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How to buy index-linked gilts

A holding of individual inflation-tracking UK government bonds is the way forward if you want an asset class to hedge UK inflation. But how do you actually buy index-linked gilts?

Thankfully, your neighbourhood investment blogger is here to clear that up.

I’ve personally been pushing this task around my own plate like a seven-year-old told to eat his greens, due to…

  • Telephone dealing: “I hate you!”
  • Dirty pricing versus clean pricing faffology: “Stoopid!”
  • Accrued interest deductions: “Don’t wanna!”

In short, buying individual index-linked gilts meant dealing with the unfamiliar and, as far as I could tell, deeply sucky.

I put the task off for months. Yet now I’ve done it, it doesn’t seem so bad after all.

I suspect I’m not the only one discouraged by mental barriers when looking to buy index-linked gilts.

And so today I’ll walk you through my recent index-linked gilt transaction to demystify the process. I’ll explain any important mechanics as we go, and we can sort any remaining bafflement in the comments.

Missing link(er)

First challenge: not every broker allows you to trade individual gilts.

Of those that do, some enable you to trade at the click of a button, others make you speak to another human at the end of a telephone. (What is this? The Dark Ages?)

Even then your broker may not trade every bond you want, or it may not trade every bond online.

I diversify across two brokers. Of those, only AJ Bell lets me invest in individual gilts.

Thankfully, AJ further enables me to click-to-buy all but two of the UK linkers currently on the secondary market.

No humans required!

If you’re building an index-linked gilt ladder, know that only the 2033 and 2054 rungs are missing from AJ Bell’s roster. (And it might let you buy these by phone too. I’m not sure.)

As it is, I’m building a short-dated rolling linker ladder as modelled in the No Cat Food decumulation portfolio.

How to buy index-linked gilts, step by step

My objective is to keep a portion of my SIPP in a very low-risk, inflation-hedging asset. Three years’ worth of index-linked gilts fits the bill nicely.

Let’s get on with it!

Step one: free up some cash

I flogged off my incumbent global inflation-linked bond ETF (GISG). It’s the best passive short-dated linker fund available in my view, but it still suffered a real terms loss in 2022.

Step two: choose your individual linkers

My rolling linker ladder will consist of three index-linked gilts, ideally maturing in one, two, and three years.

Assuming I don’t need the dosh, then I’ll annually reinvest the cash I get from the latest maturing gilt into a new linker with three years left on the clock.

The snag is there isn’t a linker maturing in 2025. So my first three picks will redeem from 2026 to 2028.

With that decided, the choice is simple as there’s only one linker available per year:

GiltMaturesEPIC codeISIN code
UKGI 0.125 03/262026TR26GB00BYY5F144
UKGI 1.25 11/272027T27GB00B128DH60
UKGI 0.125 08/282028T28GB00BZ1NTB69

No two organisations label their linkers exactly the same way. Search for – and double-check you’ve found – the right security by using its EPIC or ISIN code.

Once surfaced, you can click-through to trade your gilt – assuming your broker is on the grid.

Otherwise, it’s the telephone, or postal order, or semaphore trading for you m’lad / lass.

Brokers who facilitate online gilt trading

Disclosure: Links to platforms may be affiliate links, where we may earn a small commission. It doesn’t affect the price you pay. Your capital is at risk when you invest.

AJ Bell lists its gilt line-up on a specific page.

Hargreaves Lansdown also has a dedicated linker page. Click the Maturity header to place them in a sane running order. But beware, most of HL’s linkers apparently require an expensive telephone trade. See this super-helpful comment from reader Delta Hedge.

iWeb lists linkers too. (This page appears organised by the Muppet Show. Click through on the names to trade.)

Halifax and Lloyds use the same platform as iWeb but in nicer colours.

Interactive Investor trades linkers online but I can’t find a public-facing page. Individual conventional gilts are listed though. You can find index-linked gilts on ii by searching using EPIC codes.

Charles Stanley trades gilts but it looks like a telephone-only service.

Fidelity is an obvious absentee here. Sort it out Fidelity!

Let us know of any other brokers you use in the comments.

Step three: understand how individual linkers are priced

Things can get pretty confusing because of the way index-linked gilts are priced.

