Aegon or somewhere else for stocks and shares ISAs - or don't risk it??

[mc2fool]

Wikipedia has this to say:

"Originally derived for the US equity market, the CAPE has since been calculated for 15 other markets.[11] Research by Norbert Keimling has demonstrated that the same relation between CAPE and future equity returns exists in every equity market so far examined.[12] Research by others has also found CAPE ratios are reliable in estimating market returns over five to ten year periods in many international stock markets.[13][14][15]"

https://en.wikipedia.org/wiki/Cyclicall ... ings_ratio

Schiller has more recently devised a ratio that takes interest rates into account, but that does not appear to change the picture much at the present time. Ramin Nakisa talks about these ratios at great length on PensionCraft.

The UK market is only about 4% of the global market. My portfolio has some UK bias. UK stocks do not attract withholding tax, and overweighting them a little reduces portfolio volatility slightly. That has not greatly rewarded me so far. Much the same can be said of my emerging market exposure.

Yeah, of course the funny thing is that Fama and Shiller shared the Nobel prize in economics at the same time, Fama for the Efficient Market Hypothesis, which says it's impossible to reliably predict future returns consistently, and Shiller for, from his study of dividends, arguing that EMH was wrong.

Anyway, I wasn't particularly arguing for the UK, just commenting on the valuations aspect in it's historical context.

BTW, I've seen Shiller three times, each one a public lecture at the London School of Economics, and I recommend it if he comes anywhere near you. Then you too can be in the myriad of people whose hands shoot up when it comes the Q&A part to ask what he recommends people should invest in now. He always manages to, charmingly, side step those questions with some non-committal generalisations....

[GeoffF100]

Today's Monevator links a relevant article, "Stocks have not always beaten bonds. Should you care?":

https://www.morningstar.com/stocks/stoc ... d-you-care

The relevant academic work "Stocks for the Long Run? Sometimes Yes, Sometimes No", Edward F. McQuarrie" is here (he cites Dimson, Marsh, and Staunton 2004 for the international perspective):

https://www.tandfonline.com/doi/full/10 ... 23.2268556

McQuarrie's main conclusion is that: "The expanded historical record shows that stocks can perform poorly in absolute terms and underperform bonds, whether the holding period is 20, 30, 50, or 100 years."

[pixieboots4]

Thank you for all the advice and thought here. Sorry if my post was confusing - I'm the first to admit I'm not clued up when it comes to investment strategies but I am slowly learning. We use a wealth management company that is well established and has a very good reputation - however I'm not entirely sure they have always performed brilliantly, particularly in recent years. 2020 was obviously terrible - we lost about 12 percent overall, and since then it's been quite up and down. I think in the past year we only saw growth of about 4 percent if I have understood correctly.

Our Aegon isas use cofunds - we are spread across about 30 different funds in each, working to a balanced growth model. Outside of that, we also have a smaller proportion of our money in fixed interest/bonds and some in equities - fundsmith, hsbc American Index, troy trojan income. This is all managed by the same wealth management company.

Independently of this - we also have some money with Ruffer, which has obviously performed terribly in the past year, but I am hoping it recovers.

I am just confused about the best strategy going forward. We have enough secure in cash for the next two years. however, after those two years have passed, we will have outgoings that we need to pull out money for. My initial instinct was to make everything safe (leaving only a very small amount of all the above with any element of risk), but I am wondering if this is a bit silly?

[GeoffF100]

No, that is not at all silly. Keep your money safe. Spreading your money across 30 funds is completely pointless. It looks like someone is trying to make it look complicated to justify a fat fee. A global equity tracker and a bond fund is plenty - or probably too much in your case. There are no fat fees for recommending that you put your money in the Building Society.

[Bubblesofearth]

We use a wealth management company

One of my mates is a wealth manager. He holidays in the Bahamas every year.

BoE

[Dicky99]

We use a wealth management company

One of my mates is a wealth manager. He holidays in the Bahamas every year.

BoE

I also have a friend who is a wealth manager. It provides him with an enviable lifestyle. It's not an insult to say I would not expect to be better off if I entrusted my investments to him. Knowing him as I do I doubt that he would be offended or strongly disagree if I said that to him. That's not to say that he hasn't worked very hard to establish himself and his client base.
I get the impression that he has only a small number of high worth long term clients who simply don't have the time or inclination to manage their wealth themselves.
Being time rich and not high net worth I'm happy to muddle along myself

[mrodent]

Independently of this - we also have some money with Ruffer, which has obviously performed terribly in the past year, but I am hoping it recovers.

