Where To Hold Cash For Higher Returns & Lower Risk
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- Опубліковано 20 тра 2024
- Central banks continue to battle inflation by raising interest rates. While this has been a cost to borrowers and growth stocks it is good news for investors seeking safe income. In this video, I explain how to earn that income efficiently and also show you what could go wrong.
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Timestamps
00:00 Introduction
00:36 Policy Rates Up
01:38 Paid NOT To Take Risk
04:35 How To Earn Short-Term Yield
06:23 UK Money Market Funds
10:43 US Money Market Funds
11:34 What’s The Catch?
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DISCLAIMER
All information is given for educational purposes and is not financial advice. Ramin does not provide recommendations and is not responsible for investment actions taken by viewers. Figures that are quoted refer to the past and past performance is not a reliable indicator of future results.
🎧You can check out our free weekly podcast "Many Happy Returns" and listen to the episode I refer to in this video called "Dry Powder: Where to Park Your Cash" on your favourite podcast provider or:
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You have a new follower 😃
If you think interest rates will fall in the coming year, what bond ETF would you put your money in if you wanted to just wait for better equity opportunities?
Thanks Ramin, enjoy your content. I'm thinking that any conversation about "high returns" is incomplete without addressing negative real returns. What do you think?
Can you clear up the issue of looming bank bail-ins come the recession, and just how vulnerable holding cash is despite the FSCS, please?
Thank you Ramin for your informative content. If one is looking to hold cash outside of an ISA or SIPP (UK) I assume that withdrawing cash in sterling from money market funds would be subject to CGT and not fall under the scope of the personal savings allowance thus skewing its net return? Am I correct that in the same scenario (outside of a tax shelter) Government gilts (UK only?) are not subject to CGT for coupon or principal at maturity payments but would be subject to income tax as not falling under the scope of the personal savings allowance?
I was literally trying to look for information on this, and this just popped up in my feed. Brilliant :D
Glad I could help @CoolPotato
Another great video, thank you.
When buying a bond fund, eg TLT, can it be traded or are you locked in for the duration of the bond?
Hi Ramin. Many thanks for this information. I was wondering if there is a point to investing in money market funds now that some banks are offering fixed deposits of nearly 5-6%?
Love the channel! Keep it up!
Some quick questions: I have my eye on CSH2 (the lyxor fund):
- How is my money kept, and is it safe? Can Lyxor go bankrupt, for example?
- How is it able to gradually increase the value of the fund? How come it is not more volatile when the fund is traded on the market?
- Is a sudden drop possible, when a central bank pivots, for example?
- It is also available in USD and EUR. Is this a way to hedge currency risk and does it track the same SONIA, or does the USD track the FED Fund Rate and the EUR the ECB rate?
I know there's a slim chance you'll answer, but I would be very grateful!
Economic investigator Frank G Melbourne Australia is still watching this very informative content cheers Frank ❤
Good discussion, I need to get excess cash out of lower yielding checking accounts and decided to go with a short term US gov bond fund. One drawback to buying individual bonds via Treasury Direct is that if you need to sell, you have to get the instruments transferred to your brokerage account first. Then you can sell them. It's a painful process that I went thru a couple years ago.
I really love your videos. Informative and well structured. Thank you very much! Question: if the interest rates fall, and I am not interested in purchasing bonds with my emergency fund that I need liquid, which instruments would you use?
Great Video, gives another option to just holding cash in isa in which you may need short term access to
Hi Ramin, thanks for the video. Do you (or anyone else!) know if VMFXX is available for UK investors? I can't find any information on this, and on Interactive Brokers I am unable to invest in it as a UK resident. Thanks!
