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Gilts now for longer term?

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
SimonGA
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Gilts now for longer term?

#532814

Postby SimonGA » September 27th, 2022, 6:31 pm

Hi

I’ve seen a mixture of views on another thread here, but just wondered if I could get a sanity check. I’ve chosen to manage my pension funds for the past year, ironically because the default fund was so cautious that it underperformed against most funds (admittedly in a bull market). So I now have had a mix of different equity funds across different areas. However I keep seeing advice that I should include some fixed income. Given that gilts have fallen so far recently, from a simplistic perspective this seems like the right time to buy (say, just 10%, in a Blackrock over 5 year index linked gilts) . I risk loosing out on the recovery from my more adventurous funds which have fallen heavily this year (if that ever happens!). However given that I don’t plan to be retiring for over 5 years, is my theory at least sane, that now is as good a time as any to be adding some longer term diversity, given most of my funds are still going down anyway, and given the current weird situation (including BOE “tightening”)? Maybe equities will recover, or maybe they are now realistically priced, but some guaranteed income on at least part of my pension seems sensible enough?

I guess no one knows, and timing the market is a lottery, but as the gilts are still falling, is this just “bad timing”?

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Re: Gilts now for longer term?

#532868

Postby JohnW » September 27th, 2022, 11:04 pm

I think what you are asking about is related to your ‘asset allocation’ - how much of this, that, or the other asset class should I hold. It’s a fundamental issue for personal investing, and comes ahead of ‘which funds do I buy?’.
The second relevant point is, exactly as you write, ‘I guess no one knows what the best market timing will be’. For that reason, and because there is real life data that the average person loses out by trying market timing, you’re likely better off just forgetting all about it. That leaves you with only having to decide on a sensible asset allocation, and what that is is independent of what state the market is in or how someone feels it might be heading. So, get yourself a good understanding of asset allocation. Try Bernstein’s The Intelligent Asset Allocator, or Ferri’s All About Asset Allocation, or even Tim Hale’s very good Smarter Investing.

SimonGA
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Re: Gilts now for longer term?

#532873

Postby SimonGA » September 27th, 2022, 11:58 pm

Thank you JohnW. That sounds like good advice, and I’ve ordered “The Smarter Investor”.

There does seem to be a lot of contradictory advice around what to do right now, “move from growth to value”, “pick dividend focussed funds” … all the way to just deciding on a balanced portfolio and rebalancing it now and then. So I think a book rather than making sense of many different views is a good move.

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Re: Gilts now for longer term?

#532897

Postby GoSeigen » September 28th, 2022, 7:28 am

I'll take the contrary view. A bit of history: these bulletin boards were formed as a home for refugees from The Motley Fool (TMF) after it closed its UK discussion forum. TMF's early philosophy was that anyone could do their own research and select investments. There wasn't an expectation that everyone would succeed (normally measured by "beating the market") but the hope was that for most the experience would "educate, amuse and enrich".

I don't buy this idea that one should take a defeatist attitude and just buy a tracker. There is no education or amusement in that, and not much enrichment either as far as I can see. Investing inherently is a trading exercise in which one of course should use one's skill and judgment and indeed hone those attributes through regular practice and study.

A market in which participants all try their best to determine the right price of assets is going to be better priced and more efficient -- and therefore enrich ALL its participants -- than one where vast swathes of investors simply pay whatever price is being offered. In this way the normal benchmark by which people judge "tracking" is a useless one: tracking aims to do almost as well as a mediocre market; proper investing as about taking part in the creation of a stellar market where you might not do as well as the average but that is still better than the tracking result. And if you turn out to be one of the vast majority of people who have great individual skills to apply then with practice you could do very well.

So a vote here for persevering and continuing to manage your own investments. Do it based on some sound principals:

1. Do your research
2. Learn about bond pricing. Every asset is a bond.
3. Learn to evaluate and look for value, using your own personal methodology
4. Don't follow the crowd; invest when it's psychologically painful to do so, not when it seems like the right thing
5. Always remember the downside i.e. manage your risk

In terms of 4 and gilts, I'd suggest that right now it's too easy to buy gilts. I love the fact that they are much cheaper than before but IME when a market gets destroyed so thoroughly the recovery period can be long. That's not to say you shouldn't buy a few, I probably will myself; just be cautious about it and don't imagine that you've found the magic route to riches!

Good luck.