Most brokers and online data feeds show each linker’s clean price before you order.

The clean price is typically the nominal price for each gilt.1

That isn’t much use because the price you pay is the dirty price.

The dirty price is typically higher than the clean price. That’s because the clean price excludes:

  • Inflation-adjusted principal and accrued interest for three-month indexation lag linkers.
  • Accrued interest for eight-month indexation lag linkers.

Bear with!

Inflation-adjusted principal

Inflation-adjusted principal is the bond’s original £100 nominal value modified by the change in the RPI index since it was first issued.

In other words, if RPI inflation has increased by 10% since the linker hit the market, the value of its principal will have increased to £110.

It’s this inflation tracking property that makes linkers so valuable in the first place! (Along with their inflation-adjusted coupon or interest payments)

The clean price does not include inflation uplift on principal for most linkers, whereas the dirty price does.

While we’re here, I’ll just mention that all index-linked gilts are due to switch their link from RPI inflation to CPIH inflation from 2030.

Also while we’re here, bonds are a psychological hellscape of impenetrable jargon. Take the edge off it with our bond terms pain relief.

Also this Debt Management Office (DMO) glossary is a godsend.

Accrued interest

The dirty price includes inflation-adjusted accrued interest. Accrued interest is interest you’ve earned from owning the bond since its last coupon date.

By rights, that accrued interest belongs to the seller who held the bond until you swooped in.

Paying the dirty price (pumped up by the accrued interest) means you compensate the seller for the interest payment they won’t receive – because you now own the bond.

It’s a bit like pass the parcel. The previous owner handed the bond on to you while the music still played. And if you’re still in possession when the music stops, you scoop the whole prize – a semi-annual interest payment no less.

Thankfully, bond traders recognise that a children’s party game is no basis on which to build a thriving capital market. Thus accrued interest keeps everything fair and avoids foot-stamping temper tantrums.

This is also why bond trader parties are no fun.

Your broker will show accrued interest as a cost when you buy a gilt. You’ll make it back next time your linker deposits sweet, sweet income into your account. If you decide to sell a bond early, then someone will pay you any accrued interest in return.

Ownership of the gilt is determined seven business days before each coupon payment date. That seven day stretch is the ex-dividend period – beginning with the ex-dividend date.

If your purchase settles during that period (but not including the ex-dividend date itself) then you don’t pay accrued interest. Instead, you’re entitled to rebate interest. This will show as a Brucie bonus on your contract note.

What’s actually happened is that the seller has already been declared the winner of the next coupon. So if, for example, you take ownership of the gilt on the first day of the ex-dividend period, they owe you for the seven days of interest earned before the coupon paid out.

Just like accrued interest, rebate interest is a ‘fair’s fair’ mechanism. It ensures each party earns the right amount of interest for their period of ownership, regardless of where the coupon apples actually fall.

Fun fact: if your trade settles on the coupon payment date then there is no accrued interest (or rebate interest). Yin and Yang are in balance on this day.

Indexation lag

Eight-month indexation lag linkers upweight principal and coupon using RPI readings from eight months ago. For example, a coupon paid out in December is inflation-adjusted according to the previous April’s RPI index.

Eight-monthers are very much an endangered species. They were issued before 2005 and as mentioned only two remain in circulation: T30I maturing in 2030 and T2IL maturing in 2035.

Three-month indexation laggers represent the latest in UK linker engineering. They only trail inflation by three months.

Under the pricing bonnet, eight-month clean prices include inflation-adjusted principal and three-monthers do not. That’s why eight-monthers look more expensive at first blush.

In reality, it makes no difference. All gilts are bought at the dirty price and if you want a linker that matures in 2030 and 2035 then it’s an eight-monther for you.

Why don’t they show the dirty price?

God knows. It’s not as if they don’t calculate it when you make a purchase. Perhaps someone who knows about the live price plumbing can supply an answer. But it’s an annoying omission.

It’s also the reason why some brokers ask you to state a cash amount when ordering linkers rather than a unit number.

If you’re building a non-rolling linker ladder predicated on buying a certain number of gilts then it’s probably best to over-egg it.

