Stay in cash or where to invest it?

Glen_Clark

If you put it all in at once you save on costs, and it only puts you in the same position as those of us who are already fully invested.
Its only the psychological shock of a 10% fall or rise that may be greater if you put the money in yesterday, than it is if you put the money in 10 years ago.
It can give you butterflies to move all your money at once. You need to see it as moving from one investment to another, rather than spending or buying.

saverted

ruinen wrote: »

How old are you? What percentage does this £150k cash make up of your portfolio? Are you going to have to live off savings/investments for the rest of your life or will you return to work?

54. As I said it is 35% of the portfolio. I sold 35% of the value of my equities to reduce the risk a bit because I will have to live off these investments.

ruinen

Do you own a home? Is that value included in your portfolio value?

A £425k annuity at 55 years old, linked to RPI gives about £10,000/year. If you can survive on £10k/year, then that suggests your portfolio value is fine. And your strategy to de-risk seems fairly sound to me.

Also RPI is currently 2.6% and CPI is 1.9%, so te £150k should be able to keep up with inflation using some fixed-term savings. But then you lose your option of buying back into equities if the market dips.

Seabee42

I thought the current alternatives to Equity funds was diversified growth funds.

saverted

ruinen wrote: »

Do you own a home? Is that value included in your portfolio value?

A £425k annuity at 55 years old, linked to RPI gives about £10,000/year. If you can survive on £10k/year, then that suggests your portfolio value is fine. And your strategy to de-risk seems fairly sound to me.

Also RPI is currently 2.6% and CPI is 1.9%, so te £150k should be able to keep up with inflation using some fixed-term savings. But then you lose your option of buying back into equities if the market dips.

As I said in my first post, no debts (no mortgage). Yes own home. My pot is what I will live off, and is now 65% low cost equity market trackers, and 35% (£150K) cash.

I didn't think it was a good idea to have all my investments in equities now that my circumstances have changed. So I sold 35% of the value of my portfolio and have £150K in cash. But now I have £150K effectively losing £3-4K a year to inflation. I want to have short term access so that I could buy some more equities cheap if the markets did nose dive, so do not want to tie up in a long term savings account.

Bonds have been suggested but I am concerned whether they will protect my downside. When interest rates rise, surely bond values will fall? I am considering bonds if that is more likely compared to cash to at least keep track with inflation.

Can anyone suggest a low cost bond fund that could do the job (or a couple of funds if it is better to split my £150K and not have all bonds in one basket)?

davide691

How about iShares UK index linked gilts ETF (inxg.l) + say a corporate bond ETF

coyrls

saverted wrote: »

Can anyone suggest a low cost bond fund that could do the job (or a couple of funds if it is better to split my £150K and not have all bonds in one basket)?

A short term bond fund will be less affected by interest rate changes, I think. Say the Vanguard Global Short Term Bond Index Fund, perhaps together with the iShares UK Gilts 0-5 Yr UCITS ETF.

saverted

Thank you for these suggestions. I will look into these funds.

bowlhead99

I wouldn't have thought a UK 0-5 year gilts fund would have yielded massively more than cash at a bank or with NS&I, to be honest. The short duration would help avoid a crash of capital value in the face of rising interest rates but cash has no risk of that anyway. And if the returns from the 0-5 gilt tracker were better than cash, it would only be because the fund is tilted more towards the 5 year than 6 month maturities, with more likelihood of a hit from interest rate changes.

M&G Optimal Income is an example of a strategic bond fund that did better than many over a period including the worst of the credit crunch, though of course bond prices are different from what they were back then. You are right that you don't want a bonds crash at the same time as an equities crash but in reality the type of bonds that a well managed strategic fund would hold in such times shouldn't drop any where near as far as equities might. They would have flexibility to aim for the short dated stuff while also being able to hold high yield stuff when market conditions were rosier. Well, so goes the theory!

Other non cash options include absolute return funds like Standard Life's GARS. Bit of a "black box" as doesn't use transparent conventional strategies but has done ok through good times and bad over the long term. However, difficult to say whether they'd be successful if bonds and equities all fall at once, as that doesn't happen very often.

saverted

bowlhead99 wrote: »

I wouldn't have thought a UK 0-5 year gilts fund would have yielded massively more than cash at a bank or with NS&I, to be honest. The short duration would help avoid a crash of capital value in the face of rising interest rates but cash has no risk of that anyway. And if the returns from the 0-5 gilt tracker were better than cash, it would only be because the fund is tilted more towards the 5 year than 6 month maturities, with more likelihood of a hit from interest rate changes.

M&G Optimal Income is an example of a strategic bond fund that did better than many over a period including the worst of the credit crunch, though of course bond prices are different from what they were back then. You are right that you don't want a bonds crash at the same time as an equities crash but in reality the type of bonds that a well managed strategic fund would hold in such times shouldn't drop any where near as far as equities might. They would have flexibility to aim for the short dated stuff while also being able to hold high yield stuff when market conditions were rosier. Well, so goes the theory!

Other non cash options include absolute return funds like Standard Life's GARS. Bit of a "black box" as doesn't use transparent conventional strategies but has done ok through good times and bad over the long term. However, difficult to say whether they'd be successful if bonds and equities all fall at once, as that doesn't happen very often.

That adds to the dilemma. So if I do decide to hold a gilt fund I will limit my holding. I am not keen on managed funds because I prefer low cost passive funds. But thank you for the suggestion.