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

TheGreenFrog

To lose all your money in a STMMF run by a reputable manager, such as Blackrock, is a vanishingly small propsect.  They invest in short term bonds, usually with very credit-worthy institutions (including the UK government).  They also invest in products issued by other banks.  So the underlying risk is diversified and a very significant loss is probably only going to happen if there is a crisis affecting the wider financial system.  There could be an issue with one of the underlying institutions:  again unlikely with a reputable manager but possible.  In that case you might lose some money - depending on what percentage of the fund was exposed to that institution - hence why the fund manager will diversify exposure. 

If the manager itself went bust then your money should be protected as the funds managed by the manager are ring-fenced from the assets and liabilities of the manager itself.  The manager could in theory be guilty of some fraud or terrible regulatory breach which would affect your money - hence why safest to choose reputable funds regulated in the UK (as your Blackrock fund is).

Cus

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 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”.

I guess in the same ( but less likely) way a bond fund value could go down. If the mmf has invested in 100 companies, lending them the fund money for a very short term interest rate, (rather than buying bonds (which is lending money) with longer maturities that a bond fund does) and suddenly interest rates jumped a lot (it would have to be a big surprise move to impact such short maturities) or half the companies went bust over night then it could drop in value.

silverchoice

I am 55 in a couple of months and have about £160,000 in an AJ Bell Sipp. We are looking to remortgage next April and would like to take 25% tax free from the Sipp to pay off about half of the mortgage. 

Currently the Sipp is invested in Vanguard Retirement Funds which have been volatile thanks to Mr Trump. What is the safest type of fund to invest in so the Sipp does not fall before I need to take the money next April?

2nd_time_buyer

A cash fund? E.g. https://www.trustnet.com/factsheets/o/gwuo/royal-london-short-term-money-market-y-acc

It has been more than keeping up with inflation over the last year.
(0.1% annual fee)

george_jetson

Has my Vanguard retirement chat last week and in fact if you need the money in the next five years a sterling MMF is the best place for it. 

https://www.vanguardinvestor.co.uk/investing-explained/flexible-income

OldScientist

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 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”.

To take the Vanguard STMMF as an example, it currently has (https://www.vanguardinvestor.co.uk/investments/vanguard-sterling-short-term-money-market-fund-a-gbp-accumulation/portfolio-data ) 44% of NAV invested in UK treasury bills, 36% in time deposits (i.e., fixed term deposit with a bank, e.g., see https://www.nationwide.co.uk/investor-relations/time-deposits/ ) and 14% commercial paper (i.e., unsecured, short-term money market obligations issued by commercial firms and financial institutions).

Therefore, catastrophic losses would occur in the case of government default or widespread bank default. Such circumstances would almost certainly have a significant impact on other parts of the banking system (including, potentially, FSCS protection).

More realistically, a strong increase in short term yields would cause a temporary loss in NAV (e.g., the duration of the vanguard fund is just over a month and therefore a 1 percentage point increase in yields would result in roughly a 1/12th of a percent decrease in NAV.

Finally, when the SONIA rate was very low it became close to the cost of holding the fund (i.e., around 0.10 to 0.15% plus platform costs) and therefore could have lost the holder money in nominal terms.

In real terms (i.e., after inflation) it is entirely possible for the STMMF to lose money in the short, medium, or long term.

Cobbler_tone

16% down, I doubt it? If you ‘cash in’ today and the market drops 1% tomorrow then I guess you are 1% up if you measure it like that. You’ll always be ‘up or down’ when selling any investment compared to any point in the future. If you sell shares at £80 and in two months they are £90, you haven’t ’lost a tenner’ if you bought them for £30, you’ve taken the risk out them dropping to £60 and generated a great return on investment.

Baldytyke88

2nd_time_buyer said:

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. 

 

I am surprised that there isn't a specific thread about a looming crash. We have had a small crash and a recovery, but the effects of Trump's tariffs haven't started yet. It does concern me, but I haven't done anything about it, because I thought the crash had already happened, but it could get much worse.

Are the wise amongst us holding more cash/gold?

QrizB

Baldytyke88 said:

Are the wise amongst us holding more cash/gold?

I'm expecting to be invested for another 30-40 years. This is just another bump in the road.

kempiejon

Baldytyke88 said:

Are the wise amongst us holding more cash/gold?

not wise but I looked at gold covid times, it has served me well in the past year having spent 5 years doing not much. 4% gilts look good to me, I'm buying more.