That said, here are three sources of dirty price information:

  • Tradeweb – Sign up for a free account. Select Index-linked in the Security Type menu and press Submit. Set the Page size to 50 to see every linker on the market.
  • YieldGimp – Dirty price = Net Price (inc. Accrued) column on the spreadsheet.
  • LateGenXer – Scroll down and switch on the Index-linked toggle in the left-hand column. Enjoy dirty prices!

Tradeweb is the official supplier of gilt stats to the DMO. However, it only provides the closing dirty price, which it publishes around noon the following day.

YieldGimp updates its dirty prices throughout the day, so this is your go-to source if you want a rough and ready take on how many gilts you can expect to purchase. It won’t be spot-on, as we’ll see shortly. But it’ll be pretty close.

LateGenXer has developed a superb app to help UK investors build linker ladders. The dirty price is updated towards the end of the day. Extend the ‘Number of years’ in the left-hand column to see more linkers.

You can also calculate the dirty price from the clean price on the fly. Updated clean prices are available from the London Stock Exchange. Search using EPIC or ISIN codes.

It requires some spreadsheet kung-fu to beat the dirty price out of the clean price, so we’ll save that for the next thrilling episode of Arthur C. Accumulator’s Mysterious World (of linkers).

Units vs gilts

Okay, one last point on the linker pricing imbroglio.

Gilt prices are typically displayed in pounds not pence. If you see a two or three figure price then that’s the price in pounds per gilt unless it says otherwise.

Tradeweb, YieldGimp, and the London Stock Exchange display prices like this.

The brokers generally do the same. Until they don’t.

Now, just in case you were finding all this too easy, you don’t buy gilts in handy bundles of gilts.

You buy them in units. Each unit is worth a hundredth of gilt.

So if a gilt has a nominal value of £100 then each unit has a nominal value of £1.

Which sounds simple enough but we’re all busy people and it’s easy to forget.

Especially when your broker mixes unit values with gilt prices!

Here are the crazy scenes in my account:

I’ve bought 14,850 units of mystery brand linker A. But my mischievous broker displays the gilt price not the unit price.

  • 14,850 x £148.8817 = £2,210,893

I’m rich! Oh balls, I’m not rich. I just put the decimal place in the wrong column again.

The unit price is £1.488817 because each unit is worth one-hundredth of a gilt. Which explains why the value column is £22,108.93 and I haven’t bought a one-hundred bagger linker.

A single-figure price typically indicates a unit price. A two- to three-figure price suggests gilts, unless some eejit is showing you the price in pence, which some brokers randomly do. Good to keep you on your toes!

If you track your linker winnings on a spreadsheet and something isn’t adding up, then this units/gilt farce will often be the reason. At least it is for me.

Coupons, accrued interest, you name it – the amounts are typically quoted in pounds per gilt, so should be multiplied by your units / 100 when you’re totting them up.

Step four: lose the will to live

Revive with a coffee, a beer, or a fortifying hot chocolate to suit.

Step five: submit your order

I can’t believe it! I’m submitting my order already. So soon?

As I mentioned, nobody knows what the hell price they’re be paying so you’ll be asked to put cash on the table.

Once I did that with my trade, I was treated to this quote screen:

The clean price is just so much screen clutter. Fuggedaboudit.

Although that said, the £1 difference between the clean buy and sell price shows that you may pay a spread of about 10p per unit.

The indicative price is per unit and wasn’t too far out. I’ll explain more about this price in a sec as it’s dirty-ish but not strictly dirty.

The dealing charge was a fiver and very reasonable too. It works out at less than 0.023% of the transaction.

The order type was a market order or a limit order. In the end, I went for a market order.

Notice the small print that says: “Accrued interest payments will also be applied to the estimated total.” The bill for that is coming right up.

Anyway, dear reader, I submitted my order.

Telephone orders

I have not made a telephone order, but Monevator readers Mark Dawse and Sleepingdogs, among others, have reported on the process:

  • Know which index-linked gilts you want to order in advance.
  • Identify each one by their EPIC code. It’s much easier than using the longer ISIN number, and will knock precious minutes off the call!
  • The broker’s agent will repeat back the gilt’s code and other identifying details to ensure you’re both talking about the same thing.
  • They should quote the fee and an indicative price. You then confirm whether you wish to proceed.
  • The agent is likely to put you on hold while their team places the trades.
  • Once all trades have gone through, your agent will list your purchases and the actual prices paid.
  • Set aside plenty of time for the call, especially if you’re placing several orders in one go.

