ryanlpconnell wrote: Sun Oct 19, 2025 7:02 am
ValueThinker thanks again for your detailed replies.Valuethinker wrote: Sat Oct 18, 2025 9:15 am
So only Index Linked Gilts hedge against UK inflation (GBP inflation). The corporate Inflation Linked Bond market is tiny (and of course adds credit risk). The reason to diversify away then is simply because you don’t think the UK government will make good on its promises to debt holders.I happen to think it will.
I acknowledge and take onboard the fact that only ILG can protect GBP inflation…
But just to say that the global version I was looking at follows the Bloomberg World Government inflation-linked index (GBP hedged). Obviously this doesn’t negate the point is won’t correlate with UK inflation directly or like ILGs would, but just to say it isn’t corporate IL bonds (I didn’t know that was a thing tbh), unless I misunderstand what you mean by this. Anyway, my only point being earlier in the post that I was looking to diversify away the possibility of a UK Gov default. Which I accept you believe wouldn’t happen, and perhaps I read and listen to too much doomsday news which sways my perspective on this!
So here’s how I read it. There’s an awful lot of vested interests, chiefly in the media, that talk about a UK government default. But gilt yields are not telling you the market thinks the UK will default. Now we had the September 2022 Truss/ Kwartung “tantrum” on the bond markets – and Truss goes around conferences in the US telling people it’s because of ideological opposition from fund managers, apparently. That she did nothing wrong and no one told her that Liability Driven Investing would blow up (although this does not explain the firing of Tom Scholar).
Now there are political parties on the extreme left and right where one might have more doubts. Highly slanted media are talking out of the side of the mouth on this one (implying it is a danger is certain sorts are elected, but not others). But aren’t either side just likely to have more inflation? Actual default would be … a huge step. Fatally damaging London as a financial services centre, for example. Now I grant you on the left there are some who would welcome that, but the largest corporation tax revenue producer (particularly if you include income tax on all those high earners, plus VAT of course)? Really?
I agree that the global inflation-linked bond fund, sterling hedged, should have similar returns *over time* to an ILG fund. Some years it will likely be very different. But it will definitely be shorter duration than the ILG fund (should be). I shrug. When in doubt, 50/50? (Just make sure you’ve compared the 2 historic charts, to see how much performance has diverged at any given time).
I am currently working on a better IPS, and to include some diary entries for the psychological turmoil an allocation to Gold has presented me, even when going up! https://www.bogleheads.org/wiki/Investm … _statement…Clearly when I jumped into Gold earlier in the year I didn’t take the time to really think about the psychological factors involved with rebalancing, especially if it did become overweight infact, let alone considering the information and perspective you’ve pointed out throughout the post.
You’ve made money in gold! Remember Napoleon’s dictum to his generals: “First. You must be lucky”.
So don’t kick yourself — you’ve made money! But learn from the experience. The best speculators I ever worked with would jump on these escalators of market sentiment, ride them to nearly the top, and then get out. I do believe it was a skill – some people had that feel for market psychology (but could stand aside from the mania of the crowd) and others did not. OTOH Dr Michael Burry, hero of The Big Short, was right too early – his fund investors sued him to try to get their money out.
What matters now is:
1. what is my risk tolerance?
2. did I mean to have 10% in this asset? In which case if it drops, will I be be buying? Or was this “Croupier. Again. All my chips on red”? If this was something of a gamble, and you made money, then do you want to take chips “off the table”? For example if you’ve doubled your money, you could say “I was more comfortable at 5% than 10%” and simply sell down to 5%.
We live in the age of improbable. I would say that, under normal circumstances, there’s no way in heck the gold price stays this high. It might go up another $2k, but it will be headed down. Except, there really are people who think the US should monetize its gold reserves. And those people are in high places. And China etc really are trying to get out of the USD hegemoney (pun ).
I shrug. I can’t call it. It’s too late to jump on the ladder (for me: remember my nickname is “valuethinker”).
I would also say, again with some certainty, that the whole AI thing is overcooked. Not the use and pervasiveness of the technology (that seems to be happening), but the valuations of the “AI stocks” and the manic way the market is reacting to news of “AI”. Yes I know it’s not 2000, and these companies have real profits & cash flow. But there’s considerable self-dealing going on – investing in companies that in turn buy my chips, etc. This does remind me of 1999-2000 and Japan in the late 1980s (cross shareholdings).
The reality is stocks could double from here before the AI bubble “pops”. Not all bubbles end unhappily. I do aim modestly away from the US index. But I overweighted Japan, which after the USA, is the 2nd worst performing major market this year. Oops.
