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Problems with passive investing

Index tracking funds and ETFs
DelayedInvestor
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Problems with passive investing

#391370

Postby DelayedInvestor » March 2nd, 2021, 9:00 am

I've spent the last year or so looking at various investment approaches and whilst I'm going to keep my eye out for individual opportunities it feels like passive is the best game to play for now. As I understand it there are three basic issues with passive investment.
1. Global capitalism could collapse
2. Price inefficiencies caused by the passive fund market cause assets within indices to be overpriced and thus underperform over the long term. People like Michael Burry have made various points along these lines.
3. Markets have a history of 10-15 year drawdowns - and even longer in the case of Japan.

So, as far as I'm concerned
1. If this happens the value of my investments will probably be the least of my worries. :lol:
2. I've read both sides of this argument and I'm fairly happy that there's enough 'activeness' to drive efficient prices. It's definitely something to keep an eye on though.
3. This is the tricky one for me. It's almost certainly going to happen over my investing timeframes - I'm 40. What I'd be curious to see is what mental or financial approaches do others who follow a passive take with this problem. For me it seems that the solution is that you always need to retain some earning capacity independent of your investments - or perhaps a rent paying asset like property. Inflation linked gilts also seem like they might be useful as a way to insure yourself over shorter time periods but obviously you'd miss out on capital growth.

dspp
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Re: Problems with passive investing

#391392

Postby dspp » March 2nd, 2021, 9:46 am

DelayedInvestor wrote:I've spent the last year or so looking at various investment approaches and whilst I'm going to keep my eye out for individual opportunities it feels like passive is the best game to play for now. As I understand it there are three basic issues with passive investment.
1. Global capitalism could collapse
2. Price inefficiencies caused by the passive fund market cause assets within indices to be overpriced and thus underperform over the long term. People like Michael Burry have made various points along these lines.
3. Markets have a history of 10-15 year drawdowns - and even longer in the case of Japan.

So, as far as I'm concerned
1. If this happens the value of my investments will probably be the least of my worries. :lol:
2. I've read both sides of this argument and I'm fairly happy that there's enough 'activeness' to drive efficient prices. It's definitely something to keep an eye on though.
3. This is the tricky one for me. It's almost certainly going to happen over my investing timeframes - I'm 40. What I'd be curious to see is what mental or financial approaches do others who follow a passive take with this problem. For me it seems that the solution is that you always need to retain some earning capacity independent of your investments - or perhaps a rent paying asset like property. Inflation linked gilts also seem like they might be useful as a way to insure yourself over shorter time periods but obviously you'd miss out on capital growth.


A passive strategy is still a strategy. Within it there are still choices to be made : for example what ratio to allocate between different passively managed asset classes (property, equity, bonds, cash, gold, etc). You might decide to actively manage that split, or to passively set and hold that split, or have some mechanistic rebalancing strategy. A deliberate choice to go 100% passive equity will likely expose you to maximum pain during your #3. Alternatively you could go with a 10-year bond+cash allocation (say £200k @ £10k/spend/year) so as to be able to ride out worst periods of #3 without drawing on your equity during #3 downturns. The more general point I am making is that choices still have to be made, and ordinarily there is no free lunch. You may find bogleheads useful in reading through aspects of this, see https://www.bogleheads.org/wiki/Getting_started.

must dash, regards, dspp

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Re: Problems with passive investing

#391393

Postby dealtn » March 2nd, 2021, 9:46 am

DelayedInvestor wrote: Inflation linked gilts also seem like they might be useful as a way to insure yourself over shorter time periods but obviously you'd miss out on capital growth.


Why?

Inflation Linked Gilts are some of the most volatile assets you can choose to own. Wouldn't be my choice for avoiding potential capital losses.

They "might" in hindsight be a wonderful way of avoiding the issue that concerns you. Alternatively they "might" be an awful asset choice in preserving Capital. How would you expect to know which in advance?

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Re: Problems with passive investing

#391427

Postby scrumpyjack » March 2nd, 2021, 10:34 am

Two other points about passive investing:

It is likely to incur much lower fees that any other approach, and

It is less risky in that any other approach is relying on the judgement of a few individuals rather than of the whole market

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Re: Problems with passive investing

#391429

Postby JohnW » March 2nd, 2021, 10:36 am

It might just save us some ink: inflation linked bonds teased out.
viewtopic.php?f=8&t=24851&p=334095#p334095
see the August 19th, 2020, 7:23 am post.

