What to do with cash in an isa

Monday, Mar 18 2019 by
5

Good evening

I'm sure graham has a thread on this somewhere but cannot find it.

My question is as above - what to do with cash in an ISA.

Due to the almost non existent interest paid by aj bell I wonder if there is a way of earning say 1.5% Apr in an investment (I'm thinking etf's etc) that would approximate (risk wise) as holding cash.

Obviously I realise that there is always going to be an increase in risk whatever you buy.

How do you guys deal with this.

Thanks in advance

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24 Posts on this Thread show/hide all

Laughton 21st Mar 5 of 24

Lordyjordy - it would have helped if you had said at the outset how long you were thinking of keeping your "cash" or do you just want to keep it until a good investment presents itself?

There are a few preference shares and similar with fairly short time horizons which can give much better returns than platforms will pay you but they only really work if you are happy to hold them until they mature. Otherwise you get killed by the spread.

One short term option you might want to look at is BBYB. It matures in July next year with an IRR of over 5% and YTM of just over 3% - both figures dependent on what your platform charges in the way of dealing costs.

Yes - there is some risk involved.

Disclosure: I hold BBYB and don't intend selling early but the above is definitely NOT advice or even a recommendation. Small changes in price make a big difference to the yield so be sure to do the calculations before pressing the BUY buttion.

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Lordyjordy 21st Mar 6 of 24
1

In reply to post #460648

@Laughton

I hold cash at the moment (around 25%) of my portfolio. My basic idea is to hold this cash so if there's a market correction I have some liquidity to buy shares when I feel the time is right.

The problem is it has sat there for around 10 months with inflation eating into it.

So thinking a bit deeper what I'm actually after is an asset that can be turned back into cash (quick enough to take advantage of any market malaise) that can keep the original sum from being eroded by inflation and also carries as minimum a risk as possible.

I used to think of my portfolio as just being the positions I had open. I'm beginning to see that you have to take a holistic approach to money mangement. It's not just my portfolio but the cash that is there, How much interest rate I'm earning on bank savings etc.....

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Laughton 21st Mar 7 of 24

Ah yes - BBYB won't really work for that. To get those interest rates you have to hold to maturity.

I came to realise some time ago that clocks are for timing. I've never been any good at it.

But if you hold 25% in cash - what's going to happen to the other 75% when your market malaise comes about and how far down do you want it to get before investing?

In the last 10 months the FTSE went down 14.5% (roughly) and then went up 12% (roughly)



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Lordyjordy 21st Mar 8 of 24

@laughton

I knew I was going to get abuse for that comment (probably rightly). There's more to it than simple timing the market.
I don't want to lose my isa allowance this year but feel I need to reduce my risk. It might be the political upheaval at the moment but I don't want to invest 100% of it at the moment. So if there's a means of keeping the cash in line with inflation but can liquidate a short notice (or is short term from inception)- that's what I'm looking for.
In your opinion am I looking for something that doesn't exist? Do you stay 100% invested and balance between stocks and bonds to manage risk?


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Laughton 21st Mar 9 of 24
1

In reply to post #460698

Sorry - certainly no abuse meant.

I don't know if what you want exists or not - maybe look in more detail at some of gus 1065's suggestions. Perhaps they would suit (I don't know because I've never looked at them).

I certainly wouldn't recommend doing what I do - my track record isn't great.

I think what we're all suffering from is ultra low interest rates - there just doesn't seem to be anything around that guarantees a decent return without taking on some risk. Having said that, with interest rates effectively at zero then earning anywhere close to 4% or 5% on some of your money isn't to be sniffed at in my opinion. If the risk is low then it helps you sleep better at night.

For me, at least, it's piling in "when the time is right" that's the problem. You have to have really strong nerves to buy heavily when everything is a sea of red especially those shares you've been keeping an eye on.

Have you thought about drip feeding your cash into the market at regular intervals - say 1/10th on the first day of each month? That would take out the problem of getting the timing right and if the market goes down half way along the stretch then your 1/10th buys more of what you want.

I don't believe there is a magic answer.

