This week we’re going to be answering the question ‘What is a Gilt?’ as part of our series of articles on the ingredients that make up a balanced investment portfolio.
This is a question that’s often asked in the same breath as ‘What is a bond?’, something we’ve already covered in a previous article, but which we’ll revisit briefly in this piece.
A gilt is simply a loan to a Government as opposed to a loan to a corporation, which is known as a corporate bond.
They’re effectively the same thing – you’re lending your money to someone for a fixed period of time and are being paid a higher rate of interest in return because there is a small risk that the debtor will be unable to pay you back.
In theory gilts are more secure than bonds because there’s less chance of a government going bust. But that’s not always true and you’ve only got to look a Greece and Icelandic debt of ten years ago to see that there is still some degree of risk involved when it comes to investing this way.
However, there’s a whole world of opportunity out there when it comes to investing in gilts and bonds and they are an important part of any portfolio.
For most clients we would look at a global fund which would hold a mixture of government (gilts) and corporate (bonds) debt in virtually every developed economy.
This portfolio ingredient is very much about diversification and protecting profits that have already built up and stopping large future falls.
For example, just because we’ve got some concerns about Brexit in Europe right now the rest of the world doesn’t really care. So, having a global fund removes some of the uncertainty around Brexit.
Next week we’ll take a look at how shares and equities are used to complete your portfolio in the final article in this series.
TIM EMBLETON
INVESTMENTS – THE VALUE OF UNITS CAN FALL AS WELL AS RISE, AND YOU MAY NOT GET BACK ALL YOUR ORIGINAL INVESTMENT
Time Financial Planning Limited is an appointed representative of The On-Line Partnership Limited which is authorised and regulated by the Financial Conduct Authority.