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Re: Problems with passive investing

#391435

Postby xxd09 » March 2nd, 2021, 10:46 am

Your remark re having to keep earning to cope with scenario 3 can also be expressed by not having saved enough!
Tough choices all round
Bogles rough rule of your age in bonds did the business for me -some say your age minus 10 in bonds but you get the idea
I have used the Vanguard Global Bond Index Fund hedged to the Pound (VIGBBD) for many years-seems to have worked for me
I ended up with a 30/65/5 equities/bonds/cash asset allocation
xxd09

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Re: Problems with passive investing

#391436

Postby JohnW » March 2nd, 2021, 10:52 am

DelayedInvestor wrote:3. This is the tricky one for me. It's almost certainly going to happen over my investing timeframes - I'm 40. What I'd be curious to see is what mental or financial approaches do others who follow a passive take with this problem. For me it seems that the solution is that you always need to retain some earning capacity independent of your investments - or perhaps a rent paying asset like property. Inflation linked gilts also seem like they might be useful as a way to insure yourself over shorter time periods but obviously you'd miss out on capital growth.

Passive or active, the choices are the same I'd guess: save more; work longer; spend less. As to one's investments, you might want to 'stop playing the game when you've won' by moving into low risk assets when you no longer need to take so much risk, progressively or en bloc. Or you could build yourself a liability matching portfolio which 'guarantees' your necessary income during #3-type periods; options include inflation linked lifetime annuity or government inflation linked bonds (stand back) or lifetime state pension(s).
You might want to have a look at Bernstein's take on 'deep' and 'shallow' risks to see how they tie in with your analysis: http://www.efficientfrontier.com/IFA/ifa3.htm

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Re: Problems with passive investing

#391440

Postby dealtn » March 2nd, 2021, 10:57 am

JohnW wrote:It might just save us some ink: inflation linked bonds teased out.
viewtopic.php?f=8&t=24851&p=334095#p334095
see the August 19th, 2020, 7:23 am post.


It might save some, however that discussion was about holding to maturity (I believe) the OP here is quite clearly referring to "over shorter time periods" (presumably shorter than the 10-15 year time period referred to earlier in their post).

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Re: Problems with passive investing

#391446

Postby 1nvest » March 2nd, 2021, 11:04 am

dealtn wrote:
DelayedInvestor wrote: Inflation linked gilts also seem like they might be useful as a way to insure yourself over shorter time periods but obviously you'd miss out on capital growth.

Why?

Inflation Linked Gilts are some of the most volatile assets you can choose to own. Wouldn't be my choice for avoiding potential capital losses.

They "might" in hindsight be a wonderful way of avoiding the issue that concerns you. Alternatively they "might" be an awful asset choice in preserving Capital. How would you expect to know which in advance?

Only if you trade bonds. Held to maturity and you know exactly how much they'll pay, upfront. In the case of inflation bonds (index linked gilts) inflation is incorporated into that. Fixed Income.

Yes many say that bonds are priced to negative real yields, so for instance to buy £10,000 of income in ten years (whatever) time might cost £11,000 now (or whatever, I haven't worked the figures), however historically negative real yields have been evident at times, positive at other times. And historically cases of negative real yields have been far larger differences than that of recent.

Paying 11K now to guarantee a 10K inflation adjusted income in ten years time to liability match anticipated spending provides far more certainty than for instance stocks - that have endured 20 year periods of 0% real or worse total returns within which a 10 year sub-period might have seen a considerable negative real return outcome.

Fixed income isn't really for 'growth', for speculation and potential growth most use stocks. But you can 'play' bonds, forego the certainties to incorporate more risk and hence potential rewards (growth).

If at age 50 you anticipate having a inflation adjusted occupational pension of 10K/year paid as of age 60, and a state pension of 9K/year paid at age 67, and your spending is 19K/year, then 190K would cover 19K/year for the ten years age 50 to 59; A further 63K would cover 9K year on top of the 10K/year occupational pension to provide the 19K/year. From age 67 onward the state + occupational pension covers the 19K/year. So 253K total invested in a 0% real inflation bond ladder spread across 17 years initially. Again haven't worked the figures but at present negative real yields that might mean 300K being required to provide the future income streams. In contrast 300K invested into stocks to cover the same income/spending could see half that lost within days/weeks, and if during the years when you were drawing 19K/year totally from that ... well that's as good as your retirement planning having failed very quickly. If you've won-the-game such as having 300K in the above example, de-risking that is wise. If you'd comfortably won the game and had for instance 600K, then there's no harm in the other 300K being invested however you liked (stocks/whatever).