GS

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Re: Gilts now for longer term?

#532910

Postby JohnW » September 28th, 2022, 8:23 am

I can see that it could be annoying to have latecomers crashing the party which folk who are upbeat about beating the market started, with the ‘passive’ crowd blow-ins coming along with their undermining ideas. I guess the latter could be blocked out or asked to leave, but short of that I can see the ideas they bring can still ‘educate, amuse and enrich’ themselves and others. So it’s not a complete torpedoing of TMF.
It is defeatist to just buy trackers, but it is sensible to stop hitting your head against a wall (or even not start) when you don’t have to, to still get your fair share of the economy’s bounty with investing. Trying to get more than your fair share does on average result in getting less than your fair share. We’re all different, and some more comfortable with taking that risk than others.
I’d disagree that there’s no education needed to buy a tracker; just read all the posts by people who’ve bought one blindly and capitulate when things go bad. Of course, you don’t need an education to buy a tracker if you can take someone else’s word that it’s the thing to do, but you don’t need one to buy the latest top-shot speculative fund either. You either trust anyone or everyone blindly without question, forever, or you get some education to guide your investing by tracker or otherwise; there seem too many disappointments in blindly trusting someone(s) but later losing faith. We all need education.
As to enrichment, a global 60/40 portfolio returned about 6%/year CAGR over the last 50 years. Please yourself how enriching you think that is, but I think it’s realistic to think that investing won’t make the ordinary person rich but it will help you avoid being poor in retirement.
Investing inherently is a trading exercise

'Investing and trading are two very different methods of attempting to profit in the financial markets.' So says investopedia.
A market in which participants all try their best to determine the right price of assets is going to be better priced and more efficient

No question about that, but how much better? As always, what is the size of the effect? If 60% of the market participants engage vigorously in price discovery, paying for the best analysts and working around the clock, how much would the other 40% too lazy to bother bring to the table? SFA I’d say.
tracking aims to do almost as well as a mediocre market
.
No, it aims to do as well as any market, be it spectacular, mediocre or down-right heart breaking.
‘2. Learn about bond pricing. Every asset is a bond.’

No, a bond is a financial contract to pay the lender a coupon (usually) and to repay the principal at maturity. Stocks and gold are assets which are definitely not bonds.

SimonGA
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Re: Gilts now for longer term?

#532915

Postby SimonGA » September 28th, 2022, 8:32 am

Thank you GS

I did have a very amateur go investing in 1999/2000, I would buy ARM and a company called Parthus. Both were basically a sine wave stock price, so I would buy low, sell high, repeat. I built up about £5k from £2k starting, then the .com crash happened just after I’d put it all in Parthus, and it was all worth about £300. I ignored it for a while and considered it lost, then when I tried to look into what had happened with them, I found Parthus had been bought by another company and my shares had been escheated in the US, and I was sent pillar to post and never saw anything of those again. Which put me off trading!

I obviously need to be less amateur with my pension, but it seems as soon as I get involved in investing personally the market crashes! Sorry about that everyone :roll:

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Re: Gilts now for longer term?

#532948

Postby GoSeigen » September 28th, 2022, 9:53 am

SimonGA wrote:Thank you GS

I did have a very amateur go investing in 1999/2000, I would buy ARM and a company called Parthus. Both were basically a sine wave stock price, so I would buy low, sell high, repeat. I built up about £5k from £2k starting, then the .com crash happened just after I’d put it all in Parthus, and it was all worth about £300. I ignored it for a while and considered it lost, then when I tried to look into what had happened with them, I found Parthus had been bought by another company and my shares had been escheated in the US, and I was sent pillar to post and never saw anything of those again. Which put me off trading!

I obviously need to be less amateur with my pension, but it seems as soon as I get involved in investing personally the market crashes! Sorry about that everyone :roll:



I had a similar experience, also with ARM. Sold all of them when I'd broken even, they went on to be a ten-bagger within about 3-4 years.

The important thing is to learn from the experience. I took away two lessons: -don't buy what everyone else is chasing; - be patient and don't sell all of a stock I believe in. If I'd done the former I wouldn't have bought ARM around 2000, but closer to 2007 when ARM was not popular but instead I was selling out of impatience.

