Prospects for Gilts - next year to 18 months?
Discussion
Situation is that I have a DC pension with L&G which has been invested in a "Lifestyle" fund where the balance of investments changes each year as you get nearer retirement moving from "riskier" stocks and shares at about 10 years out and gradually shifting to "safer" gilts. A substantial part of my fund is invested in a fund that as a benchmark aims to track the FTSE All Stocks Gilt Index. The money in this pension is made up of lump sums from previous employment pensions and AVCs that I have made on top.
I have retired and am taking my DB pension and State Pension and have continued to contribute to the DC pension.
As the value of gilts has dropped over the last few years the value of the DC fund is also dropping. It is still more than I have paid in so I am ahead but the fund value is less than it was at the top (approx 3 years ago).
I will eventually take the 25% tax free lump sum and put the rest in a SIPP to use for drawdown (I have already done this with another DC fund and haven't made any drawdowns so far). I don't "need" the lump sum or income at the moment but I do have some home improvements in mind that I would use the lump sum for. These aren't urgent and could wait if necessary, but I'd quite like to get these started by next summer. I wondered what the general opinion of my options are?
1 - Gilts are only going down so take the money now.
2 - Gilts are going down but will recover. My monthly contribution is buying units at a low price so I get the benefit when prices rise again so keep going as at present.
3 - Stop putting the monthly payments into the pension and put the money into something else (eg. a holiday fund) and leave the pension invested and then take the lump sum and drawdown at a future date.
My gut feeling is that as, in general, gilts go down as interest rates go up it might be some time before the fund recovers. Option 1 would mean that I'm still ahead in the return but not as much as if I'd cashed in 3 years ago. I can then put the monthly comtributions into the "holiday fund".
I'll be interested in any thoughts or suggestions.
I have retired and am taking my DB pension and State Pension and have continued to contribute to the DC pension.
As the value of gilts has dropped over the last few years the value of the DC fund is also dropping. It is still more than I have paid in so I am ahead but the fund value is less than it was at the top (approx 3 years ago).
I will eventually take the 25% tax free lump sum and put the rest in a SIPP to use for drawdown (I have already done this with another DC fund and haven't made any drawdowns so far). I don't "need" the lump sum or income at the moment but I do have some home improvements in mind that I would use the lump sum for. These aren't urgent and could wait if necessary, but I'd quite like to get these started by next summer. I wondered what the general opinion of my options are?
1 - Gilts are only going down so take the money now.
2 - Gilts are going down but will recover. My monthly contribution is buying units at a low price so I get the benefit when prices rise again so keep going as at present.
3 - Stop putting the monthly payments into the pension and put the money into something else (eg. a holiday fund) and leave the pension invested and then take the lump sum and drawdown at a future date.
My gut feeling is that as, in general, gilts go down as interest rates go up it might be some time before the fund recovers. Option 1 would mean that I'm still ahead in the return but not as much as if I'd cashed in 3 years ago. I can then put the monthly comtributions into the "holiday fund".
I'll be interested in any thoughts or suggestions.
IMO most of the damage to gilt prices has taken place, especially at the short end.
Two year yields are near 6%, so unless you think near term rates are going to exceed this, then the risk is limited,
It really depends on which gilts the fund invest in as to how exposed it will be to interest rate changes - they probably hold a wide range of maturities, so your risk will be if rates are expected to remain higher for longer and the 3+ year maturities take another hit.
`perhaps just feed an ISA in the meantime and self-select shorter duration gilts with decent yields?
Two year yields are near 6%, so unless you think near term rates are going to exceed this, then the risk is limited,
It really depends on which gilts the fund invest in as to how exposed it will be to interest rate changes - they probably hold a wide range of maturities, so your risk will be if rates are expected to remain higher for longer and the 3+ year maturities take another hit.
`perhaps just feed an ISA in the meantime and self-select shorter duration gilts with decent yields?
You need to think beyond the near future.
Being heavily in gilts is aligned with buying an annuity with the pot. If gilt values go down, the yields rise and so do annuity rates. This inverse relationship should mean you can still secure a broadly similar income, in theory.
If you're not going to buy an annuity then you may as well get back into at least some equities, probably the majority and certainly more than half. That's where the better growth potential is.
Being heavily in gilts is aligned with buying an annuity with the pot. If gilt values go down, the yields rise and so do annuity rates. This inverse relationship should mean you can still secure a broadly similar income, in theory.
If you're not going to buy an annuity then you may as well get back into at least some equities, probably the majority and certainly more than half. That's where the better growth potential is.
MaxFromage said:
Yes I've added a chunk of .125% Treasury, redeeming Jan '24. I'm adding some more once the next rate rise comes in.
Whilst not applicable/available for many, you can also get the tax back by investing the interest into a pension.
Yes, I have Whilst not applicable/available for many, you can also get the tax back by investing the interest into a pension.