Is there an equivalent vehicle to park Cash you have in a SIPP. It seems incredulous I can put funds into a bank account and achieve 3% but cannot do the equivalent with Pension funds…
Economic investigator Frank G Melbourne Australia is still watching this very informative content cheers Frank
Would love to know your thoughts on the proposals put forward by the think tank resolution regarding taxing any amount over 100K held in an ISA. They urged blunt right before the budget to push it through, it borders on sheer communism and would effect the frugal normal everyday hard workers. I've chosen an ISA over a pension due to the flexibility and having relapsing MS I'll more than likely need access before pension age.
Really like the last bit. Looking at money market funds after rolling a 401k to IRA, stuck cash in this OB environment; not big on following the crowd into the money markets. Trying to be patient. Would love an update video and your views on current state of money markets in the UK and US! Subbed!
I've never invested in a money market fund before. I have looked into the CSH2 fund. Its holdings are Microsoft, shell etc.
Does this mean it invests in short term loans with these companies?
If I was to buy now and central banks started cutting rates would my initial purchase price decrease?
How do you work out the dividend yield into a percentage?
An exceptionally good vlog. Thanks.
I am not educated enough to use some of the funds you mention here.
But I have hedged some of my managed portfolio monies in a fixed deposit account at 4% for one year.
I have other monies in a tracking deposit account with no restrictions on withdrawal at 3.85%.
Hopefully if the market suffers from heavy rain I will have a small dry spot with these.
Thanks again, this was a worthwhile watch for me.
Slowly I learn :)
@@Vegelen Hi Vegelen
Thanks for taking the trouble and commenting.
Yes, I'm aware of that. I'm hedging some of my funds against even worse returns in the market.
Grim times.
Does anyone know where to lookup the ERI (excess reportable income) for CSH2? I cannot find it on the Amundi website.
Wouldn't it be good idea to put the money fixed deposit for 1yr period at 6% interest earned?
After 1yr you see wts up for investment or renew!
do u think this is good plan?
Great video and well timed with the inverted yield curve. This video helped me reevaluate my HSA cash, which I held in SGOV. Instead, I bought 4-to-17-week U.S. zero-coupon treasuries outright. 🤑
Glad it was helpful @P T
@@Pensioncraft Ramin, PensionCraft is Aces in my book. I've also started listening to Many Happy Returns, which is also great.
@@1292liam at that time, it was like 5.65%.
What is the advantage of Bonds with short duration ? I am a German investor and I could just as well place my money in a bank with a 100k gov. security on it with generally speaking kind of the same return as the cashlike bond products. But it has much less complexity to it.
So much easier to watch with dark backgrounds!
Yes someone complained that they had to hide behind their duvet because the white backgrounds were so bright! I had to switch the graphs as well using R's ggdark package and the dark_theme_bw() theme. But I'm glad you like the new look! Thanks, Ramin
Thank you!
You're welcome @Whatisheartscont2be6
Thanks for the advice, I’ve cashed out of VUSA and bought the equivalent in bonds. I hope this pays off and I can get back into the market on the way up. Cheers 👍
This is using what was left of my HELOC refinance in 2021 to go all in in crypto… needless to say I’m due some good luck lol 🤞
trying to time the market is very unlikely to work in your favour...
Why would you do that. Now your locked in
@@martinsch6521 VUSA can fall quite a bit though. Not necessarily for long but if you keep your eye on it, you can get a bargain.
Interactive Brokers is paying over 4% on cash balances. The take a spread on cash based on the Fed funds rate.
Great analysis, thanks!
My pleasure @Ivailo Ruikov
Ramin can you elaborate a bit on the CBDC coming to the UK
Hi All
I opened a short term money market account to hold money that i’m going to DCA into my investment choices each month. Money has been in the money market account since October the 10th. I’ve Not been paid anything in cash, my amount of holdings hasn’t gone up and it’s actually worth a little less than I put in now (only by a couple of pound). Do you need to hold money in the account for 2 months before getting the interest on the first month?
At the end you mention Govt Bonds. Have you done, or could you do a similar video on how to research and invest in these as an alternative method of "parking cash" as shown in this video. Many thanks for your vidoes.