Liability matching de-risks. Own a home and your 'rent' is liability matched. Pensions + fixed income that liability matches inflation adjusted spending. Speculate however you like with any surplus. Or sell your home, invest solely in stocks and hope that carries you through paying rent and covers your spending - where if you're lucky you may end up with much more being available for heirs but if that backfires its misery.

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Re: Problems with passive investing

#391454

Postby JohnW » March 2nd, 2021, 11:22 am

dealtn wrote:It might save some, however that discussion was about holding to maturity (I believe) the OP here is quite clearly referring to "over shorter time periods" (presumably shorter than the 10-15 year time period referred to earlier in their post).

Good point, the time period does have relevance. I had no idea how long the 'shorter period' was: <15, 10-15, or even 25 years.
But we can buy linkers maturing in 2 year or 47 years, and for most years in between. They'd cover any 'shorter period', surely? We'd be hamstrung by not knowing how long the period was going to be of course, perhaps that was your point.

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Re: Problems with passive investing

#391460

Postby GeoffF100 » March 2nd, 2021, 11:41 am

DelayedInvestor wrote:1. Global capitalism could collapse
2. Price inefficiencies caused by the passive fund market cause assets within indices to be overpriced and thus underperform over the long term. People like Michael Burry have made various points along these lines.
3. Markets have a history of 10-15 year drawdowns - and even longer in the case of Japan.

1. Global capitalism could collapse, and governments could default on their debts. The only alternative is to buy physical assets (e.g. gold), but they have their problems too.
2. That is nonsense. Market weighted trackers do not affect pricing at all. If there are very few active investors, the market would become inefficient, but we are still a long way from that. People are very keen to gamble against the odds even when the markets are effectively impossible to beat.
3. Do not gamble more you can afford to lose.

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Re: Problems with passive investing

#391467

Postby 1nvest » March 2nd, 2021, 11:48 am

DelayedInvestor wrote:3. Markets have a history of 10-15 year drawdowns - and even longer in the case of Japan

Japan's stock market.

There are multiple markets - stocks, bonds, commodity, currency ...etc. Diversification aids in reducing the bad effects of any one enduring a prolonged bad-period, and there are degrees of inverse correlations in some cases. Take for instance periods of relatively poor stock performance, where a more extreme 8% SWR was being applied (as a means to drive more frequent 'failures'). Over the same time periods across which stocks 'failed' more often gold did well, doubling or more in real terms. And equally when reversed - over periods when gold 'failed' stocks tended to do very well.

A Japanese Permanent Portfolio viewtopic.php?f=8&t=12360 for instance saw no such lost-decades/poor-performance. Yes there were run-up years followed by down-run years, mid 1980's to 1990 saw massive gains, that were 'given-back' by 1992 before resuming more regular/normal growth progression. Moves away from being 'passive' but if you'd used some discretion and not bought into stocks after 50% or even 100% type single year gains, but instead reduced/avoided such, then much of those spike/dips could have been negated/averaged-out.

Similarly if for instance one ounce of gold buys the Dow then either the Dow is very low or gold is very high. If it takes 40 ounces of gold to buy the Dow then either the Dow is very high or gold is very low. Ditto for houses. If it takes relatively few ounces of gold to buy a house then either houses are cheap or gold is expensive ...etc. Apply a modest amount of common-sense to 'relative valuations' can help avoid the more extreme tail events. If stocks had doubled relatively quickly - then perhaps that was a rebound from prior large declines, more a case of mean reversion. If stocks had quickly doubled from prior fair/average levels then that could be a indicator of downside mean reversion to come. Diversification and asset allocation/weightings are appropriate in all other than a single broad asset holding, and even for a single asset holding such as Vanguards Lifestrategy funds you still have to decide whether you'd rather be 60/40 or 40/60 (or whatever) stock/bond

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Re: Problems with passive investing

#391487

Postby 1nvest » March 2nd, 2021, 12:18 pm

GeoffF100 wrote:1. Global capitalism could collapse

What capitalism? The US$ took over from gold after Bretton Woods on the promise they wouldn't abuse that position. They then abused the position and printed as much money as they needed. The US also doesn't accept deflation as a natural force and instead props up/withdraws from the market as required in order to maintain upside.

