Where should I have my cash?

bushido1

Hello guys!!

1/ Is it better to have your cash part of your portfolio in an online platform (HL) or to have it in a physical bank (barclays) that doesn't give you much interest?

What benefits are they to any of those two options?

2/ If you would have to choose where to max your ISA, which one would you prefer, VWRL or VGOV? (Having taxes in mind)

CLAPTON

why not put cash in the highest interest rate instant access account ?

planteria

can't see any point keeping it with a broker.. unless there is a good rate available?
i use some Current Accounts, for some buffer/good interest (TSB & Lloyds) and the bulk of the rest is in Yorkshire BS earning 1.2%.

Linton

1) money held in a brokers account will normally get commercial interest rates perhaps minus a bit. These are currently around 0%-1/2%. Enhanced interest bank current accounts paying say 3-5% are subsidised by the banks to attract customers and so they provide the best cash interest rates you are going to get. However there will be limitations as to how much you can hold with them.

The problem with holding an investment portfolio separate from a cash component is that balancing between the two (which is the main point of having a cash component) becomes rather difficult. So I would say if you have an investment portfolio holding cash dont worry about the interest. If you want cash to earn interest dont regard it as part of your investment portfolio

2) These are very very different types of investments. VGOV invests in UK Gilts which currently return very little, but are normally regaded as safe. However they currently have a high capital price which will drop when/if world interest rates rise. VWRL invests in shares scattered around the world which are much more volatile but should over time give a much better return. You really need to think about what sort of things you want to invest in before considering which particular fund to use.

If you are investing in an ISA there arent any taxes.

CLAPTON

Linton wrote: »

The problem with holding an investment portfolio separate from a cash component is that balancing between the two (which is the main point of having a cash component) becomes rather difficult. So I would say if you have an investment portfolio holding cash dont worry about the interest. If you want cash to earn interest dont regard it as part of your investment portfolio

.

why is holding cash in a 'portfolio' less complicated that holding it in an interest bearing a/c?
why would one deliberately reject interest?

Linton

CLAPTON wrote: »

why is holding cash in a 'portfolio' less complicated that holding it in an interest bearing a/c?
why would one deliberately reject interest?

There are two reasons to hold cash in a portfolio. One is for the pretty poor interest you are going to get. The other is because it is a different type of asset to equity and so there will be times when it makes sense to use cash to buy equities or to sell equities to increase cash. For example if you have a balancing portfolio always keeping 20% cash and 80% equity moving money from one to the other as the equity fluctuates. If the cash is in a current account earning 5% and the equity is in an ISA elsewhere you cant move between equity and cash without continually putting cash into and out of the ISA. This is a hassle taking time and effort and you are at risk of hitting the ISA limits.

It would seem to me that for rebalancing it is better to use some other asset than cash and keep it permanently within the single account. Cash can be held completely separately outside your investment account.

C_Mababejive

One thing to consider is the protection/compensation levels afforded to trading accounts.

CLAPTON

Linton wrote: »

There are two reasons to hold cash in a portfolio. One is for the pretty poor interest you are going to get. The other is because it is a different type of asset to equity and so there will be times when it makes sense to use cash to buy equities or to sell equities to increase cash. For example if you have a balancing portfolio always keeping 20% cash and 80% equity moving money from one to the other as the equity fluctuates. If the cash is in a current account earning 5% and the equity is in an ISA elsewhere you cant move between equity and cash without continually putting cash into and out of the ISA. This is a hassle taking time and effort and you are at risk of hitting the ISA limits.

It would seem to me that for rebalancing it is better to use some other asset than cash and keep it permanently within the single account. Cash can be held completely separately outside your investment account.

how often do you balance your portfolio?

bushido1

Linton wrote: »

2) These are very very different types of investments. VGOV invests in UK Gilts which currently return very little, but are normally regaded as safe. However they currently have a high capital price which will drop when/if world interest rates rise. VWRL invests in shares scattered around the world which are much more volatile but should over time give a much better return. You really need to think about what sort of things you want to invest in before considering which particular fund to use.

If you are investing in an ISA there arent any taxes.

Thanks to everyone for the answers, but I think I didn't explain myself correctly on this one.

What I meant is:

Imagine that you have 50k£ in VGOV taxable and 50k£ in VWRL taxable. And you want to put 15k£in the ISA.

Which one of those two would you choose and why?

Thanks!!

grey_gym_sock

that's not an easy question ... here's some good discussion of the issues: http://monevator.com/tax-efficient-investing-uk-order-isa-sipp/

bushido1

grey_gym_sock wrote: »

that's not an easy question ... here's some good discussion of the issues: http://monevator.com/tax-efficient-investing-uk-order-isa-sipp/

Thanks for that link, it was really helpful.

http://monevator.com/bonds-and-bond-funds-taxed/comment-page-1/#comment-723018

Anyways I found this link above as well where you had a discussion about how bonds are taxed, etc. Anyways I am still not sure if I understood this second post properly, since it was more complicated and I am a beginner in the subject.

My questions is: After this post, is your view and numbers the same in this quote below?
I quote you: "Suppose you are investing £15,240 in equities and £15,240 in bonds today, 1 of which can go in an ISA, and the other in a taxable account.

suppose the real return on equities is 5%. even in a taxable account, suppose you could avoid CGT by using your annual allowance, but you’d pay 7.5% tax on a yield of 2%, i.e. 0.15% tax per year, reducing returns to 4.85%.

suppose the expected return on bonds is 2% in nominal terms (the yield to maturity is the best estimate of this), but that inflation will be 2%, so the expected real return is 0%. suppose the running yield on bonds is 3% (because they are priced above par), and in a taxable account you’d pay 20% tax on that 3%, i.e. 0.6% per year, reducing real returns MINUS 0.6%.

so you can either have
(1) £15,240 in an ISA, in bonds, compounding at 0% per year in real terms (though it will grow in nominal terms), + £15,240 in a taxable account, in equities, compounding at 4.85% per year;
or
(2) £15,240 in an ISA, in equities, compounding at 5% per year, + £15,240 in a taxable account, in bonds, compounding at MINUS 0.6% per year.

which is better? (1) starts out ahead, but (2) eventually catches up, in year 29, and then keeps pulling further ahead.
That was using rates for a basic-rate taxpayer."

Are this estimates equally similar and still close to 29 years? Or did these number change in favor of either stocks or bonds?

Thanks!!