Inflation

[GoSeigen]

Not that I would be touching fixed interest securities with my own or anybody else's bargepole at this time.

TJH

Or at any time for the past 15 years, eh?

GS

[tjh290633]

Not that I would be touching fixed interest securities with my own or anybody else's bargepole at this time.

TJH

Or at any time for the past 15 years, eh?

GS

23 years at least. I realised when I retired that any thought of moving that way did not make sense.

TJH

[1nvest]

Not that I would be touching fixed interest securities with my own or anybody else's bargepole at this time.

TJH

Or at any time for the past 15 years, eh?

GS

23 years at least. I realised when I retired that any thought of moving that way did not make sense.

TJH

Since Jan 1997 to end of 2019 30 year constant maturity gilts have annualised 8.5% (total return)
Since Jan 2005 the figure is 7.4%
Over the past 23 and 15 year periods Gilt rewards have been 'reasonable' when compared to FT100 total returns of 6.3% and 7% respectively

50/50 since 1997 = 7.8% annualised with the worst year seeing a -8.8% decline (2002), 2008's -7.2% was the next worst year

Relative to RPI inflation since 1997 = 2.8% annualised.

But yes, given current valuations/yields and rear view mirror transition from relatively high to relatively low yields such real gains from gilts are much less inclined to be repeated in the forward direction. A good indicator of gilts forward rewards are the current yield, at the start of 1997 30 year gilts were yielding 7.6%.

[tjh290633]

Since Jan 1997 to end of 2019 30 year constant maturity gilts have annualised 8.5% (total return)
Since Jan 2005 the figure is 7.4%
Over the past 23 and 15 year periods Gilt rewards have been 'reasonable' when compared to FT100 total returns of 6.3% and 7% respectively

50/50 since 1997 = 7.8% annualised with the worst year seeing a -8.8% decline (2002), 2008's -7.2% was the next worst year

Relative to RPI inflation since 1997 = 2.8% annualised.

But yes, given current valuations/yields and rear view mirror transition from relatively high to relatively low yields such real gains from gilts are much less inclined to be repeated in the forward direction. A good indicator of gilts forward rewards are the current yield, at the start of 1997 30 year gilts were yielding 7.6%.

OK. Here is my rate of return from successive year ends since the end of 1996, to the present day, using my accumulation unit value as the measure:

Since        Acc Unit   IRR    
26-Dec-96        3.39     8.65%
01-Jan-98        4.86     7.33%
31-Dec-98        5.89     6.73%
30-Dec-99        6.85     6.29%
31-Dec-00        6.68     6.75%
31-Dec-01        6.43     7.35%
31-Dec-02        5.23     9.05%
31-Dec-03        6.38     8.31%
31-Dec-04        7.59     7.67%
30-Dec-05        9.69     6.43%
31-Dec-06       12.25     5.10%
31-Dec-07       12.41     5.40%
31-Dec-08        7.41    10.67%
31-Dec-09       10.24     8.39%
31-Dec-10       12.32     7.23%
31-Dec-11       13.45     7.00%
31-Dec-12       15.80     5.71%
31-Dec-13       19.56     3.22%
31-Dec-14       20.34     3.09%
31-Dec-15       21.42     2.61%
31-Dec-16       24.37    -0.26%
29-Dec-17       26.70    -3.72%
31-Dec-18       24.06     0.21%
31-Dec-19       28.84   -24.10%
22-Aug-20       24.15

You can see the effects of market rises and dips in the unit value. I see that my figure of 8.65% since the end of 1996 is slightly higher than your figure of 8.5%. Since 2005, slightly lower. Of course that 30-year gilt would have had a level income to maturity.

TJH

[everhopeful]

I cannot understand the tendency to see holding or not holding fixed interest as a binary argument. I have held gilts over the last 10 years and have been very happy with their return (ditto index linked). I have sold them now as valuations seem high but am still happy to hold EM bonds, prefs and some corporate bonds which I am holding to maturity. I have held equities and equity ITs as well with more mixed results but my choice of shares has not been dictated by any fixed strategy such as yield or capitalisation. I am for example very pleased with my holding of Highland Gold which has given a good yield and is now worth nearly four times what I paid for it but despite yielding 7% when I bought it would not be eligible for a HYP. My largest holding is in Worldwide Healthcare Trust due to its capital appreciation over the last decade.
The only point I am trying to make is that flexibility to invest across the whole spectrum of available investments seems to me to be preferable to excluding whole swathes of the market due to a rigid strategy.

[1nvest]

Hi Terry.

1997 to 2019 inclusive is a interesting choice of start year as since then just holding £, US$ and gold in equal amounts (yearly rebalanced), would have offset inflation.

Since 1972 (up to and including 2019) such a 'asset allocation' would have lagged inflation by 1.3% annualised, but much/all of that was pretty much down to 1973 to 1997 inclusive, where it lagged inflation by -3.8% annualised. For the first couple/few years from 1972 it was a good period where it gained considerably relative to inflation.

So fundamentally 1973 to 1997 type years were the years that £ and $ cash if deposited/invested combined needed to grow by around 5.7% annualised in order to offset inflation (i.e. being 66% weighted x 5.7% = 3.76% relative to the whole portfolio value). Cash deposits compounded at 10.5%, whilst both UK and US stocks (in £ adjusted terms) provided 15% annualised gains. 20 year gilts provided 12%.

Actually having £'s, $'s and gold stuffed into a mattress since 1997 has earned slightly more than just offsetting inflation, more closer to it having provided a 1% annualised real benefit. But that ignores the costs of rebalancing all three back to a third weighting each every year. If each/any/all of those assets were more productively employed then it was icing on the inflation pacing/beating cake.

[ursaminortaur]

Not that I would be touching fixed interest securities with my own or anybody else's bargepole at this time.

TJH

Or at any time for the past 15 years, eh?

GS

23 years at least. I realised when I retired that any thought of moving that way did not make sense.

TJH

If you really meant fixed interest rather than just gilts then you missed out big time on profits from distressed bank prefs and bonds like those of Bradford & Bingley during the financial crisis. Of course that was a gamble, which was likely too much of a risk for anyone totally reliant on their savings for income, but the information gathered and diseminated by people on the Motley Fool Banking board showed that that risk was mispriced.

[Bubblesofearth]

If you really meant fixed interest rather than just gilts then you missed out big time on profits from distressed bank prefs and bonds like those of Bradford & Bingley during the financial crisis. Of course that was a gamble, which was likely too much of a risk for anyone totally reliant on their savings for income, but the information gathered and diseminated by people on the Motley Fool Banking board showed that that risk was mispriced.

It's depressing how many things I've missed out on over the last 20 years. FI, oil E&P shares, gold, bitcoins, US tech shares, London property to name a few. And every time there have been people saying what a good investment these vehicles would turn out to be and they turned out to be right. Some very good arguments as well. If only I'd listened to them.

I think some things that were recommended haven't done so well but there doesn't seem to be much of a record of them so I might be mistaken.

BoE

[Stonge]

I think some things that were recommended haven't done so well but there doesn't seem to be much of a record of them so I might be mistaken.
BoE