If you repeatedly invest before a crash then clearly you are interested in the wrong investments. Write down the stocks you are interested in. Then wait a month. Then look at your list and promise yourself you won't buy those shares for another ten years. Then think about what sort of thing is NOT on your list and why. Think back ten years to what seemed really interesting to you at that time. See whether there's some value in it now. This is the sort of strategy you need to beat the psychological barriers to investing.

One advantage of buying gilts now is that they won't start to crash right after you buy! But there's no guarantee they will be a good investment for the near future. If you dive in do so in a small enough size that you won't be kicking yourself for any disappointment but will leave yourself choices: buy more at a much better price or walk away for a few years and focus on something else.

GS

SimonGA
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Re: Gilts now for longer term?

#533044

Postby SimonGA » September 28th, 2022, 1:15 pm

Thank you all. It’s strangely comforting to see people with such different approaches - as opposed to purely different attitudes to risk.

I went for a small share in the Blackrock gilt tracker for the time being yesterday, and I see the BOE have stepped in which should help at least bottom things out for the short term. That should give me some time to read up more diligently on the fundamentals, rather than relying on newspaper and web articles.

SimonGA
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Re: Gilts now for longer term?

#536515

Postby SimonGA » October 11th, 2022, 2:37 pm

Mmm … that strategy doesn’t seem to be playing out too well :|

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Re: Gilts now for longer term?

#536598

Postby dealtn » October 11th, 2022, 6:27 pm

SimonGA wrote:Mmm … that strategy doesn’t seem to be playing out too well :|


You have posted you won't be retiring in the next 5 years. You are judging an investment strategy after 2 weeks. You asked for a sanity check. Unfortunately I think you have a disconnect between investment, and its purpose, and your timescales.

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Re: Gilts now for longer term?

#536649

Postby Hariseldon58 » October 11th, 2022, 9:17 pm

SimonGA wrote:Mmm … that strategy doesn’t seem to be playing out too well :|


It’s a long game, I’ve been FIRE for 15 years and still haven’t drawn the State Pension and started in Nov 2007 just in time for the GFC.

I went through that with an almost entirely equity portfolio, uncomfortable at times but in difficult times opportunities arise…

This time I have enough bonds for 10 years income and swapped some of my US$ Tips for Gilts and Sterling Corporate bonds, UK index linked bonds are now giving a positive real yield.

Equities will no doubt have difficult periods ahead but highly likely to come through profitably in the fullness of time.

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Re: Gilts now for longer term?

#536659

Postby Midsmartin » October 11th, 2022, 10:24 pm

Where can I find yields for index linked bonds please? Google isn't helping me much!

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Re: Gilts now for longer term?

#536660

Postby bluedonkey » October 11th, 2022, 10:35 pm

You don't need gilts.

SimonGA
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Re: Gilts now for longer term?

#536661

Postby SimonGA » October 11th, 2022, 10:38 pm

dealtn wrote:
SimonGA wrote:Mmm … that strategy doesn’t seem to be playing out too well :|


You have posted you won't be retiring in the next 5 years. You are judging an investment strategy after 2 weeks. You asked for a sanity check. Unfortunately I think you have a disconnect between investment, and its purpose, and your timescales.


Yes fair point. I need to just stop looking at it…

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Re: Gilts now for longer term?

#536668

Postby mc2fool » October 11th, 2022, 11:13 pm

Midsmartin wrote:Where can I find yields for index linked bonds please? Google isn't helping me much!

Sign up to https://reports.tradeweb.com/, it's free and you get a complete list of all gilts including coupons and redemption yields based on the previous day's closing price (or, actually, any day in the past you like). The presentation is rather basic, just a straight fixed table, but you can download to .CSV and open in a spreadsheet and then sort and filter as you like.

You can get latest prices via https://www.londonstockexchange.com/live-markets/market-data-dashboard/price-explorer?issuers=TRIH and for many via https://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/uk-gilts but note that HL doesn't show redemption yields and the yield to maturity figures on the LSE site are often missing or wrong.

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Re: Gilts now for longer term?

#536691

Postby GrahamPlatt » October 12th, 2022, 8:13 am

Could also add this for corporates https://www.europeanhighyield.online/bond-prices/

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Re: Gilts now for longer term?

#536830

Postby 1nvest » October 12th, 2022, 6:38 pm

With 20 year Gilts having halved, and from such prior low historic yield levels losses had to occur sooner or later as yields rose, there's some comfort in that it would require yields to rise to 12% to see them halve yet again. Unlikely (but if they did I'd back up the truck to load up on them at those levels).

