S&P500 at record highs - time to stay in or pull out?

[NowWatchThisDrive]

Hustle_ said:

I just can t conceive of ever buying a 30yr Gilt are you holding that to maturity?

Two lines of thinking - one is you hold it to maturity and ride the pull-to-par for an ok but not spectacular ~2% real return (as implied by current inflation breakevens), which is mostly tax-free right now but may not be come maturity. And you have the obvious risk of inflation overshooting and killing your real return.

The other is it's a trade: a bit of a deep recession hedge really, as if rates get cut aggressively at some point the convexity in these bonds means they absolutely roof it. The catches being: a) if it never happens you just end up a HTM as above; b) convexity decays with time, so the longer you have to wait for it to happen the less punchy the uplift and the worse your IRR.

[Inlineonline]

The way I like to use gilts is as a short term hedge and for tax efficiency.

The key is that the capital gain (not the coupon) is tax free.

So if you say buy a low coupon Gilt at 93p (eg TN28) maturing in Jan 2028, it returns 100p at maturity Tax Free

So that’s a gain of 100/93=7.53%

For a higher rate tax payer, compared to a high interest savings account where you would pay 47% so you would need a savings interest rate of 100/47 x 7.53=16% ie approx 11% per year!

It’s a no brainer for an additional rate tax payer
The tax rate to compare with is income because it’s 100% guaranteed if you hold to maturity though I appreciate you could argue that you should compare it to the CGT tax rate which isn’t quite as favourable

Alana’s like in that you are guaranteed to get this amount back but not as liquid as cash in that you need to hold to maturity albeit only 18/12

DYOR but we keep 10% of our investable wealth in one of these (plus £50k in premium bonds) as our ‘cash’ buffer.

[Phooey]

Hustle_ said:

I just can t conceive of ever buying a 30yr Gilt are you holding that to maturity?

Firstly I personally wouldn't generally hold long bonds if I was years away from retirement. I would just own equity.

I don't hold any individual bonds but I do hold various gilt funds - a mixture of long, mid/intermediate (etf), and short. Approx 10% in long, 30% intermediate & 10% short. They all have their uses eg short are much less volatile so in events such as the current Iran war - which is inflationary, they (the price, not yield) fall much less then mid or long, and if I was to 'BTFD' in equity, that is the pot I would generally take from. Intermediate etf is just the core of my fixed income bucket. Long is more of a trade (as pointed out above) that if rates were to be "aggressively" cut, should benefit from their longer duration.

[Jon39]

S&P500 at record highs - time to stay in or pull out?

Here is the recent opinion of one investor, who has been involved with the USA stock market for 60 years and has made far more money from his investment decisions than we ever will.

https://youtu.be/QQOWQcnNmr0?si=569HfsmViENNk6CI

[chip*]

Most people exposure to bonds are in their multi-asset funds, but as highlighted above, they have different "flavours" and the effect of a rate change on longer duration bonds can create greater rewards if rate remain low. Conversely, rising / higher rates has the opposite effect as this forum investor ILikeCake subsequently found out after digging into his investment. Bonds ain't for everyone, but if you do buy them, just check under the bonnet to ensure it's aligned to your risk & reward profile.

[Hustle_]

A bonds ETF carries a range of securities from short to long. It says the average duration is e.g. 7 years. It is even harder for me to understand what that means to me

Is the whole idea of a bonds ETF carrying a number of different durations kind of a nonsense?

[SodiumThiopental]

30 year Gilts are a massive gamble right now I’d have thought. This current government seem to be reliant on them to keep the country’s head remotely above water, but 30 years is 6 governments worth by my reckoning. That’s some faith right there surely.

[Jon39]

chip* said:

Most people exposure to bonds are in their multi-asset funds, but as highlighted above, they have different "flavours" and the effect of a rate change on longer duration bonds can create greater rewards if rate remain low. Conversely, rising / higher rates has the opposite effect as this forum investor ILikeCake subsequently found out after digging into his investment. Bonds ain't for everyone, but if you do buy them, just check under the bonnet to ensure it's aligned to your risk & reward profile.