Step six: “Congratulations on your purchase of UK government debt”

Here are my contract note highlights (never thought I’d find myself saying that):

After the sale, you’ll finally know how many units you’ve bought.

That’s 14,850 – or 148.5 gilts – in this case.

The price per unit is higher than indicated on the quote screen. No biggie.

The consideration number tells me I’ve bought £22,094.15 of linker TR26. (Our mystery brand revealed!)

And I owe 23p in accrued interest. Could be worse.

Notice how accrued interest is a cost on top, like the dealing charge.

Step seven: incur an immediate loss

Every time you buy individual gilts, your broker is likely to show you’ve made an initial loss (unless the price moves sharply in your favour).

Here’s the losses weighing on my three linkers shortly after purchase:

There’s nothing like getting off to a great start, right?

The loss comprises:

  • A £5 dealing charge
  • Accrued interest
  • Unfavourable price moves since purchase

By the time I took this shot, the 2026 linker (TR26) was down 56p price-wise. Meanwhile, the prices of the other two were up £6.59 and £4.54 respectively, reducing my initial losses.

Fam, it’s a rollercoaster.

You may show a much worse loss if your broker values your linkers using the nominal clean price.

If AJ Bell did that then my valuation would have looked approximately like this:

GiltUnitsClean priceValue
UKGI 0.125 03/2614,850£99.16£14,725.26
UKGI 1.25 11/2710,660£103.40£11,022.44
UKGI 0.125 08/2815,932£99.92£15,919.25

My holding would have appeared down by nearly £25,000 if it was valued by the clean price. (Remember the clean price is divided by 100 to get the unit price).

If you are seeing massive losses like that then there’s almost certainly no cause for alarm. (Assuming they’re caused by the clean price method which they probably are.)

Your index-linked gilts are actually valued by the dirty price. This includes all that lovely inflation uplift and accrued interest.

I’ll include a spreadsheet in the next part of this series so you can properly track the value of your holdings using the intra-day dirty price.

Inflation-adjusted clean price and this accrued interest business

Although AJ Bell isn’t valuing my linkers by the nominal clean price I don’t think it’s using the dirty price either.

If it was, then my portfolio wouldn’t show a loss due to accrued interest – because accrued interest is included in the dirty price.

So it must be valuing my units by the inflation-adjusted clean price. That is:

The dirty price minus accrued interest. Or, in other words, the clean price incorporating inflation-adjusted principal. 

Thus my linkers should be worth a little bit more than shown in the last screenshot above. Because if I sold them immediately after purchase, I’d be due the accrued interest I’d bought, but never received, because I sold out before the next coupon payment.

It’s all relatively easy to calculate but let’s leave it for the spreadsheet episode to come. Tradeweb also publishes accrued interest figures per gilt (see the link waaaaay above.)

Step eight: stop writing about index-linked gilts

Don’t mind if I do.

Hope this all helps someone.

Take it steady,

The Accumulator

  1. Eight-month indexation lag linkers include inflation-adjusted principal in the clean price. However, there are only two eight-monthers left: T30I maturing in 2030 and T2IL maturing in 2035. []
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Rightmove. Wrong price [Members]

Moguls logo

The best businesses can be too good to stay that way. Blessed with superb economics and seemingly-impregnable market positions, anyone would want to own their quality but for two recurring problems:

  • Valuation – Unless the company or its sector is new (think Google-owner Alphabet on listing in 2004) or there is some kind of crisis (as Warren Buffett exploited with his American Express purchase in 1964) you must usually pay a generous multiple of future cashflows to buy the shares.
This article can be read by selected Monevator members. Please see our membership plans and consider joining! Already a member? Sign in here.
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Weekend reading: It’s the final Budget countdown

Our Weekend Reading logo

What caught my eye this week.

Just 26 sleeps to go until the new government’s first Budget on Wednesday 30 October. And I cannot recall there ever being so much pre-match jitters.

I could have filled the links below with forecasts, evasive action tips, and threats to emigrate. Hardly what anyone would call a honeymoon period, let alone the good vibes of Tony Blair’s 1997 win.

