Gilts short term strategy?

[dealtn]

We have different definitions then of either "risk" or "non-existent".

I see a risk you will have a real loss of purchasing power. Not an ideal outcome for a "riskless" investment.

Maybe, maybe not. If the equity markets fall further into value territory, all things 'measured', I would rather have some semi protected dry powder ready for discounted prices.

This is a gilt strategy proposed on the Gilts and Bonds Board.

What relevance is that and do you have an on-topic contribution to make?

[GeoffF100]

Linkers are one of the few exceptions but even there you gloss a vital point: if you commit to hold to maturity you expose yourself to re-investment risk.

I have some linkers which mature at my life expectancy, according to the ONS. If I die sooner, there is a risk of a real terms capital loss. If I live longer, there is a reinvestment risk. (I have excellent health, so that is the more likely outcome.) My tax shelters will only hold about half my equities, which may or may not beat the linkers. Despite the uncertainties, the linkers introduce some stability to my portfolio as a whole. I have shorter dated linkers too. If reinvesting them does not make sense when they mature, I can give the money to charity immediately, rather than leaving it in my will. Life context is important here. We do not live forever.

[Jam2Day]

I don't like Linkers for several reasons. I think they are overpriced and I also believe there are better places for your cash if long term inflation persists.

Can you suggest one that you can buy now that guarantees, after 40% (or 45%) tax, an inflation adjusted gain at maturity?

GS put it far more eloquently than any of my fumbling efforts. I think probabilistic outcome, especially in the bond world of number crunching, is what challenges even the best brains especially when you are dealing with fickle politics and manipulative bookholders. I know that is a rather slippery answer but it's a rather slippery business at the best of times. However, I think most of us would agree that gilts long term are normally not the place to be but they certainly have their uses .

[Jam2Day]

Linkers are one of the few exceptions but even there you gloss a vital point: if you commit to hold to maturity you expose yourself to re-investment risk.

I have some linkers which mature at my life expectancy, according to the ONS. If I die sooner, there is a risk of a real terms capital loss. If I live longer, there is a reinvestment risk. (I have excellent health, so that is the more likely outcome.) My tax shelters will only hold about half my equities, which may or may not beat the linkers. Despite the uncertainties, the linkers introduce some stability to my portfolio as a whole. I have shorter dated linkers too. If reinvesting them does not make sense when they mature, I can give the money to charity immediately, rather than leaving it in my will. Life context is important here. We do not live forever.

Yes, pays your money and makes your choice.

[GoSeigen]

Maybe, maybe not. If the equity markets fall further into value territory, all things 'measured', I would rather have some semi protected dry powder ready for discounted prices.

This is a gilt strategy proposed on the Gilts and Bonds Board.

What relevance is that and do you have an on-topic contribution to make?

As a long term user of this board and its predecessor at TMF, I'd prefer free discussion of bonds and related subjects, not a very restrictive discussion. Also, the OP is usually a good judge of what is on-topic for his/her thread. Nothing wrong with saying you want to hold gilts while waiting for a good chance to buy shares IMO.

Please let's try to welcome people's contributions, especially those of relative newbies and lurkers.

GS

[Jam2Day]

Can you suggest one that you can buy now that guarantees, after 40% (or 45%) tax, an inflation adjusted gain at maturity?

Guarantees. That little word makes the question impossible to answer; investing is mostly about potential not guarantees. Linkers are one of the few exceptions but even there you gloss a vital point: if you commit to hold to maturity you expose yourself to re-investment risk. It's small consolation having a slim return if you have missed out on significant potential gains in the meantime because you cannot reinvest.

So guarantees are nice, but they come with a cost.

I think the OP has investments in mind that have great potential but lack the guarantee. The lack of guarantee adds to the potential upside of course. If the OP (per his post above) thinks linkers are overpriced then he is anticipating a time when they will be cheaper. If he already holds them he forgoes the opportunity to purchase at the better price.


GS

Thanks for fielding that one.

[Jam2Day]

I have some linkers which mature at my life expectancy, according to the ONS. If I die sooner, there is a risk of a real terms capital loss. If I live longer, there is a reinvestment risk. (I have excellent health, so that is the more likely outcome.) My tax shelters will only hold about half my equities, which may or may not beat the linkers. Despite the uncertainties, the linkers introduce some stability to my portfolio as a whole. I have shorter dated linkers too. If reinvesting them does not make sense when they mature, I can give the money to charity immediately, rather than leaving it in my will. Life context is important here. We do not live forever.

Yes, you pays your money and makes your choice.

Sorry for cluttering up the thread with the duplicate reply. Seems to be a technical prob. Tried deleting the duplicate but no luck.

Moderator Message:
I've done it for you.

