5-10 Year Recommendation

poseidon1

magd36 said:

SVaz said:

If IL Gilts are too complex then why not use ordinary Gilts?
A 5 year Gilt, maturing in 2030 is paying 4.75% coupon ( interest)  
So £20k will get £950 in coupons per year x 5 = £ 4750
If you bought at £1 each ( prices change)  you would get £20000 back plus £4750, so 
£24750 , plus any interest on the coupon cash ( probably another £150ish) if you stuck it in a short term money market fund. 

For comparison : 

A 5 year fixed savings account paying 3.85% compounded for 5 years gives £ 24200.   Around £700 less.  

Probably too complex for me but I will look in to it. Thanks.

You are correct this particular example was complex and inaccurate.

TR30 which I assume was the gilt referred to does not pay a coupon of £950 on  £20k invested. 

It is currently priced at 103.98 to buy plus you would pay around 108 days  accrued interest to the seller, plus platform commissions. 

The current 'clean' yield to maturity is 4.569% ( not 4.75%) so to buy £20k nominal of this gilt and held to maturity would trigger a small capital loss.

Don't get me wrong, I am a fan of fixed income investment, but as with all aspects of investing there is a learning curve to undergo before diving in.

This forum is useful for general ideas but the finer detail requires research by yourself to try and avoid rookie errors. 

Based on this example perhaps  give Gilts a bit of a swerve unless you are prepared to research the area in more detail. I sense that was your  (correct) conclusion in any event.

Alexland

poseidon1 said:

TR30 which I assume was the gilt referred to does not pay a coupon of £950 on  £20k invested. 

It is currently priced at 103.98 to buy plus you would pay around 108 days  accrued interest to the seller, plus platform commissions. 

The current 'clean' yield to maturity is 4.569% ( not 4.75%) so to buy £20k nominal of this gilt and held to maturity would trigger a small capital loss.

Do you know why DividendData is currently showing TR30 as having a similar price but a yield to maturity of only 3.918%? I'd agree with you that it's more likely to be 4.569%. The accumulated interest isn't enough to be the difference.

https://www.dividenddata.co.uk/gilts.py?ticker=TR30

Linton

Alexland said:

poseidon1 said:

TR30 which I assume was the gilt referred to does not pay a coupon of £950 on  £20k invested. 

It is currently priced at 103.98 to buy plus you would pay around 108 days  accrued interest to the seller, plus platform commissions. 

The current 'clean' yield to maturity is 4.569% ( not 4.75%) so to buy £20k nominal of this gilt and held to maturity would trigger a small capital loss.

Do you know why DividendData is currently showing TR30 as having a similar price but a yield to maturity of only 3.918%? I'd agree with you that it's more likely to be 4.569%. The accumulated interest isn't enough to be the difference.

https://www.dividenddata.co.uk/gilts.py?ticker=TR30

The coupon is 4.75%, the current clean price today is given as 1.0383.  So the effective interest rate is 4.75/1.0383= 4.57%. But if I understand things correctly to calculate the YTM you also need to take into account the capital loss at maturity.

Alexland

Linton said:

The coupon is 4.75%, the current clean price today is given as 1.0383.  So the effective interest rate is 4.75/1.0383= 4.57%. But if I understand things correctly to calculate the YTM you also need to take into account the capital loss at maturity.

Aah yes of course that would account for the difference. Not complicated at all :-)

Albermarle

magd36 said:

leosayer said:

magd36 said:

What are people's recommendations for a provider and fund for a S&S ISA that has low fees and only needs to try and match inflation over a 5-10 Yr Period. Thanks

Can you give details about why you have stated this particular time period?

Or can you be more precise about the number of years?

What happens after the 5-10 years?

The more precise you can be about the timeframe, the better chance you will have of meeting your goal.

I am about to retire. If all goes as planned I won't need to use this money for 10 years. I said 5-10 in case I need it before then. I will likely need it after 10 years to supplement DB and state pension. If I could match inflation I'd be comfortable so no need to risk anything. My previous experience with investments has not been great. A company share option scheme that collapsed, an endowment mortgage that I won a misselling claim against after it failed versus the promise and finally a DC pension with Standard Life that has been unremarkable in performance. 

