What caught my eye this week.

The online brokers keep sending me pointers to cash and cash-like investing opportunities – from the interest rates they pay in SIPPs to ideas for money market funds and cash-like ETFs that track short-term bonds.

Indeed one low-cost share dealing platform has emailed me the same variation for three weeks in a row. Clearly it’s working for them, which tells us the appetite for cash among retail investors is ravenous.

And to be sure, explaining how to hold cash – and ‘nearly-cash’ – with an easily-traded ETF is giving the customers information that they want.

But it will also be aimed at discouraging those customers from moving their money off-platform instead, to traditional savings account or similar.

It’s a battle for attention, just like Netflix versus Sky.

What probably won’t have gotten so much consideration though is what’s the likeliest best long-run return for the typical retail investor.

Because the reality is that over time periods of more than just a few years, cash and very short-term government bonds have typically delivered lower returns than longer-term bonds, while equities have historically left cash in the dust.

Moving to cash in 2021 would have been a market-timing move for the ages.

But the odds of that being the case in late 2023 – even after the strong recovery we’ve seen in US markets this year – seems to me much lower.


Don’t get me wrong – I love cash.

I consider it the king of the asset classes in all market environments, even when it’s badly lagging. The security just can’t be beaten.

But the fact is holding a lot of cash is a luxury that few of us can afford.

Back in 2010 as we continued to climb out of the wreckage of the financial crisis, I warned:

I think it’s currently sensible to prefer shares to cash or bonds. For now, the yield situation looks good for equities.

Also, financial insiders are still reporting there is a lot of cash on the sidelines after people stopped investing in equities and other risky assets during the bear market.

So even now, cash is king in a lot of investors’ minds.

Usually there’s very little cash around at the top of a market. In fact, people often start borrowing to invest – a classic sign of a toppy market!

Again, cash is trash doesn’t hold right now on that score.

Unfortunately, some shell-shocked investors who took too much comfort in cash after the financial crisis never got back into shares.

They then missed out on one of the greatest stock market bull runs of all time.

Cashing in

It’s hard to argue that shares are exactly cheap right now – at least not the US shares that make up the bulk of global market funds.

And most people should always have some cash for diversification, even beyond their emergency fund.

Also, cash is typically a better deal for switched-on private investors who can chase the best rates than it is for institutions, so I’d even agree with holding much more cash than their model portfolios might suggest. At least until you’re knocking up against the savings allowance.

Finally, there’s a craze at the moment for holding low-coupon gilts as a cash substitute outside of tax shelters. Gains on gilts are capital gains tax-free, so this is better than paying tax on interest from savings. It’s interesting stuff to explore and one can happily get lost in the weeds.

Nonetheless, I’d urge readers not to lose sight of the prize if you’re a typical investor with decades ahead of saving for the long-term.

Unless you’re a mega-earner, cash(-like) returns won’t get you where you need to be.

Have a great weekend!

From Monevator

How to build an index-linked gilt ladder – Monevator [Members]

The Big Shrug: our movie pitch – Monevator

From the archive-ator: How to run your portfolio like a hedge fund – Monevator


Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.

FCA sets out new rules to protect access to cash – Which

Freeholders fight back in bid to save ground rents – Landlord Today

Ending stagnation [PDF]The Resolution Foundation

Rightmove reveals the ten happiest places to live in Great Britain – Rightmove

Peas on toast trump avocados as cost of living bites, says Waitrose – Guardian

Elon Musk’s SpaceX valued at $175bn – Bloomberg via Yahoo Finance

Chinese woman receives $60,000 restaurant bill after sharing QR code online – Yahoo

The words that defined 2023’s company conference calls [Search result]FT

Products and services

How to build your own ‘pot for life’ pension with a SIPP… – MoneyWeek

…and six questions to ask before you combine your pension pots – Which

Financial services: time to take account of neurodiversity [Search result]FT

Hargreaves Lansdown has launched its biggest-ever cashback offer for pension transfers, with the largest pots eligible for £3,500. Terms apply – Hargreaves Lansdown

Nationwide’s 4.29% five-year fix mortgage is now market’s cheapest – This Is Money

Get £100-£200 cashback when you open an account with Interactive Investor. Terms apply – Interactive Investor

Should you ditch the TV license for other media services? – Be Clever With Your Cash

Open an account with low-cost platform InvestEngine via our link and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine

Saga launches one-stop mortgage platform for over-55s – This Is Money

Average two-year mortgage rate drops below 6% to six-month low – Guardian

Why is Vanguard pitching margin loans? [US but a head-scratcher]Morningstar

Homes in converted mills for sale, in pictures – Guardian

Comment and opinion

Anti-acid asset allocation – Humble Dollar

Why do investors play low-probability games? – Behavioural Investment

“Bond ETFs are too volatile”, said no one. Until now – ETF.com

Character is your financial destiny – A Teachable Moment

Successful investing is hard – A Wealth of Common Sense

Passive investing harms market efficiency, but so what? – Morningstar

Risk and return are interchangeable – Oblivious Investor

Retirement planning is life planning [Podcast]Morningstar

Math rules – Humble Dollar

When can you buy ‘something nice’ guilt-free? – Darius Foroux

More Munger mini-special

Stripe founder interviewed Charlie Munger [Podcast]Invest Like The Best

Farewell to Charlie Munger – The Alchemy of Money

Morgan Housel on Charlie Munger’s legacy [Podcast]Mind Your Money

Naughty corner: Active antics

Stuart Widdowson of Odyssean [Superb podcast, few weeks old] – F.F.T.F.P. via Spotify

Making the most of EIS and VCT investments [Search result]FT

Your fav active fund can probably be replicated with market exposure plus smart beta – Finominal

Buying frenzy puts some crypto closed-end funds at ‘absurd’ premiums [Search result]FT

Hummingbird is the best VC firm you’ve never heard of – The Generalist

Kindle book bargains

Dead In The Water by Matthew Campbell – £0.99 on Kindle

When McKinsey Comes to Town by Walt Bogdanich – £0.99 on Kindle

The Birth of Netflix by Marc Randolph – £0.99 on Kindle

A Kidnap Negotiator’s Guide to Influence and Persuasion by Scott Walker – £0.99 on Kindle

Environmental factors

Our love of orcas is making them miserable – Vox

‘Unprecedented’ mass coral bleaching expected in 2024 – Guardian

COP28 is an open-air bazaar for carbon credits – Semafor

UK ministers ‘misled public’ when scrapping clean air regulations – Guardian

Climate change reporting in parts of the US means death threats – NPR

World’s largest nuclear fusion reactor opens – Independent

Lithium has crashed back to earth, despite booming EV sales – Goldman Sachs

Robot overlord roundup

Google says new AI model Gemini outperforms ChatGPT in most tests – Guardian

Off our beat

Global tourism is back at pre-pandemic levels – Visual Capitalist

Around the world with the beauty premium – Klement on Investing

Yes, the US is decoupling from China – Noahpinion

True/useful – Seth’s blog

And finally…

“People who think about the world in unique ways you like also think about the world in unique ways you won’t like.”
– Morgan Housel, Same As Ever

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The post Weekend reading: be wary when even brokers are steering you towards cash appeared first on Monevator.

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