What the gilt ladder figures leave out

What the calculator does not include, and why it matters.

• Tax. All figures are before tax. How gilts are taxed depends on your circumstances and the account that holds them.
• Costs. No dealing charges, platform fees or bid–offer spread are included.
• Timing within the year. Gilts pay coupons twice a year. The calculation counts each year’s cash flows as one annual payment.
• The inflation lag. Index-linked payments follow the RPI a few months late: three months for most gilts, eight for the oldest. From 2030 the RPI is due to be calculated like CPIH, which has historically risen more slowly.
• Selling early. The payments are fixed only if every gilt is held to maturity. Sold early, a gilt fetches the market price on the day, which may be more or less than was paid.
• Prices move. The calculator uses prices from one date. Gilt prices change every day.
• Nothing after the last year. The ladder pays nothing beyond its last payment. Any material amount left over is shown with the gilts.
• Interest on cash held. Cash held between payments is assumed to earn exactly inflation. If it earns less, later payments would fall short.

Gilts are issued by the UK government, which has never defaulted on a gilt, though that is not a guarantee of future performance. The market price can go up or down, but unless the UK Government defaults the gilt will deliver the promised cashflow at maturity. The market price of an index-linked gilt can go up or down, but unless the UK Government defaults it will deliver the promised inflation-linked cashflow at maturity.

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Capital at risk. The value of investments can fall as well as rise and you may get back less than you invest. Past performance is not a reliable guide to future returns. The figures shown are illustrative examples based on model assumptions and market data; they are provided for general information only and do not constitute financial, investment, tax or legal advice, a personal recommendation, or a financial promotion. The gilts listed are an illustration of cash-flow matching and are not a recommendation to buy, sell or hold, nor an endorsement of, or a reflection on the merits of, any gilt shown; you are under no obligation to act on it. Allocatewise is not authorised or regulated by the Financial Conduct Authority. Figures are shown before tax and do not reflect your personal tax position. If you are unsure whether an investment is right for you, seek advice from a regulated financial adviser. See our full disclaimer.