S&S ISA - is there a risk free return fund?

[HammyHamster]

Hi, I have a stocks and shares ISA but have chosen not to deploy the cash just yet as I think there is more falling to happen on the SP500 etc.

Is there a fund I can invest money while I wait to give a risk-free (or low risk) rate or return, to mimic the savings rate on a current account etc.

[funinhounslow]

I think most will pay some interest on cash in a S&S ISA but it won’t be as good as a cash savings account

Vanguard pay 2.5%

https://fund-docs.vanguard.com/AU-Vanguard_Persona...

It sounds a bit like you’re trying to “time the market” which rarely works out well. If you’ve made the decision to invest I would be tempted to “bite the bullet” and get investing.

[fat80b]

funinhounslow said:

It sounds a bit like you’re trying to “time the market” which rarely works out well. If you’ve made the decision to invest I would be tempted to “bite the bullet” and get investing.

I was in a similar position at the end of last year thinking of what to do.

I've dumped a bunch in the Santander 2.75% a/c for a while and have decided to drip it into the S&P via Vanguard over this year. I put an initial ISA lump in and now have a regular amount buying in every month.

I watched an interesting YT clip the other day (can't find it now) that looked at the history of the S&P and did the maths of averaging in vs lump sums over time and it basically said that averaging in is almost always the best strategy (even when the market is falling).

Yes you could try and put it all in in one big go and time it exactly right, but that is hard. Whereas if you slip it in regularly, you may have some falls, but average down and over the long term will do nearly as well.

[okgo]

Isn’t it the opposite and lump sums perform best most often? Vanguard did this research I think.

[funinhounslow]

fat80b said:

I was in a similar position at the end of last year thinking of what to do.

I've dumped a bunch in the Santander 2.75% a/c for a while and have decided to drip it into the S&P via Vanguard over this year. I put an initial ISA lump in and now have a regular amount buying in every month.

I watched an interesting YT clip the other day (can't find it now) that looked at the history of the S&P and did the maths of averaging in vs lump sums over time and it basically said that averaging in is almost always the best strategy (even when the market is falling).

Yes you could try and put it all in in one big go and time it exactly right, but that is hard. Whereas if you slip it in regularly, you may have some falls, but average down and over the long term will do nearly as well.

Agree with all of that - it definitely feels "safer" to drip feed funds into an ISA - and keep drip feeding them.

I was just pointing out that waiting for a crash/reduction is probably a not a good idea. Somene may say "I'll start when the S&P drops to 3500" then watch frustrated as it creeps up to 4000...

[HammyHamster]

Agree with the above, I don't really want to time the market but I'm inclined to wait a bit longer as I don't think we've reached the end of interest rate rises just yet. We've seen a bear market rally in the SPX over the last few days but I'm just going to hold fire, probably for another few months and then feed in the investments.

Regarding lump sum Vs dollar cost averaging, here is the article: https://investor.vanguard.com/investor-resources-e...

TL:DR; in an up trending market it's best to lump sum invest. But the key question is, are we in an up trending market?

Anyway, I digress. I was hoping there would be some kind of short term bond fund to at least make my cash do *something*.

E.g. ISHARES IV PLC ULTRASHORT BOND ESG UCITS ETF GBP DIS (UESD)

But my ISA is with iWeb and I don't think they have the above (or pay interest on cash). Perhaps time to move provider.

[xeny]

okgo said:

Isn’t it the opposite and lump sums perform best most often? Vanguard did this research I think.

More often than not (~2:1 odds) lumping it in is the best approach, but psychologically it can be easier to actually start investing if you drip feed it in.

[bitchstewie]

Perhaps look at a money market fund that tracks SONIA.

[rossub]

I'm thinking about drip feeding on the bad days going forward.

At the moment, the direct debit comes off the same day each month, so there's a good chance it catches a bounce day.

No idea if it'll be better, but it's a couple of index trackers so it's never going to be a disaster.

[harry miller]

https://www.vanguardinvestor.co.uk/articles/latest...

This is worth a read. I have never seen much sense in pound cost averaging. Whenever I have been in the lucky position of having a lump sum to invest, I have always wanted to get the money invested in equities or bonds as quickly as possible rather than holding as cash.

[xeny]

I could see an argument for incremental investing if the market is below its 200 day moving average and lump sum if it is above.

Essentially get it in quickly if the market seems to have upward momentum, be more cautious if it is moving sideways or downwards.

[bitchstewie]

The arguments are mathematical though when the reason a lot of people don't like to lump sum are psychological.

[Jon39]

funinhounslow said:

It sounds a bit like you’re trying to “time the market” which rarely works out well. If you’ve made the decision to invest, I would be tempted to “bite the bullet” and get investing.

