Are you intimidated by the thought of buying individual index-linked UK government bonds to hedge UK inflation? Does the process sound too complex to tackle on your own? Well, fear not! I am here to guide you through the steps and demystify the process, just as I did for myself.
Let’s dive into the nitty-gritty details of purchasing index-linked gilts to ease your investment journey:
Challenges in Buying Individual Linkers:
- Accessibility: Not all brokers allow trading of individual gilts. It can be daunting to find a broker that offers this service easily.
- The Selection Process: Identifying the right gilts with the right maturity dates can be tricky for building a ladder.
- Pricing Complexities: Understanding the difference between clean and dirty pricing, accrued interest deductions, and indexation lag is crucial but confusing.
A Step-by-Step Guide to Buying Index-Linked Gilts:
- Free up cash by selling off existing investments to invest in individual gilts.
- Choose gilts with suitable maturity dates to create a ladder that aligns with your investment goals. Ensure to reinvest maturing proceeds annually.
- Look for gilts using their EPIC or ISIN codes to trade online with your broker. Double-check the details to avoid any mistakes.
- Beware of the pricing complexities of gilts, such as inflation-adjusted principal, accrued interest, and indexation lags. Ensure you understand how to calculate and interpret these numbers before making a purchase.
Troubleshooting and Tips:
- Keep an eye out for brokers facilitating online trading of gilts and familiarize yourself with their platforms.
- Be prepared for the possibility of initial losses post-purchase due to accrued interest, dealing charges, and market fluctuations.
- Verify how your broker values gilts, whether by nominal clean price or dirty price, to understand your true investment position.
Once you’ve successfully navigated the purchase process and traded your first index-linked gilts, congratulations! You’ve taken a significant step towards securing your investment portfolio against inflation. Remember, a prudent approach combined with detailed knowledge will help you make informed investment decisions.
So, take the plunge, research, and invest wisely in individual index-linked gilts to safeguard your assets for the future. Happy investing!
