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Weekend reading: And the little one said, rollover

What caught my eye this week.

Five years flies by when your country is shooting itself in the foot [1], the world’s most powerful nation is led by a man-child [2], and a global pandemic [3] sinks and then super-charges your portfolio.

Even so, as the dust settled I was surprised to see that my NS&I Index-linked certificates are up for renewal again [4].

If you have no idea what these are, I don’t blame you.

NS&I’s coveted certificates [5] haven’t been available to new investors for almost a decade. Existing holders have been able to rollover what they have – but only for increasingly measly returns.

Roll over Beethoven

If I renew my certificates for another five years, then I will get a guaranteed return of 0.01% tax-free per annum, plus inflation1 [6].

The same return is also available on rollover into two-year and three-year certificates.

Given that I am sure NS&I is familiar with the time value of money [7], this unchanging return profile over two-to-five years tells us a lot about where the market appeal lies with these certificates.

It’s all about guaranteeing the preservation of the spending power of your money via the index-linking.

If I rollover for five years, say, my money will preserve its real2 [8] value over that term. But the additional returns on top could be beaten by skipping a latte a year.

That’s a pathetic-looking reward for planning to lock your money away for five years3 [9].

And it gets worse!

In 2019, NS&I shifted the measure used to calculate the index-linking portion of the return. It now uses CPI instead of RPI. There are justifiable reasons for this, but as CPI has tended to run lower than RPI the net result for us investors is smaller gains over the years.

NS&I doesn’t hide [5] the impact of the shift, as illustrated by its table below (which uses 2019 inflation rates). It shows what you would get from a £1,000 investment under the two different inflation measures:

Historically low returns will very likely be even lower with CPI.

Harrumph!

Merrily we roll along

So why do I plan to rollover these certificates again – and for the full five years?

Because even just getting your money back with that inflation-tracking uplift beats cash in the bank. Returns on savings are currently far lower.

And because if inflation should spike dramatically, these certificates provide some protection against that, too.

Meanwhile if inflation turns negative, the NS&I certificates don’t go down in value. You’d just get the 0.01% applied that year. So there’s an asymmetrical risk/reward on offer.

Finally, I’ll renew for the whole five years just in case they decide to scrap them in the next few years.

You’ve got to roll with it

The big potential downside to rolling over is, of course, the probable opportunity cost.

My self-managed portfolio more than doubled over the past five years. Needless to say that smashed the return from my NS&I certificates.

But good investing isn’t just about holding assets with the highest expected returns. We need diversification, and we need an emergency fund, too.

I wrote a lot [4] about my last rollover in 2016 that holds true today. Please check back for a full run through the attractions of these certificates.

The RPI element has gone since then, but that aside the certificates still look like unique asset class that we private investors are lucky to have access to.

Moreover they’re not issuing them any more. When it comes to the rollover it’s use it or lose it for those lucky enough to own them already.

Perhaps the biggest argument against rolling over for me, personally, is that unlike in 2016 I’m now running a big mortgage [10]. I’d expect to earn a (slightly) higher return by cashing in my certificates and paying that down.

But then they’d be gone for me – and with them their unique diversification traits – and my overall investment posture would be less liquid (because I’d swap the semi-liquid certificates for a lower mortgage balance).

The cash value of my certificates could cover a couple of years of my mortgage payments, in a desperate pinch. Liquidity is valuable.

All told, my conclusion is much the same today as it was five years ago:

If these Index-linked certificates turn out to be the weakest performers over the next five years, then hurrah – because it will mean my vastly larger allocation to equities, for example, will have done better.

True, if I had a massive slug of these certificates then perhaps I’d need to think more carefully about how much money I wanted to commit to merely keeping up with inflation.

But like most people I only have a few percent in them, and as we’ve discussed they’re not making them anymore.

A solid hold, then. If only all investing decisions were this easy.

Let’s see where we are in 2026!

Have a great weekend everyone.