Pretty sure he has a beginner video library on his patreon if you subscribe.
One thing I don't understand. You say you must use a broker to get a government bond in the UK, but surely you can go to NS&I and buy short-term bonds there?
$BIL has a much better yield than $SHY in my opinion. Also was looking at $IEF as maybe a longer term plan. One issue right now is yeah the funds rate is super high but Janet Yellen is not issuing new debt on the short end of the curve thanks to the debt limit.
I've been buying IBTG and IDTG recently as they are GBP hedged.
Interesting options here given the GBP is low against the dollar atm. If GBP improves from here and US bond yields fall then this would be quite attractive.
@@Gizmodian81 again they are hedged so GBP value plays no role, I'm just more comfortable putting my money into the US .gov then our own pile of crap .gov.
Are cash management funds insured?
really enjoy PensionCraft!
thanks @alex glad you found it helpful
Thank you, that was very helpful
Glad it was helpful @Charly Griffin
please make a vid about CSH2 what it is, does, etc
The new dark theme is just great. 👍
I'm happy with the 2% I'm getting from surplus cash in my Stocks & Shares ISA and 3% in my cash ISA, both of which I'll need in a couple of year's time. At least I have no dealing charge, platform fee and ongoing charge to eat into the return. More importantly I understand my holdings, which I must admit I wouldn't if invested in a more complex instrument after reading the risks in the KIID of some of these investments.
Which S&S ISA have you got that pays you the interest in your excess cash?
@@rchstokes9064 I have S&S ISAs held within Hargreaves Lansdown, Vanguard and also Interactive Investor. They all pay interest on cash. Up until this month Vanguard used to pay over 3%. They're dropping it to 2.2% next week; probably to be in line with other platforms.
@@stanleywarburtonart I just noticed i've been having interest from HL, I had no idea. Don't feel as bad holding so much cash on the sideline now.
@@rchstokes9064 vanguard used to pay very competitively till March 13th. 3.5%+. Now it's about 2%
Hi Ramin, can you please explain why the distribution of the vanguard sterling short-term MM fund is only 1.83% according to their website but the duration is 43 days. Shouldn't it be picking up higher returns by now, nearer to the BoE base rate? Thnx
Distribution yield is defined as the yield of the last 12 months, divided by the unit price. Rates have not been at 4% for the past 12 months.
As Deponent Verb says it is a backward looking measure. If you look at the accumulation version of the fund (which retail investors in the UK can't buy GRRRR) with ISIN code GB00BFYDWN66 and annualise the return from 2023-02-10 to 2023-03-10 it comes out at about 3.3%. The one we _can_ buy pays out monthly at the end of each month and it's been going up a lot as rates rise (28p, 25p, 27p in Jan/Feb/Mar this year vs 1p, 3p, 4p for Mar/Apr/May last year. Thanks, Ramin
People should also be aware that Vanguard are shortly revising the interest paid on cash in any account, from a market variable rate to a fixed ‘managed’ rate which they review from time to time. Currently will be set to 2.2%, with 0.2% withheld as service charges. So their short term MM fund is a better bet right now, paying about 3.3% annual (if you reinvest the income into the fund).
Thank you.
You're welcome @Channel Eva
If I were to buy CSH2 in my ISA (held with ii) is there a bid offer spread? Would this, together with dealing fees (£3.99) make it hard to make a decent return unless you invested a lot and held it for a good amount of time?
CSH2 is an ETF so like everything else on the stock market there is a spread. According to Hargreaves Lansdown which is the site I use to check spreads as it's right there on the product page CSH2 has a spread of 0.05% so very good, nothing more than if you were to buy VUSA for example. Obviously if you were to only invest £100 and you pay £3.99 as a dealing fee then you've essentially wiped out the £4 you'd gain from SONIA being at 4%.
Cash is not low risk. Highly inflationary, especially now. Diversify your assets.