 If I could match inflation I'd be comfortable so no need to risk anything. 

If you invest you are always taking a risk, even with less risky investments.
In theory a medium or even medium/low risk multi asset fund, should match or beat inflation over a 10 year period, lets say 9 out of 10 times ( Just a very rough estimate to make the point).
So over a 10 year period most times it will probably grow more than inflation, but there is always the chance that it will be a very rough 10 year period in the markets, and /or very high inflation and it will not achieve what you want it to do.

and finally a DC pension with Standard Life that has been unremarkable in performance. 

The pension does not perform, it is the investments held within the pension. If they are too low risk, then they will normally not grow very much. It is always a trade off.

Currently you can just about beat inflation with a savings account. Probably this will remain the same for a couple of years, after that who knows.

ShinyStarlight1

Yorkie1 said:

aroominyork said:

poseidon1 said:

SVaz said:

If a big drop would worry you then maybe £2k a month x 10, then if there is a drop early on you will be buying funds at a cheaper price. 

If all you want is to keep pace,  why are you risking investing?
A mixed asset fund with low equities might not keep up with inflation over 5 years.
As I said before,  an index linked Gilt will keep it’s true value over whichever term you choose. 

I would suggest that index linked gilts are at the complex end of fixed income investing. Therefore unsuitable for newbie investors without professional advice from a stockbroker or other suitably qualified wealth managers . 

I certainly would not be looking at index link gilts if I only had a modest  £20k to invest over the OP's time horizons and very much doubt any wealth manager would want to advise on such a small amount.

I don't agree about ILGs being so complex. If the OP has a maturity date in mind, they can buy and hold an ILG to maturity. The real yield in the right column is the return over inflation. 

Alternately there is this fund, although it is more exposed to interest rate changes https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/i/ishares-up-to-10-years-index-linked-gilt-index-s-accumulation

As someone whas been reading the forum for years, and tried unsuccessfully to get my head around ILGs many times, and isn't too scared at looking at numbers, I must say that for some people ILGs are complex! 

I agree 😩.
I have been trying to understand them but am still confused!

magd36

poseidon1 said:

Based on this example perhaps  give Gilts a bit of a swerve unless you are prepared to research the area in more detail. I sense that was your  (correct) conclusion in any event.

Correct it was my conclusion.

magd36

Albermarle said:
 

 If I could match inflation I'd be comfortable so no need to risk anything. 

If you invest you are always taking a risk, even with less risky investments.
In theory a medium or even medium/low risk multi asset fund, should match or beat inflation over a 10 year period, lets say 9 out of 10 times ( Just a very rough estimate to make the point).
So over a 10 year period most times it will probably grow more than inflation, but there is always the chance that it will be a very rough 10 year period in the markets, and /or very high inflation and it will not achieve what you want it to do.

and finally a DC pension with Standard Life that has been unremarkable in performance. 

The pension does not perform, it is the investments held within the pension. If they are too low risk, then they will normally not grow very much. It is always a trade off.

Currently you can just about beat inflation with a savings account. Probably this will remain the same for a couple of years, after that who knows.

I agree with all of that. I realise it's the investments in the pension that don't perform, it was just a figure of speech. The investments in the SL pension have been over a 10 year period. Annual performance around 3%. Maybe just too low risk for a pension. I'm thinking low/med multi asset might be the best option for my current requirement such as the Vanguard LifeStrategy 40% Equity fund. Thanks.

Altior

Away from linkers there's currently no way to guarantee capital against potential inflation erosion over the medium term. As evidently, nobody knows what future inflation will be. 

In my view, the most suitable strategy is to protect capital as a minimum, then try to maximise yield, and hope that matches (or supersedes) inflation.

There's much more scope for this outside of an ISA. 

magd36

Altior said:

Away from linkers there's currently no way to guarantee capital against potential inflation erosion over the medium term. As evidently, nobody knows what future inflation will be. 

In my view, the most suitable strategy is to protect capital as a minimum, then try to maximise yield, and hope that matches (or supersedes) inflation.

There's much more scope for this outside of an ISA. 

I don't disagree but can you give me a simple example of how you'd try to achieve that outside an ISA when cash generally doesn't match inflation over time? Thanks.