Having a Cash ISA on the same platform as my Stock ISA is changing my behaviour as retail investor.
Shifting cash from one ISA to the other one is free, instant, and possible any time. The Cash ISA risk level is close to zero (interest on cash feature is not), making a no brainer for me to keep all the cash in the Cash ISA as default choice.
This is blurring the line between saving and investing, as now the Cash ISA in my eyes competes directly and instantly with equities and funds, with the advantage (again) to be risk free and free of charge, and already available.
So the Cash ISA is now some sort of test for any instruments, investment opportunities, and saving products I’m considering or reviewing. And it’s a tough test to pass in practice. E.g. if I apply the test to MMFs and 99% of the REITs in this economic environment, it’s an instant no-no. Same for most of the bond ETFs I’ve being looking at, as the Cash ISA looks more and more like a hedge.
Any thoughts?
If a MMF had a higher rate of return to cash in ISA, I would go with that.
REITs or other CEFs like UKW are a different matter. They’re out of favour imo as the lower risk and cash return rate are more favourable to anyone risk adverse. That said a lot seem undervalued right now so potential good entry point and an offset to markets potentially falling but I can’t see right now what may trigger that.
The US has never been so far out of hilt with the rest of the world, yet people will continue to buy all world index funds which weight towards the US, so who knows.
Re MMFs, interestingly, a multi-year price chart or a performance by year table will show a rather inconsistent return throughout the years. It is true that the total return is currently quite interesting , but this has not always been the case, and there is no guaranty it will continue into 2025.
Re REIT’s, yes this is a good entry point for some of them. I’m buying the dip with Realty Income, and will buy more when tariffs (or the fear of tariffs) on Chinese products will hit hard their 3 top tenants (Walgreens, Dollar General, Dollar Tree).
There’s a cost to hedging. Interest rate differentials, spread and volatility.
Buy MMFs in your own currency.
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