inflation hedges

Bitstring , from the wonderful person Gallagher said

Index linked gilts, but no guarantee they will move exactly in line with inflation. Index linked national savings certs track more closely, and are tax free, but you have a limited amount you can invest in each issue. Regular Gilts are not a sensible option - they promise to pay you a fixed number of £ at some future date, regardless of what a pound is/isn't worth by then.

Nor is there any reason to believe property is going to track inflation any better than other asset classes .. I would guess that it'll do worse, given where it is starting from.

an LPI swap?

historically don't the perpetual gilts, like 3.5% war loan and the consolodated loan stocks keep up with inflation?

to quote from

"The 2½% Consolidated Loan Stock (Consol) is an irredeemable United Kingdom Gilt, first issued in 1749. The gilt has no fixed life and there is no promise of redemption at par, or issue price, as is the case with more common, dated gilts. This perpetual characteristic of the Consol means that its yield represents, at any point in time, investors best estimate of the required running nominal yield to at least preserve the purchasing power of Sterling for the foreseeable future, because there is no stated end to the gilt's life. "

Robert

what about derivatives? of course get a professional to do it. i did however read that the returns, if you bet the correct direction, are almost 900% but get it wrong the losses are infinite. any truth to that?

No. They fluctuate around the £100 mark depending on movements in interest rates above and below the respective nominal rates of the loan stocks.

They provide a hedge against movements in annuity rates as a result of interest rate changes, so for that reason it is a good idea to shift your pension money into them as you get closer to retirement, but they certainly don't hedge against inflation.

Or if you look at it another way, they cost £100 in 194x pounds, and you can buy them now for £60 2007 pounds (I didn't look recently) which is definitely not keeping up with inflation.

Bitstring , from the wonderful person Gallagher said

The losses could be very large, but not infinite. However if you don't know what you are doing, don't event think about it. Getting 'a professional' to do it for you just adds one more thing to go wrong. If professional could win all the time they would do it with their money not yours (actually they'd be lying on a beach in the Bahamas).

With your money, if they lose it all .. well there's another punter along with more money tomorrow ..

Just trot down the casino and put it all on 13.

Ah yes, of course. the text I quoted (repeated below) means that their actual yield (currently about 4.5% pa) is a barometer of what return is needed to beat inflation at the moment, but that does not mean their value will keep up with inflation. An importnat misunderstanding on my part, sorry.

"This perpetual characteristic of

Robert

Obviously losses aren't infinite any counterparty will want to check your credit worthiness and ability to pay losses before entering into any contract.

If you are just looking for leverage a standard mortgage gives you that.

If you want to short the market you could try put options where your losses are limited to the amount you pay for the option but you can get a lot if the market really plummets.

900% = how long is a piece of string.

If you think of professionals as bookies.

They can offer you the best odds on a horse but they can't tell you which one will win.

I presume you'll be taking a 5% cut for that advice.