Is what I am doing sensible? What would you do

ali_bear

Gilt funds can be surprisingly volatile.

If you just want to inflation-protect some money for the future, you could invest in IL gilts such as T29 or TR31 and keep until maturity. I am doing this with some of my TFC.

Mistermeaner

thanks , just looked at t29 on my interactive investor

Current price is £1

as it was I guess £1 when first issued in 2012 (google) but has been adjusted in line with rpi since why is it only still worth £1?

If I bought it today at £1 and let’s just so simplicity say rpi is 2% per annum upon maturity in 3 years time (forgetting months) would I get back £1.06 ? (Also ignoring compounding)

does the (half of) the 0.125% coupon pay out twice per year so I would also get 1.25pence x 3 up to maturity as well?

looking at the chart t29 has been worth as much as £1.30 in 2022 and down to 95p ish in 2023 - this fluctuation in value is what I struggle to understand , like who would buy the thing at the high and who wouldn’t buy it at the low ?

Storcko14

ii quote the clean price which doesn't include accrued interest (since the last coupon) or indexation (RPI since issue). Its dirty price is around £171 which is what you would pay.

Gilts are tradeable instruments like equities so the price you see at any given time is what buyers are prepared to pay. In 2022 inflation was on a tear so ILGs were popular and therefore prices were bid up. It was what you had to pay then for inflation protection, i.e., it cost you but at least it was a known cost.

Aylesbury_Duck

Can your partner access an LGPS-linked AVC? They offer an excellent tax-free benefit of up to 100% of their value if taken at the same time as the LGPS itself, subject to a limit.

NormalNorman

https://forums.moneysavingexpert.com/discussion/comment/81977967#Comment_81977967

S&S ISAs, cheers

hara____

https://forums.moneysavingexpert.com/discussion/comment/81978183#Comment_81978183

Before buying any linkers, you need to understand clean versus dirty pricing, and real yields. Also worth understanding some of the platform limitations (some only show you the clean price after you've paid the dirty price, suggesting an immediate, large loss).

Monevator has a comprehensive guide:

How to buy index-linked gilts - Monevator

The real yield on T29 is close to zero, so yes, if you buy it now you will get back your investment adjusted for inflation.

Index-Linked Gilt Prices and Yields

If you wanted a fund to avoid the hassle of individual linkers, just make sure you are happy with the duration of the fund. As others have suggested, some are very long duration (like INXG) and hence move wildly with changes in real yields. But there are some shorter options, like this ishares fund. As it is much shorter duration, the 'rolling ladder' nature of the fund is less troublesome:

iShares Up to 10 Years Index Linked Gilt Index Fund (UK) | Class X Acc

Mistermeaner

hi all thanks so much for the thoughts and discussion - it has really helped me learn alot which is why this forum is so useful (it was about 12 years ago i started coming here and got serious about investing, following the broad advice form here has helped me build up a 1mil+ portfolio —— the hive mind works!)

I now have a much better understanding of gilts so thank you, i'll do more reading and learning before piling in but i think one of the key understandings for me which wasn't obviously apparent from google and the platforms is the clean vs dirty price as mentioned a few times above. Its pretty confusing when i look at II and see an inflation linked gilt priced at approx £1 when its been in circulation since 2008… i now get that that isn't how much it would cost to buy nor its 'face value'.

A couple more q's that would help me

• is the 'dirty price' that you are quoted if you contact the platform (or indeed google) a pure price… as in is that what the index linked gilt is truly valued at today with all index adjustments since launch or is it a market price based on supply/demand and other market forces? I guess I am wondering how does one determine the value of an index linked gilt at any point in time and its relative discount or premium to its book value. With a fixed interest gilt you can obviously work out the interest and value at maturity and hence its relative value today but how can you do that with an index linked gilt (I appreciate its future value cannot be determined but how can you understand its today value?

• Are the charts on the platforms (e.g. II) completely meaningless when it comes to index linked gilts? As in what are they showing when the price has gone up and down is that clean or dirty pricing? Is that actual value / adjusted value. Is it just what they have been bought/sold for on the platform in question?

hara____

Both the clean and dirty prices are market prices based on demand. The main difference is that the dirty price accounts for the inflation ratio since the linker was issued, whereas the clean price does not.

The clean price is a convenient way to understand the real-yield (relative to the coupon of the linker) and hence demand. Take T29 and ignore the small 0.125% coupon. If the price is over £100, the real yield will be negative, but if the price is under £100 it will be positive, and the further the price is below £100, the larger the real yield is.

Most charts you see on platforms and LSE (for example) will show the clean price. They aren't meaningless once you know how to interpret them. Sticking with T29, we can see the clean price peaked at about £135 in Sep 2019, so at that time people were willing to pay about a 35% premium (accept a large, negative real-yield) to own it. And you could calculate the real-yield from that £135 and the remaining time to maturity (as there were about 9.5 years to maturity, the real yield was about -3%).

Imagine T29 had a clean price of £95 today instead of close to £100. That would imply a real yield of about 1.8% because 95*1.018^3yrs = 100 (again ignoring the effect of the small coupon).

mrklaw

quick sidebar - if I just need certain funds to not erode too badly with inflation - i.e zero real growth is fine but I’d prefer a little more and not prefer less - but I’m willing to be conservative and in return I get certainty… is a MMF generally enough or do I have to tread my toes into the murky waters of dirty linkers?

it would need to cover maybe 10-11 years from now (I’d move into those funds this year perhaps and they’d be drawn from 2029 to the end of 2036).

hara____

https://forums.moneysavingexpert.com/discussion/comment/81978765#Comment_81978765

The other option you'll see mentioned is 'duration matching' with two funds: buy one linker fund with a longer duration and one with a shorter duration, so that the weighted average matches your target, and then adjust the balance between the two as time passes to stay on target. But unfortunately there aren't any short duration linker funds…

The problem with a MMF is there is no guarantee it will keep up with inflation.

You could buy something like the ishares 'up to 10 year' linker fund now and then gradually switch some of it to a MMF as you approach your target date. That's not ideal, but it would give you a direct link to inflation for at least part of your timeframe.