Hi, Eric here from Time2Retire. I've been chatting
to one of my channel viewers recently and they're
what I'd call a buy and hold equity investor.
But lately, the SIP looks at the difference.
Now, Fiona, not very lame obviously, has been
moving a significant chunk of her portfolio into
the money market funds and specifically ticker
CSH2. Now, with the markets looking shaky, and
inflation you're shooting to budge you wanted
to talk you through her thinking on holding so
much in cash equivalents i'm sure you'll agree
that the current pension investment environment
is exhausting we've seen the stock market take
series of hits and surges and while fiona is
a long -term believer in equities she's reached
that point where she just wants to protect her
with time and finish line now when markers drop
she says she's basically got two options one
watch your portfolio value swing by thousands
of pounds a day or two move it to the sidelines
now she's chosen the sidelines for a good proportion
of her pot at the moment the goal is not to beat
the market this quarter it's just to ensure that
when the market eventually bottoms out she's
got some capital ready to deploy into equities
Now, I've asked Fiona why she picked CSH2, which
is the Lixor Smart overnight cash ETF, instead
of just leaving that cash in her SIP. Now, she
quotes three different reasons why this works
for her specific strategy. The first is yield.
Now, most SIP providers are notoriously stingy
with their interest on uninvested cash. By folding
CSH2, she's getting a return. And this return
tracks the Sonia rate in the Curran Chlyrid.
That's given about 3 .5 to 3 .8 % annualized.
Now the second point is that it's low volatility.
CSH2 is designed to be incredibly stable. It's
an ETF, but it doesn't move like a tech stock.
It's steady and it climbs incrementally. Third
up for Fiona is liquidity. Because it's an ETF,
she can sell it instantly during market hours.
She wakes up tomorrow and sees a generational
buying opportunity in the FTSE 100, for example.
So you can flip her CHS2 back into stocks in
seconds. But I'm often asked, can I just lose
money to inflation by sitting it in cash? Well,
UK inflation is what? 3 .3 to 3 .5 % at the moment.
CSH2 is holding essentially. It's inflation neutral.
You're not getting rich, but you're not losing
purchasing power. Now that could be a win compared
to holding a global equity fund if it drops,
say, 10 or 15 % in a market correction. Now essentially,
getting paid a small fee to wait for a better
entry point. Fearn was clear, though. This is
just how she manages her SIP at a stage where
return of capital has become, for her, more important
than return on capital. Now, she uses CSH2 as
a kind of volatility dampener. When the news
is full of doom and gloom, she can look at the
CSH2 balance and see this steady output line.
Helps her sleep better. And it also prevents
her from making these emotional panic cells on
the remaining stocks. What do you think? It's
not the most exciting strategy, but in 2026,
I think there's a lot to be said for being boring.
How are you handling current market savings?
Are you staying fully invested or are you joining
Fiona on the sidelines for a bit? Now let's have
a look at the different types of these cash -like
investments. Because one size doesn't fit all
in the world of pension investing. Depending
on which SIP platform you use. Whether it's AJ
Bell, Hargreeves Landown, Interactive Investor.
You might find that having a money market ETF
isn't your only option. Or even your best option.
So let's have a look at some of the others. You
may have heard of OEICs. You've also got government
-owned funds and the three big money market funds
that some UK investors have on their short list.
Now before we name names we need to talk about
the structure. I mean I also, if you follow the
channel will know that I also use CSH2. I like
it as an ETF. Now on some platforms ETFs have
capped fees which I like. However on other platforms
buying an ETF can cost £10 per trade. While buying
the standard fund and OEIC is free, you're adding
small amounts to your cash pile every month,
and no trading fees will simply destroy your
yield. If your platform charges for ETF trades,
you could look at these traditional funds instead.
First up, I'm going to mention the Vanguard Sterling
short -term money market. This is a staple for
many. Its current yield is... around 3 .6 to
3 .9 percent and it's incredibly low cost it's
got an mcf of just 0 .12 percent and what i like
about this is transparency it's a mix of very
short -term certificates of deposits and government
bills and for the vanguard platform this is kind
of the easiest parking space for cash but next
though is the royal london short -term money
markets this is Often cited as a gold standard
by some UK analysts. And it's a massive seller
on platforms like Hargreaves, Lansdowne and Fidelity.
And that's because historically it's squeezed
out a tiny bit more performance than its rivals.
Its yield is currently hovering around 4 .1%.