TJH

[GoSeigen]

Sorry for cluttering up the thread with the duplicate reply. Seems to be a technical prob. Tried deleting the duplicate but no luck.

For future reference, you can easily reply to multiple posts in a single posting by scrolling down below the editing box to a post you want to quote, selecting the text to quote and clicking the quote button located to the top right of the post. This inserts the highlighted text into your message editing box at the cursor location and you can reply below it. Here's an example from GeoffF100's earlier post:

We do not live forever.

Right, better go and do something useful now...

GS

[Itsallaguess]

Sorry for cluttering up the thread with the duplicate reply. Seems to be a technical prob. Tried deleting the duplicate but no luck.

For future reference, you can easily reply to multiple posts in a single posting by scrolling down below the editing box to a post you want to quote, selecting the text to quote and clicking the quote button located to the top right of the post.

This inserts the highlighted text into your message editing box at the cursor location and you can reply below it.

I made a video and posted some simple instructions on this very useful 'multiple-user reply' process a couple of years ago -

Video guide - https://vimeo.com/396253148

Instructions thread - https://www.lemonfool.co.uk/viewtopic.php?f=21&t=22151#p289143

The video is best followed in full-screen mode, but it's a useful process, and especially given that you can easily and quickly highlight the specific sections of the multiple replies you want to add into one reply-post...

Cheers,

Itsallaguess

[mc2fool]

Sorry for cluttering up the thread with the duplicate reply. Seems to be a technical prob. Tried deleting the duplicate but no luck.

For future reference, you can easily reply to multiple posts in a single posting....

Yes, but he's talking about having posted two (almost) duplicate replies. viewtopic.php?p=598537#p598537 and viewtopic.php?p=598540#p598540

Jam2Day, you can only delete a post for a few (10?) minutes after it's been posted. After that what you can do is report your own post, by clicking the exclamation mark button at the top right of it, and ask the moderators to delete it, pretty please...

[GoSeigen]

For future reference, you can easily reply to multiple posts in a single posting....

Yes, but he's talking about having posted two (almost) duplicate replies. viewtopic.php?p=598537#p598537 and viewtopic.php?p=598540#p598540

I realise that. I wasn't commenting on it, though the quote made it look that way,,,,


GS

[Jam2Day]

For future reference, you can easily reply to multiple posts in a single posting by scrolling down below the editing box to a post you want to quote, selecting the text to quote and clicking the quote button located to the top right of the post. This inserts the highlighted text into your message editing box at the cursor location and you can reply below it.

OK

I made a video and posted some simple instructions on this very useful 'multiple-user reply' process a couple of years ago -

That's great. Vid was helpful.

Jam2Day, you can only delete a post for a few (10?) minutes after it's been posted. After that what you can do is report your own post, by clicking the exclamation mark button at the top right of it, and ask the moderators to delete it, pretty please...

That's also useful. Didn't know that.

Sorry for cluttering up the thread with the duplicate reply. Seems to be a technical prob. Tried deleting the duplicate but no luck.

Moderator Message:
I've done it for you.

TJH

Thanks .

Think I've got the hang of this now. Thanks all.

[Aminatidi]

I'm trying to wrap my head around gilts in an unwrapped account.

Let's say I have £100K nice round number.

I put it into TN24.

The coupon is 0.125% so for every £100K I have I make a massive £125.

But for "reasons" (the bit I haven't wrapped my head around yet) I'm not paying "par" price for the gilt I'm paying less so there's a capital gain between what I pay and the "par" value and that gain is entirely tax free?

What I'm trying to work out here is basically if I can "do a Buffett" and have some of my portfolio in 100% bulletproof (unless the UK goes bust) "t bill" equivalents which seem to be directly owned gilts rather than a fund or ETF and minimise tax as much as possible because I don't need or care about the income.

Have I understood correctly?

[mc2fool]

I'm trying to wrap my head around gilts in an unwrapped account.

Let's say I have £100K nice round number.

I put it into TN24.

The coupon is 0.125% so for every £100K I have I make a massive £125.

Almost. There are two things that are not quite right in the above.

Firstly, the 0.125% is of the par (aka "face") value of the gilt. If you buy today as it's going for less than par (97.84 clean offer price as I write) you will buy £100,000 / 0.9784 = £102207.68 of face value. 0.125% of that is a slightly more massive £127.76.

However, gilts pay half of the coupon every six months and there's only one more coupon payment to go, the one at maturity (31-Jan-24), and that'll be £63.88. That's interest for tax purposes, so if you're already over your saving allowance it'll get taxed at your marginal rate.

Note, in the above I have ignored the effect of accrued interest, both on the purchase and on the taxable interest. As it's only a few days since the last coupon payment (31-July) the effect is very small and I leave it as an exercise for any interested readers.

