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We are delighted to see that Gilts won the year on year performance comparison with equities but are disapppointed to see that misinformation seems as rife as ever.
The great post 1945 inflation is over, finished, unlikely to return for a generation or more. The great rise in equity prices from the late 1950's to 1999 is equally over. Where have all the buyers gone? Sellers must now predominate as pension funds follow Boots in a rush for relative safety.
Yet rolling ten year comparisons are still trotted out to justify foisting equities on the unwary. A ten year rolling average will always show the defunct trend (equities) as the winner until five complete years have passed with equities losing. This hides the simplicity of the trend to fixed interest for five years or more. A trick of the trade?
Notice how many voices are promoting corporate bonds as the alternative. We do not because financial risk is rising (see There are bonds and bonds) . Energis is the latest sorry story, with its bonds worth only 15% of face value. This is another trick of the trade, pushing the higher yield compared to Gilts without explaining the risk.
Most performance comparisons are the difference between two arbitrary points. As prices - even of Gilts - fluctuate, so the selection of arbitrary points can alter the emphasis of the trend. In the case of Gilt-Equity comparisons, the arbitrary points are at the end of each calendar year, with no allowance for income on higher coupon stocks bought some years earlier. Another trick of the trade.
Only a Gilt can give you fixed income that will stay up when rates fall yet again, together with fixed repayment on a known date in the future, free of all credit risk. It is a fundamental principle that risk should only be taken where the odds are in your favour. The odds are against you in equities and equally in corporate bonds.
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