My Cash Investment Strategy - Comments Appreciated.

LHW99

Bulwark said:

Yes, I think you are right ColdIron, I am sure my overhead expenditure is more then my estimate. The trouble is it goes up and down and I have never totalled  it up on a yearly basis..I am lucky that most Capital items are paid for now e.g.  House, Car etc. Maybe it should be double my previous figure. 

Personally I would start by listing your regular bills (DD / SO / paid by cash). Then add in a reasonable amount per month for discretionary stuff (monitor for a couple of months to get an idea) plus one-off's like holidays.

Use a spreadsheet or paper, and see how that matches what's coming in. It seems you are also still saving - that is presumably surplus to your normal spends.

Then you know how close the match is.

Check what your partner's provision would be if you passed first.

Then at 74, IMO I would do what helps me to sleep at night. People may think you have too much in cash, but if it works for you that's OK.

Bulwark

I think I may have over complicated my question. All I would like to ask advice on is an 'OK' idea to transfer my cash holdings in various 1 year Savings  Bonds to an  IShares 'ERNS' ETF. Max £85,000 to be within the  FSCS guarantee an on the 'Invest Engine' Platform (no Dealing Costs).  If required, the money would then be almost instantly available for any emergencies or capital requirements e.g. replacement of car, building work etc. I note that EL-Toro suggests that ERNS may not keep up with inflation so are there better ETF's to invest in for my purpose?   

masonic

Bulwark said:

I think I may have over complicated my question. All I would like to ask advice on is an 'OK' idea to transfer my cash holdings in various 1 year Savings  Bonds to an  IShares 'ERNS' ETF. Max £85,000 to be within the  FSCS guarantee an on the 'Invest Engine' Platform (no Dealing Costs).  If required, the money would then be almost instantly available for any emergencies or capital requirements e.g. replacement of car, building work etc. I note that EL-Toro suggests that ERNS may not keep up with inflation so are there better ETF's to invest in for my purpose?   

The weighted average YTM of ERNS is currently 4.44% and that will fall in response to further interest rate cuts. Whereas you can get around 4.5% fixed for a year if you continue your ladder of 1 year savings bonds. So you are moving up in terms of risk and down in terms of return.

I'm also unclear why you have chosen a ultra-short Sterling corporate bond fund rather than a lower risk short-term money market fund, which would be more diversified with a similar return, or a longer duration bond fund, which will likely deliver higher returns.

Access is one reason why you might not wish to continue your ladder, but is it possible you will need more than £10-20k per month for big-ticket maintenance costs? Another reason to break with the ladder is if you don't want the hassle of monthly reinvestment.

You mentioned your S&S ISA earlier, and I agree that seems to lack coherence and strategy, but rather than seeing that as a separate problem, it may be worthwhile thinking about your assets as a whole and how they fit together. For example you mention having some Capital Gearing in your ISA, so how would the additional corporate bond holdings impact your overall defensive investments?

If maintaining purchasing power for this money is important to you, then shouldn't you consider index linked gilts (Capital Gearing will have some)?

Notepad_Phil

Bulwark said:

I think I may have over complicated my question. All I would like to ask advice on is an 'OK' idea to transfer my cash holdings in various 1 year Savings  Bonds to an  IShares 'ERNS' ETF. Max £85,000 to be within the  FSCS guarantee an on the 'Invest Engine' Platform (no Dealing Costs).  If required, the money would then be almost instantly available for any emergencies or capital requirements e.g. replacement of car, building work etc. I note that EL-Toro suggests that ERNS may not keep up with inflation so are there better ETF's to invest in for my purpose?   

Have you considered/looked into whether you'll have any new tax reporting complexities by using a general investment account and dividends instead of savings accounts - in particular I know that some ETFs have Excess Reportable Income that needs to be figured out (no idea about the one you are considering) and if you ever sell more than £50,000 in a tax year and are in self assessment then you'll need to report the gains even if they don't exceed £3,000 (or whatever it is reduced or increased to in future budgets).

Bulwark

I understand that you should not keep short term Bonds longer than then a year.  As there are no selling costs on the InvestEngine  platform, I will be able to sell ERNS after the year and  choose/ buy a replacement. The advantage as I see it is if there is ever a need  for cash I can sell ERNS at any time rather then have to wait for the 12 month savings bond to mature. 

masonic

Bulwark said:

I understand that you should not keep short term Bonds longer than then a year.

Where did you read that? And for what reason should you not?

Bulwark

Short-term bonds are only ``risk-free'' if you're investment horizon is short-term. Ultrashort bond funds are a fine place to invest if your investment goal is less than a year away. If your investing for goals that are 5, 10, 20, or 30 years away they are FAR more risky than long-term bonds.19 Sept 2022

Ultra short term bonds - Bogleheads.org

Bogleheads

https://www.bogleheads.org › forum › viewtopic

masonic

Bulwark said:

Short-term bonds are only ``risk-free'' if you're investment horizon is short-term. Ultrashort bond funds are a fine place to invest if your investment goal is less than a year away. If your investing for goals that are 5, 10, 20, or 30 years away they are FAR more risky than long-term bonds.19 Sept 2022

Ultra short term bonds - Bogleheads.org

Bogleheads

https://www.bogleheads.org › forum › viewtopic

You've not posted a direct link, so I won't need to feel guilty for saying the bit about less than a year (with only this context) is a load of rubbish. If you need the money within 5 years to meet expenses that the value will already cover, then a long term bond fund is far more risky. Cash or cash equivalents are where you should be. An ultra-short corporate bond fund is stretching the definition of cash equivalent, but I've already commented on the choice of bond fund.

Bulwark

Thank you everyone for your advice. I will therefore continue with my monthly investment into One Year Savings Bonds and roll them over once they reach maturity. As an experiment, I have also purchased £10,000 worth of 'ERNS' Ultra Short Bonds and will report back in 12 months time with the results.