Dipping my toe into Gilts - A couple of questions

leaky5

leaky5

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I have an amount of cash sitting in a SIPP at 2.65% currently. I need this money to last me in drawdown until I am 67, basically 66 months from next April when I intend to retire fully.
So I need safe investments. The cash it will do that with some left, but myself an SWMBO agree Gilts might also be worth looking at, so I have a couple of basic questions about them.

I know the general ins and outs.

So the first one I am looking at matures in on the 7th December 2027 and is about 4.25%. Coupons on 7th June and December, buy price IIRC is about £99

So the first question is, if I buy it now, how does the December 2026 coupon work ? Is it full value or prorated ?

Secondly when it matures do you get back £100 or the £99 you paid for it ?

TIA
 
On maturity you get face value, ie £100. The price you pay however is the price shown in the market plus any earned interest/coupon to date since the last one.
Generally on short-dated gilts you will pay closer the face value, longer dated ones less however you might find higher interest coupon ones that make the longer dated ones more attractive. Alternatively you could buy stocks like Aviva with a 5.3% yield which generally grow in value (149% profit over 6 years including dividends). I would steer clear of corporate bonds though in the current market, gilts are safer.
 
Thanks.

So I am also looking at a December 2028 one.
Current buy is £1.02 and 6 %.

So for example if I had £30000 in that. If my thinking is right, I would lose £300 at maturity, but get about £1800 per year in interest
 
That sounds correct. Keep an eyre open for new issues though, they come up regularly and since the bank rate just increased, I'm guessing there may be some new ones coming soon.
 
super tempting at the moment with gov borrowing being so high.
 
So the first question is, if I buy it now, how does the December 2026 coupon work ? Is it full value or prorated ?
When you but a gilt you pay the accrued coupon from the last coupon date to the date of purchase to the seller. The clean price is the quoted price and the dirty pricece is the price you pay with the accrued coupon

There are handy calculators to show how much money you get back if you hold the gilt to maturity such as this one. It looks like you are interested in TR27

UK Gilt Calculator - Interest Payments & Total Returns

Find out how much interest you will receive each year and the overall capital gain for investments in any currently issued conventional UK gilt.
www.dividenddata.co.uk


One big advantage of low coupon gilts (such as TN28 with a 0.125% coupon) is that you pay little tax as you only have to pay tax on the coupon and not the capital gain. If you are holding them in a SIPP it does not apply to you, but outside of a SIPP/ISA it is a tax efficient way of saving.

Another important point to remember is that short dated gilts are a less risky that long dated gilts.
 
I'd echo the suggestion to look at stocks. There's also more flexibility with being able to change your investments without taking a hit. With Gilts, if you want to sell early and interest rates have gone up, then you'll likely take a hit. I doubt interest rates are going to fall.
 
gman said:
I'd echo the suggestion to look at stocks. There's also more flexibility with being able to change your investments without taking a hit. With Gilts, if you want to sell early and interest rates have gone up, then you'll likely take a hit. I doubt interest rates are going to fall.
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I won’t be looking at stocks, only cash or gilts.

It has to remain pretty much guaranteed not to lose anything. It has to cover me up to 67 and maybe have some left at that time.

I can plan with gilts when I need the next batch of cash and won’t need to chop and change
 
leaky5 said:
I won’t be looking at stocks, only cash or gilts.

It has to remain pretty much guaranteed not to lose anything. It has to cover me up to 67 and maybe have some left at that time.

I can plan with gilts when I need the next batch of cash and won’t need to chop and change
Click to expand...

I 100% feel what you are saying however one other way to look at it us to break it down and offset some of the cash/investement.
you could split it, so 50% gilts and 50% invest and look at the invest cash as the back end of your needs so you have loads of time to watch it happen and change your mind.
 
Mr Bump said:
I 100% feel what you are saying however one other way to look at it us to break it down and offset some of the cash/investement.
you could split it, so 50% gilts and 50% invest and look at the invest cash as the back end of your needs so you have loads of time to watch it happen and change your mind.
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lol nope not risking it.

For the last 6-9 months my 2 pensions did almost nothing with the companies who looked after them.
Probably because they were in less risky investments.

I have enough in all my savings to live at the same level I do now whilst working PT and once at 67 it will be the same.

All pensions apart from a small annuity will be index linked as well.

Any extra I make on cash or gilt’s investments / savings is an added bonus.

I can probably do this on cash interest in the SIPP on its own, but do a little better with gilts as well
 
leaky5 said:
I won’t be looking at stocks, only cash or gilts.

It has to remain pretty much guaranteed not to lose anything. It has to cover me up to 67 and maybe have some left at that time.

I can plan with gilts when I need the next batch of cash and won’t need to chop and change
Click to expand...

Some of the big stocks are very safe and you always have the flexibility to move to another (better) one. Mind it is the dividend payout you are looking at, not the growth of the stock. Stocks that payout generous dividends tend to be very safe and stable, plus there is always the added bonus of the stock itself increasing in value, so you gain there as well. But I understand your apprehension.

Gilts are certainly less risky, but as said you have less flexibility and there's also inflation to consider, so you have to make you that you will beat it.
 
to be fair the last 6-9 months have been tricky but gains have been there.
although recently we moved my wifes L and G pension over to vangard as it was also going now where fast.
if you can get by comfortably with your plan then yeah for sure, when i was setting my stall out for me and the wife to retire at my 55th (she 53) i aimed for an amount which was 25% over what i needed to give me a buffer and so far that is working out, if you have a buffer?
 
Planning on investing money taken out of premium bonds soon, already contacted my IFA regarding a meeting on our return for holiday, mentioned gilts to him so he is looking at all options, although at 70(ish) we are looking for standard income now, IFA has advised spend it since over the years I ensured we are pretty well invested at the mo.
 
Well 1st gilt is done. Matures Dec 2027.

1/3 of the SIPP is in that one.

Will do an October 2028 next for another 1/3.

That will leave plenty of cash for next year.

Then when I get to December next year I will see what we do with the money from the first gilt
 
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