Short Term Money Market funds

mebu60

GeoffTF said:

extant465 said:

mebu60 said:

InvesterJones said:

mebu60 said:

NannaH said:

STMM is currently an ideal alternative to holding cash in a Sipp,  if you are building up a cash pot for early retirement especially.
You get a bit of interest on cash but the STMM yield is higher.
 I suppose you need to convert back to cash if / when interest rates start reducing.

That's a question I have been mulling too having recently placed a stash of cash into a STMM fund.

Be most interested to hear views. Thanks.

Not sure about the need to move back to cash if interest rates start reducing - a drop in interest rates will likely affect cash just as much as money market funds.You could try and time the market/banks by fixing for a longer term but as stated in this thread, it can't be predicted ahead of time, and fixing cash kind of takes away the main selling point (if prepared to lock away then can consider other investments as well).

Does the unit cost on STMM funds never decrease? That's what's confusing me. If (when) interest rates decrease won't the attractiveness of the fund diminish? How is that reflected? Does the unit price just increase more slowly?

If/when the BoE policy rate changes, the fund value won't change like a bond fund because it hold very short term securities (days to weeks) to maturity so the market price of those won't impact the fund value because their value remains the sum of remaining coupons plus face value. Because it will take some days for these to mature and be replaced by new securities reflecting the new base rate, the rate of fund value increase over the course of the month will change gradually to approach the new SONIA. Then the fund value will then dip back to 1 when the dividend is paid out at the end of the month.

Hopefully, I have got that correct - more experienced investors please correct any errors.

The fund value will change exactly like a bond fund - a bond fund with very short dated bonds. Your return will be partly dividends (taxed as savings income), if they are paid, and partly a capital gain or loss.

Unless in SIPP or S&S ISA. 

mebu60

extant465 said:

mebu60 said:

InvesterJones said:

mebu60 said:

NannaH said:

STMM is currently an ideal alternative to holding cash in a Sipp,  if you are building up a cash pot for early retirement especially.
You get a bit of interest on cash but the STMM yield is higher.
 I suppose you need to convert back to cash if / when interest rates start reducing.

That's a question I have been mulling too having recently placed a stash of cash into a STMM fund.

Be most interested to hear views. Thanks.

Not sure about the need to move back to cash if interest rates start reducing - a drop in interest rates will likely affect cash just as much as money market funds.You could try and time the market/banks by fixing for a longer term but as stated in this thread, it can't be predicted ahead of time, and fixing cash kind of takes away the main selling point (if prepared to lock away then can consider other investments as well).

Does the unit cost on STMM funds never decrease? That's what's confusing me. If (when) interest rates decrease won't the attractiveness of the fund diminish? How is that reflected? Does the unit price just increase more slowly?

If/when the BoE policy rate changes, the fund value won't change like a bond fund because it hold very short term securities (days to weeks) to maturity so the market price of those won't impact the fund value because their value remains the sum of remaining coupons plus face value. Because it will take some days for these to mature and be replaced by new securities reflecting the new base rate, the rate of fund value increase over the course of the month will change gradually to approach the new SONIA. Then the fund value will then dip back to 1 when the dividend is paid out at the end of the month.

Hopefully, I have got that correct - more experienced investors please correct any errors.

That makes sense, thank you. Then if it is an acc or inc with dividends reinvested the number of units will increase when the unit value decreases.

GeoffTF

wmb194 said:

GeoffTF said:

extant465 said:

mebu60 said:

InvesterJones said:

mebu60 said:

NannaH said:

STMM is currently an ideal alternative to holding cash in a Sipp,  if you are building up a cash pot for early retirement especially.
You get a bit of interest on cash but the STMM yield is higher.
 I suppose you need to convert back to cash if / when interest rates start reducing.

That's a question I have been mulling too having recently placed a stash of cash into a STMM fund.

Be most interested to hear views. Thanks.

Not sure about the need to move back to cash if interest rates start reducing - a drop in interest rates will likely affect cash just as much as money market funds.You could try and time the market/banks by fixing for a longer term but as stated in this thread, it can't be predicted ahead of time, and fixing cash kind of takes away the main selling point (if prepared to lock away then can consider other investments as well).

Does the unit cost on STMM funds never decrease? That's what's confusing me. If (when) interest rates decrease won't the attractiveness of the fund diminish? How is that reflected? Does the unit price just increase more slowly?