I am just confused about the best strategy going forward. We have enough secure in cash for the next two years. however, after those two years have passed, we will have outgoings that we need to pull out money for. My initial instinct was to make everything safe (leaving only a very small amount of all the above with any element of risk), but I am wondering if this is a bit silly?

I checked out what Investors Chronicle had to say about them. "The trust has also been betting on long-dated US and UK inflation-linked bonds in the belief that central banks will cut rates when the recession finally hits." ... Figures. By the grace of Allah (or Thoth) I had only a tiny % in bonds before this bond bloodbath of the past 18 months, and I'm hesitant to actually sell these couple of funds now because irksome superstition makes me suspect that the great bond recovery could be just around the corner. Selling when an asset has slumped feels awful.

But sometimes you have to accept the logic of your situation. And I'd say that the bottom line for you is quite simple: if you need to spend a significant % of your wealth in 2 years, you just shouldn't be investing that money now, or worrying about anything: bung it into bank accounts and ultra-short bonds and forget about it. But the remaining %: a good, cheap, global index fund, and no "LifeStrategy" bond-mix nonsense. Again, fire and forget. And fire and forget your wealth managers.

My own view, as someone far less knowledgeable than many here, is that bonds (other than ultra-short ones) are simply not suitable for retail investors, as their fate is too dependent on the capricious decisions of central bankers. Witness the recent events in the UK and US: the BoE took the decision to actually buy back some of its longest dated bonds, making a bad situation catastrophic, whereas the Fed decided to just let theirs go to term. I just don't understand bonds (except for ultra-shorts) and I don't even think I should try. So, as they say on DD, "I won't be investing, I'm OUT".

[clissold345]

I am just confused about the best strategy going forward. We have enough secure in cash for the next two years. however, after those two years have passed, we will have outgoings that we need to pull out money for. My initial instinct was to make everything safe (leaving only a very small amount of all the above with any element of risk), but I am wondering if this is a bit silly?

You can't time the market so yes it might be good to sort out future expenditure now. I thought monabri's suggestion of short-dated gilts was good. Eg if you need £100K in two years time you could buy 100K of "Treasury 0.125% 30/01/2026 (T26)". Then you get £100K on 30/1/2026 (if you keep them until then).

[Dicky99]

I am just confused about the best strategy going forward. We have enough secure in cash for the next two years. however, after those two years have passed, we will have outgoings that we need to pull out money for. My initial instinct was to make everything safe (leaving only a very small amount of all the above with any element of risk), but I am wondering if this is a bit silly?

You can't time the market so yes it might be good to sort out future expenditure now. I thought monabri's suggestion of short-dated gilts was good. Eg if you need £100K in two years time you could buy 100K of "Treasury 0.125% 30/01/2026 (T26)". Then you get £100K on 30/1/2026 (if you keep them until then).

An outlay of £92,600 today would return £100k in Jan 2026.

[mrodent]

You can't time the market so yes it might be good to sort out future expenditure now. I thought monabri's suggestion of short-dated gilts was good. Eg if you need £100K in two years time you could buy 100K of "Treasury 0.125% 30/01/2026 (T26)". Then you get £100K on 30/1/2026 (if you keep them until then).

At the time of writing this is selling for £92.61. Just to clarify: am I right in believing that this is therefore a gilt which delivers 0.125% (i.e. 12.5p per £100) each year and then pays you back £100 on 30/1/2026?

I just did a calculation (based on 2 years). At 4% you get (on £92.61) 96.314 after year 1 and 100.167 after year 2. With the gilt you get £100.25. Although you pay income tax on gilts, I'm presuming this is just on the "coupon", i.e. the 25p in this case. And they are exempt from CGT. So yes, especially for a higher rate payer, and/or someone needing to sell lots quite soon, and thus possibly incur CGT, this is almost certainly going to work out better than a fixed-rate savings account, currently around 5% seemingly.

An "ultra-short" gilts/bonds ETF might do marginally better: e.g. iShares £ Ultrashort Bond UCITS ETF. Even on £100k you're probably talking pennies though. Not sure what the income tax and CGT situation is with that though.

[clissold345]

...
At the time of writing this is selling for £92.61. Just to clarify: am I right in believing that this is therefore a gilt which delivers 0.125% (i.e. 12.5p per £100) each year and then pays you back £100 on 30/1/2026? ...

