Where to investment cash in an ISA

Sorcerer2018

Hi All, 
I will be looking to have about £10,000 in cash sitting inside my ISA, to be used in emergencies to smooth out dividend payments. However because it might sit their for 10 year between recessions (i hope), I don't just want to leave it in cash. Was thinking of putting into a Indexed Gilt or Treasury Bonds, but these either pay very lot interest rates or are to risky, i am looking for something that really won't move more then a few % per year, but also keep pace with inflation. Other options maybe a cash fund (OEIC), what do you think, any other options open to me?

csgohan4

NS+I bonds? current glits don't pay out as much sadly

Really depends on your investment strategy, 10 years isn't long for investing, but you can't have an investment and an emergency fund using the same pot, investment can go down as well as up and there will be risk

Sorcerer2018

I already have a £10,000 emergency fund sitting in cash available at a moments notice., this £10,000 will be sitting in the ISA, just so that it can be used to put to use when  a dividend gets cut, to prevent me from selling investments, in theory the £10,000 could be sitting their until I die. So i guess the NS+I is out of the question, because it's sitting in my stocks and shares ISA. I hate to leave it as cash, because in 10 years times , it's buying power would have been reduced, by maybe 20% or more. The chances are the money will be needed when the markets collapse, so maybe an investment that will go up when markets crash?

83705628

Sorcerer2018 said:

Hi All, 
I will be looking to have about £10,000 in cash sitting inside my ISA, to be used in emergencies to smooth out dividend payments. However because it might sit their for 10 year between recessions (i hope), I don't just want to leave it in cash. Was thinking of putting into a Indexed Gilt or Treasury Bonds, but these either pay very lot interest rates or are to risky, i am looking for something that really won't move more then a few % per year, but also keep pace with inflation. Other options maybe a cash fund (OEIC), what do you think, any other options open to me?

There are no such UK gilts that currently yield more than inflation. 1.16% with NS&I is the best you'll get. If you can buy it, the shortest maturity indexed-linked gilt might do the trick but they are very illiquid and not all platforms support them, or TI5G (https://www.ishares.com/uk/individual/en/products/295700/ishares-tips-0-5-ucits-etf-fund). It's a GBP hedged 
short-term US TIPS (Treasury Inflation Protected Securities) ETF.

Sorcerer2018

Mmhhh good shout, i wasn't thinking of an Hedged ETF, but looks interesting and also might keep the costs down. I will explore this further.

83705628

Sorcerer2018 said:

I already have a £10,000 emergency fund sitting in cash available at a moments notice., this £10,000 will be sitting in the ISA, just so that it can be used to put to use when  a dividend gets cut, to prevent me from selling investments, in theory the £10,000 could be sitting their until I die. So i guess the NS+I is out of the question, because it's sitting in my stocks and shares ISA. I hate to leave it as cash, because in 10 years times , it's buying power would have been reduced, by maybe 20% or more. The chances are the money will be needed when the markets collapse, so maybe an investment that will go up when markets crash?

So... you're holding cash in a stocks & shares ISA earning no interest waiting for a market crash?
Why not keep it NS&I or just invest it?
The only thing that goes up substantially, and reliably,  when markets crash is long-term gilts, which are a pointless investment.

Albermarle

so maybe an investment that will go up when markets crash?

Gold is the usual one for this but not necessarily a good investment otherwise .

i am looking for something that really won't move more then a few % per year, but also keep pace with inflation
If there was such an investment  product there would be a stampede ! Normally only way to keep up with inflation is to put your money in risk based investments . If you only want to keep up with inflation then the level of risk would not be high, but it would be there.

bowlhead99

tcallaghan93 said:

Sorcerer2018 said:

Hi All, 
I will be looking to have about £10,000 in cash sitting inside my ISA, to be used in emergencies to smooth out dividend payments. However because it might sit their for 10 year between recessions (i hope), I don't just want to leave it in cash. Was thinking of putting into a Indexed Gilt or Treasury Bonds, but these either pay very lot interest rates or are to risky, i am looking for something that really won't move more then a few % per year, but also keep pace with inflation. Other options maybe a cash fund (OEIC), what do you think, any other options open to me?

There are no such UK gilts that currently yield more than inflation. 1.16% with NS&I is the best you'll get. If you can buy it, the shortest maturity indexed-linked gilt might do the trick but they are very illiquid and not all platforms support them, or TI5G (https://www.ishares.com/uk/individual/en/products/295700/ishares-tips-0-5-ucits-etf-fund). It's a GBP hedged 
short-term US TIPS (Treasury Inflation Protected Securities) ETF.

Sorcerer2018 said:

Mmhhh good shout, i wasn't thinking of an Hedged ETF, but looks interesting and also might keep the costs down. I will explore this further.

 As per the current factsheet on his link, the TIPS 1-5yr maturity ETF (average duration about 2.6 years) is giving a real yield of negative 0.7%, so if holding for a decade is not really a lot more useful than UK index linked gilts which are also on a negative real yield. You may do just as well by holding NS&I instant access cash or premium bonds and hoping inflation doesn't go much above 1.8-2%.

The important thing to realise when looking at IL gilts or TIPS, is that the pricing of such inflation-linked government debt already accounts for current expectations of inflation, so it's quite possible for inflation to be positive while the returns from such bonds are negative.  It's not the case that if inflation is positive they'll definitely pay you a positive real return, because market participants are already expecting inflation to be positive, and have considered that when setting market prices that guarantee a real-terms loss from the product. Also, if you buy a US-inflation linked product (instead of a UK-inflation linked product) then any hedging it offers is purely for currency movements and not for the risk that the US rate of inflation against which it's 'protecting' you is quite different from the UK rate of inflation you actually experience.


Unfortunately the low end of the volatility scale (where one hopes the return will just bobble around within a few percent from time to time) is not really paying a lot at the moment - short dated gilts having negative yields, and longer term ones (or riskier bonds, equities, property etc) having higher potential losses. 

Sorcerer2018

Thanks bowlhead99, a tricky one for me really, because i really don't want to risk investing it, and i might need it on short notice if my dividends are cut, which can happen at any time, but more so, in current times. 

I guess if inflation is about 2%, if I can get something around 1% i might just have to accept that is the best i can get, and will have to have accept i will not be able to keep up with inflation.

Sorcerer2018

tcallaghan93 said:

So... you're holding cash in a stocks & shares ISA earning no interest waiting for a market crash?
Why not keep it NS&I or just invest it?
The only thing that goes up substantially, and reliably,  when markets crash is long-term gilts, which are a pointless investment.

I think one thing to understand this is only about 3% of the current ISA value and I would think it would be less than 2% of my ISA when I retire, so we are not talking a lot of money in percentage terms in the scheme of things. It's job is to protect my income when needed. So yes, it might need to sit their in cash. I don't want to sell assets to pay the income if I can help it.

83705628

Sorcerer2018 said:

tcallaghan93 said:

So... you're holding cash in a stocks & shares ISA earning no interest waiting for a market crash?
Why not keep it NS&I or just invest it?
The only thing that goes up substantially, and reliably,  when markets crash is long-term gilts, which are a pointless investment.

I think one thing to understand this is only about 3% of the current ISA value and I would think it would be less than 2% of my ISA when I retire, so we are not talking a lot of money in percentage terms in the scheme of things. It's job is to protect my income when needed. So yes, it might need to sit their in cash. I don't want to sell assets to pay the income if I can help it.

/
But it's still pointless having it in the ISA as cash. I would either take it out and park it it in NS&I or a savings account, or use it to buy more units in whatever funds you hold and use my income to build up £10k of savings outside the ISA.