Thinking about investing in a Money Market Fund

dllive

Hi

I have all my S&S ISAs in equities. Ive recently sold out of some of these equities and thinking what to do with that cash thats sat within my ISA. Im thinking it might be a good idea to diversify into something other than equities, so Im looking at Money Market Funds. (I did try bonds, but they instantly fell sharply thanks to Truss, so feel I have my fingers burnt).

Im looking at Vanguards Sterling Short-Term Money Market Fund, for no other reason other than I have a Vanguard account!

I do have a Hargreaves account which has more options - ideally Id like an accumulation fund.

Can you recommend one that may be suitable? Or maybe an alternative to a MMF? I dont want to take my money out of the ISA into a normal fixed rate savings account becuase Id pay tax on the interest (I only have £500 PSA).

Any advice or thought gratefully received.

Rollinghome

For an accumulation fund you could look at Royal London Short Term Money Market Y Acc, which has very low charges. But on HL you'll pay up to 0.45%  p.a. platform charge on top for a fund, which is a big chunk out of your return. If you had an Iweb account it would cost just a fiver per trade with no platform charges.

For a fund holding the shortest dated bonds, you'd expect a slighter lower return but with less volatility.

Other articles for your research listing some funds and the advantages and disadvantages of MMFs at https://www.ii.co.uk/analysis-commentary/highest-yielding-money-market-funds-park-your-cash-ii527664 and https://www.justetf.com/uk/academy/money-market-etfs-uk.html

In general, MMFs are useful for cash sitting in a ISA, less useful for cash that could go into a good bank account.

Doctor_Who

How long are you planning on investing the money for? I use a money market fund for short term cash held in my SIPP, but long term money is still invested in equities.

This thread on the pensions board might help:

https://forums.moneysavingexpert.com/discussion/6456509/choosing-a-money-market-fund/p1

Albermarle

dllive said:

Hi

I have all my S&S ISAs in equities. Ive recently sold out of some of these equities and thinking what to do with that cash thats sat within my ISA. Im thinking it might be a good idea to diversify into something other than equities, so Im looking at Money Market Funds. (I did try bonds, but they instantly fell sharply thanks to Truss, so feel I have my fingers burnt).

Im looking at Vanguards Sterling Short-Term Money Market Fund, for no other reason other than I have a Vanguard account!

I do have a Hargreaves account which has more options - ideally Id like an accumulation fund.

Can you recommend one that may be suitable? Or maybe an alternative to a MMF? I dont want to take my money out of the ISA into a normal fixed rate savings account becuase Id pay tax on the interest (I only have £500 PSA).

Any advice or thought gratefully received.

Bonds/Gilts have probably gone down as much as they are going to ( although I have said that before and been proved wrong) . In this case there is some argument for having them again in a traditional balanced portfolio.
Bonds vs money market funds would depend a lot on your overall financial and personal circumstances.

dllive

Thanks guys, very useful. Ill read through these links later.

To clarify: Realistically Im probably not going to need this money for 10+ years. I would like to transfer away from Hargreaves because of the high platform fees. I do have an iWeb account which I use to store previous years' ISAs. (theres no platform fee)

I could invest the lot into a passive fund in one, but I feel equities are expensive so may not be a good time. I could dripfeed it (pound-average) into a fund over time, but that means its still sat as cash earning 0% in my ISA while its slowly being dripfed into a fund.

As I type this, Im thinking that I could put it all into Vanguard's Sterling Short-Term Money Market Fund, then transfer that into my Vanguard account in-specie. That serves 2 goals: getting it out of Hargreaves into my Vanguard account (you cant transfer previous ISAs as cash to Vanguard) AND it gets me earning 4.63%* interest until I decide what to do with it. Probably selling chunks off so I can then invest it into LifeStrategy100.

Does that sound like a reasonable plan? 

dunstonh

As I type this, Im thinking that I could put it all into Vanguard's Sterling Short-Term Money Market Fund, then transfer that into my Vanguard account in-specie. That serves 2 goals: getting it out of Hargreaves into my Vanguard account (you cant transfer previous ISAs as cash to Vanguard) AND it gets me earning 4.63%* interest until I decide what to do with it. Probably selling chunks off so I can then invest it into LifeStrategy100.
Does that sound like a reasonable plan? 

Perhaps don't wed yourself to Vanguard.
The Vanguard STMM fund has not been as good as RL.   VLS100 is a global managed fund whereas a global tracker would be cheaper (unless you particularly like Vanguard's management decisions on VLS100).

A cheaper whole of market platform (that matches your software functionality needs) keeps your options open and doesnt restrict you to one fund house.

Be wary of trying to time the market.   Remember that, ignoring all other influences, the values of companies are also affected by inflation. They get depressed during periods of inflation due to earnings concern.  But historically, once economies have shown signs of the inflationary period coming to an end, equities tend to rise.  Often sharply as the real terms value that was depressed gets unleashed.   You could end up missing out on that only to go back in after the gain period (and ready for the next negative period!)

masonic

Presuming you have sufficient AUM, it would be more cost effective to consider an ETF to benefit from HL's cap on platform charges. A popular ETF money market fund is CSH2, and while recent performance has been much of a muchness, it has had some edge in earlier periods:

InvesterJones

dllive said:

Thanks guys, very useful. Ill read through these links later.

To clarify: Realistically Im probably not going to need this money for 10+ years. I would like to transfer away from Hargreaves because of the high platform fees. I do have an iWeb account which I use to store previous years' ISAs. (theres no platform fee)

I could invest the lot into a passive fund in one, but I feel equities are expensive so may not be a good time. I could dripfeed it (pound-average) into a fund over time, but that means its still sat as cash earning 0% in my ISA while its slowly being dripfed into a fund.

As I type this, Im thinking that I could put it all into Vanguard's Sterling Short-Term Money Market Fund, then transfer that into my Vanguard account in-specie. That serves 2 goals: getting it out of Hargreaves into my Vanguard account (you cant transfer previous ISAs as cash to Vanguard) AND it gets me earning 4.63%* interest until I decide what to do with it. Probably selling chunks off so I can then invest it into LifeStrategy100.

Does that sound like a reasonable plan? 

As long as you're using the money market fund purely as a short-term vehicle while deciding what to do/as a transfer mechanism, yes. Once you've decided though, usually best invest rather than trying to time the market.

mark_cycling00

Agree with the above comment. 
You're pretty late to the money market party which implies you'll be late getting out of it and might miss out on the gains when they come 

InvesterJones

mark_cycling00 said:
You're pretty late to the money market party which implies you'll be late getting out of it and might miss out on the gains when they come 

Actually, unlike some investments, money markets aren't ones you need to buy low, sell high, so there's no missing out per se - they are very short dated so pick up increases in SONIA rate (the gains) extremely quickly. If it's an open ended investment company then the more people that buy the fund the more of the underlying assets they will purchase, and conversely, if people sell the very liquid and short term nature of the underlying assets means there shouldn't be much of a hit to the remaining holders.

Qyburn

Quick question, the actual funds discussed show past returns lower than instant saver interest rates, is the expectation that these returns will increase?