Money Market Funds: Time To Sell?
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- Опубліковано 20 тра 2024
- We are in an unusual situation as we are being paid well to take as little risk as possible with money market funds. This is because central banks have raised short-term interest rates to combat inflation. However, the situation will change. So in this video, we’ll gauge whether it is now time to sell our money market funds and buy bonds and if not how can we know when to switch?
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Something in me winces at the thought of cash being referred to as "safe" ☺
Great content as ever - thanks. I think the big question is not the ultimate shape of the yield curve, but its level. I suspect the new norm for base rate will be a couple of % points lower than that pre Global Financial Crisis. If you were to believe that hypothesis then you would be more likely to swap from MMFs to Government Bonds now.
I’ve taken a break from working and put everything into MMFs via my ISA.
Do you have any thoughts on this new Free trade treasury bills buying they now offer?
Agree -> Wait for a stable uninverted yield curve & then buy single gilts
Thorough and easy to understand. Great job
Glad you enjoyed it! @Sorryishotyourdog
Ramin. Interest rates are not going to drop much if at all. Service inflation is too high and will only come down after unemployment spikes. If they cut IR too much then inflation will rip back and BoE will have to come back with no credibility and stick rates up very high. What a mess we are in!
Service inflation will not come down due to demographic changes. Incoming zoomers are not big enough a cohort to fill up the vacancies left by retiring boomers.
@@poorpotato7623 One word: Immigration
Ramin says this in the video summary
Dude, this is an excellent video. Your explanations are just so crystal clear and full of insights. I find myself relistening to your videos to gather all of your insights! Tremendously useful videos you are putting out. I'm going back to listen to all of them from the beginning!
Awesome, thank you! @reinvesting6728
Where & how do you buy single gilts, is there a code to search for
Thank You.
You're welcome @DPTrainor1
If buying US Treasuries via Treasury Direct, you have to either hold to maturity or transfer the securities to your brokerage account. This is a pain in the neck, requires a signature guarantee from a bank and you then mail the form to UST which then transfers them. I just stay with MMFs here. Yield is fine, liquidity is excellent. If there is a rate cut in the US, it likely won't be a big one. Plenty of time to shift into a bond fund if that's what you want.
Surely you need to move into bonds BEFORE interest rates come down? I agree MMF rates are likely to come down slowly but if you wait, you'll have missed the chance to lock in decent bond yields. Unless of course you think gilt yields are going higher. Personally I'd rather lock in 4%-4.5% gilt yields now.
I was wondering the same thing.
I already have some money in a couple of gilts, but I have rather more in a money market fund and I'm very interested in when is best to move that into more gilts.
It all depends on what you are happy with and why you want the bonds. Deciding when interest rates will come down is like timing the market.
Yea
Vanguard High-Yield Corporate bond fund 30-day SEC yield is 6.41%, I hold a smaller amount of shares in that plus my Federal MMF at 5.2%
Informative ... Thanks
Glad it was helpful! @SteveAsmo1
My mmf holdings are on standby for paying down a portion of my mortgage in October so I assume I wouldn't have a any advantage in a short term pivot to another holding.
With that target date, I wouldn't change.
Im 65% in MMF and sleep very well at night. I don't see attractive options available right now - i get 5.27% in MMF - i cannot see stock market returns or bond returns getting meaningfully above that water mark.
Makes perfect sense
I'm thinking more in lines of what is safe given the world is teetering on the edge of recession? I don't think think any MM fund ever lost money except one during the GFC which got locked up and eventually settled for 98% so losing 2%?
Contrast that with my horrendous experience of moving to 'safe' bond funds. I know your video is actually about buying individual bonds, but not an option in my ISA / pension. I will easily stomach a 1% to 3% loss. But a bond fund, like you say with unknown expiry dates, can lose 20% because it includes future returns.
Hi @danyunowork you can buy single gilts in an ISA or SIPP you just need a platform that offers them (Interactive Investor, x-o, AJ Bell, iWeb & Halifax, Hargreaves Lansdown...). It's actually pretty easy to do once you get past the basics (clean price, dirty price, yield to maturity etc.). I made a few videos about it on here. Thanks, Ramin.
Absolutely. I lost out on a bond fund. Now I understand what they are (which I definitely didn't back then!) I stick with money market funds and single gilts for the safe side of my investments.
Useful Ramin. Thanks.
Glad it was helpful! @andrewmarsden1970
Perfectly timed. Not sure how to buy single bonds in practice
He did a video about how to do that a while ago. Was a bit of a process.
Interactive Investor..
@@flosse89ii do have some gilts that can be bought and sold in their app or web site.
