A guide to Gilts and Gold

We believe that long term investing in a diverse range of assets and geographies is the best way to invest your money and that there have been some great opportunities created with the COVID-19 pandemic in the investment world. It may be that you are concerned with these events and feel uncomfortable in investing in equities in this current environment; at the same time it may be that you are sitting on large deposits that are earning little to no interest at your bank and are actually depreciating in real terms. Alternatively, you may currently be concerned with holding a large deposit in a bank. Here I would like to look at a couple of short term alternative ideas to cash in this changing world.

Performance since 2015
FTSE Actuaries UK Conventional Gilts
10-15 Years TR

Government bonds provide liquidity and are a low risk alternative to cash. In the UK, these are known as Gilts, but if you are looking to invest in different currencies, most countries issue an equivalent bond. In the current low interest environment, the yields in Gilts aren’t vast, but they often offer better returns than cash. Gilts are government guaranteed and although there is a risk of the UK Government defaulting, it has yet to happen. Gilts tend to be exempt from Capital Gains Tax for individuals and Income Tax is due on any accrued or paid interest, however if held in an ISA there would be no Income Tax due either.

iShares Physical Gold ETC GBP

Gold is and always has been a controversial investment, with well-known investor Warren Buffet stating he has never been a fan because it offers no yield. If you buy an ounce of gold today, then in ten years you still own an ounce of gold, however there are several factors that suggest holding gold in the current economic environment is a good idea. Real interest rates across the world are negative in many places, which means that for the first time gold, with a yield of nothing, is actually producing a positive return in comparison to cash. Gold has historically offered good inflationary protection, and if you feel the monetary policy will result in inflation, it is a good reason to hold some gold within your portfolio. Gold also provides diversification in a portfolio and often performs well in times of economic uncertainty.

We believe Gilts and Gold form an important part of a diversified portfolio. If you wish to discuss either in further details, please contact your investment manager.