Short Term Money Market funds

Qyburn

Hi,
I'm thinking about where to hold our short to medium term savings, currently building up in cash savings accounts. 

One quick question about Money Market funds, what is the significance of "Short Term"? Is that just tbe underlying mechanism, or does it imply they are unsuitable except for short term investments, for example not keeping up with inflation.

EthicsGradient

They are, of course, never guaranteed to keep up with inflation. Only investments that explicitly say they are linked to inflation do that.

Which fund is using the phrase "Short Term", and in what context? It doesn't sound like a "mechanism" at all to me.

masonic

It's just tautology. Money market funds hold short duration bonds within them, so they have minimal interest rate sensitivity (the sort of interest rate sensitivity that caused other bond funds to significantly fall in value recently).

Doctor_Who

Qyburn said:

Hi,
I'm thinking about where to hold our short to medium term savings, currently building up in cash savings accounts. 

One quick question about Money Market funds, what is the significance of "Short Term"? Is that just tbe underlying mechanism, or does it imply they are unsuitable except for short term investments, for example not keeping up with inflation.

I hold a STMMF in my SIPP for money I plan to withdraw in ~1-2 years since the return is better than holding cash at the platform's interest rate (~3.5%). I'm not sure I'd bother outside a tax wrapper since the income is taxable just like savings interest, and after platform fees/fund fees/trading costs will reduce the return vs standard savings accounts. The current return on a STMMF tracking SONIA is ~5% before fees.

Qyburn

EthicsGradient said:

Which fund is using the phrase "Short Term", and in what context? It doesn't sound like a "mechanism" at all to me.

There's "Vanguard Sterling Short-Term Money Market" GB00BGB6GZ57 and also "Royal London Short Term Money Market Y Acc". I think the Vanguard is only available as income.

zagfles

Doctor_Who said:

Qyburn said:

Hi,
I'm thinking about where to hold our short to medium term savings, currently building up in cash savings accounts. 

One quick question about Money Market funds, what is the significance of "Short Term"? Is that just tbe underlying mechanism, or does it imply they are unsuitable except for short term investments, for example not keeping up with inflation.

I hold a STMMF in my SIPP for money I plan to withdraw in ~1-2 years since the return is better than holding cash at the platform's interest rate (~3.5%). I'm not sure I'd bother outside a tax wrapper since the income is taxable just like savings interest, and after platform fees/fund fees/trading costs will reduce the return vs standard savings accounts. The current return on a STMMF tracking SONIA is ~5% before fees.

Outside a tax wrapper short term gilts may be an idea, no CGT on growth so if you buy low coupon ones most of the return will be in tax free gains.

Doctor_Who

zagfles said:

Doctor_Who said:

Qyburn said:

Hi,
I'm thinking about where to hold our short to medium term savings, currently building up in cash savings accounts. 

One quick question about Money Market funds, what is the significance of "Short Term"? Is that just tbe underlying mechanism, or does it imply they are unsuitable except for short term investments, for example not keeping up with inflation.

I hold a STMMF in my SIPP for money I plan to withdraw in ~1-2 years since the return is better than holding cash at the platform's interest rate (~3.5%). I'm not sure I'd bother outside a tax wrapper since the income is taxable just like savings interest, and after platform fees/fund fees/trading costs will reduce the return vs standard savings accounts. The current return on a STMMF tracking SONIA is ~5% before fees.

Outside a tax wrapper short term gilts may be an idea, no CGT on growth so if you buy low coupon ones most of the return will be in tax free gains.

Agreed - I hold TN24 and 25 in my trading account for just that purpose. Although currently they aren't as attractively priced as they were 6-8 weeks ago.

Qyburn

Thanks, I think Gilts or individual bonds are going to be too complex for me. And last year showed that bond-heavy funds are too risky to just leave running.

Really I'm just unsure what to use in between cash for immediate use, and equity heavy funds for long term.

masonic

Qyburn said:

Thanks, I think Gilts or individual bonds are going to be too complex for me. And last year showed that bond-heavy funds are too risky to just leave running.

Really I'm just unsure what to use in between cash for immediate use, and equity heavy funds for long term.

It's worth remembering that traditional bond funds have just given up gains they made earlier when interest rates plummeted. It may be the case that the people who bore the losses were not the same people as those who enjoyed the gains, but it was a delayed reversion to the mean. As interest rates peak and perhaps even begin to fall, bonds will regain a justifiable place in a portfolio. Cash or a money market fund are an acceptable proxy for those who remain unconvinced rates are nearing their peak.

Stargunner

Qyburn said:

Thanks, I think Gilts or individual bonds are going to be too complex for me. And last year showed that bond-heavy funds are too risky to just leave running.

Really I'm just unsure what to use in between cash for immediate use, and equity heavy funds for long term.

Popular SMMT’s on here are Royal London Short Term Money Market Y Acc which is an OEIC or CSH2 which is an ETF •.
Both track the SONIA bank rate which is currently 5.18%
I hold a chunk of CSH2 in my SIPP and it is nice to see it increase every single week, unlike my equities 😂😂

Qyburn

masonic said:

It's worth remembering that traditional bond funds have just given up gains they made earlier when interest rates plummeted.

I fully believe you. It's just I've seen a few posts on here where people have been unhappy with losses made by the bond heavy Vanguard or HSBC multi asset funds. Often the response from other members implies that it was only to be expected, and the OP should have done this or that to avoid losses from their bonds.  Which kind of remove the point of the Vanguard life strategy, or HSBC equivalent, if the end user has to be more proactive than Vanguard or HSBC are able to be.