A number of platforms allow you to do it online: AJBell, Halifax, Interactive Investor, Interactive Brokers. AJBell and II used to make you phone up but now many gilts can be bought online easily. They adjusted as gilts became more popular over the last year.
Great analysis as always 🎉
Appreciate it! @ricardo34979
Keeping my MMF as i am 18 months from retirement. But if they drop below 4% i will look again. Vanguard MMF was 5.31% a few days back.
Whrere do you get thie figure of 5.31% from please ? did you work it out or is it readily available on Vanguard website ?
@@bonerogg7413 Sterling Short-Term Money Market Fund (VASTMGA) >> Portfolio Data >> Characteristics >> Yield to Maturity
Look at the 'distributions' section for the fund. It states the yield. You can also take the latest monthly distribution and multiply by 12 (0.004*12=4.8%)
Are money market funds protected by the fscs?
Excellent.
Thanks for listening @grahambuckingham7295
brilliant Ramin, thanks
Glad you enjoyed it @rafaelf6994
Which is better - holding money in a savings account with 4.2% interest or CSH2?
Everyone should definitely Diamond Hands so the Executives can get their big payout👍
So if I buy a longer dated Gilt. Won’t it go up in nominal value as Interest rates go back down. I guess I’m asking is there a play here to gain by holding gilts as interest goes down and sell before they mature?
Maybe, but what if interest rates don't go down?
Then holding to maturity still gets the desired return and if they go up holding to maturity gets the rate of return and returns the nominal value - higher rates would suggest a suppressed inflation rate so the risk of errosion via inflation = a wash or there abouts.
@@lifelessordinaryxyz Mostly, if I interpret what you have written correctly. This is why they are so good for someone who wants to fix the return at the time they buy. The only unknown that could cause a loss in real terms is inflation. So long as the yield to maturity is not negative at the time you buy, you will not experience a nominal loss. Higher inflation is usually associated with an increase in interest rates, as we have just experienced.
Which MMF to buy today?
CSH2.
Hi hope you are well - if I open a T212 account using your referral code do I still get the 1% cashback on ISA contributions promotion?
I'm all out 0:34
Ramin, could you do a video on how to purchase GILTS directly in the UK? Maybe cover the ev, etc.
Hi @NebuchadnezzarDoingStuff Thank you for the suggestion. I will be releasing a video about this on Saturday. Ramin
Inflation at 4-5%, money market funds at 4-5%? Zero real return
It’s airport short term parking. To be compared to a bank or to stop an immediate loss.
Bonds are clearly not safe low-risk investments anymore. Would rather have bond proxy stocks and some commodities.
I agree, inflation risk, credit risk, and extension risk were all underappeeciated. I got into bonds after all 3 and made good money trading, but, if I were invested conservatively, would have large losses and missed the equity rallies.
Maybe you are conflating bond funds with the gilts/treasuries themselves? If I bought a gilt today and held it to maturity, I know exactly how much return I will get (assuming the UK gov does not default). They are considered just about the safest investment you can make. You just have to understand them. The important thing about the certainty is holding to maturity; the longer the term to maturity, the more volatile they will be until they get there. The volatility will decrease the closer to maturity you get. What was bonkers, and hindsight is a wonderful thing, was holding bond funds when interest rates were close to zero. There was only one direction that interest rates could go really. And yet all the financial advisors still beat their 60/40 drum and said that bonds are safe and do the opposite to what stocks do. It was rubbish and just goes to show how competent they are.
Whats your thoughts on a Global Aggregate bond fund? Im invested heavily in STMMF and happy with the 5% + i receive monthly. I think we have another 6 months before interest rates are cut.
I sold about 20% of my vanguard sipp Mmf and bought equities last week as they seem to be on the up. Bonds still look fragile.
A treasury MMF is a safe way to stash cash.
Hey i'm from Denmark i'm currently saving for an apartment / vacation summer house too rent out... Though buying one at the current interest rate and housing market i really want too wait.
I have emergency funds plus extra cash that i am setting in a ultra short
In addition i would say the danish kroner DKKR and the euro, as pr the danish national bank, follows a policy for an rolling average for the DKKR too the EUR so there will not be any currency risk pr se
I don’t understand this. MM funds are cash like and hold their value while paying interest. Bonds are different with either value going up and down or having to hold to maturity. They do different things.
The shorter a bond has until mature, the less volatile it will be on its way to maturity. MMFs are like bond funds (so continuously maturing and continuously buying new 'bonds') but, critically, where the bonds have ultra-ultra-short time to maturity e.g. 30days maturity. So the volatility is incredibly low and the rate is the SONIA rate. You could buy and hold a gilt, practically, from about 2-3months before maturity (less than that and the buy spread and fees might be considerable). Such a short term holding would also exhibit very low volatility. The price at maturity is known; it has to be exactly the same price as when the bond was first issued (£100). The longer the term to maturity in a bond that you buy, the more volatile the price will be. You can imagine MMFs being at the extreme left of the gilt yield curve chart that Ramin showed.