Treasury 0.125% 31/01/2024 (TN24)
and
Treasury 1% 22/04/2024 (TG24)
on my short list for some of the house sale proceeds while we sit waiting for the mother of all house price crashes that is 100% certain to be well underway by next spring
I do think Q4 of this year will be a great time to load up on gilts of various maturities. Unless we get some kind of mental second inflation spike. But even then if you are holding individual bonds to maturity it isn't the end of the world.
isleofthorns said:
IMO most of the damage to gilt prices has taken place, especially at the short end.
That's what I thought this time last year. I was wrong and am now sitting on even bigger losses.Unless you've got a very good crystal ball it's a high risk game to make predictions.
Thanks for all the thoughts.
@isleofthorns - the fund is invested to track the FTSE All Stocks Gilt Index so will be invested in a range of gilts. It seems to be tracking the index pretty closely (for good and bad)!
@steve_n - the "buying an annuity" comment makes sense. If/when I move to drawdown I had been thinking of a fund that had more exposure to equities and had been thinknig of the Vanguard LifeStrategy 60.
I think I'll give it a couple more months and then take my 25% and move the rest to drawdown..
@isleofthorns - the fund is invested to track the FTSE All Stocks Gilt Index so will be invested in a range of gilts. It seems to be tracking the index pretty closely (for good and bad)!
@steve_n - the "buying an annuity" comment makes sense. If/when I move to drawdown I had been thinking of a fund that had more exposure to equities and had been thinknig of the Vanguard LifeStrategy 60.
I think I'll give it a couple more months and then take my 25% and move the rest to drawdown..
carbonblack said:
On the subject of gilts: is anyone buying individual short term gilts to take advantage of the tax free gains?
It seems worthwhile to people without any savings allowances remaining?
Yep, i am in Jan 24s and Jan 25s. No brainer considering saving rates in banks (which are then taxed at +-50%)It seems worthwhile to people without any savings allowances remaining?
R33FAL said:
Yep, i am in Jan 24s and Jan 25s. No brainer considering saving rates in banks (which are then taxed at +-50%)
Can I ask about the best way to buy individual short dated gilts such as those mentioned here ?Can I buy them through a broker such as HL and what are the denominations ?
Backtothenorth said:
Can I ask about the best way to buy individual short dated gilts such as those mentioned here ?
Can I buy them through a broker such as HL and what are the denominations ?
I use interactive brokers (who by themselves pay you more than a bank on cash balanced btw).Can I buy them through a broker such as HL and what are the denominations ?
Re the gilts, be aware you have to hold to maturity to avoid price risk. Ie you buy today, you know yield to maturity, and how much you get back. However if you need to sell before maturity you might still lose money if the price of the gilt goes down.
Backtothenorth said:
Can I ask about the best way to buy individual short dated gilts such as those mentioned here ?
Can I buy them through a broker such as HL and what are the denominations ?
Yes, you can buy through HL, an example of one of the ones discussed above:Can I buy them through a broker such as HL and what are the denominations ?
https://www.hl.co.uk/shares/shares-search-results/...
New Monevator article on this topic.
https://monevator.com/alternatives-to-index-linked...
Glad I read that, not least because I learnt that NS&I index-linked savings certificates are about to be 'locked' for the duration of the term (for any certificates renewing after 23rd this month). That's going to make the next decision a bit trickier.
https://monevator.com/alternatives-to-index-linked...
Glad I read that, not least because I learnt that NS&I index-linked savings certificates are about to be 'locked' for the duration of the term (for any certificates renewing after 23rd this month). That's going to make the next decision a bit trickier.
Sorry as I'm a bit clueless with gilts. Buying the short term gilts, I take it that it'll mature in Jan 24 at which point the return is paid? Do you the withdraw your entire investment?
I still have the full ISA allowance available (my wifes effectively) is it preferable to just sink some of the cash into that (up to 20k) into that?
douglasb said:
@steve_n - the "buying an annuity" comment makes sense. If/when I move to drawdown I had been thinking of a fund that had more exposure to equities and had been thinknig of the Vanguard LifeStrategy 60.
Yes, that's a more suitable fund for long term investing in drawdown. Putting you all in gilts sounds like lifestyling with annuity as the target, which isn't what you want to do... mids said:
New Monevator article on this topic.
https://monevator.com/alternatives-to-index-linked...
Glad I read that, not least because I learnt that NS&I index-linked savings certificates are about to be 'locked' for the duration of the term (for any certificates renewing after 23rd this month). That's going to make the next decision a bit trickier.
Thankfully our 3 certificates have each just been renewed for 3 years so will worry about returns then. https://monevator.com/alternatives-to-index-linked...
Glad I read that, not least because I learnt that NS&I index-linked savings certificates are about to be 'locked' for the duration of the term (for any certificates renewing after 23rd this month). That's going to make the next decision a bit trickier.
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