That's gross. It's slightly more active than
how it manages its cash instruments. And this
gives the maximum possible return for this level
of risk, potentially. And this is what people
usually point to. Now, if you are genuinely worried
about the stability of the banking system itself,
then there is the third category, which is government
liquidity funds, like the one from BlackRock,
unlike CSH2 or the Vanguard Fund, which lends
to high -quality banks. Government money market
funds only invest in UK treasury bills and government
-backed debt. Well, there's a trade -off, and
the trade -off is the yield is usually a bit
lower. Think around 3 .5 % to 3 .9%. The benefit
is you're not taking on any bank risk. You're
essentially lending to the UK government. Now,
for the ultra -cautious investor, this is the
final calls of call for safety. Now, when I'm
looking at these, it's not just looking at the
yield. I'm looking at platform costs. Does an
ETF cost me more to hold than, say, a fund? Settlement
time. Now, at CS Institute, I can sell instantly
as long as the market's open. Some of these OIC
funds can take 24 to 48 hours to settle. Now,
if I'm looking explicitly to buy the dip in stocks,
can I get my cash out fast enough? Now, third
point is I always make sure that I'm buying an
accumulation fund so that the interest is automatically
rolled back in and keeps life much more simple.
But there is no perfect fund, only one that fits
your platform and your risk position. Now, whether
it's the simplicity of Vanguard, the performance
of Royal London, or the kind of bulletproof nature
of BlackRock government funds, They all serve
the same purpose, keeping you safe while storm
passes. So we've talked about money market funds
like the TSH2 and why they're great for kind
of parking cash. But there's a question I sometimes
get asked in the comments and that is why stay
in a money market fund when I could build a bond
ladder and kind of lock in. yield for years and
just to recap though my money market funds like
CSH2 or the Royal London Fund are floating rate
instruments they pay me whatever the current
base rate is take away a tiny fee now the good
thing about this is if the Bank of England raises
rates to fight like sticky inflation then my
pay goes up immediately the bad though is if
the economy cools and the bank cuts rates, then
my yield drops overnight. I currently use money
market funds for my emergency and kind of tactical
cash. Money I might need in the next month. But
for money I don't need for three or four or five
years, then that's where a bond ladder comes
in. So, What's a bond ladder? Well, a bond ladder
is simply a series of individual bonds or gilts
here in the UK and that mature at different times.
So instead of one big pot, I might, for example,
buy a one -year gilt, a two -year gilt and a
three -year gilt. Now, why do this? Well, because
unlike a money market fund, a gilt locks in the
yield. If I buy gilt today yielding 4 % and the
Bank of England cuts rates to say 2 % next year,
it doesn't matter to me. My 4 % is locked in
until the bond matures. So let's compare. Money
market fund offers variable interest rate that
changes daily with market conditions. While a
bond ladder made up of gilts provides an interest
rate that's fixed. When each bond is purchased,
it's fixed. Money market funds are designed to
keep your cash stable, whereas the value of a
bond ladder can fall if you need to sell before
the bond actually reaches maturity. Money market
funds are flexible because you can sell them
anytime you want. It gives you easy access to
your cash. But by contrast, the bond ladder...
is generally most effective when each bond is
held until the maturity date and in practice
that makes a money market fund well suited to
holding cash temporarily such as while waiting
for an opportunity to invest in some shares whereas
a bond ladder it's actually better suited to
providing a more predictable stream of retirement
income so here's how i look at it for my own
sip if i think inflation is peaked and the stress
rates are about to fall the money market fund
is actually a bad place to be in the long term
because my income probably going to shrink in
that scenario i'd rather use a bond ladder a
lock in today's higher rates for the next few
years now for those of you watching the channel
who are investing outside of a sip there's a
specific reason they sometimes prefer individual
gilts over money market funds now in the uk capsule
gains on gilts are actually tax free now while
that doesn't matter inside your sip everything
is tax sheltered if you're managing a bridge
to retirement in a standard brokerage account
a bond ladder or guilt can be significantly more
tax efficient than money market funds that pay
out taxable interest. Just a little food for
thought if your SIP has already maxed out. So
what am I doing now? Well right now to be honest
I'm still very heavy on money market funds CSH2
because I want that instant liquidity to jump
back into the stock market if things don't go
so well. However I get why people choose a bond
ladder. It's for certainty they know exactly
how many pounds will hit their account in two
years' time, regardless of what the stock market
or the Bank of England does. Now, don't forget,
I'm not a financial advisor. None of this is
financial advice. It's about financial education.
So to wrap up, money from market funds, they
give you flexibility. Bond ladders give you guarantee.
Now, in a volatile 2026, I think there's a place
for both in a smart SIP strategy. But I want
to hear from you. Are you happy with floating
with the base rates on a money market fund? Or
are you starting to look at those yields with
guilt before they disappear? Let me know your
thoughts. Hit the like button. See you on the
next one.