There is an article in the FT this morning suggesting that it should become much easier to invest in UK government bonds and that the almost deliberate lack of data supply to retail (household) investors that lets them choose the right bonds to save in seems like a deliberate attempt to stop them doing so.
I agree that it is absurd that trading in shares is made really easy in this country, but saving by owning a part of the UK national debt is made really hard. A tiny proportion of that so-called debt is owned by individuals as a result, which is one reason why it is so hard for people to understand that this so-called debt is just a savings arrangement.
This makes no sense to me. The government wants people to save with it, but makes it hard for the people who should be doing that saving – the people if the UK – to do so.
So, you can buy gilts direct from the DMO.
Or you can just use Hargreaves Lansdown as you do with shares. Or any other broker of course.
What the hell’s difficult about this?
Conventional wisdom advocates a diversified portfolio for individual investors. Picking individual stocks or bonds is best left to peeps who know what they are doing or with capital you willing to accept a higher risk profile on.
There are stacks of bond funds available usually in the same place you choose to find your equity funds. As an aside a goodly proportion of your company pension is probably already invested in a mixture of bonds.
In short wrong and in terms of investment advice dangerously so.
You could almost get the impression that he wants the government, one way or another, to get its hands on of all your money.
Have I got this right?
The government is having trouble selling its debt to sophisticated professionals so Spud wants the government to “inform” unsophisticated retail consumers so that they will buy it instead?
Sounds like fraud to me and if a bank tried that on Spud would be up in arms.
“Picking individual stocks or bonds is best left to peeps who know what they are doing” Not with government bonds, I’d say. Pick a gilt with the maturity date you like, ensure you understand the tax implications, buy it, and hold to maturity. Easy as pie, in principle. (And easy as pie on the few occasions I’ve done it.)
The chat on financial websites suggests to me that people are baffled by the clean price/dirty price distinction, and the difficulty of knowing what running yield they’re going to get. It suggests to me that one of the O/L platforms could steal a march on its rivals by setting everything up transparently.
Personally I wouldn’t touch a government bond fund – it profoundly undermines a key feature of bonds, namely the certainty of returns if held to maturity. Maybe a fund makes sense for commercial bonds which are often (I gather) a bit tricky for the amateur but there, too, it doesn’t behave like bonds anymore: you get all of the uncertainty but none of the certainty.
P.S. One problem with HL: I open any of their documents – such as the one linked – and it won’t scroll on my computer. What sort of software lamebrain thought it wise to try to promote the business with bumf that a slightly old but not antique iMac has difficulty with? HL is a firm that charges high but justifies it by claiming excellent service. I don’t call this feature excellent. “Crap” might be nearer the mark.
@dearieme Holding a short term bond(s) (1 -5yrs) to maturity may be a fairly straight forward investment process. It’s not too dissimilar to fixed term cash saving accounts.
However they are not the same, and should someone be unable to hold the bond until maturity they will learn a lot about redemption yields. They will also begin to appreciate the power of concensus opinion on the direction of travel of interest rates. Hell they may even learn about maturity curves 🙂
When Joe Punter gets to peruse the range of Gilts available I suspect coupon rate will feature just as prominantly in any choices made as maturity dates.
I actually bought some gilts via Interactive Investor a few months ago (2025 maturity). Only the coupon of 0.25% is subject to income tax, the remainder of the return (YTM was about 5%, couldn’t be bothered to work it out exactly) is treated as capital, and capital gains on gilts are exempt from CGT, so all rather tax efficient which I expect Ritchie wouldn’t be too chuffed about.
Whole process took me about 3 minutes.
PS Govt bond funds remove counterparty risk from your investment. As such they can be very useful when building a portfolio.
Weren’t we all supposed to be forced into investing in 1% spud-bonds?
@ Bloke in Scotland
What counterparty are you talking about?
The Government is the counter party – do difference between individual bonds or a bond fund.
I presume that what Murphy is demanding is the right for households to buy gilts at face value regardless of demand. As the link which Tim provides to the DMO specifies, this isn’t how gilts work:
“Please note that you are not able to specify the price or a maximum/minimum price at which your purchase/sale of gilts are to be made.”
There is a provider offering exactly the service Murphy wants though, offering the opportunity to buy government debt at a guaranteed price: it’s called National Savings & Investments.
The discussion here shows just how far we are away from the average punter. Mind you the average punter doesn’t have £50k to drop on a specific gilt.
In olden times a bank rate change was a big event but sometimes predictable. Anticipating such a change would raise gilt prices I bought some consols. At the Post Office. So at that time, probably around 1990, you could do that, but most people had no idea and weren’t interested in gilts anyway. The rate duly changed and I sold them back at a decent profit.