The underlying bond/gilt principle is simple arithmetic, but it seemed to come as an unpleasant shock to many novice bond investors, when the long period of historically low interest rates ended in 2022.



There is an inverse relationship principle between bond yields (prevailing interest rates) and bond prices.
That rule becomes more pronounced with long dated bonds.
To unravel that - you would expect to buy at a lower price, when the bond coupon rate is lower than prevailing interest rates.
When prevailing interest rates were climbing sharply in 2022 and 2023, the bond prices fell considerably.
Obviously that works the other way around too.

I can only remember holding gilts (bonds) during one period. It was a time when it became fairly certain that very high inflation (and therefore interest rates) would be reducing. During the following 18 months, long dated gilt values increased by 40%. A very good return.
I don't think similar circumstances have occurred since. If you are fortunate to achieve long-term double digit returns with equities, then bond/gilts never seem very appealing, but as mentioned earlier, they are a way for higher rate tax payers to secure a reasonable tax-free guaranteed return, if selected sensibly. Inflation is however always the killer with cash equivalents.

Edited by Jon39 on Sunday 10th May 13:55

[ooid]

Well, Google issued a 100 year GBP bond for over 6.28% a few months ago.

Whom do you think survive longest, GBP or Google?

[ferrisbueller]

Article on Yahoo advocating investment in S&P500 because an analyst says it will double by 2030.

I didn't scroll far enough to find the inevitable article predicting a crash.

[p1stonhead]

ooid said:

Well, Google issued a 100 year GBP bond for over 6.28% a few months ago.

Whom do you think survive longest, GBP or Google?

Google are my ‘I definitely shouldn’t have so much of this one stock but they continue to absolutely rocket’ risk stock.

But they’re way better placed than anyone else to win the Ai race as they also have a massive ‘normal’ business.

[Panamax]

ferrisbueller said:

Article on Yahoo advocating investment in S&P500 because an analyst says it will double by 2030.

I didn't scroll far enough to find the inevitable article predicting a crash.

Your point is well made.
One analyst writes one thing...another analyst writes the opposite.
Neither of them has to back what they've written with hard cash.

If you were right you're the great hero and write another article.
If you were wrong you blame unexpected market forces and write another article.

Nice work if you can get it.

[Jon39]

Panamax said:

Your point is well made.
One analyst writes one thing...another analyst writes the opposite.
Neither of them has to back what they've written with hard cash.

If you were right you're the great hero and write another article.
If you were wrong you blame unexpected market forces and write another article.

Nice work if you can get it.

Or often even worse than that.
Write a follow up article, making absolutely no reference to their previous recommendation.

Some hilarious examples have involved Aston Martin, where Bernstein and Jefferies have both since 2018, repeatedly been forecasting a profitable turnaround.
The IPO was in 2018 and since then, the share price has fallen 98% !!!
The mistake that the (they call themselves) analysts have made, was to repeat what AML management have said.
No study of the 113 years of historical financial losses. -

A unique business that has continued after each financial collapse

[mikeiow]

Jon39 said:

S&P500 at record highs - time to stay in or pull out?

Here is the recent opinion of one investor, who has been involved with the USA stock market for 60 years and has made far more money from his investment decisions than we ever will.

https://youtu.be/QQOWQcnNmr0?si=569HfsmViENNk6CI

Give us your potted summary, Jon.
The first rambling 5 minutes suggest he feels some things are over rated, some not…..nothing exciting enough to make me want to waste more time on it.

[Hustle_]

mikeiow said:

Jon39 said:

S&P500 at record highs - time to stay in or pull out?

Here is the recent opinion of one investor, who has been involved with the USA stock market for 60 years and has made far more money from his investment decisions than we ever will.

https://youtu.be/QQOWQcnNmr0?si=569HfsmViENNk6CI

Give us your potted summary, Jon.
The first rambling 5 minutes suggest he feels some things are over rated, some not ..nothing exciting enough to make me want to waste more time on it.