When the Pound was the primary reserve currency backed by gold there was broadly equal amounts of inflation and deflation, 0% sideways overall inflation but with periodic swings either side. Gold in effect yielded 0% and could be swapped for money (and vice-versa) at a fixed rate. Investors could hold money, deposited earning interest ... such that later that could be swapped for more gold than they might have held before. Depositors were rewarded for lending to the state, you didn't really need to speculate in stocks/whatever for a reasonable real reward. Nowadays under the US regime that not only has been eroded - but now you even have to pay to lend to the state. Security/safety has been eroded, less in the way of inflation linked pensions, less in the way of collective healthcare. Greater risks transferred onto individuals.

Free markets are a thing of the past, history. The EU for instance has printed enough Euro's to buy up most of government/state debts and then continued printing to buy up much of corporate debts/bonds. Wouldn't be surprised if they continued that to buy up all stocks, and then houses ...etc. When you can print/spend money, legally counterfeit, that devalues all other notes in circulation, and as has been revealed in the past Germany (that primarily steers the EU/Eurozone) likes pushing things to the extremes - and socialist France also likes the idea.

Much of wealth nowadays is already just lent to you, available to be confiscated at any time. As part of that 'your' money/wealth has to be openly declared - so the state knows where all of 'its' money is and can opt where to reclaim that from whenever it so desires/needs.

Old money is all too aware of such situations, that historically repeat and their mantra is "a third, a third, a third" in reflection of art, land, gold. Art and gold in ones hands can be moved. Whilst land can be confiscated sometimes that can later be reclaimed if lost, or fought for to preserve. Art and gold stored in safe havens, out of reach of states inclined to confiscate. Keynes' art collection value was analysed and found to have yielded comparable returns over many decades to that of stock total returns (with dividends reinvested). The ancient Talmud advocated a third each in land, commerce and reserves (which might be interpreted as being land, stocks, gold).

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Re: Problems with passive investing

#391536

Postby jonesa1 » March 2nd, 2021, 2:00 pm

Trying to get my head around index linked gilts and potentially using them in a laddered manner to guarantee income (to top up a DB pension) ahead of of state pension age.

Using TREASURY 0.125% INDEX-LINKED 2024 as an example. HL shows the current price as Sell:£107.35 Buy:£112.35 (which is a pretty large spread!). Looking at the government's Estimated Redemption Payments for Index-linked Gilts page:
using a 1% estimated inflation rate, the estimated redemption payment is £125.18
using a 3% estimated inflation rate, the estimated redemption payment is £132.70

If I buy £10,000 worth today, that would equate to buying 89 gilts @ £112.35 = £9,999.15 (plus a buying fee of about £10)
If inflation averages 1%, then the redemption payment would be £11,141.02 in March 2024, or £11,810.30 for 3%

I've ignored the small interest payments which would be paid twice a year. What am I missing, as this actually looks like a pretty good deal compared to interest rates available else-where for locking money up for 3 years? There does seem to be more of a net-cost for longer term gilts (as you'd expect), but have I understood the basic mechanics properly?

Andrew

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Re: Problems with passive investing

#391538

Postby Alaric » March 2nd, 2021, 2:14 pm

jonesa1 wrote: have I understood the basic mechanics properly?


With coupons next to zero, the money return on Indexed Gilts is now mostly a punt on the rate used to revalue them. I think they still use the RPI which is usually a bit higher than CPI. Over a short period of time, the returns could now look more attractive than leaving the cash on deposit at less than half a percent interest a year. Be aware that the price you pay is likely to be negative in real terms In other words if RPI is 2% your return might only be 1% to 1.5% because you have to pay over the odds to buy in the first place.

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Re: Problems with passive investing

#391539

Postby dealtn » March 2nd, 2021, 2:14 pm

jonesa1 wrote:Trying to get my head around index linked gilts and potentially using them in a laddered manner to guarantee income (to top up a DB pension) ahead of of state pension age.

Using TREASURY 0.125% INDEX-LINKED 2024 as an example. HL shows the current price as Sell:£107.35 Buy:£112.35 (which is a pretty large spread!). Looking at the government's Estimated Redemption Payments for Index-linked Gilts page:
using a 1% estimated inflation rate, the estimated redemption payment is £125.18
using a 3% estimated inflation rate, the estimated redemption payment is £132.70

If I buy £10,000 worth today, that would equate to buying 89 gilts @ £112.35 = £9,999.15 (plus a buying fee of about £10)
If inflation averages 1%, then the redemption payment would be £11,141.02 in March 2024, or £11,810.30 for 3%

I've ignored the small interest payments which would be paid twice a year. What am I missing, as this actually looks like a pretty good deal compared to interest rates available else-where for locking money up for 3 years? There does seem to be more of a net-cost for longer term gilts (as you'd expect), but have I understood the basic mechanics properly?

