Low risk funds/ideas for cash lump sum

brainiack

Lucky enough to have come into significant cash around £200k mark.

I am looking for a short-medium term place to store this, my ISA this year and from April will easily be 20k'ed by these monies, and I have already got £50k maxed in Premium Bonds as I'm sadly a 40% taxpayer. No mortgage, my employer pays significant pension contribution so my preference is not to put much/any into my small SIPP.

Where else can I invest? I thought of money markets funds but these are income not capital, so would bust £500 allowance rapidly and be paying 40% on all returns which isn't palatable.

Bonds/gilts seem dodgy at the moment too in such a high inflation environment expected coming up. Are there any other options of low risk funds? In my ISA I do 2 funds indexes of global and emerging markets.

Ideas appreciated given my constraints above!

homestraight

Could it be beneficial to 'live, off' this money rather than your salary? reduce your salary down as much as possible by making larger pension contributions into your employer pension scheme.

In terms of where to keep the cash in the meantime then that might depend on how long you need it to hold it as cash for. Cash deposit accounts may be your best option.

Money Market Funds could be something you want to explore.

Or purchasing individual gilts.

Really it 'depends'

InvesterJones

If inflation is the reason you won't consider fixed income, then you could always get inflation-linked gilts (which will currently work out better than conventional only if inflation is higher than ~4.75% over 2 yrs or ~4% over 5 yrs). But don't forget inflation effectively applies to returns from everything - savings accounts, equities etc. so if you need to take on risk to try and up the returns that will be in opposition to your desire for low-risk funds.

With 200K you'll bust past any dividend allowance too (and if your chosen fund has a significant portion of bonds, will be considered as income anyway) so don't let the tax tail wag the dog too much.

LHW99

I understand gold sovereigns and britannias are CGT-free, and don't generate an income. However, gold isn't a particularly reliable 'investment', is pretty highly priced just now and has to be stored safely.

IMO paying a bit of tax is probably preferable.

aroominyork

https://forums.moneysavingexpert.com/discussion/comment/81932647#Comment_81932647

Can I check how that is calculated, using T29 (0 1/8% Index-linked Treasury Gilt 2029) as an example?

Then take an equivalent maturity conventional gilt.

Breakeven on the ILG, ie the inflation rate at which they give the same return, is:

YTM on conventional – real yield on ILG = c.4.47% – c.0.2% = 4.27%

Is that correct?

InvesterJones

Yes exactly. Many places explicitly give it as 'breakeven' or 'implied RPI growth' as part of the ILG information.

aroominyork

And it's worth noting here that until 2030 ILGs remain linked to RPI which, historically, has been around 0.9% higher than CPIH.

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/81934363#Comment_81934363

Indeed, thankfully efficient markets have priced that in for us already ;)

aroominyork

https://forums.moneysavingexpert.com/discussion/comment/81934483#Comment_81934483

Priced in at which end? Are RPI-based ILGs adjusting down to be priced as if post-2030, or are post-2030 ILGs adding a premium?

masonic

https://forums.moneysavingexpert.com/discussion/comment/81934502#Comment_81934502

At the long end, say TR50 / TG50, then implied CPIH (and it's pretty much all CPIH) is 3.3% (which would be 4.2% in old money). This is above the OBR's long-run forecast, and it's implausible the market didn't factor in the change over the period it was mooted and then confirmed. There are reasons to think the forward RPI-CPIH wedge will be lower than the historic average of 0.9% https://obr.uk/box/the-long-run-difference-between-rpi-and-cpi-inflation/ though I don't think anyone will be keeping score after 2030.

I was a little concerned about long linkers when the premium over CPIH was smaller, but with a +2.2% premium, that puts them at better value than the long term historic RPI+1% they've traded at pre-GFC even with a 0.9% wedge. I started buying when it went above 2%.

Now I'm getting tempted by intermediate flat gilts.

aroominyork

"Now I'm getting tempted by intermediate flat gilts." Wanna make me an offer for my T34? I partly bought them for the coupons and, since most of my bond holdings are short dated, I've got away more unscathed than most from the rise in yields.