I know who Warren Buffet is, but that interview was not very enlightening. It is a 95 year old reminiscing and appearing to resist all efforts by the interviewer to draw him into any kind of comment or speculation at all.

[Inlineonline]

Analyst ratings are hilarious.

They are not telling you where the price will be tomorrow or next week, they just offer a prediction over a 12 month period and if circumstances change then they also change.

Above all you have to appreciate the herd effect. As an analyst there is a strong disincentive to differ from the group opinion. If you do, and prove to be wrong then thou are likely to suffer, whereas if you stay within the range of group opinions, even if they all prove to be disastrous wrong you will likely suffer less, if at all.

So it’s the ultimate form of group think.

If you base your stock buying on analyst reports you likely to be disappointed with the results!

[Puzzles]

I’m not sure we can take too much from WB in that interview.

[Sheepshanks]

Hustle_ said:

A bonds ETF carries a range of securities from short to long. It says the average duration is e.g. 7 years. It is even harder for me to understand what that means to me

Is the whole idea of a bonds ETF carrying a number of different durations kind of a nonsense?

I don't get bond funds at all. Part of my pension was in one by default and it dropped massively. People said "it'll come back in the end" which is true for individual bonds as they must eventually be repaid at face value (unless they default) but if people withdraw money out of a bond fund such that it is forced to sell some of its holdings then there's surely a chance that it'll never recover?

[mikeiow]

Hustle_ said:

mikeiow said:

Jon39 said:

S&P500 at record highs - time to stay in or pull out?

Here is the recent opinion of one investor, who has been involved with the USA stock market for 60 years and has made far more money from his investment decisions than we ever will.

https://youtu.be/QQOWQcnNmr0?si=569HfsmViENNk6CI

Give us your potted summary, Jon.
The first rambling 5 minutes suggest he feels some things are over rated, some not ..nothing exciting enough to make me want to waste more time on it.

I know who Warren Buffet is, but that interview was not very enlightening. It is a 95 year old reminiscing and appearing to resist all efforts by the interviewer to draw him into any kind of comment or speculation at all.

Well, I gave up, hence asking Jon to summarise since he posted it as an item of interest!

[Jon39]

mikeiow said:

Give us your potted summary, Jon.
The first rambling 5 minutes suggest he feels some things are over rated, some not ..nothing exciting enough to make me want to waste more time on it.

Hustle_ said:

I know who Warren Buffet is, but that interview was not very enlightening. It is a 95 year old reminiscing and appearing to resist all efforts by the interviewer to draw him into any kind of comment or speculation at all.

Never expect Warren Buffet to say what Berkshire Hathaway are buying/selling (commercial reasons), and he is far too clever to forecast what is going to happen tomorrow, this week, next week, next month.

The reason that he did not answer our topic title question, is that he studies individual businesses, never the overall market.

I greatly admire what he has achieved with investing and how wonderful that he and his long time partner Charlie Munger, were always been willing to encourage and openly explain the background to their very successful strategy. So pleased that he has had good health and reached age 95 years before deciding to retire, although remaining chairman, so probably still continues to call at McDonald's each day on the way to his office. -

Before even knowing anything about Warren Buffett, I had already changed my strategy to very long-term investing. It was therefore encouraging to eventually find out from the maestro, that it is the best way to invest. Yet another one of my blunders - never buying a Berkshire Hathaway holding.

It appears that of the Mag 7, he has only ever held Apple (never invests in businesses that he cannot understand) and in recent times (publicly declared) has been reducing that holding, along with Bank of America.

Imagine what it must be like holding $400 billion in Cash and Cash Equivalents, because there is nothing attractive to buy (or large enough to make a difference to BH).
Warren Buffett has often emphasised that C&CEs are guaranteed to lose value, so cannot be entirely happy about their situation, but what a war chest to have ready for possible future opportunities.

Edited by Jon39 on Monday 11th May 11:48