Image

A near 5% yield at current prices for 20 years is likely greater than what inflation will be over the next 20 years, so equally nice to have Gilts reverting to being more inclined to pay a positive benefit rather than paying to buy/hold them.

I miss the former fixedincomeinvestor web site :(

Longer term history and 20 year Gilts tended to range (excepting extremes) between 4% and 6%, so near recent yields 5% is a reversion to historic middle-road.

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Re: Gilts now for longer term?

#536907

Postby AWOL » October 13th, 2022, 7:05 am

JohnW wrote:I can see that it could be annoying to have latecomers crashing the party which folk who are upbeat about beating the market started, with the ‘passive’ crowd blow-ins coming along with their undermining ideas. I guess the latter could be blocked out or asked to leave, but short of that I can see the ideas they bring can still ‘educate, amuse and enrich’ themselves and others. So it’s not a complete torpedoing of TMF.


I think this is a good thread with some interesting points and in particular whilst i don't share the philosophy of GS, I always find his posts thought provoking. The original poster talks about not retiring in the next five years. To me that suggests that it may be time for the OP to work out a retirement asset allocation and work towards it.

I ask not sure I agree with the side conversation about passive Johnny Come Lately. I am not a long standing lemon fool but studying the SPIVA reports made me realise that i had been lucky with active investing and that passive was the best approach. I have been investing since the 1990s and was an occasional TMF boards contributor from 1997 (mainly from an office in Camberley). If I was as smart as some people here I would be an active investor but I am not. Know who you are and how you will react to 20-50% market drops which may happen suddenly or by stages (legs).

One particular area that i know GS and others here are smarter is bonds. I have spent the bond bull market thinking they are poor value and this cannot last. Finally i am right but are we at a bottom. I don't think we are quite there but as i have said i am clueless. I expect central banks will continue tightening. However, I decided yesterday to buy £150k of intermediate gilts as they may not be best value but i think they are acceptable for my purposes. If i was giving advice to a friend i would say start building a position, don't be as impulsive as me.

The nearer to retirement you are the more i think it makes sense to dial down the risk. Once there you can slowly ratchet up the risk out you want to leave a bequest or stay static or even burn down the equity allocation because you don't care about funding successors but you do want predictability and stability but that decision can come later.

Write out your investment philosophy somewhere like Google docs where you won't lose out and review and amend it as time passes. That week keep you true to your plans on allocation, risk, drawdown strategy, phases of retirement, investment process, etc. It may surprise you how little you remember off your decision making process ten our fifteen years on from a purchase.

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Re: Gilts now for longer term?

#536924

Postby scrumpyjack » October 13th, 2022, 8:56 am

1nvest wrote:With 20 year Gilts having halved, and from such prior low historic yield levels losses had to occur sooner or later as yields rose, there's some comfort in that it would require yields to rise to 12% to see them halve yet again.


Ah, and gilts are what investment advisers say are 'low risk'! They've nearly halved in a matter of months. :D

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Re: Gilts now for longer term?

#537011

Postby 1nvest » October 13th, 2022, 3:27 pm

scrumpyjack wrote:
1nvest wrote:With 20 year Gilts having halved, and from such prior low historic yield levels losses had to occur sooner or later as yields rose, there's some comfort in that it would require yields to rise to 12% to see them halve yet again.

Ah, and gilts are what investment advisers say are 'low risk'! They've nearly halved in a matter of months. :D

IF you only held 20 year Gilts, where after losing half in price will pay another 3% higher interest rate for 20 years. Longer dated have higher price volatility, lower interest rate volatility, shorter dated have lower price volatility, higher interest rate volatility. Holding "Gilts" more commonly means a combination of both ends, or a central bullet, or ladders, or rolling ...etc.

At very long dated bonds/gilts enter into the realm of being stock-like, as do some stocks be somewhat bond-like. As GS said earlier ... everything can be considered/measured using bond-type maths.

They're also low risk in the way of incredibly low rate of default/failure risk. Deposit cash into a bank savings account and that could be lost, leaving you with just the £85K government protected (FSCS) amount being returned after a bank-run/collapse. Deposit as much as you like into Gilts and they're pretty much guaranteed protected as the state can always print money/increase taxes to cover repayment of borrowed amounts (rather than being seen as having defaulted on its obligations). Fixed/guaranteed return, where that is known at the very start (purchase date/time).


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