At 15.14 interest rate risk does affect me?. If you are in a fund the price decreases but the interest rate increases. if you are in a single bond the price of the bond does not decrease but the the interest rate does not increase. There is no arbitrage there.
Why would anybody buy bonds (a baffling topic) when you can invest in a bank savings product for 5.2% or so ? So safe, non- volatile, and so simple.
Tax
But you can't invest in a bank savings account in your pension, sipp or company pension. And how long will the savings accounts continue to pay that rate. The bank of England obviously can't cut the base rate until inflation really starts to come down. And why don't company pension schemes use MMF's alongside equities. If equities crash usually interest rates will come down, just like they did in 2009 onwards, and the MMF's will pay out much lower rates, plus they won't rally like government bond funds. Thus the equities went down and the government bond funds prices went up. Surely now bond prices are much lower & yields higher bond funds will be a better bet, they will work well with equities again. And it looks very complicated trying to buy individual UK gilts, you could come unstuck if you get it wrong. Also can you buy smaller amounts of individual UK government bonds, say £500 for one bond
Locking in a known return for many years. Crash protection if stocks suffer a sharp pullback. The option to take a capital gain if rates fall. That's three reasons, I'm sure there are others.
banks are safe?
Term deposits are callable most of the time. Lower interest coupons on the greater than q year terms when you look. They are difficult to liquidate without a penalty.
I'll stick with safety until a month or so after the yield curve uninverts. The market will smell recession and crash if Powell drops rates back down in a hurry. If there is no rush to lower rates then inflation may still be an issue. Higher for longer and stocks pull back a bit.
Why does he buy single gilts from?
Where or why?
Where: Interactive Investor, Interactive Brokers.
@@jameswalker366Yes where sorry.
Since my comment I have done a little research. I thought perhaps he bought them direct, but you cannot do this; as you said, through a broker. Apparently you used to be able to buy gilts from post office and NS&I - who knew.
Hi @alexbright7735 I used Interactive Investor but there are several UK brokers that allow you to buy gilts and hold them in ISAs SIPPs or general investment accounts (x-o.co.uk, AJ Bell, iWeb & Halifax, Hargreaves Lansdown, Barclays...) Thanks, Ramin.
@@Pensioncraft @jameswalker366 thanks. I replied yesterday but went missing.After little research was interesting to find out you used to be able to buy gilts from the post office or NS&I. But now cannot buy direct - as Ramin and James said, need to purchase through platforms.
@@PensioncraftWhay are comments being deleted?
this is all assuming that the reason they're cutting isn't because something went wrong
I think de-globalization is a an inflationary process. So as long as that process continues money markets will continue to be a viable option.
If you have substantial amount in a MMF, and interest rates dropped, can it take a long time to sell the investment?
If everyone wants to sell at the same time there could be gating.
If it is an ETF.... No, pretty instant.
If you read the investment documents on money market funds it mentions that it can take about a couple of months to sell the investment if everyone tries to sell at the same time. Otherwise at normal times when people aren't rushing to sell, depending on your platform, it should be instant or up to a day
No
Remember money market funds are some of the most liquid assets - they are essentially cash and short dated bonds with 3-6 month time to maturity.
A fall in interest rates would just lead a fall in yield.
I think the yields are currently attractive, something like 5.0-5.8%.
I would include them as a cushion within your portfolio against the volatile element
Where can I buy bonds , and can these be obtained within an ISA or SIPP?
Hi @user-fv1576 I've got a video being released this Saturday that covers this topic. Thanks Ramin
Boggles the mind to hear that government bonds are safe. Vanguard UK Gilt etf, for example, is worth 20% less than it was 5 years ago.
You are conflating bond funds with bonds. Bonds funds continually churn the actual bond holdings internally; as older bonds mature, new ones are bought, like a conveyor belt. For example, if you buy a 1-10yr gilt fund, you are buying some bonds that have 1yr left to mature and some bonds that have 10yrs left to mature and some in between. You have no control over the weighting or when to buy or sell any particular bond. The fund must buy newer bonds when older bonds mature. Before this recent bond fall, the longer the term any bond had, the more overpriced it was so that as interest rates increased, bond prices fell. Gilt yields were sometimes so low over the last 20yrs that they went negative! But it was the cost of safety when other 'safe' investments were also yielding very little. Importantly, when you buy any gilt (gov bond), you can calculate exactly how much you are going to get back during the period until it matures and you also know exactly how much you will get back when it matures. The only way that will be untrue is if the gov defaults on its debt. This is why Ramin says he is unlikely to ever buy a bond fund again; you have no certainty and no control.