Hi. I was wondering if you had views on the iShares index linked gilts etf? How is it likely to behave if inflation continues to hover above, say 6%?
We’re to put it
Stil no mention of cash savings rates Ramin . 3% easy access and 4.5% ish for a short term fix .. much better . Risk free and less complex. FCIS up to 85k per institution
3.40% instant access at Chip.
@@mellowmarkable How reliable is Chip, they dont have good reviews
@@carrie20074 Haven't had any issues, but all I do is transfer spare cash back and forth between my Monzo current account app and the Chip app savings account using Open banking as and when - literally only takes a few seconds. Before Chip I used the Zopa app as the interest rate was higher and that was fine too. What do the reviews say?
40% tax on interest gains makes this unviable for some, most are looking for something they can purchase within their ISA
But CSH2 will give you ~4% without any strings attached. Isn't it easier to just buy an ETF rather than open a savings account ?
You say "buy a bond". What kind of bond are you talking about and how does one purchase them?
I'm getting 4.75 % for a 11 month Cd ,.. doesn't get much better maybe next month they will go to 5% and I'll get another 10k cd. Safe and worry free.
Your video has fantastic timing! However, I don't understand why you hold CSH2 in your fun portfolio if it's nearly risk-free. What am I missing? Am I wrong in thinking that its yield is about the same as the SONIA rate?
Hi @bran it is where I park my cash ready for when I see an opportunity. Thanks
@@Pensioncraft How easy is CSH2 to sell, can you buy in and out of it without issue?
@@Pensioncraft 0 seconds ago
Do you know where to lookup the ERI (excess reportable income) for CSH2? I cannot find it on the Amundi website. This is taxable at income tax rates for holders at 31 October.
TFLO for the win in my opinion
MMF to me are too low yield
I agree wast of time only to be referred to his pod cast.
Hi Ramen, What do you think about premium bonds for holding cash?
Premium bonds are zero income pure speculation. I wouldn't call them an investment.
@@roryboytube The video was about holding cash not investing it. Premium bonds do pay income just on a randomized basis.
I’ve got £50k in premium bonds and get around 3% pa and obviously the chance of a big prize.
So if accumulated, is this effectively capital growth? I.e. not interest and taxable as such.
I'm also trying to find an answer to this
Can anyone tell me which UK retail brokers allow purchase of single bonds? Thanks.
H&L for one
Hi K Cov I've just opened an Interactive Investor account so I can buy single bonds. But if you google "gilts" and the broker name you'll see if it offers single bonds. Ignore gilt _funds_ and _ETFs_ as almost all UK platforms offer those! Thanks, Ramin
Thanks Ramin!
What is XRP
NS&I savings for the win.
Thank god for Bitcoin
I've looked at EVERYTHING, all over your website, and was so sad, to find out, that I couldn't buy a membership, or anything else (if there was anything else, to buy). And so, I found this video here, that seemed to have some interesting subjects, that I could listen to, while I look over the MANY comments, on this page, to try to find someone else with a question like mine.
Everyone though, in the comment section, must be from the UK, cause I couldn't find anyone else, that had the same question I have, and that is....if I don't know how to do monetary conversions at all, and your website doesn't have anyway to show (maybe right next to it, or somewhere close, what the equiivant is, of what the UK amount of money is (is it called the "pound"?) and what a converted amount of dollars would be, in the same amount of pounds.... or put in another way, the amount of what that same UK amount is, when converted to US dollars!
I believe I got my question asked, so it could be understood. Anyway, great show, hope to hear more, soon!
Give it to me, I’ll look after it 💰
Why have Japanese rates remained low?
Offshore bank deposit 4% +
Have you fully DCA'd yet Ramin?
Hi @Gringadoor yes I'm 100% equity now it my core portfolio. Thanks
@@Pensioncraft thanks
TLT is an aptly named ETF in that it reminds me of “tilt” in a pinball machine. Duration is risky when interest rates are very low.
