"Locking in" SIPP gains - cash or short term sterling MMF?

george_jetson

I have a modest amount in  SIPP which I took out to bridge the gap between quitting work (done!) and taking my DB pension in a couple of years.

It's in a global index tracker and I would like to "cash in my chips" to preserve my profits (would have been better off doing this a few months ago but hey ho!)

My intention had been to leave it as cash in my SIPP withdrawing it via UFPLS over the next two years.

But I've just seen that I can get a better return if I bought a "sterling short term money market fund"

I'm unclear on the ins and outs but the key points seem to be my capital is safe and it pays more than cash in a SIPP.

So my plan is to sell my tracker funds, purchase MMF and draw that out via UFPLS over the next two years until my DB pension kicks in.

Is there anything obviously amiss with this plan?

Thanks in advance for your help

lonsdale50

MMF are not 100% safe - can't post a link but google "monevator what are money market funds" - which states from FCA guidance -

"As an investment, MMFs do not guarantee principal, and the investor must bear the risk of loss. MMF investments are equity liabilities, unlike bank deposits which are debt liabilities whose value is supported by equity capital." 

Sam_666

You will be selling at market bottom, currently down -16%.
Not all MMF are equal, do your research. MMF are as safe as is your current fund, its investment.

2nd_time_buyer

Sam_666 said:

You will be selling at market bottom, currently down -16%.
Not all MMF are equal, do your research. MMF are as safe as is your current fund, its investment.

It may be the market bottom or it may have (a lot) further to fall. I suspect a lot of people have reassessed there attitude to risk recently - partly because they have not seen big falls before and also they now have more to lose. I think it is perfectly reasonable to  reassess things now, or at any point, but it might be less stressful, if the new plan is longer term and is not influenced by short-term market conditions. 

  

bjorn_toby_wilde

They’re not 100% safe but the fact sheet for the Royal London STMMF that I use states a risk level of 1 on a scale of 1-7.

george_jetson

Just to be clear I'm not reassessing in light of the recent turbulence - it was always my plan to start pulling money from my SIPP via UFPLS from this tax year. 

I'm also not down 16% - I bought my ETFs some time ago. The recent drops are irritating but not even a technical correction (and nothing compared to Covid and the drops in 2022). And as the S&P500 is up 4% this week (and 8% over the last 12 months) I don't think I'm selling at the market bottom...

Vanguard give their sterling MMF a risk profile of 1 (out of 7) and state The Fund may invest up to 100% of its investments in money market instruments issued or guaranteed as to principal and interest by the UK government, its agencies or instrumentalities so surely safer than ETFs, and a better bet than cash?

bjorn_toby_wilde

george_jetson said:

Just to be clear I'm not reassessing in light of the recent turbulence - it was always my plan to start pulling money from my SIPP via UFPLS from this tax year. 

I'm also not down 16% - I bought my ETFs some time ago. The recent drops are irritating but not even a technical correction (and nothing compared to Covid and the drops in 2022). And as the S&P500 is up 4% this week (and 8% over the last 12 months) I don't think I'm selling at the market bottom...

Vanguard give their sterling MMF a risk profile of 1 (out of 7) and state The Fund may invest up to 100% of its investments in money market instruments issued or guaranteed as to principal and interest by the UK government, its agencies or instrumentalities so surely safer than ETFs, and a better bet than cash?

I wouldn’t disagree with anything you’ve said. None of us has a crystal ball and it seems perfectly reasonable to do what you’re doing in light of your objective.

Storcko14

Perhaps the only thing to add is that with MMFs, as with ETFs or others, you might have transaction costs to consider as you'll likely need to liquidate ahead of your UFPLS withdrawals.  Whereas leaving funds as cash would normally avoid this.  Small detail but might make a difference depending on your platform and the frequency of your UFPLS drawdowns.

george_jetson

Thanks but I’ll only be taking a couple of withdrawals to reduce faffing- a small one early in the tax year to generate a tax code then take the rest out in a big lump in March. 

I think MMFs are the way to go, thanks all

Workerbee999

bjorn_toby_wilde said:

They’re not 100% safe but the fact sheet for the Royal London STMMF that I use states a risk level of 1 on a scale of 1-7.

Just for my understanding, what circumstances would have to happen for the value in a STMMF to actually go down (as opposed to slowing down the absolute increase as interest rates fall?). I have 60% of my previous company DC in Av MyM BlackRock Sterling Liquidity through Aviva and it doesn’t seem to offer a pure cash option. So this fund is the lowest risk option I can find, but in my head I have been thinking of it as “safe cash”.

QrizB

Workerbee999 said:

bjorn_toby_wilde said:

They’re not 100% safe but the fact sheet for the Royal London STMMF that I use states a risk level of 1 on a scale of 1-7.

Just for my understanding, what circumstances would have to happen for the value in a STMMF to actually go down (as opposed to slowing down the absolute increase as interest rates fall?).

I think it would need the businesses that the fund is lending your money to, to go bust. Since the STMMF money is an equity liability, you'd be last in line (with the shareholders, after all the other creditors) to see any of it repaid.

Happy to be corrected if I've got that wrong.