Indeed.

There are some giant, very profitable UK businesses, with 6% and 7% yields and P/E ratios close to, or below 10.
The UK market has been cheaper than the S&P for some time, which is probably why it performed better than most of the major overseas stock markets during 2022.

There does seem to be a fascination with the S&P and NASDAQ on the Finance forum.
Many UK listed companies do business in the USA and some trade in over 150 countries, so you have got diversification.

Edited by Jon39 on Wednesday 18th January 15:08

[WayOutWest]

This one is not a bad shout:
https://www.ishares.com/uk/individual/en/products/...

I'm kind of with Jon39 though. If global markets mean revert then the S&P500 and Nasdaq could underperform the rest of the world for much of the next decade.
We could be already one year into that trend, with 2022 being a sea change year. Either way you can get paid fat dividends from UK, European and Asian/EM equity while you wait. And sterling corporate and EM bonds also paying decent yields now. So no need to sit in cash and attempt to market time.

That doesn't mean the S&P500 won't make money, just that the potential risk vs likely reward doesn't seem to stack up on current valuations and interest rates.
Maybe if it tanked another 25% it would be much more tempting. Then again, maybe it can keep going up 10-15% pa forever.

[Phooey]

Jon39 said:

There does seem to be a fascination with the S&P and NASDAQ on the Finance forum.

Parts of the US does still look expensive admittedly, and yes the US could have an extended period of underperformance compared with ROW etc etc.. but go back 40yrs and tell me the guys 'fascinated' with the S&P and/or NAS were wrong

[timberman]

funinhounslow said:

I think most will pay some interest on cash in a S&S ISA but it won’t be as good as a cash savings account

Vanguard pay 2.5%

https://fund-docs.vanguard.com/AU-Vanguard_Persona...

It sounds a bit like you’re trying to “time the market” which rarely works out well. If you’ve made the decision to invest I would be tempted to “bite the bullet” and get investing.

Is that up to date?

I recently had correspondence from Vanguard saying they are now paying me 3.45% (less costs)





that's for my pension but I seem to recall getting the same rate on cash held in both my pension and my Isa

[jamiedimonBTClover]

bhstewie said:

Perhaps look at a money market fund that tracks SONIA.

You do realise the MMFs are not without significant risks? The OP asked for risk free.

How do you think MMFs beat o/n returns?

There is no magic involved, what do you think they are doing? What do you think happens to the average investor in an MMF in a stress event?

The real risk MMFs face is regulatory, they are not the risk free option many tout.

[bitchstewie]

jamiedimonBTClover said:

You do realise the MMFs are not without significant risks? The OP asked for risk free.

How do you think MMFs beat o/n returns?

There is no magic involved, what do you think they are doing? What do you think happens to the average investor in an MMF in a stress event?

The real risk MMFs face is regulatory, they are not the risk free option many tout.

No I didn't.

I'd been recommended them myself and had taken it on faith that given the risk rating (Vanguard's is rated 1 out of 6) they were basically a fund equivalent of cash on deposit getting near as dammit BoE rate.

Just looked at what the Vanguard one did in March 2020

Thank you very much for the warning

[jamiedimonBTClover]

bhstewie said:

No I didn't.

I'd been recommended them myself and had taken it on faith that given the risk rating (Vanguard's is rated 1 out of 6) they were basically a fund equivalent of cash on deposit getting near as dammit BoE rate.

Just looked at what the Vanguard one did in March 2020

Thank you very much for the warning

I'm not saying they shouldn't be considered - just warning on risk. Go in eyes open. In a stress event, unless you can get out with the same speed as a Hedge Fund or large institutional (which are largest users of MMFs), the door will close. The instant access relies on healthy market liquidity conditions. Something that is taken for granted far too often. About the closest to risk free with minimal stress risk are MMFs engaged in the Fed's RRP. That "should" be winding down though as they tighten (theoretically).

[bitchstewie]

jamiedimonBTClover said:

I'm not saying they shouldn't be considered - just warning on risk. Go in eyes open. In a stress event, unless you can get out with the same speed as a Hedge Fund or large institutional (which are largest users of MMFs), the door will close. The instant access relies on healthy market liquidity conditions. Something that is taken for granted far too often. About the closest to risk free with minimal stress risk are MMFs engaged in the Fed's RRP. That "should" be winding down though as they tighten (theoretically).

No it's a good shout and one I was completely unaware of.

I use Vanguard too and they pay a healthy rate on cash and it highlight the risks of "chasing" that extra tiny little bit and not fully understanding the instrument you're using to do so!