I'm not very knowledgeable about bonds and gilts. Yes I think you're right about the coupon and repayment. The coupon is so small I didn't bother mentioning it. I think the interest is split into two payments a year.

[GeoffF100]

An "ultra-short" gilts/bonds ETF might do marginally better: e.g. iShares £ Ultrashort Bond UCITS ETF. Even on £100k you're probably talking pennies though. Not sure what the income tax and CGT situation is with that though.

You pay income tax on the income, and CGT on any capital gain. You lose out if interest rates fall. If you buy fixed interest, you lose out if interest rates rise.

[Bubblesofearth]

You can get 4% for a 2 year fixed rate deposit with the Skipton. Maybe a bit more if you shop around. No buy/sell costs that you have with gilts and no CGT.

BoE

[Dicky99]

You can get 4% for a 2 year fixed rate deposit with the Skipton. Maybe a bit more if you shop around. No buy/sell costs that you have with gilts and no CGT.

BoE

What % does it reduce to after paying tax on the £4k per year income?
The T26 gilt referred to earlier is very low on income and also isn't subject to CGT meaning what you see is what you get.

[Dod101]

You can get 4% for a 2 year fixed rate deposit with the Skipton. Maybe a bit more if you shop around. No buy/sell costs that you have with gilts and no CGT.

BoE

What % does it reduce to after paying tax on the £4k per year income?
The T26 gilt referred to earlier is very low on income and also isn't subject to CGT meaning what you see is what you get.

Obviously it depends on your rate of tax but I cannot help wondering if this sort of minutiae is really much help to the op.

As far as advice for her is concerned, I would ditch the financial advisor as a first step.

Then decide how much money the family is going to need to access over the next say 4/5 years and set that aside in some secure form. The simplest is of course cash deposits.

If there is still spare assets then think of some low cost investments for that balance such as one of the big generalist ITs such as Alliance or FCIT.

It goes without saying that getting a grip on the finances by a careful budget is also a good idea. These measures should help stop the losses which seems to be the first priority. It might even be necessary to consider whether school fees are going to continue to be affordable. I have nothing against a private education but there are some very good state schools around as well as some not very good private ones.

Whatever, the best of luck. It will be a learning curve.

Dod

[monabri]

[TEXT FROM MY PREVIOUS POST REMOVED]

Something like TN25 or T26

https://www.hl.co.uk/shares/shares-sear ... 12025-gilt

https://www.hl.co.uk/shares/shares-sear ... 12026-gilt

You should be able to purchase through your trading platform in much the same way as buying shares in individual "stocks" or "funds".

I proposed TN25 and T26 because they mature in 2025 and 2026 - the coupon on T26 is even lower at 0.125%.

Latest information on short(ish) dated conventional (*) Gilts . The table shows the current prices to buy Gilts and their maturity dates.

Note...one added 'flexibility' is that one does not have to wait until the gilt matures to sell it if one is in need of cash. It can be sold during normal trading hours - the money is not locked away. of course, there is no guarantee as to the price if one sells prematurely.

source : https://www.dividenddata.co.uk/uk-gilts ... -yields.py



source : https://www.dividenddata.co.uk/uk-gilts ... -yields.py (click on the "+" sign at the end of each line)

The prices are listed in £ but you would actually buy one gilt for ~ 95.74 pence ( £0.9574 eg TN25).






(*) as opposed to Index Linked Gilts

[monabri]

An "ultra-short" gilts/bonds ETF might do marginally better: e.g. iShares £ Ultrashort Bond UCITS ETF. Even on £100k you're probably talking pennies though. Not sure what the income tax and CGT situation is with that though.

You pay income tax on the income, and CGT on any capital gain. You lose out if interest rates fall. If you buy fixed interest, you lose out if interest rates rise.

And, for the reasons GeoffF100 points out ....paying capital gains ruins the pleasure of the Gilt! So, buy the Gilt and not the ETF.

One could open up a general trading account with iWeb for free (at the moment), transfer the funds into the non ISA account and buy Gilts directly.

[midgesgalore]

You can't time the market so yes it might be good to sort out future expenditure now. I thought monabri's suggestion of short-dated gilts was good. Eg if you need £100K in two years time you could buy 100K of "Treasury 0.125% 30/01/2026 (T26)". Then you get £100K on 30/1/2026 (if you keep them until then).

