#625652
Postby thebarns » November 5th, 2023, 9:12 pm
Richfool,
I know I can’t give advice etc etc.
So I can only describe my own thought process behind purchasing these, which is a very simplistic take on matters.
Up until interest rates started increasing in 2022, gilts, for me, had offered a poor income return for someone who was looking for income in retirement from a majority though not all of a portfolio, ever since I’d been retired in 2018 and also for a number of years before that - at one point I’d been about to actively short U.K. gilts but the particular etf I was going to use was withdrawn. I might have made a fortune from that process, although I had been looking to short them for a good while before they plummeted so my patience would have been severely tested, as well as my losses on the withdrawn etf !
However from 2022 and particularly Autumn 2022 to date, their whole appeal has completely changed.
I was able to buy at different times, locked in guaranteed rates of annual returns (whether income or capital uplift) of 4-5.5% over the purchases of the last year, something which had not existed for many years.
I view the return as guaranteed and 99.9% safe as I am prepared to wait till maturity on all of them, though I might sell some of them if interest rates really fell significantly and capital values therefore increased (as some purchases have already done to modest extents). They are very easy to deal on the platforms I use, being large mainstream providers. Simple to understand and calculate returns. The risk of default is virtually nil (if HM Govt did default, I suspect we’d be facing existential circumstances anyway).
Having read a bit about it, for the plain vanilla gilts (not the index linked ones), there really is no great science nor difference between which one you actually pick - I have a variety of different maturing years and coupon rates, all held within a SIPP or ISA, so the capital gains or income uplifts are mostly irrelevant, it’s all total return in my case. The yields for those maturing within months or a very short number of years of one another are virtually identical, safe for small differences that make no difference to me - the differences become more significant the longer the maturity dates, but as I have said, all of mine have been bought locking in broadly similar rates of annual return within 1% of each other and I am prepared to wait till maturity on any further price drops which can happen on longer dated gilts. I have some very low coupon rates but more of the higher coupon ones (though the overall returns will be broadly the same) as the higher coupon ones will produce an annual income, as opposed to the capital uplift of the low coupon ones, and I will use the income to fund cash withdrawals from the sipp/Isa on an annual basis for living expenses etc.
So I do find the process quite simple and prefer dealing the individual gilts myself, as those close to one another in date maturities all broadly move together, knowing the exact total and annual income returns have generated if I am prepared to hold to maturity. A gilt fund loses you something on charges and also it will buy and sell individual gilts as it sees fit, and will yield lower on annual income payouts than I can generate doing it this way.
I hope you find the thought process useful.