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Lordyjordy 21st Mar 10 of 24

In reply to post #460723

Agreed low rates are the problem although im not sure the online brokers are keen to pass much on anyway.

As to my nerves in any downturn - I'm honestly not that sure on this one. On the brexit vote I was presented with some of my watch list falling at a fair clip and my mentality at the time was of "look at how cheap that is" and took the plunge. I'm fairly young and deep down have a belief that at some point in the future markets will always cling to a new high. If my nerves would have held in 2008 that might have been a different story.

Cheers

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jonesj 21st Mar 11 of 24
1

The non-stock proportion of my ISA is split between cash sat in the broker account, 1-3 yr US treasury ETFs and Gold/ Platinum ETFs.   I went for the US Treasury ETF to diversify away from the GBP.   

I don't worry about the lack of interest in the broker account. I do worry about where the broker might park it.

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gus 1065 22nd Mar 12 of 24

If finding an indefinite hedge against a U.K. inflation benchmark is your objective, I see Vanguard offer an index linked gilts ETF. I don’t hold myself but in theory, ILG’s should be more or less credit risk and inflation “risk free” in that you’re getting a sovereign £ denominated credit with an inflation based income component. You’ve still got basis risk (what’s your definition of “inflation”, RPI, CPI etc.,) and Brexit related gilt price wobbles but these are relatively small beer. The OCF is 0.15% per annum, not sure what if any the bid-ask spread is so you’d need to check their impact on your returns.

https://www.vanguardinvestor.co.uk/investments/vanguard-uk-inflation-linked-gilt-index-fund-gbp-gross-accumulation-shares/overview?intcmpgn=fixedincomeuk_ukinflationlinkedgiltindexfund_fund_link

One general point, don’t just look at the % costs but also the £’s and pennies of the exercise. While it’s annoying that cash in the bank generally gives nil return, U.K. inflation is currently pretty low (I’m old enough to remember it running in the high teens - that really did gobble up the value of idle capital) and unless the sums involved are large, a 1% pick up on say a £20k ISA allowance is worth £200 if held for a whole year which will be barely a rounding error over a lifetime of investment.

Gus.

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millen 22nd Mar 13 of 24

In reply to post #460773

Do bear in mind this particular instrument is very much a long-dated ILG portfolio - average duration over 20 years! The capital value can move significantly up or down in response to market 20-year real (inflation adjusted) real return expectations. Just as a long fixed gilt responds to long nominal interest rate expectations. It cannot be regarded as 'capital secure' in the short-term. Just look at how it achieved strong returns as real return fell to new lows a few years ago. Some would argue they're unlikely to go much lower and a rise is more probable if 'normality' returns, with corresponding capital value falls.

I suspect it's aimed for example at someone who wants to match against inflation-linked annuity prices.

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Graham Ford 22nd Mar 14 of 24

A slightly left field suggestion. Consider if an Innovative Finance ISA from ZOPA may fit your needs. It is a peer to peer consumer loans business.

I won’t go into all the features pros and cons here but it may be worth a look.



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herbie47 22nd Mar 15 of 24

Some good posts above, cash in an ISA is a bit of a problem, in theory you can move it out into a cash ISA, have not tried it, it may take some time to transfer. I have transferred cash ISA to share ISA without any problems, this year I did a cash ISA and probably will do the same next tax year. With the cash I have in my ISA share account I have bought some Gold ETFs, some high yield shares and some preference shares, one is BUR1. I have also transferred most of my share account high dividend shares into my ISA. If you think the market will crash then consider some Index shorts, such as £2UKS and 1MCS.

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Lordyjordy 22nd Mar 16 of 24

@Jones
Your comment "I do worry about where the broker might park it." Can you expand on this.

I presume your worried about the broker becoming insolvent? My understanding is the fscs covers the first £50k in an isa. So if you spread across providers this should mitigate this somewhat?

Obviously larger portfolios this then becomes a concern?


@Gus 1065

Interesting but I'm not sure this is what I'm looking for. I'm just trying to open a bank account account that gives me 1.5% interest (kent reliance) witch I can withdraw funds straight away. Where as the cash in my isa pays 0.1% (although there is no charge which is nice of them) so my thinking was an instrument held in my isa that gets nearer the interest in the Kent reliance account with as little risk as possible.