Barclays has a 5% on max £5k holding, and chase/JP Morgan has a 3% max £85k hold
Chase has no £85k limit. Get your facts straight.
CSH2 performance is backward looking, no guarantee this will continue forward. Fixed term savings rates/bonds are better to guarantee to achieve a financial goal eg debt repayment. The best way to achieve this from within a Sipp or Isa is probably to buy individual gilts, for UK investors. Don't forget the tax if outside these wrappers..
great analysis and I appreciate "dark mode" for these videos
Thanks for watching @Robin Hall
Can get 3.4% with Chip's easy-access savings account (up to 85k) so not sure a money market fund is worth the hassle/fees right now. If Vanguard's money market fund was a higher rate then maybe I would go for that
Haven't you got to pay tax on this interest?
@@rchstokes9064 There is a personal savings allowance, depending on your income tax rate, that should be enough for most people. 1k for basic tax rate, 500 for higher tax rate, 0 for additional tax rate. It's not like money market funds are free from tax, if you were going to have enough cash to breach the savings allowance then it would be difficult to escape paying tax either way
Why would you do this over just putting it in a n-year fixed savings account? e.g. some accounts have a 1 year fix of over 4.3%. Would the return be better if investing in the bonds yourself?
Hi Ray, it's about convenience. If the money is already in your Stocks & Shares ISA you can park it within the platform. Also when cash rates fall it's easy to reallocate to assets which offer a much higher risk premium than cash i.e. global stocks. Thanks, Ramin.
Easier access. And a lot of the savings accounts have deposit restrictions Barclays pay 5.19% but only on balances up to 5k.
The assumption is of course the government will hold up their end of the agreement.
I think a LOT of people forgot how SAVINGS is actually a very viable - and primary way - for many people in growing their wealth, especially initially.
And this is a reason why some people did not get wealthy when they actualy had a chance. Keeping cash in the bank is a guaranteed loss in a long run.
A savings account? At what, 0.01%? No, there are much much better ways.
@@jbenson989 Did you even watch the video? You can get 3-4% in Europe now.
@@pistopit7142 Good luck if there is a lost decade for stocks ahead, as there have been MANY times in the 20th century, can you stomach zero or negative return for a decade? How about two? This is what happened in the US in roughly 1965 - 1982 (17 years of total zero returns), then recently 2000 - 2012, same thing. Also 1929 - 1954.
@@MagicNash89 I hope you are correct, I'm counting on lost decade since I have over a dacade of accumulation phase in front on me.
Also you don't realy know, I could equaly bunce your argument the other way since no one, absoultely no one knows what the market will do.
Which Brokers can provide UK short term gov bonds?
Hi Eddie just google gilts + broker name and you'll see which ones do and don't. Thanks, Ramin
I think the best way to park cash is to lock it in something like 3 year fixed cash account. This way, in UK, you can get guaranteed 4.5% return on your cash (and compounded too - interest earned from interest starting from the second year from opening date).
If for example rates fall next year (which they may, due to potential recession risk and/or falling inflation)you will still get another two years of 4.5% return.
Money market funds, short duration bond funds - why to even bother with these harder to understand products if simple savings account will likely match/or even outperform them.
For me parking cash is not an option anyway, I can't afford it. I am taking risk to outperform Inflation in long run by regularly investinging in stocks.
Bingo. Treasury bonds right now are 6.89% fixed rate, and probably going to go up in May.
@jbenson - in the uk? how do you find that? Ive seen headline rates like that but usually you have to pay more than the principle to start off with so the effective yield is lower
@pistopit I think 3 years is too long for me. 1 year @ 4.1% will do me, then review.
Once you hit £500 interest as a higher rate tax payer you lose 40% of your interest in tax though. So in reality you get nothing like 4.5%.
@@jont96686 unless you contribute enough to your SIPP to put yourself back into lower tax payer brackets. Your tax free allowance for earned interest will then grow to £1000.
