Short-term investment strategy

[DKSwann]

Hi Folks,

One drawback to purist LTBH is that I simply have not made the time to visit with any frequency let alone post. Now need to draw on your accumulated foolishness please.

Have 2 small £50k and £60k S&S ISAs managed by ii and A J Bell respectively. Will need to fully use these funds for a prospective house purchase and completion could be up to 7 months away. Normally have a good “what goes down mostly comes back up” risk profile, however nothing focusses the mind as much as the short-term and a potential ‘missing’ couple of £k when the funds are required. This is a bridging exercise as should be able (yes – am checking they are flexible) to reinvest and pick up a relevant spread of new stocks when our existing house is sold (will be after completion for sure).

I have trawled through the rules and cannot find anything definitive on how long a S&S ISA may wholly hold cash and what, if any, penalty there may be. Anyone have any certainty on this please?

If none, then can simply liquidate and sit tight.

Otherwise, any ideas on an investment strategy that may provide the next best alternative to a ‘no loss’ cash holding?

[gpadsa]

This recent thread poses a similar Q https://www.lemonfool.co.uk/viewtopic.php?f=62&p=566613 and might provide some suggestions

FWIW iweb lets you keep 'a lot' of cash for a long time & never reminds you to invest it - maybe it was a 'rule' not to have uninvested cash in the early days of ISAs.

gpadsa

[EthicsGradient]

This is a bridging exercise as should be able (yes – am checking they are flexible) to reinvest and pick up a relevant spread of new stocks when our existing house is sold (will be after completion for sure).

I have trawled through the rules and cannot find anything definitive on how long a S&S ISA may wholly hold cash and what, if any, penalty there may be. Anyone have any certainty on this please?

If none, then can simply liquidate and sit tight.

Otherwise, any ideas on an investment strategy that may provide the next best alternative to a ‘no loss’ cash holding?

This says that neither AJ Bell's nor ii's ISA is flexible: https://www.investorschronicle.co.uk/ma ... ffer-them/

[DrFfybes]

I gather you can open a cash ISA and transfer it, although given the short term then the rates may not be brilliant.

I was going to suggest withdrawing some and putting it in Premium Bonds, however if the house purchase falls through then you will have lost the ISA protection.

There is a 1 year fixed rate cash ISA paying circa 4% from Virgin, that allows withdrawals with a penalty of 60 days' interest.

Paul

[XFool]

I have trawled through the rules and cannot find anything definitive on how long a S&S ISA may wholly hold cash and what, if any, penalty there may be. Anyone have any certainty on this please?

There has been no such requirement for quite a few years now. There used to be, in the past.

At least with just "holding cash". Whether this is different with 'all cash' I am unsure. Probably not.

[ukmtk]

I have used HDIV & VGOV to park cash in my SIPP.
Unfortunately those turned out to be a lot more volatile than I expected.

[Dod101]

I have used HDIV & VGOV to park cash in my SIPP.
Unfortunately those turned out to be a lot more volatile than I expected.

If you want to park cash because you are going to need it some time soon, then of course park cash. As you now know, any investment can be volatile.

Dod

[Urbandreamer]

- maybe it was a 'rule' not to have uninvested cash in the early days of ISAs.

There was such a rule in the days of PEP's, but it was not enforced. You see, the rule didn't have a time limit. Simply, that cash should be held for the purposes of investment. How do you or HMRC prove anything about intent?

Of course, since the "help to buy" ISA and the "lifetime" ISA, there has been a clear intent by the state that such funds may be used to fund house purchases.

[Alaric]

There was such a rule in the days of PEP's, but it was not enforced. You see, the rule didn't have a time limit. Simply, that cash should be held for the purposes of investment.

That also applied in the earlier days of ISAs. Before their merger, there was a division between "Stocks and Shares" and "Cash" ISAs. So much so that interest on cash in a Shares ISA would be taxed. I think also there was some restriction on purchasing Gilts of under 5 years.

Other than an uncompetitive return, there now isn't anything to prevent all the assets in an ISA being liquidated for cash.

[tjh290633]

This recent thread poses a similar Q https://www.lemonfool.co.uk/viewtopic.php?f=62&p=566613 and might provide some suggestions

FWIW iweb lets you keep 'a lot' of cash for a long time & never reminds you to invest it - maybe it was a 'rule' not to have uninvested cash in the early days of ISAs.

gpadsa

My recollection is that ISAs run by certain fund managers did not allow you to hold uninvested cash in them. THey possibly had a product which ressembled cash, but you could not hold it in a share ISA.

