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Maintain buying power of the stash

Gilts, bonds, and interest-bearing shares
bofh
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Maintain buying power of the stash

#399718

Postby bofh » March 28th, 2021, 11:09 am

Hi,

I've recently realised decent profits on shares held in non-flexible ISAs and wish to maintain the buying power of the resulting stash whilst we umm and err over a potential (non-UK) property purchase. If we don't buy a property in the short term (1-18 months), I will either reinvest in shares within the ISA or (less likely) transfer the cash overseas (TBD). With the relative overall weakness of HUF against GBP, along with lower inflation here, my initial thought is to maintain 100% GBP exposure.

Which ISA friendly instrument(s) should I be looking at to maintain buying power of the stash in the short term? Are index-linked gilts a suitable home?

Thanks
-b

Spet0789
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Re: Maintain buying power of the stash

#399730

Postby Spet0789 » March 28th, 2021, 11:50 am

There is no investment which allows you to maintain buying power with any certainty over a 1yr time horizon. Real rates are currently negative.

If you’re planning a Hungarian property purchase, hold the cash in HUF or EUR and accept you’ll probably lose a bit of buying power.

Mike4
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Re: Maintain buying power of the stash

#399737

Postby Mike4 » March 28th, 2021, 12:17 pm

Spet0789 wrote:There is no investment which allows you to maintain buying power with any certainty over a 1yr time horizon. Real rates are currently negative.


Surely there are loads of investments which will possibly or probably maintain buying power, but for certainty, the OP is gonna be out of luck. Surely this is the whole point of investing.

It's a terminology thing though. I think you probably meant there are no "savings vehicles" that maintain buying power. I'm not sure there ever have been. What you get with a savings plan is (near) zero risk of your holding falling in cash value, and usually a slight rise but never quite matching inflation.

I blame the world of marketing for using the term "investment" when they mean other things. Savings plans, double glazing, cars and all manner of devaluing stuff gets described as "an investment", to try to make one's decision to buy it seem rational.

JohnW
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Re: Maintain buying power of the stash

#399746

Postby JohnW » March 28th, 2021, 12:30 pm

Difficult one. So many moving parts there.
If the money is to buy foreign assets (?Hungarian property) surely you need to protect against Hungarian property inflation; that's certainly not UK inflation which is protected by UK linkers, and it's property inflation not broader cost of living inflation.
Perhaps the currency fluctuation is a bigger issue than inflation over 1 year. Plenty of currency pairs might change in value by more than 15% in one year, but you'd be right out of luck for inflation anywhere in Europe to do that.
A negative yield on linkers is sad enough, but unless you buy linkers maturing in a year or so, you could be hit by their value falling if interest rates rise before you need the money. One shouldn't predict anything, so I'll only think but not write 'inflation can't really be much risk for the next 1-2 years', so I think exchange rate considerations might be more significant.

bofh
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Re: Maintain buying power of the stash

#399908

Postby bofh » March 28th, 2021, 8:51 pm

Spet0789 wrote:There is no investment which allows you to maintain buying power with any certainty over a 1yr time horizon. Real rates are currently negative.

If you’re planning a Hungarian property purchase, hold the cash in HUF or EUR and accept you’ll probably lose a bit of buying power.


Mike4 wrote:Surely there are loads of investments which will possibly or probably maintain buying power, but for certainty, the OP is gonna be out of luck. Surely this is the whole point of investing.


Yes I think calling out the certainty factor is a good shout as I'd be looking for an 80%+ probability of maintaining buying power.

JohnW wrote:Difficult one. So many moving parts there.


I could not agree more...as someone who professes to keep things simple, I have learnt that when dealing with complex scenarios with many potential conflicting factors, I have a strong preference for buying optionality. Often, this means maintaining a somewhat complex setup in order to buy time (for a small cost). But with the passing of time - so ambiguity reduces - often to the point where the right decision makes itself known.

JohnW wrote: ...so I think exchange rate considerations might be more significant.


Thanks for your responses - on reflection it does seem that FX is "probably" the biggest factor in future buying power in this particular scenario.

Maybe I'd be better off hedging this currency risk via a FX CFD position, rather than focusing on maintaining buying power of the cash within the ISA itself.


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