BTW I remember you were active on the amerisur thread. Where is the the news on calao? Fingers crossed......

Regards

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Laughton 22nd Mar 17 of 24

No good for your ISA - but think about Premium Bonds (I can hear the groans from here).

They currently pay out 1.4% interest. If you hold enough I'd say that you are almost guaranteed to earn something. All payouts are tax free (yes, just like an ISA). I'd also say that they are super safe (safer, in my view, than an ISA or a bank account).

And, who knows, you might win enough so that having an ISA is an irrelevance.

Have just donned my hard hat and waiting for incoming.

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dmjram 22nd Mar 18 of 24

In reply to post #460978

New(ish) ISA rules allow you to deposit and withdraw money in the same year and then pay it back in before the end of the tax year.
So you could (in theory) take paid in cash out of your ISA for a few months if the market turned, park it in the highest paying deposit account then pay it back in. Needs to be a 'flexible' ISA - not sure who (if anyone) provides them for stocks.

https://www.gov.uk/individual-savings-accounts/withdrawing-your-money

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Laughton 22nd Mar 19 of 24

Nationwide advertising in today's newspaper a cash ISA paying "up to" 1.30%. Needless to say, there are terms and conditions. It pays "up to" 1.40% for existing customers.

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millen 22nd Mar 20 of 24
1

In reply to post #461028

iirc, Nationwide is one of the very few institutions that attempts to reward customer loyalty. Most of my deposit accounts drop to < 0.1% if I forget to 'renew' them each year. Why can't this abysmal behaviour of favouring new customers finally be banned!

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jonesj 22nd Mar 21 of 24

In reply to post #460978

Splitting ISA accounts to ensure the balance is below the £50k FCSA limit is probably OK up to a certain portfolio size. Anyone earning a good professional income using ISAs as a major component of their retirement planning could eventually get to the point where it becomes impractical. Imagine trying to find 10 competent brokers who are independent. Then if you had £45k with each of them, and one grows by 20% per year, I suppose you soon are over £50k and having to move money from the ISA at expense.
So I don't think it's practical to keep to £50k once beyond a certain portfolio size.

As for the cash interest, well it kind of depends on how your savings compare with the annual £20k allowance. If you have £20k+ to invest every year, outside of a pension, then there is a strong incentive to utilize the full ISA allowance. Probably best to do just that and don't worry about the short term interest, if your eventual objective is to be in stocks.

If you are investing much less than £20K per annum, then it is easier to pass on the ISA allowance for a year, as you can always contribute nothing now, then the full £20K in other years.

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millen 25th Mar 22 of 24
1

I see there's a new low cost short-gilt ETF just launched by Invesco (60 bps annual charge). Being such short duration its capital value should be relatively stable https://www.investmentweek.co.uk/investment-week/news/3073063/invesco-unveils-two-low-cost-uk-gilts-etfs

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gus 1065 26th Mar 23 of 24

In reply to post #460978

Hi lordyjordy.

Looks like Calao was a duster for Amerisur Resources (LON:AMER) ....

https://www.investegate.co.uk/amerisur-resources--amer-/rns/operations-update/201903260700149535T/

Win some, lose some ....

Gus.

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jonesj 26th Mar 24 of 24

In reply to post #461533

Thank you Millen.

The products appear to be:
UK Gilt 1to5 Year UCITS ETF   Ticker GLT5  £GLT5
UK Gilt UCITS ETF Ticker GLTP INVESCO UK GILTS UCITS ETF DIST (LON:GLTP)

Only listed from 21 March. No data on Stockopedia yet. The stock exchange website shows some prices, but no trades yet.
I would guess the average duration of the 1~5 year gilt ETF is 3 years.
Slightly longer than I would like, considering I would only park money here short term, with the intention of moving it back to stocks as soon as opportunities arise. Any sudden unexpected interest rate rises in times of uncertainty could lead to modest losses

Low yields expected:

https://www.marketwatch.com/in...

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