Even those who didn’t vote for Blair admitted the national mood music went up a level overnight. This time the change has been more like somebody coming in, turning the music off and the lights on, and telling everyone to sod off home.

And I say that as someone who has more sympathy than most with the view that the State’s finances are atypically feeble.

There have been worse economic periods, for sure. Seldom did they unfold though while so many in power gaslighted us with tall tales about how great things were – and millions believed them.

(In short: where did you spend your ‘Brexit dividend’, eh?)

Black rod

With that said, Labour made a rod for its own back by waiting so long to hold the Budget.

It’s like sitting outside the headmasters’ office all day before you’re seen. Almost as bad as the punishment!

For my part I haven’t much to add beyond what I wrote in my articles on the potential capital gains tax (CGT) hike and whether CGT fears could be presenting us with opportunities.

Monevator readers added tons of value in the comments to both articles, incidentally. Go read them if you haven’t.

I would also note that in less than four week’s time the picture will be clear.

ISAs

If you plan to fill your ISA, I say get on with it ASAP. It’s hard to see a downside, given the risk of a cut to the annual allowance.

In practice I suspect any new ISA rules would begin from April next year. Still, why risk it?

However I certainly wouldn’t take out ISA money fearing withdrawals could be taxed in the future. I wouldn’t risk shrinking my ISA tax shield on the very unlikely odds of retrospective taxation.

(Exception: if you have a flexible ISA and if you can definitely put the money back in post-Budget Day if required, different story…)

Pensions

Pensions are trickier. There are reports of people cashing in their tax-free lump sums now or maximising their contributions, in case the rules change.

Yet the former might not be tax optimal for you if nothing changes (depending on wildly varying personal circumstances) while if you’re stretching yourself to load up your pension, you could face other day-to-day spending difficulties. Remember, pension money is locked away for the long-term.

This is not to go into the myriad edge cases that dance around on the threshold of pension drawdown and the like. Take care whatever you do.

Calm before the storm-let

Finally beware of excessive panic due to someone else’s political agenda.

The right-wing papers are having a field day – and worries around pensions and the like are a pre-Budget staple anyway.

But usually not too much happens in practice.

Personally I do expect some things to change but not everything. And I’m not going to do anything hugely radical on the back of that.

Have a great weekend.

[continue reading…]

{ 31 comments }

The Slow and Steady passive portfolio update: Q3 2024

Slow & Steady model portfolio logo

The Slow & Steady portfolio has hit an new all-time high! Yes, our model passive portfolio has finally surpassed its previous peak, reached on New Year’s Eve 2021. Almost two years later we’ve put 2022’s bond crash behind us – in nominal terms anyway – as the portfolio grew for the fourth quarter in succession.

And for once that growth wasn’t driven by our US-dominated Developed world fund. Here are the numbers, in Allswell-o-vision™:

The Slow & Steady is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £1,264 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and find all the previous passive portfolio posts in the Monevator vaults. Last quarter’s instalment can be found here.

The big winner this quarter was global property. It soared over 10% in the three months – having spent much of the year sinking into the mud like a cheap tower block.

In fact even after its recent spurt, global property has managed less than 5% growth year-to-date. That lags the double-digit returns from Emerging Markets, UK equities, and the Developed World.

I need to do a deeper dive into the diversification potential of a REITs index tracker (which is what any passive property fund is) because I am far from convinced that owning this type of real estate makes much difference at the portfolio level.

Bond of bothers

What news of the irradiated bond asset classes?

The recovery looks healthy on the longer one-year view – in terms of what you can hope for from bonds, anyway – but 2024 itself has been a poor year so far.

Here’s how this year’s bond weakness pings out in red in the fund view in Morningstar’s Portfolio Manager:

I’ve circled the two bond funds’ one-year performances in green, and their year-to-date returns in red.

Note the table shows nominal returns. Both funds are actually down in real terms this year, once you factor in August’s 3.1% CPIH inflation figure.

I’ve also circled the 10-year annualised returns in cyan – because we’re all about the long-term here at Monevator!

You can see the long-term growth engine of our portfolio has been its Developed World fund. Indeed if we unpack the Matryoshka dolls of causation, then really it’s the US S&P 500 – and inside that a handful of tech firms.