From Monevator

Accounting for big expenses and depreciation in your FIRE budget – Monevator [11]

Why you might be your own diamond of a dream tenant – Monevator [12]

From the archive-ator: Decoding a company’s dividend policy – Monevator [13]

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!4 [14]

UK house prices increase at fastest rate since 2004 – Guardian [15]

Barclays boss predicts biggest economic boom since 1948 – BBC [16]

One in seven UK shop fronts are now empty – Yahoo Finance [17]

Eurozone suffers double-dip recession as pandemic impact continues – BBC [18]

US tax plan ‘opens door to rest of the world’ to raise capital levies [Search result]FT [19]

Banks routinely blame victims of fraud – Which [20]

Some US insurers have started to invest in Bitcoin – Investment News [21]

The seven money personality types – CNBC [22]

Products and services

People could be asked to watch an education video before investing – Guardian [23]

Staycation demand is up 200%, but where are people booking? – ThisIsMoney [24]

Use my code eats-ubermonevator for your first Uber Eats order and we both get £10 off a £15 order – Uber Eats [25]

The fourth Covid support grant for the self-employed is now open – Which [26]

Get ready for a chablis shortage – Guardian [27]

Homes for sale with inspiring interiors, in pictures – Guardian [28]

Comment and opinion

Golden years at work are the hidden treasure of the old [Search result]FT [29]

Whose decline is it, anyway? – Of Dollars and Data [30]

The secret sauce of a successful retirement – Humble Dollar [31]

Days of future past – The Reformed Broker [32]

There’s nothing romantic about being scammed [Search result]FT [33]

The future is promised to no company – Abnormal Returns [34]

A golden age of fraud is upon us – A Wealth of Common Sense [35]

Money is the greatest story ever told – The Belle Curve [36]

Meta – Enso Finance [37]

Do US government bonds [Treasuries] still work? [US but relevant, geeky]Verdad [38]

Naughty corner: Active antics

The anatomy of a home run real estate investment – Banker on FIRE [39]

Do commodities still work as portfolio diversifiers? – Morningstar [40]

Swedroe: Be thankful you don’t have access to hedge funds – Seeking Alpha [41]

How many stocks beat the indexes? – Morningstar [42]

Wall Street Bets is still at it – Business of Business [43]

The rage of short-seller Carson Block – Institutional Investor [44]

The US corporation tax burden: facts and fiction… – Musings on Markets [45]

…but should corporation tax actually be 0%? – Bennallack [46]

Coronavirus corner

How Pfizer makes its Covid vaccine – New York Times [47]

Covid-19 infections in UK back to late summer 2020 levels – ONS [48]

More than 20 million living in UK areas with zero [recent] Covid deaths – BBC [49]

How Pfizer became the status vaccine – Slate [50]

One vaccine shot leaves many vulnerable to Covid variants, UK study finds [Search result]FT [51]

How India’s second Covid wave exploded – ABC News [52]

Kindle book bargains

The Almanack of Naval Ravikant: A Guide to Wealth and Happiness by Eric Jorgenson – £0.99 on Kindle [53]

Bezonomics: How Amazon Is Changing Our Lives by Brian Dumaine – £0.99 on Kindle [54]

Never Split the Difference by Chris Voss – £0.99 on Kindle [55]

Blood, Sweat, and Pixels: The Turbulent, Triumphant Stories Behind How Video Games Are Made by Jason Schreier  – £0.99 on Kindle [56]

Environmental factors

Why dead trees are ‘the hottest commodity on the planet’ – The Atlantic [57]

Italy allows hunters to shoot 7.5m endangered turtle doves – Independent [58]

Co-op to ditch plastic ‘Bags for Life’ over pollution concerns – Guardian [59]

A climate scientist explains why it’s still okay to have kids – Vox [60]

Europe is getting loads of really long parks – Time Out [61]

The long-term outlook for CO2 as an investment – Klement on Investing [62]

Off our beat

Is free will an illusion? – The Guardian [63]

Myspace Tom got it right – The Verge [64]

Tips on persuading people from the head of TED talks – Slate [65]

Is rewatching old TV good for the soul? – BBC [66]

The secret credit card that’s only for the rich [Ugh.]Backbencher [67]

Untenable – Seth’s Blog [68]

99 additional unsolicited bits of advice – Kevin Kelly [69]

And finally…

“That’s a lesson we can all learn: the more we have, the more we want. And the only cure is to break the cycle of relativity.”
– Dan Ariely, Predictably Irrational [70]

Like these links? Subscribe [71] to get them every Friday! Like these links? Note this article includes affiliate links, such as from Amazon and Uber Eats. We may be  compensated if you pursue these offers – that will not affect the price you pay.

  1. Technically ‘index-linking’ but it amounts to the same thing [ [74]]
  2. i.e. Inflation-adjusted. [ [75]]
  3. You can get the money out early if needed, with a penalty. [ [76]]
  4. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [ [77]]