Legal & General Cash Accumulation

pjbltd

Hi guys hoping I could get your help over something I was a little confused about

I have recently sold a number of fund units within my H&L Stocks and Shares ISA and now have cash sitting there.

I want this cash to earn some interest (I do not want to remove it from the ISA wrapper) and be safe.

Would it be worth using the cash to buy units in Legal & General Cash Accumulation? How safe is this investment? I believe it would be more risky than cash but how much more??

It seems to not be volatile at all and just earns interest (at about 4.5%).

Any feedback is much appreciated

cheers

http://www.h-l.co.uk/fund_research/security_details/sedol/0514158.hl

YorkshireBoy

Can you hold it in a Vantage ISA?

http://www.h-l.co.uk/fund_research/fund_key_features/sedol/0514158.hl

pjbltd

No you're right doesnt look like you can

Seems the only Money Market fund you can hold is M&G High Interest (Class A) (Income)

dunstonh

What about index linked gilt funds as an option?

pjbltd

Hi Dunstonh - what's an index linked gilt fund?

pjbltd

Are index linked gilts similiar to NS&I index linked certificates.
However is the danger with an index linked gilt fund that if inflation drops the fund could start to make a negative return or will the return always be positive as it is coupons on the gilts?

turbobob

Index linked gilt funds are not guaranteed to have positive returns. There is a typical example of one here - http://www.h-l.co.uk/fund_research/fund_performance/sedol/3415560.hl - as you can see the value goes up and down. The gilt is a government loan which is repayable at some point in the future. However, before this date they are traded on the market and can be worth more or less than the face value of the loan (which is where this volatility comes in). Its not a cash alternative but a IL Gilt fund would be considered low risk, compared to medium or high risk with an equity fund.

You can hold cash in the Vantage ISA with a view to investing it at some point in the future, but I believe its subject to a 20% tax deduction on any interest.

jon3001

Gilts (government-issued bonds) and investment-grade corporate bonds are low-risk investments compared to alternatives such as shares and commodities. In terms of volatility (variability of returns) - then yes the value will move around but over 12 months you'd expect a positive return most of the time and perhaps only a small loss the rest.

Rising inflation is bad for bonds, unless they're index-linked.

Rising interest rates are also bad, particularly for long-dated (e.g. 10 yr+) issues. So you could select a fund with a bias towards shorter maturities, reducing the interest-rate sensitivity and therefore volatility.

I went with Invesco's corporate bond offering. It had the short maturity bias I was looking for and I was happy that the bulk of the holdings were investment grade. There's also a good selection of bonds offered by large overseas companies (e.g. France Telecom, Siemens) which offer some hedge against a weakening pound.

So to cover all your options in a variety of markets you could spread your money three-ways:

• Index-linked gilts fund
• Gilts fund
• Corporate bond fund

And then rebalance to one-third each every year. Diversifying like this should also reduce the porfolio's volatility.