See our last update for a chart showing how well we could have done if we’d gone all-in on tech when we launched our model portfolio in 2011.

Which we might have done if we could predict the future. Which we can’t.

(And incidentally neither can you).

Choose wisely

A portfolio choice can only be meaningfully compared with an alternative you might have reasonably made ex-ante.1

The Slow & Steady was conceived as a DIY passive portfolio. Our choices were aligned with best practice on managing your own investments.

The model portfolio’s ‘competitor’ then is not a wise-after-the-fact YOLO punt on a tech ETF, but rather something like a Vanguard’s LifeStrategy multi-asset fund. An off-the-peg investing ready meal that enables you to invest in a nutritious portfolio with minimal work. (Sounds awful, I know.)

So has all my DIY dosey-doe added one scintilla of value compared to picking this magi-mix investing alternative?

I think you can see where this is going…

Chart attack

Firstly, because I’ve taken the trouble to painstakingly unitise the portfolio for this comparison, I’ll treat you to the exclusive unveiling of the Slow & Steady’s performance chart. (A happy byproduct of the exercise):

Our model portfolio was launched to world acclaim global indifference on 31 December 2010.

From there, the little portfolio that sorta could has grown 161%. You can see that its value has just reached a new high as it hits the wall on the right.

This 161% gain amounts to a time-weighted return of 7.24% annualised since purchase. (A time-weighted return strips out the impact of cashflows upon a portfolio, and is how comparisons between investments are usually made.)

Meanwhile, the portfolio’s money-weighted annualised return is 6.97%. (The money-weighted return is more realistic in my view. That’s because the periods when you have more invested make a greater contribution than if, say, your portfolio doubled when you put in your first fifty quid.)

Oh really? Note you can subtract approximately 3% to reflect average inflation to get the real return. A 4% annualised real return is what you might expect a 60/40 portfolio to deliver, based on long-term historical datasets.

More ups and downs

As average as all that sounds, the numbers show the Slow & Steady hasn’t so much as taken a bear market beating during its adventures to-date.

That’s encouraging!

Our worst slide was -15% during 2022’s bond crash. Covid amounted to a -11% plunge before we were rescued by the authorities’ big bazookas.

In comparison to the worst investing can throw at us, the portfolio’s performance looks more like riding a vintage merry-go-round horse than a rollercoaster.

I’ve even made the journey look choppier by using a linear chart above. A linear investing chart exaggerates the scale of later events relative to earlier ones.

Here’s a more realistic logarithmic view:

Essentially, the portfolio has gently wafted higher over the course of its 14-years, with just the occasional stomach-tickling lurch due to turbulence.

I think my first chart feels like the voice of anxiety in our heads yelling: “AAAARGH! Everything is incredibly important and sometimes quite scary because it’s happening to me right NOW!”

While the second chart is closer to objective investing reality, as experienced by a 60/40 passive investor in recent times.

Multi-asset face-off

Now, about that Slow & Steady vs LifeStrategy Thrilla in Vanilla I’ve been dawdling towards.

Here’s Morningstar’s chart for the LifeStrategy 80 and LifeStrategy 60 funds. It’s set to the longest comparison period I can make with my Slow & Steady returns:

LifeStrategy funds only launched in the UK on 23 June 2011.

My nearest Slow & Steady datapoint dates from 1 July 2011, so that’s the starting line for this foot race.

But why is this a three-cornered contest, with two Vanguard funds in the chart?

Because the Slow & Steady portfolio was originally an 80/20 portfolio.

To reflect its fictitious owner aging, we rebalanced into a 60/40 over the course of its first ten years. This saw 2% of the equity allocation transmuted into bonds every year for a decade.

Hence we’d expect the Slow & Steady to perform somewhere between the LifeStrategy 80 and 60, which stick rigidly to their asset allocation lanes.

Out-take – I know, if I had any gumption, I’d gather 14-years’ worth of price data for the Vanguard twosome, combine them into a portfolio, and plot an equivalent declining glidepath. Perhaps one wet weekend I will. If I really want to drive Mrs Accumulator into serving those divorce papers.