TJH

[Gerry557]

I have been building cash positions with a couple of brokers. That cash has been there a while now well over 18months.

I have made a couple of trades within but it was for the opportunity rather than to prove any investing requirements.

I've never had any warnings.

[hiriskpaul]

I would suggest iShares Ultrashort Bond ETF ERNS: https://www.ishares.com/uk/individual/e ... ts/258120/

Alternatively for a guaranteed return buy a short dated gilt. I just obtained a quote for £30,000 in Treasury 2.25% 07/09/2023 (T23). That would get you £30,215 nominal at 99.205p after paying 7 days accrued interest and a £11.95 fee at Hargreaves Lansdown.

Payback on 07/09/23 would be £30,215 capital + £339.91 interest, total £30,554.91. That's about 1.94% over 6 months, AER about 3.9%.

[GeoffF100]

I would suggest iShares Ultrashort Bond ETF ERNS: https://www.ishares.com/uk/individual/e ... ts/258120/

The numbers here do not look convincing:

https://www.fidelity.co.uk/factsheet-da ... erformance

[hiriskpaul]

I would suggest iShares Ultrashort Bond ETF ERNS: https://www.ishares.com/uk/individual/e ... ts/258120/

The numbers here do not look convincing:

https://www.fidelity.co.uk/factsheet-da ... erformance

Could you elaborate please?

[GeoffF100]

Annualising the 1 month performance gives 1.0021^12 = 1.0255
Annualising the 3 month performance gives 1.0086^4 = 1.0348

That does not look good in comparison with the Royal London money market fund or even the Vanguard money market fund, which ought to be lower risk. There is also a down spike in the total return graph on 31/03/2020.

[gpadsa]

There is also a down spike in the total return graph on 31/03/2020.

Somehow the graph doesn't capture how it was difficult to sell at a reasonable price during that period, trying to sell a chunk of ERNS.L on 02/03/20 with a limit order set at the price it should have been selling for that period relative to where it was between dividends, at the prevailing rate of return if that makes sense, it took until 15/03/20 before someone would buy it. So I would not recommend ERNS.L to OP either, esp. if it might need to be sold with no capital loss in a volatile moment.

gpadsa

[LittleDorrit]

Just looking out of curiousity, but my xirr function returns 3.97% between 20/12/22 (ex div I assume) and Friday 10/03/23, which sounds about right given the published yield to maturity.

[hiriskpaul]

Annualising the 1 month performance gives 1.0021^12 = 1.0255
Annualising the 3 month performance gives 1.0086^4 = 1.0348

That does not look good in comparison with the Royal London money market fund or even the Vanguard money market fund, which ought to be lower risk. There is also a down spike in the total return graph on 31/03/2020.

Ok, see what you mean. The YTM of the ETF is now over 4% though due to rising short term bond yields. The spike you mention is relatively small, it just looks large due to the scaling on the graph.

Not risk free though, but neither are money market funds which rely on short deposits - SVM unsecured depositors being a pertinent example of what can go wrong there. For that matter, leaving large amounts of cash in a brokerage account is only protected by FSCS.

Safest option from a credit risk perspective is gilts, but then there is a risk of not getting all your money back if you need to sell before maturity.

Ps come to think of it, if your broker goes bust it may take some time to get hold of your money even if it is safely invested.

[hiriskpaul]

There is also a down spike in the total return graph on 31/03/2020.

Somehow the graph doesn't capture how it was difficult to sell at a reasonable price during that period, trying to sell a chunk of ERNS.L on 02/03/20 with a limit order set at the price it should have been selling for that period relative to where it was between dividends, at the prevailing rate of return if that makes sense, it took until 15/03/20 before someone would buy it. So I would not recommend ERNS.L to OP either, esp. if it might need to be sold with no capital loss in a volatile moment.

gpadsa

Good point. Lack of liquidity is a risk worth noting.

Perhaps just gilts then!

[GeoffF100]

The OEICs do have the advantage that they do not have a market spread. There is likely to be swing pricing, but the Royal London fund is not showing any obvious evidence of that. It is growing very smoothly. OEICs also cannot go to a discount to NAV, but they could be gated. The Silicon Valley Bank episode does not add to confidence in uninsured bank deposits.

I have taken my Marcus account out of hibernation to hold my personal spending emergency reserve. I am currently using Royal London for cash awaiting investment. I will use that money in the new financial year, but some of it can be recycled, probably into T24.