If/when the BoE policy rate changes, the fund value won't change like a bond fund because it hold very short term securities (days to weeks) to maturity so the market price of those won't impact the fund value because their value remains the sum of remaining coupons plus face value. Because it will take some days for these to mature and be replaced by new securities reflecting the new base rate, the rate of fund value increase over the course of the month will change gradually to approach the new SONIA. Then the fund value will then dip back to 1 when the dividend is paid out at the end of the month.

Hopefully, I have got that correct - more experienced investors please correct any errors.

The fund value will change exactly like a bond fund - a bond fund with very short dated bonds. Your return will be partly dividends (taxed as savings income), if they are paid, and partly a capital gain or loss.

You mean interest, not dividends.

I have said that they are taxed as savings income, but they are sometimes called dividends nonetheless. Vanguard uses the term "distributions".

wmb194

GeoffTF said:

wmb194 said:

GeoffTF said:

extant465 said:

mebu60 said:

InvesterJones said:

mebu60 said:

NannaH said:

STMM is currently an ideal alternative to holding cash in a Sipp,  if you are building up a cash pot for early retirement especially.
You get a bit of interest on cash but the STMM yield is higher.
 I suppose you need to convert back to cash if / when interest rates start reducing.

That's a question I have been mulling too having recently placed a stash of cash into a STMM fund.

Be most interested to hear views. Thanks.

Not sure about the need to move back to cash if interest rates start reducing - a drop in interest rates will likely affect cash just as much as money market funds.You could try and time the market/banks by fixing for a longer term but as stated in this thread, it can't be predicted ahead of time, and fixing cash kind of takes away the main selling point (if prepared to lock away then can consider other investments as well).

Does the unit cost on STMM funds never decrease? That's what's confusing me. If (when) interest rates decrease won't the attractiveness of the fund diminish? How is that reflected? Does the unit price just increase more slowly?

If/when the BoE policy rate changes, the fund value won't change like a bond fund because it hold very short term securities (days to weeks) to maturity so the market price of those won't impact the fund value because their value remains the sum of remaining coupons plus face value. Because it will take some days for these to mature and be replaced by new securities reflecting the new base rate, the rate of fund value increase over the course of the month will change gradually to approach the new SONIA. Then the fund value will then dip back to 1 when the dividend is paid out at the end of the month.

Hopefully, I have got that correct - more experienced investors please correct any errors.

The fund value will change exactly like a bond fund - a bond fund with very short dated bonds. Your return will be partly dividends (taxed as savings income), if they are paid, and partly a capital gain or loss.

You mean interest, not dividends.

I have said that they are taxed as savings income, but they are sometimes called dividends nonetheless. Vanguard uses the term "distributions".

Bond funds pay interest.

GeoffTF

wmb194 said:

GeoffTF said:

wmb194 said:

GeoffTF said:

extant465 said:

mebu60 said:

InvesterJones said:

mebu60 said:

NannaH said:

STMM is currently an ideal alternative to holding cash in a Sipp,  if you are building up a cash pot for early retirement especially.
You get a bit of interest on cash but the STMM yield is higher.
 I suppose you need to convert back to cash if / when interest rates start reducing.

That's a question I have been mulling too having recently placed a stash of cash into a STMM fund.

Be most interested to hear views. Thanks.

Not sure about the need to move back to cash if interest rates start reducing - a drop in interest rates will likely affect cash just as much as money market funds.You could try and time the market/banks by fixing for a longer term but as stated in this thread, it can't be predicted ahead of time, and fixing cash kind of takes away the main selling point (if prepared to lock away then can consider other investments as well).

Does the unit cost on STMM funds never decrease? That's what's confusing me. If (when) interest rates decrease won't the attractiveness of the fund diminish? How is that reflected? Does the unit price just increase more slowly?

If/when the BoE policy rate changes, the fund value won't change like a bond fund because it hold very short term securities (days to weeks) to maturity so the market price of those won't impact the fund value because their value remains the sum of remaining coupons plus face value. Because it will take some days for these to mature and be replaced by new securities reflecting the new base rate, the rate of fund value increase over the course of the month will change gradually to approach the new SONIA. Then the fund value will then dip back to 1 when the dividend is paid out at the end of the month.

Hopefully, I have got that correct - more experienced investors please correct any errors.

The fund value will change exactly like a bond fund - a bond fund with very short dated bonds. Your return will be partly dividends (taxed as savings income), if they are paid, and partly a capital gain or loss.

You mean interest, not dividends.