Show me the money

This is the best comparison I can do for now. And I think it’s very telling:

Portfolio Cumulative (%) Annualised (%)
Vanguard LifeStrategy 80 191.47 8.41
Slow & Steady  158.97 7.45
Vanguard LifeStrategy 60 143.07 6.93

Nominal returns, 1 July 2011 to 27 Sep 2024. 

Over this timeframe, the LifeStrategy 80/20 portfolio has grown 20% larger than the Slow & Steady, which in turn is 11% larger than the LifeStrategy 60/40 portfolio. 

Our plucky DIY champ has split the two Vanguard funds down the middle! Which is as it should be because its asset allocation lay somewhere between the two. 

And while I don’t know how this match-up looks on a risk-adjusted basis, I’m doubtful of snaffling too many crumbs of comfort given the Slow & Steady was (by design) maxed out on UK government bonds just as that asset class suffered its worst year in history

Ultimately – as much as I had fun ensuring the Slow & Steady portfolio was better diversified than its fund-of-funds equivalent – if I’d really had that crystal ball in 2011, I’d have recommended picking the LifeStrategy option unless you really enjoyed being hands on. 

In fact that’s exactly what I suggested to friends and family.

For some peculiar reason they don’t give two-hoots about investing. But they needed to save for retirement all the same. 

So much for taking the scenic route

The main lesson I draw from this investing smackdown is simplicity is under-rated and optimisation over-rated. 

Monevator’s model portfolio is souped-up with small cap equities, global real estate, and inflation-linked bonds that LifeStrategy lacks.

And the Slow & Steady’s OCF of 0.16% compares well with the LifeStrategy’s 0.22% charge. 

But despite all that, the two load-outs are very similar at a broad equity/bond asset allocation level.

And that’s proved decisive in this score draw. 

New transactions

Every quarter we throw £1,264 like autumn leaves into the market winds. Our stake is split between our portfolio’s seven funds, according to our predetermined asset allocation.

We rebalance using Larry Swedroe’s 5/25 rule. That hasn’t been activated this quarter, so the trades play out as follows:

UK equity

Vanguard FTSE UK All-Share Index Trust – OCF 0.06%

Fund identifier: GB00B3X7QG63

New purchase: £63.20

Buy 0.225 units @ £281.34

Target allocation: 5%

Developed world ex-UK equities

Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%

Fund identifier: GB00B59G4Q73

New purchase: £467.68

Buy 0.703 units @ £665.56

Target allocation: 37%

Global small cap equities

Vanguard Global Small-Cap Index Fund – OCF 0.29%

Fund identifier: IE00B3X1NT05

New purchase: £63.20

Buy 0.147 units @ £431.23

Target allocation: 5%

Emerging market equities

iShares Emerging Markets Equity Index Fund D – OCF 0.19%

Fund identifier: GB00B84DY642

New purchase: £101.12

Buy 49.095 units @ £2.06

Target allocation: 8%

Global property

iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.18%

Fund identifier: GB00B5BFJG71

New purchase: £63.20

Buy 26.057 units @ £2.43

Target allocation: 5%

UK gilts

Vanguard UK Government Bond Index – OCF 0.12%

Fund identifier: IE00B1S75374

New purchase: £316

Buy 2.326 units @ £135.86

Target allocation: 25%

Global inflation-linked bonds

Royal London Short Duration Global Index-Linked Fund – OCF 0.27%

Fund identifier: GB00BD050F05

New purchase: £189.60

Buy 174.908 units @ £1.08

Target allocation: 15%

New investment contribution = £1,264

Trading cost = £0

Average portfolio OCF = 0.16%

User manual

Take a look at our broker comparison table for your best investment account options.

InvestEngine is currently cheapest if you’re happy to invest only in ETFs. Or learn more about choosing the cheapest stocks and shares ISA for your circumstances.

If this seems too complicated, check out our best multi-asset fund picks. These include all-in-one diversified portfolios, such as the Vanguard LifeStrategy funds.

Interested in tracking your own portfolio or using the Slow & Steady investment tracking spreadsheet? Our piece on portfolio tracking shows you how.

You might also enjoy a refresher on why we think most people are best choosing passive vs active investing.

Take it steady,

The Accumulator

  1. i.e. Back at the time you made the decision. []
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