At the time of writing this is selling for £92.61. Just to clarify: am I right in believing that this is therefore a gilt which delivers 0.125% (i.e. 12.5p per £100) each year and then pays you back £100 on 30/1/2026?

I have not seen anyone comment on the calculation you made yet. I am mainly referring to the 12.5p for 0.125% on a £100 gilt.

For the "Treasury 0.125% 30/01/2026 (T26)":
This delivers 0.125% coupon so not 12.5p per £100 but 0.125p per £100.

For prices the same as above, the attraction of the gilt is the current price at £92.61 maturing in January 31, 2026. You make the difference in the 7.39p per bond at maturity (£100) which is tax free and the 2 x 0.125% = 0.25% - avoiding complications of dirty price due to accrued interest to the previous holder.

So if you purchased on, or around, 31 January 2024 at £92.61 (because the coupon payment date is January 30th) per TN26 gilt
you would expect £100 + 7.39p + 0.25% if you held to maturity --> 31 / 1 / 2026
Note that the tax due on 2 x 0.125% is negligible.
Overall this is worth around 4% annual yield to maturity.
This is significantly more return than my current account and is underwritten by the UK government

There is a current sum on the dividenddata website. Press the + symbol to the right of the TN26 entry
https://www.dividenddata.co.uk/uk-gilts-prices-yields.py

Also see monabri's post for TN25 https://www.lemonfool.co.uk/viewtopic.php?p=641633#p641633

midgesgalore
(Happy to have my arithmetic verified)

[mc2fool]

At the time of writing this is selling for £92.61. Just to clarify: am I right in believing that this is therefore a gilt which delivers 0.125% (i.e. 12.5p per £100) each year and then pays you back £100 on 30/1/2026?

I have not seen anyone comment on the calculation you made yet. I am mainly referring to the 12.5p for 0.125% on a £100 gilt.

For the "Treasury 0.125% 30/01/2026 (T26)":
This delivers 0.125% coupon so not 12.5p per £100 but 0.125p per £100.

For prices the same as above, the attraction of the gilt is the current price at £92.61 maturing in January 31, 2026. You make the difference in the 7.39p per bond at maturity (£100) which is tax free and the 2 x 0.125% = 0.25% - avoiding complications of dirty price due to accrued interest to the previous holder.

You've not seen anyone comment 'cos the original is correct!

A 0.125% coupon is 12.5p per £100. It's 0.125p per 100p (£1).

Also the coupon % is annual, so it's actually 6.25p per £100 twice a year, and the % is on the par price, not the market price, so...

For prices the same as above, the attraction of the gilt is the current price at £92.61 maturing in January 31, 2026. You make the difference in the 7.39p per bond at maturity (£100) which is tax free and the 2 x 0.125% = 0.25% - avoiding complications of dirty price due to accrued interest to the previous holder.

So if you purchased on, or around, 31 January 2024 at £92.61 (because the coupon payment date is January 30th) per TN26 gilt
you would expect £100 + 7.39p + 0.25% if you held to maturity --> 31 / 1 / 2026

Noooooo......

Firstly, careful when talking about "per bond" 'cos gilts are actually par priced at £1 each but the convention is to talk about them in par amounts of £100.

So, taking the number given above and the 31-Jan-24 assumption, each £100 par of T26 will (ignoring overhead costs) cost you £92.61, and on 31-Jan-2026 each £100 par you hold will redeem at £100, giving you a gain of £7.39. You will also have received along the way 6.25p per £100 par on 30-Jul-24, 30-Jan-25, 30-Jul-25 and 30-Jan-26.

[midgesgalore]

A 0.125% coupon is 12.5p per £100. It's 0.125p per 100p (£1).

Noooooo......

Firstly, careful when talking about "per bond" 'cos gilts are actually par priced at £1 each but the convention is to talk about them in par amounts of £100.

So, taking the number given above and the 31-Jan-24 assumption, each £100 par of T26 will (ignoring overhead costs) cost you £92.61, and on 31-Jan-2026 each £100 par you hold will redeem at £100, giving you a gain of £7.39. You will also have received along the way 6.25p per £100 par on 30-Jul-24, 30-Jan-25, 30-Jul-25 and 30-Jan-26.

Ah, so the gilts are £1 each and sold in bundles of 100. I thought they were £100 each so obviously 100X more income every 6 months than my duff calculation. I didn't realise that.

Thanks. Cool.

midgesgalore