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Logic Prophets
Posted: 07 October 2022 11:31:58(UTC)
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Anyone working on a SWR of 4% (rule of thumb) in retirement might be quite happy to take advantage of the 4 - 4.5% available on some of the gilts dated between now and the next 20years or so.
Providing you are happy to stay the course, it’s almost the safest way of guaranteeing that at least proportion of your portfolio is meeting your retirement income and you can simply forget about it and take the coupons twice a year.

Yes, inflation and interest rates might stay higher for longer but as we saw with the ‘new norm’ tech stocks and over a decade of QE, nothing is forever and I guess we all know that when we finally hit the depths of the coming recession and the next election, the only way out will be QE and lower interest rates which will most probably result in higher gilt prices (lower yields). One might even be able to sell his/her gilts at a higher price if they are really lucky.

Great for them that can and do but not everyone wants to ‘trade’ the whole of their portfolio to make their income during retirement and having part of your income assured, especially if all you have is your own SIPP/ISA’s with nothing else as a cushion, will make life a lot easier.

I read this week that some fund managers are predicting that it might soon be time to buy bonds/gilts again. This almost definitely means that they are already buying them.
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Harry Trout on 07/10/2022(UTC)
Harry Trout
Posted: 07 October 2022 11:39:06(UTC)
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Tim D;241804 wrote:
This is one of the things I find fascinating about the generally perceived "forum groupthink"...

Back when inflation was 2% and interest rates was as good as zero, noone wanted to touch this stuff and it was regarded as "return free risk" and as popular as toxic waste.

But now we have inflation at 10% but you can get 4-5% on gilts - so, even worse returns in real terms - suddenly there's growing enthusiasm for this sort of thing!

In the former case, consensus seemed to be that There Is No Alternative to stocks to generate real returns. Seems to me that should be even more true now... but suddenly folks are excited by positive nominal yields, despite them being distinctly underwhelming in real terms currently. (Still, it's better than getting nothing or next to nothing on your platform cash).

Of course a lot depends on where you think inflation and rates are going. At some point rates will peak (and inflation will fall), and locking that in with some long maturity exposure at the top should look like a superb move with hindsight. Good luck timing it though! (As with stocks, "averaging in" may be a sensible strategy for building exposure).


Hi Tim

My reply to Tony crossed with your post.

I may be misreading it but my sense from the thread is that the majority still give gilts a thumbs down but maybe you see it differently?

For example, I don't recall anyone posting on transactions thread that they've bought a gilt recently or ever actually? Might have missed though.

Just to add to my reply to Tony - currently we are way off my proposed structure, this thread was as much as anything about making sure I understand the maths so I can pounce if opportune. We currently are 40% cash in my HL portfolio and 50% cash in Mrs Trout's. This is money held in ISA, SIPP, LISA and GIA so currently earning us nothing.

Therefore, the question remains for me which is can I now get this money earning us some yield with virtually no risk if the gilt was held to maturity.

Inflation is not much of an issue for us either (currently or forecast) and I don't know anyone who is experiencing anything like 10% though the media love to bang on about it like it's a fact!!!

Would be interesting to know how you resolve the expenses versus natural yield v total return conundrum in an inflationary environment? In particular how it would compare to my proposed future structure?

Cheers

Harry
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Tim D on 08/10/2022(UTC)
Apostate
Posted: 07 October 2022 11:59:48(UTC)
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It's the guaranteed TR of 4%+ that is the attraction - especially when the IT UK Equity Income sector average is -9% TR over the last 12 months - and IT Debt - Loans & Bonds is -12%
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Harry Trout on 07/10/2022(UTC), Tim D on 08/10/2022(UTC)
Logic Prophets
Posted: 07 October 2022 12:01:38(UTC)
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Harry Trout;241816 wrote:
[quote=T

For example, I don't recall anyone posting on transactions thread that they've bought a gilt recently or ever actually? Might have missed though.

J


Hi Harry. It’s probably because Gilts have not been on the radar for most people on this forum for a long time (or even never). Only a few totally understand them with the rest giving them a wide berth and relying on their fund manager or tracker to take care of them. I was mostly in the latter until last Monday.

Stocks crash and most in here take advantage (some actually sell). Gilts crash and….nothing. However, I was just as intrigued and spent a little bit of time researching (and speaking to the helpful people at HL) and I bought some the day before the BofE announced that they were bringing out the bazooka.

There are online calculators that can work out the yields (current to maturity etc) and the BofE have hardly got going…. more of a statement of intent rather than action I think.

Hope that helps.
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Harry Trout on 07/10/2022(UTC)
Bulldog Drummond
Posted: 07 October 2022 12:03:11(UTC)
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Apostate;241821 wrote:
It's the guaranteed TR of 4%+ that is the attraction - especially when the IT UK Equity Income sector average is -9% TR over the last 12 months - and IT Debt - Loans & Bonds is -12%

And index linked gilts down about 30% last time I looked

With gilts, remember that you are playing in a pool where almost all are buying regardless of any investment merit. Central banks, pension funds, insurers. So they will almost certainly be over-priced.
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Keith Cobby on 07/10/2022(UTC), Harry Trout on 07/10/2022(UTC)
Apostate
Posted: 07 October 2022 12:08:26(UTC)
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There's also the attraction of being able to hold an asset within a pension with a guaranteed return of 4% TR - something that has not been possible since pension freedoms were introduced.
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Harry Trout on 07/10/2022(UTC)
Thrugelmir
Posted: 07 October 2022 12:25:45(UTC)
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Tim D;241804 wrote:


But now we have inflation at 10% but you can get 4-5% on gilts - so, even worse returns in real terms - suddenly there's growing enthusiasm for this sort of thing!



On the flip side the appetite for equities from retail investors is relatively undiminished. Are equities (main market indices) going to perform better than cash over the next decade? Historically the US markets have been here before. With just 4% of listed companies achieving a better total return.

Corporate entities have limited options when it comes to parking cash.

Inflation is (hopefully) temporary. With a return to the 2% range ultimately. The yield on long dated gilts remains the same until maturity. Those "investors" with extended time horizons will have a different focus.

Sometimes you need to concentrate on minimising your losses. Rather than exposing yourself to greater risks in chasing above inflation returns. The bull market has seen equity returns well above historic trends ( source Credit Suisse Annual Yearbook previously Barclays) . Eventually there's a reversion to the mean,
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Harry Trout on 07/10/2022(UTC), Guest on 07/10/2022(UTC), Tim D on 08/10/2022(UTC)
Apostate
Posted: 07 October 2022 12:58:29(UTC)
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in the 70s shares lagged inflation for several years during which time treasuries did better
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Harry Trout on 07/10/2022(UTC)
paul armstrong
Posted: 07 October 2022 13:36:43(UTC)
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In any discussion of bonds it is necessary to specify duration. Lond duration IL gilts are rated high risk for a reason.
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Bulldog Drummond on 07/10/2022(UTC), Harry Trout on 07/10/2022(UTC), Tim D on 08/10/2022(UTC)
Aminatidi
Posted: 07 October 2022 14:11:24(UTC)
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Right now if you wanted a guaranteed 4.5% you can get it in a savings account for 5 years with zero risk to the principal.

What am I missing?
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Jimmy Page on 07/10/2022(UTC), Harry Trout on 07/10/2022(UTC)
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