Do gilts offer me a safer investment?

Our expert advises someone with £100,000 who is keen to avoid the stress of the stock-market rollercoaster


Calmer waters: government bonds can provide a less volatile place for your money

Q I have £100,000 to invest, but the volatility in the stock market is making me uncomfortable. I have heard that gilts are a safer bet but am not really sure how to invest in them. Can you help?

A I can understand your anxiety over investing in the stock market as it has been a rollercoaster ride for some time. However, it is worth remembering that investing in shares should be viewed over the long term at least five years - so unless your chosen fund is actually vastly underperforming, then you need to ignore the ups and downs.

That said gilts are offering good returns to investors and do provide a safer haven than shares in terms of volatility. And you are not alone in wanting these investments investment platform Interactive Investor saw a 607 per cent rise in gilt purchases in 2023 compared to 2022.

Getting back to basics, gilts are UK government bonds. In return for lending it money, the government guarantees you a set income and a fixed price when the bond matures. Corporate bonds work the same way with a company providing the guarantees.

Typically when interest rates rise, gilt prices fall, which can benefit investors.

To start with if a gilt’s price falls, its income yield rises. Then if the price of a gilt falls below its issue vale (known as the par value) you also get a capital return if you hold it to maturity. For example you may have bought it for £95, but it has a guaranteed payback of £100, meaning you’ll get a government-backed capital gain of £5 if you hold it until it matures.

You don’t say whether you need income or capital growth, but bonds are particularly beneficial for investors looking for capital growth. They are exempt from capital gains tax and any loss can be offset against gains elsewhere. If you receive an income from the bond then this does attract income tax. However, gilts can be held in an ISA making them free of income tax as well.

Gilts can either be held directly or a via fund. Most funds will hold a range of both government and corporate bonds. Sadly, these bonds are liable for capital gains tax unless you hold them via a ISA. I asked Hal Cook, senior investment analyst at investment platform Hargreaves Lansdown, for his recommendations and he picked L&G All Stocks Gilt Index, which tracks UK gilts only; and Vanguard Global Bond, which is a managed fund investing in a combination of government and corporate bonds issued around the world and is quite heavily invested in the US and Invesco Tactical Bond. This is an actively managed strategic bond fund, which means the managers will alter their investments to reflect where they think the best value is within the fixed-interest market.

Shop around investment platforms such as Hargreaves Lansdown (, Interactive Investor (, Bestinvest ( and Fidelity ( to find the best dealing rates.

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