Andrew


The price quoted by HL (by convention) is unindexed. The real price will need to be multiplied by the relevant current index/relevant when issued index. (You are also likely be shown by convention the clean not dirty price too - too account for interest accrual since the last coupon).

It is different if you buy the "old style" 8 month lag index linked gilts, in which case the indexation (but not coupon accrual) is in the price quoted.
Last edited by dealtn on March 2nd, 2021, 2:17 pm, edited 1 time in total.

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Re: Problems with passive investing

#391540

Postby DelayedInvestor » March 2nd, 2021, 2:16 pm

Sorry, a lot more responses here than I anticipated

dspp wrote:A passive strategy is still a strategy. Within it there are still choices to be made : for example what ratio to allocate between different passively managed asset classes (property, equity, bonds, cash, gold, etc). You might decide to actively manage that split, or to passively set and hold that split, or have some mechanistic rebalancing strategy. A deliberate choice to go 100% passive equity will likely expose you to maximum pain during your #3. Alternatively you could go with a 10-year bond+cash allocation (say £200k @ £10k/spend/year) so as to be able to ride out worst periods of #3 without drawing on your equity during #3 downturns. The more general point I am making is that choices still have to be made, and ordinarily there is no free lunch. You may find bogleheads useful in reading through aspects of this, see https://www.bogleheads.org/wiki/Getting_started.


Thanks dspp, I'll check that website out

dealtn wrote:Inflation Linked Gilts are some of the most volatile assets you can choose to own. Wouldn't be my choice for avoiding potential capital losses.


Yeah, I haven't looked into them that much tbh as I'm not at that stage where I want or need to protect capital. Interesting that they are so volatile. Must look into that.

xxd09 wrote:Your remark re having to keep earning to cope with scenario 3 can also be expressed by not having saved enough!
Tough choices all round
Bogles rough rule of your age in bonds did the business for me -some say your age minus 10 in bonds but you get the idea
I have used the Vanguard Global Bond Index Fund hedged to the Pound (VIGBBD) for many years-seems to have worked for me
I ended up with a 30/65/5 equities/bonds/cash asset allocation
xxd09


Thanks xxd09, diversifying into bonds does seem like a common approach judging by this thread. This makes sense.

JohnW wrote:You might want to have a look at Bernstein's take on 'deep' and 'shallow' risks to see how they tie in with your analysis: http://www.efficientfrontier.com/IFA/ifa3.htm


Thanks JohnW, I'll take a look.


GeoffF100 wrote:1. Global capitalism could collapse, and governments could default on their debts. The only alternative is to buy physical assets (e.g. gold), but they have their problems too.
2. That is nonsense. Market weighted trackers do not affect pricing at all. If there are very few active investors, the market would become inefficient, but we are still a long way from that. People are very keen to gamble against the odds even when the markets are effectively impossible to beat.
3. Do not gamble more you can afford to lose.


And indeed do, e.g. Argentina. I'm happier investing in equities rather than gold over the long run just on the basis that equities represent human ingeniuty and enterprise. Do not gamble more than you can afford to lose is an interesting one. As you've alluded to no asset is really safe so you are gambling no matter what you do. Cash in the bank will lose to inflation - and it's not really even safe there anyway.

I guess this is why I think it's important to retain a skill set that you leverage well into older age.

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Re: Problems with passive investing

#391564

Postby GeoffF100 » March 2nd, 2021, 4:10 pm

You can get the real redemption yields for index linked gilts here:

https://www.fixedincomeinvestor.co.uk/x ... oupid=3530

They are not mouth watering, but neither are the nominal redemption yields for conventional gilts. You can get the break even inflation rate here:

https://www.bankofengland.co.uk/statistics/yield-curves

You can get a higher return from a bank term deposit guaranteed by the FSCS than you can from conventional gilts. The new style linkers generally cannot be traded online by the usual cheapo brokers. Depending on the broker, you do not have to pay more than the online commission with iWeb or Youinvest though. In my experience, the spread is not huge for reasonably large (several times £10K) retail trades, and you avoid half the spread by holding to maturity. I have about 10% of my portfolio invested in them. They provide some insurance against high inflation, and are very tax efficient. They are free of CGT, and there is not much income tax to pay in 1/8% stock either. Index linked gilts that mature more than 10 years after a few months ago are no longer uprated by the RPI. The index used is a version of CPI. Fortunately, my gilts just missed the chop.