But for "reasons" (the bit I haven't wrapped my head around yet) I'm not paying "par" price for the gilt I'm paying less so there's a capital gain between what I pay and the "par" value and that gain is entirely tax free?

Yes. On 31-Jan-24 you will, to continue the example above, receive £102207.68 (plus the final coupon) and the £2207.68 capital gain is tax free.

[Aminatidi]

Thank you I think that makes sense even if my terminology is a bit off

So if I was wanting to invest in the safest possible form of "cash" is there anything safer and easier than buying short term gilts?

From what I can make out there isn't a way for UK retail investors to directly buy and hold shorter gilts i.e. 1 month.

[kempiejon]

Thank you I think that makes sense even if my terminology is a bit off

So if I was wanting to invest in the safest possible form of "cash" is there anything safer and easier than buying short term gilts?

From what I can make out there isn't a way for UK retail investors to directly buy and hold shorter gilts* i.e. 1 month.

I think I've just been through the same journey, my desire to dodge the tax on interest for cash like holding. Gilts have trivial interest easy to mitigate.
my bold - I don't think so, they're my choice.

*I don't think they issue gilts every month.

[kempiejon]

I think I've just been through the same journey,

thanks

[Aminatidi]

I think the ultra short stuff is a "UK Treasury bill".

I don't like using the word "dodge" where tax is concerned as it smacks of something underhand (I know it's just a word) but like many investors with yields/rates decent if there's a 100% Government backed way to make some return on spare cash where I don't need "interest" or "income" it seems better than sticking it in the bank or a money market fund where it's going to generate interest or a dividend and get taxed.

Basically I quite like the principle of "doing a Buffett" and having for example 70% in a tracker and 30% in the closest I can get to 100% Government backed "cash" equivalents.

It raises an interesting question that the platform is still a potential risk but that's the case with pretty much any investment I can think of.

[daveh]

Well yesterday I took the plunge and made my first gilts purchase of TN24 (at HSDL). A short ladder of short term low coupon gilts is going to be the home for some of my cash that I can't get into tax free accounts to keep me within the £1000 interest allowance and avoid having to do a tax return. Its the first time I've purchased gilts.

So far I'm planning on buying TN24, TN25 and T26. On redemption (if the money is not needed) I'll buy another gilt a further year out. Having read the instructions from HSDL I dealt a fixed cash amount as that is supposed to make it easier for the deal to go through as they account for the accrued etc and you don't have to worry about not having enough cash in the account. The trade didn't go through online and was dealt at best at a later time (a few minutes later).

The only confusions for me is that on the trade confirmation the consideration for the gilts plus dealing commission adds up to a few pence less than the Net total due. There is no mention of accrued interest, but I'm assuming that's what the few pence difference is, but I was expecting to see it as a separate entry. I calculate the final coupon payment to be £3.19 so a few pence accrued seems about right. I also wasn't expecting to be able to buy xxxx.25 of a gilt was expecting to be buying integer numbers of gilts.

So at the price I paid, XIRR says I'm making an equivalent of 4.58% apr which is better than I was getting in interest on the cash.

All a bit of a learning exercise for me.

[BullDog]

Well yesterday I took the plunge and made my first gilts purchase of TN24 (at HSDL). A short ladder of short term low coupon gilts is going to be the home for some of my cash that I can't get into tax free accounts to keep me within the £1000 interest allowance and avoid having to do a tax return. Its the first time I've purchased gilts.

So far I'm planning on buying TN24, TN25 and T26. On redemption (if the money is not needed) I'll buy another gilt a further year out. Having read the instructions from HSDL I dealt a fixed cash amount as that is supposed to make it easier for the deal to go through as they account for the accrued etc and you don't have to worry about not having enough cash in the account. The trade didn't go through online and was dealt at best at a later time (a few minutes later).

The only confusions for me is that on the trade confirmation the consideration for the gilts plus dealing commission adds up to a few pence less than the Net total due. There is no mention of accrued interest, but I'm assuming that's what the few pence difference is, but I was expecting to see it as a separate entry. I calculate the final coupon payment to be £3.19 so a few pence accrued seems about right. I also wasn't expecting to be able to buy xxxx.25 of a gilt was expecting to be buying integer numbers of gilts.

So at the price I paid, XIRR says I'm making an equivalent of 4.58% apr which is better than I was getting in interest on the cash.

All a bit of a learning exercise for me.

I'm in the same situation. Given the current interest rates and the parsimonious tax allowances, I guess there's a lot if people doing the exact same thing. I'm in danger of accidentally triggering 40% tax which would also mean my tax free interest allowance reducing to £500 and resulting in even more tax due.