Vanguard Life Strategy

jim8888

I invested into the VLS20 in 2021 on the same basis and rationale that the OP is thinking about today. The bond market then crashed and I've had zero growth from it over the last five years and have nursed losses during most of that time. Honestly, unless you're in cash then you're gambling, as nobody knows anything when it comes to future projections on markets. And even cash is gambling versus inflation. As far as I can tell, diversification is the only answer, so do buy some VLS 20, alongside some VLS 80, some gold, some cash, some property, some Premium Bonds, the 4.15 at Redcar and as much as your mattress will hold. 

Secret2ndAccount

SVaz said:

As said upthread, a high percentage of Bonds only offers protection if buying an annuity.  

Incorrect. If protection is what you seek, then bonds, held to maturity, can guarantee that.

jim8888 said:

...Honestly, unless you're in cash then you're gambling...  

Did nobody read the part where I said you can get index linked gilts paying 1%, even 2% above inflation, guaranteed.
I've never seen the point in bond funds, since they can still go down as well as up*. Individual UK gov't bonds offer complete clarity as to what you will get and when. Maybe the returns work for you, or maybe they don't, but there's little in the way of risk.

*If you want to buy corporate bonds or high yield bonds then a fund would be a good way for a retail investor to access the market, and get the necessary diversification. For UK gov't bonds I don't see what it achieves.

Veloflyer

Secret2ndAccount said:

You have to decide how much you want. Do you have enough at this point?
Equities, historically, will provide the best return in exchange for greater risk of loss. Bonds can lock in what you have at a cost of limited growth.
Do you want to lock in what you have, or do you need some risk in order to try to meet your goals. This is a personal choice after you have figured out how your assets match up to your needs and your wants.

Incidentally, your plan to use the ISA for the cash buffer is slightly suboptimal in tax terms. You have already paid the tax on what's in the ISA. If your equities double in the ISA there will be no more tax to pay - you keep it all. If your equities double in the SIPP, it's still nice, but you pay tax on the extra money when you take it out, probably at about 15%.  Ideally, you want the slow growing assets in the SIPP, and the fast growing in the ISA. I recognise there can be other considerations of accessability, but it at least pays to know this.

I "should" I have enough in the SIPPs  for a decent retirement and I have enough in the buffer ISA for 4 or 5 years expenditure. To be honest, my salary is essentially beer money, but much of it goes into the SIPP anyways - for tax efficiency. As aforesaid, I want to live off the tax free lump sum from the SIPP for around a decade initially, so perhaps it is a case of protecting the SIPP as well as having the cash buffer.  

eskbanker

jim8888 said:

As far as I can tell, diversification is the only answer, so do buy some VLS 20, alongside some VLS 80, some gold, some cash, some property, some Premium Bonds, the 4.15 at Redcar and as much as your mattress will hold. 

Adding different asset classes certainly constitutes diversification, but buying multiple versions of VLS doesn't!

SVaz

Well as I was talking about Bond funds ( because the Op was on about VLS 20) not actual Gilts then I’ll think you’ll find I was quite correct.  

tigerspill

Secret2ndAccount said:

All the index linked offerings are currently beating inflation: there's a 6 year, at +1%. The longer terms are more than 2% above inflaiton.
Sorry that this is more complicated thn you wanted, but it's a good solution for your wants/needs.

I am still trying to get my head around ILGs.  Regarding you mentioning that there is an inflation +1% maturing in 6 years - is this called TR31 or something like this. 

Secret2ndAccount

TR31, yes.  It was born in 2021, notionally at £100. Since then, inflation is 38.5%  So the price today should be £138.50, but it isn't: it's only £131.60.  So if you buy it today and hold, you are locking in a gain of about £7.  Suppose inflation was zero for the rest of the term. All the numbers stay the same. You get back £138.50 and make £7 on an investment of £131.60 in 5.7 years. That's 5.3% in 5.7 years. But you also get a bit of coupon. 1/8% of £138 each year. Add that in and you have 6% in 5.7 years - a return of approx 1% per year. If inflation is more than zero, the final payout and the coupon payments increase to keep pace, so you still get to keep the 6% gain.

If you choose to sell before the term ends, you might get back more or less than you would expect due to market fluctuation. However, you would expect the value to gravitate towards the calculated final sum as you get nearer to the maturity date. In general, you would expect a gradual increase so you can get your money out if you need to.

tigerspill

Secret2ndAccount said:

TR31, yes.  It was born in 2021, notionally at £100. Since then, inflation is 38.5%  So the price today should be £138.50, but it isn't: it's only £131.60.  So if you buy it today and hold, you are locking in a gain of about £7.  Suppose inflation was zero for the rest of the term. All the numbers stay the same. You get back £138.50 and make £7 on an investment of £131.60 in 5.7 years. That's 5.3% in 5.7 years. But you also get a bit of coupon. 1/8% of £138 each year. Add that in and you have 6% in 5.7 years - a return of approx 1% per year. If inflation is more than zero, the final payout and the coupon payments increase to keep pace, so you still get to keep the 6% gain.

If you choose to sell before the term ends, you might get back more or less than you would expect due to market fluctuation. However, you would expect the value to gravitate towards the calculated final sum as you get nearer to the maturity date. In general, you would expect a gradual increase so you can get your money out if you need to.

Great explanation.  Thank you.

I will be holding these unwrapped so I am guessing that because the coupon is low, my income tax liabilities will be low and they are exempt from CGT.  Have I got this right?

Where are the best places to purchase these - which platforms?

Secret2ndAccount

No tax on the gain. The coupon amounts to about 17p per year for every £130 invested, so the tax bill shouldn't be onerous      It's interest, not dividends for tax purposes btw.
I use iWeb which offers a free GIA. I don't know if it's only free because I also have a S&S ISA which I pay for. Trades are £5 each, and buying bonds is simple. Other platforms are available.

tigerspill

Secret2ndAccount said:

No tax on the gain. The coupon amounts to about 17p per year for every £130 invested, so the tax bill shouldn't be onerous      It's interest, not dividends for tax purposes btw.
I use iWeb which offers a free GIA. I don't know if it's only free because I also have a S&S ISA which I pay for. Trades are £5 each, and buying bonds is simple. Other platforms are available.

I already use iWeb so that might make it easier.  Are there similar ILGs for every maturity year.  I am thinking if I could invest in one maturing every couple of years starting 5 years out (though TR31 being 6 years out would be fine). I have seven years in cash and the rest invested mainly in equities and would like to get a few ILGs maturing between 5 and 10 years out.  So I could start with putting some of that cash in TR31 to protect it a bit better against inflation.