I have said that they are taxed as savings income, but they are sometimes called dividends nonetheless. Vanguard uses the term "distributions".

Bond funds pay interest.

We agree on that. The terminology is sometimes unhelpful. Excess Reportable Income for an equity ETF is taxed as a dividend if it is an equity fund.

GeoffTF

GeoffTF said:

wmb194 said:

GeoffTF said:

wmb194 said:

GeoffTF said:

extant465 said:

mebu60 said:

InvesterJones said:

mebu60 said:

NannaH said:

STMM is currently an ideal alternative to holding cash in a Sipp,  if you are building up a cash pot for early retirement especially.
You get a bit of interest on cash but the STMM yield is higher.
 I suppose you need to convert back to cash if / when interest rates start reducing.

That's a question I have been mulling too having recently placed a stash of cash into a STMM fund.

Be most interested to hear views. Thanks.

Not sure about the need to move back to cash if interest rates start reducing - a drop in interest rates will likely affect cash just as much as money market funds.You could try and time the market/banks by fixing for a longer term but as stated in this thread, it can't be predicted ahead of time, and fixing cash kind of takes away the main selling point (if prepared to lock away then can consider other investments as well).

Does the unit cost on STMM funds never decrease? That's what's confusing me. If (when) interest rates decrease won't the attractiveness of the fund diminish? How is that reflected? Does the unit price just increase more slowly?

If/when the BoE policy rate changes, the fund value won't change like a bond fund because it hold very short term securities (days to weeks) to maturity so the market price of those won't impact the fund value because their value remains the sum of remaining coupons plus face value. Because it will take some days for these to mature and be replaced by new securities reflecting the new base rate, the rate of fund value increase over the course of the month will change gradually to approach the new SONIA. Then the fund value will then dip back to 1 when the dividend is paid out at the end of the month.

Hopefully, I have got that correct - more experienced investors please correct any errors.

The fund value will change exactly like a bond fund - a bond fund with very short dated bonds. Your return will be partly dividends (taxed as savings income), if they are paid, and partly a capital gain or loss.

You mean interest, not dividends.

I have said that they are taxed as savings income, but they are sometimes called dividends nonetheless. Vanguard uses the term "distributions".

Bond funds pay interest.

We agree on that. The terminology is sometimes unhelpful. Excess Reportable Income for an equity ETF is taxed as a dividend if it is an equity fund.

It is worth adding that the iWeb "Dividend" listing includes both my gilt coupons and my Royal London money market fund income payment. It does not explicitly show the Equalisation for the latter, but I can infer it from the difference between the "dividend" listed and the distribution that I was paid. English language usage is what it is, and it does not always satisfy the pedants. Income and dividend are terms that are often used loosely, but we need to be exact when HMRC is involved.

poppy10_2

How do you work out the current yield on the Vanguard Sterling money market fund?

GeoffTF

poppy10_2 said:

How do you work out the current yield on the Vanguard Sterling money market fund?

The current yield is the slope of the total return graph. The next ex-dividend date is far away, so at this point in time the return is solely capital gain. The current yield of your investment at this point in time is the slope of the graph of your capital value. That value is backward looking. Vanguard publishes the yield to maturity for its money market fund. That is forward looking, and is a better measure of what you are will get going forward, but their numbers are out of date by the time they publish them.

L9XSS

I’ve currently got north of 150k sat in STMM funds income through HL. I’m getting close to 5% when I last looked. My pension portfolio is a mix of ETFs, company shares paying dividends, DB pension. At some point the amount in the STMM fund will drip feed into other equities, possibly japan but not anytime soon. I believe interest rates will top out at 6% so will ride this wave for a little longer. Retirement is just over 5 years away in my case.

coastline

STMMF have been a good choice for stability recently. Bond yields are rising worldwide again and now at last Octobers levels. 

 United Kingdom Government Bond 10Y - 2023 Data - 1980-2022 Historical - 2024 Forecast (tradingeconomics.com)

Mid March UK 10 year yield around 3.25% and now 4.6% ? VGOV has fallen from 1800 to 1600 in that time so roughly every 1% rise in yield an 8% fall in the fund price ? Can go the other way of course if the economy hits the buffers ? Just shows the funds aren't as stable as thought .

Vanguard UK Gilt UCITS ETF, UK:VGOV Advanced Chart - (LON) UK:VGOV, Vanguard UK Gilt UCITS ETF Stock Price - BigCharts.com (marketwatch.com)

Volatility here over the falling years 

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