that isn't how it works.

The price will remain in the ballpark of the launch price but will go up and down with interest rates and confidence, but remain on either side of the launch price (depending on when the fund was launched. ie. if it was launched just before 2021, it would probably never return to launch price again).

With record low interest rates post credit crunch and quantitative easing increasing demand, the unit price on gilt and bond funds sky rocketed to levels much higher than typical.       They have now unwound back to where they are more typically.   So, it wont be going back up again as you think.  Its more a return to the norms.



That chart is the unit price and you can see how abnormal the increase was and how the unwinding of it was quick (quicker than most expected).

Will bonds be performing well?

They will typically return better than cash over their typical cycle (15-20 years).

 ie Cashing in dividends and price rise?

As the price doesnt rise beyond the wavy line it will only be the interest distributions and whether you happen to get lucky that you are selling the investments at a point on the wavy line where it is the same or higher than you started.

Hoenir

Cloiner said:

WOW that looks like a longterm opportunity. It is ca 50% away from the high and pays dividends too. I don't 100% understand bonds that good. Am i falling foul? 

Totally. The price of bonds is relative to their nominal value and coupon at any moment in time.  Then there's redemption date to be factored in as well. 

Cloiner

Thank you all! Coming back to Investor Jones: If I think about that, YES! actually I have an Idea. I would like to grow this amount of money massively over the next 10/15 years. I would sacrifice all wages for rent if you can give me that.

InvesterJones

Cloiner said:

Thank you all! Coming back to Investor Jones: If I think about that, YES! actually I have an Idea. I would like to grow this amount of money massively over the next 10/15 years. I would sacrifice all wages for rent if you can give me that.

For what purpose? How much is massive? What level of risk are you happy with? As growth goals get bigger the risk also increases - so no-one can guarantee you anything - if you need a guarantee then you have to only accept very low growth.

GeoffTF

As others have said, it does not sound sensible from the little we have told us about your circumstances. The iShares gilt fund has an effective duration of nearly 8 years. If interest rates fall by 1% less than the market expects, you would lose about 8% very quickly. The average yield to maturity is 4.34%. Inflation could easily outpace that.

https://www.ishares.com/uk/individual/en/products/251806/ishares-uk-gilts-ucits-etf

If you need somewhere to live and can afford to buy a house, buy a house. Home ownership is treated very favourably by the tax system. It does not mater whether the price of the house goes up or down. You still have a roof over your head.

As an aside, Vanguard is reducing the fees on its fixed income ETFs from 1 July 2025:

https://www.vanguard.co.uk/professional/insights/vanguard-reduces-fees-across-fixed-income-etf-range