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Re: Problems with passive investing

#391678

Postby JohnW » March 2nd, 2021, 10:01 pm

jonesa1 wrote:Trying to get my head around index linked gilts and potentially using them in a laddered manner to guarantee income (to top up a DB pension) ahead of of state pension age.

https://retirementresearcher.com/how-do ... nt-income/
https://www.bogleheads.org/forum/viewtopic.php?t=128677

I don’t quite follow your calculations there (simple mind), but it’s pretty easy to draw up the purchasing plans for the bond ladder you’re talking about, a non-rolling bond ladder. Well, simpler than landing on Mars, but harder than making a sandwich. Here’a a couple of references, the first is easy to follow, and I think it is easier if you ‘construct’ your bond ladder imagining there’ll be no inflation. The calculations will then reliably work to provide the income you need whether there’s inflation or not, because with any inflation the coupons and the capital returned to you will be increased to match inflation.

Use a spreadsheet from LibreOffice or Excel, and label several columns: ‘year’ (with a row for each of the years you need income from the ladder); ‘number of bonds being sold this year’; ‘name of bond’ (eg 2027 maturity date or whatever it’s code name is); a column for each of those different bonds you’ll need to buy; capital returned; coupon; coupon from the bonds being redeemed; total coupon this year; total income. You could use a few more columns, or do some of the calculations outside those cells.
What you’ll be doing is buying a bunch of bonds which mature each year from the time the income is needed until the time it is no longer needed, and the spreadsheet will tell you how many of each different bond. Since bonds which mature each year won’t be available (every second year at best) your income will be a bit lumpy, but inflation over only one year won’t kill you.

How many to buy for each year of income? The trick is to start with the last year you need the income, at the bottom of a 10 row spreadsheet if you’ve got 10 years to fund. In this final year, your total income will be the sum of the value of those last remaining bonds you redeem plus whatever coupon they pay that year. So you can now calculate how many of those bonds to buy, because you will redeem them for (assume no inflation) the same value as their current (at the time you buy them) inflation adjusted face value. You will actually reduce the number you need to buy by the amount of coupon they’ll pay in that last year; a bit of trial and error will get you the right number (or close enough).

Next you move to the previous year, and do the same thing, except that during the previous year your income will also include the coupons from the bonds you will redeem in the following (final) year. An on you go down to your first year.

At some stage you’ll want to add a column for the price you have to pay for each bond. You will then be able to calculate that you’ll be paying more for the bonds than you’ll be getting back. Such is the nature of negative yields. But you’re not in to make money, you’re doing it to ensure an inflation protected income.
The second reference above includes a discussion by someone who works to three decimal places. You don't need such precision if it feels more like landing on Mars than making a sandwich.

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Re: Problems with passive investing

#391693

Postby tjh290633 » March 2nd, 2021, 10:45 pm

GeoffF100 wrote:You can get the real redemption yields for index linked gilts here:

https://www.fixedincomeinvestor.co.uk/x ... oupid=3530

They are not mouth watering, but neither are the nominal redemption yields for conventional gilts. You can get the break even inflation rate here:

https://www.bankofengland.co.uk/statistics/yield-curves

You can get a higher return from a bank term deposit guaranteed by the FSCS than you can from conventional gilts. The new style linkers generally cannot be traded online by the usual cheapo brokers. Depending on the broker, you do not have to pay more than the online commission with iWeb or Youinvest though. In my experience, the spread is not huge for reasonably large (several times £10K) retail trades, and you avoid half the spread by holding to maturity. I have about 10% of my portfolio invested in them. They provide some insurance against high inflation, and are very tax efficient. They are free of CGT, and there is not much income tax to pay in 1/8% stock either. Index linked gilts that mature more than 10 years after a few months ago are no longer uprated by the RPI. The index used is a version of CPI. Fortunately, my gilts just missed the chop.

It's a great pity that buying Gilts through the National Savings Register was terminated. Very convenient through any Post Office, and low charges. It was a bit like dealing with Unit Trusts or Oeics, that you didn't know the price until it had happened.

TJH


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