Nope, the Vanguard etf I am referring to is traded on the London stock exchange and it is today worth 20% less today than it was 5 years ago. The assets underpinning the etf are simply a portfolio of UK gilts.
@@eweng903 ETF = Exchange Traded FUND.
@@eweng903 If it were as you say and is a fixed size fund that never buys more bonds (it won’t be) then, yes, of course it would go down in value because it would gradually pay out matured bonds and coupons as dividends.
@@eweng903 ETF = Exchange Traded FUND. I don't think they work how you think they work. They are almost certainly churning just like I describe above. Tell me which ETF it is and we can look. However, let's say you do have an investment comprising of a 'wallet' of bonds where the bonds aren't continually replaced. As the bonds in that 'wallet' mature and as coupons are being paid out, you will receive returns (matured bond capital and coupon payments) as 'dividends'. As time goes on the value of what is left in the 'wallet' will go down and down because of this, until there is nothing left. This is similar to how a single bond works in that it has a maturity date. You are not buying something that you expect to go up and up in value for ever like you might hope a share will. It has a coupon and a maturity date.
Buying and holding a bond ETF or OEIC is not the same as buying and holding a bunch of bonds because as bonds in a bond fund mature, the fund manager will buy newer bonds to replace them. That won't happen with you holding your bunch of bonds until one matures and YOU decide to buy more bonds with the released money (or use the money for something else). So long as interest rates don't increase forever, your bond ETF will almost certainly recover. How long that takes depends on interest rates (going down means quicker recovery) and the maturity dates of the bonds already within that fund (shorter maturity means quicker recovery).
Ramin has lots of fantastic videos on bonds so go have a look.
Already sold all my vanguard 😂, hoping for big drawdowns now
lol he thinks the safe bucket isn’t risky
Hi @thecount3965 he thinks risk is relative. Do you think that cash/money market funds/single gilts held to maturity are more risky than stocks over the short-term? I'd be interested to know why. Thanks, Ramin.
It depends how you look at risk doesn't it? Long term, the safe bucket is the highest risk to under-performance. Short term, the safe bucket is the lowest risk to losing money. That is why anybody investing should have a range of investments across the risk spectrum, which will depend on their personal circumstances and what/when they want to achieve.
Government bonds don’t they depend on how well the country is doing ? 🇬🇧 is a bit of a mess more companies are choosing to float their companies either in Europe or 🇺🇸 so what is the customer to receive from
Uk government bonds ?
How much return you get from a government bond does not depend on how well the country is doing so long as the country does not default on its debt while you hold the bond. In fact, you can calculate exactly how much return (and when) you will get from any gov bond purchase before you buy it providing you hold the bond to maturity. You will get the coupon amount every year (split into two 6month payments for UK gilts) and you will get paid £100 for every £100 issued gilt when the gilt matures. Note that the coupon amount does not vary with the price of the gilt; it is a percentage of the issued value.
Kuchbheee
Start to sell BTC😂😂😂
I hope my fellow younger generation never buy bonds/government dept. Let them spill in their stupidity of financial wreck and ruin.
English is obviously not your first language.
Regarding SIPP's I wonder where can you actually buy single GILTS? : T212...Invest-engine?....Vanguard SIPP only seem offer funds
Interactive Investor
Hi @david-fletcher I am making a video about it this week so stay tuned. Thanks for watching! Ramin
I had just transferred 40k to my sipp from a old pension ,what am i going to do with it now ,As iam 63 and can't go to long, ah well just hold it in cash
It's all down to personal circumstance but remember that if your interest rate is lower than inflation then you are losing value. It is usually tricky getting cash to beat inflation but sometimes you can just about match the official figure.
Government bonds don’t they depend on how well the country is doing ? 🇬🇧 is a bit of a mess more companies are choosing to float their companies either in Europe or 🇺🇸 so what is the customer to receive from
Uk government bonds ?
Government bonds don’t they depend on how well the country is doing ? 🇬🇧 is a bit of a mess more companies are choosing to float their companies either in Europe or 🇺🇸 so what is the customer to receive from
Uk government bonds ?
Safer and more predictable over a shorter time period.
@@coderider3022 I see .. thank you
@@coderider3022 I see .. thank you
@@coderider3022 I see .. thank you
Government bonds don’t they depend on how well the country is doing ? 🇬🇧 is a bit of a mess more companies are choosing to float their companies either in Europe or 🇺🇸 so what is the customer to receive from
Uk government bonds ?