Or find ISA that pays 4%, I’ve seen some out there and don’t worry about the tax.
From what I can see, the CSH2 4% has been over past 5 years.
Buying it now returns less than 1%.
Looks to me that boat has sailed.
If you look at the actual curve you can see it set off once rate hikes started. Looking at its return of 0.3% in the past month you can annualise that to 3.6%-ish. Not too bad for something with near 0 volatility
The current value of SONIA is around 3.9%. That's your annualized return, if nothing changes.
Hi @ozmunky to see its return take a look at its benchmark the "SONIA Compounded Index" from the Bank of England here www.bankofengland.co.uk/boeapps/database/FromShowColumns.asp?Travel=&searchText=sonia+compounded+index As @emltwc and @Chris F say you have to look at the annualised rate. Thanks, Ramin.
@@Pensioncraft Thanks Ramin, I'll take a look.
How about I but none of these and get 7 % from Axa in Hong Kong. MMM
explanation please gum
@@shares-qg9kwAXA ivestment you pay in HK$100,000 and at the end of 7 years you get $107,000 back at the start of year 1. Only for HK residence though. Better than a bank.
@@Gumardee_coins_and_banknotes 7% over 7 years is @ 1% per year
@@adamwrigh8805 oh sorry I meant 7000 per year.
Please remake this video with latest data
Retirement gone
Lifetime
Suicidal
What happens when the global currency reset takes place and CBDCs are introduced?
When is this going to happen? Any dates? this could be years and years away. It won't be straight forward.
Sorry but you never answered the question of where to put your cash
he makes suggestions but doesnt advise. probably because you can get in trouble for giving out financial advice if you arent a regulated financial adviser
@@NedFlanders39 Hi Ned, I think what we (and @Missouri ) others are looking for is directly "how to do it". I get the responsibility issue, but there could be a disclaimer, and we as the audience has sole responsibility for our own cash.
@@HueghMungus He could definitely show you how to do it, through apps/vanguard etc. Although giving recommendations/advice would mean he needs to be an FCA registered financial advisor, which i dont think he is atm
False!! Central Banks DO NOT continue to battle inflation by raising interest rates, they continue to CREATE inflation by quantative easing
Surely nothing is good with higher interest rates when inflation will beat that savings rate
Yes, nothing is great, but it's better than doing nothing. 3% risk free return when inflation is 8% is way better than 0% return when inflation is 8% - pointless comment really!
@Rch Stokes can you explain to me why my comment is pointless or do you not know other ways of investing
@@Goady1000 You didn't say anything about other ways of investing, you said "surely nothing" - You gave no helpful alternatives, so yes, your comment was pointless. Or do you have some magical investment that is going to give you a 10% risk free return?
@Rch Stokes because he said about 3/4% returns from savings so I replied about savings. Which is pointless may as well go for stocks, maybe property or even start a business. Who wants 3/4 % guaranteed return the next couple of years when inflation is 11%, may as well invest
@@Goady1000 Stocks are going to be extremely volatile - not risk free at all. Property might be good especially if you and get a repossession, plenty of those coming up. Starting a business in this environment is a massive risk.
I like your channel and content. Have you considered bitcoin more since you last talked about it? I just saw your last video on it from years ago. Could be others I’m missing though.
This channel is for investors not gamblers.
Buy Ftx Bro 😎
Don't be silly.
@@pauls3075 any smart investor who has done their research has at least some allocation to bitcoin.
@@apc4884 Don't be a fool. Crypto is one government regulation away from being worthless. That kind of risk is insane, it's gambling.
Very simpel under the pillow
Don't keep your money in banks they're all broke and you'll loose your money. Buy XRP instead😎👌
I got 5 year CD for 5.5% I am in Florida. I lost so much from Jan Feb March in stocks I can’t afford to continue =
5 years will make me solid number I am ok with this right now
Half your purchasing power will be eliminated in 5 years with a 5% interest rate.