Cash in SIPP

[BenValue]

At the moment most of my SIPP is in cash earning just over 1 per cent. I don’t want to invest in equities at the moment but would like to get a better interest return but with no risk.

Is there anything risk free to capital that I could invest in the SIPP which would give me interest in excess of 4 per cent?

[SalvorHardin]

The 5 year gilt yield is currently a bit over 4%

https://www.bloomberg.com/markets/rates-bonds/government-bonds/uk

[mc2fool]

At the moment most of my SIPP is in cash earning just over 1 per cent. I don’t want to invest in equities at the moment but would like to get a better interest return but with no risk.

Is there anything risk free to capital that I could invest in the SIPP which would give me interest in excess of 4 per cent?

Gilts currently give a return of over 4%pa, with no risk to capital if held to maturity (and bought at or below par, i.e.100).

https://www.yieldgimp.com/gilt-yields

[EthicsGradient]

A short-term money market fund might give you what you want, eg
https://www.vanguard.co.uk/professional ... ion-shares
or
https://www.blackrock.com/uk/individual ... d-acc-fund

The typical benchmark is SONIA, the overnight rate, which roughly tracks the Bank of England base rate. When that was very small, they basically made no money at all, but if you look at their performance over the past year with a steady base rate, it's been steady too - 5.2% to 5.3%:
https://www2.trustnet.com/Tools/Chartin ... 00P8,FPJEK

These do not have FSCS guarantees, but it would take 2008-style multiple bank failures for them to lose capital. I don't know the subtle differences between offerings from different management groups.

[scrumpyjack]

A short-term money market fund might give you what you want, eg
https://www.vanguard.co.uk/professional ... ion-shares
or
https://www.blackrock.com/uk/individual ... d-acc-fund

The typical benchmark is SONIA, the overnight rate, which roughly tracks the Bank of England base rate. When that was very small, they basically made no money at all, but if you look at their performance over the past year with a steady base rate, it's been steady too - 5.2% to 5.3%:
https://www2.trustnet.com/Tools/Chartin ... 00P8,FPJEK

These do not have FSCS guarantees, but it would take 2008-style multiple bank failures for them to lose capital. I don't know the subtle differences between offerings from different management groups.

Depending on your platform one point to watch is fund fees. For example Hargreaves Lansdown classifies these as 'funds' and charges 0.45% pa. I don't know if there are equivalents that don't fall foul of that problem.

[Alaric]

Is there anything risk free to capital that I could invest in the SIPP which would give me interest in excess of 4 per cent?

Treasury Bills could be suitable.
https://www.ii.co.uk/analysis-commentar ... s-ii531048

[dealtn]

At the moment most of my SIPP is in cash earning just over 1 per cent. I don’t want to invest in equities at the moment but would like to get a better interest return but with no risk.

Is there anything risk free to capital that I could invest in the SIPP which would give me interest in excess of 4 per cent?

Gilts currently give a return of over 4%pa, with no risk to capital if held to maturity (and bought at or below par, i.e.100).

https://www.yieldgimp.com/gilt-yields

Except for the risk of default, the risk of inflation, and the opportunity cost risk of not investing in something else, FX risk ...

I think we need a better definition of "no risk"

[mc2fool]

Gilts currently give a return of over 4%pa, with no risk to capital if held to maturity (and bought at or below par, i.e.100).

https://www.yieldgimp.com/gilt-yields

Except for the risk of default, the risk of inflation, and the opportunity cost risk of not investing in something else, FX risk ...

I think we need a better definition of "no risk"

Yawn.

[Urbandreamer]

Gilts currently give a return of over 4%pa, with no risk to capital if held to maturity (and bought at or below par, i.e.100).

https://www.yieldgimp.com/gilt-yields

Except for the risk of default, the risk of inflation, and the opportunity cost risk of not investing in something else, FX risk ...

I think we need a better definition of "no risk"

Damn right. The OP want's more than a negative real interest rate, but that is what you get at "no risk".

Risk/reward is a trade off. I can't offer much in the way of help for the OP, because I don't understand the concept of "no risk". I would regard even pound notes under the mattress as carrying a risk. I'd also regard them as a poor method of either saving or investing.

You could go quite exotic and tape gold coins to your water pipe. Arguably lower risks and with a long term historic return that matches or beats inflation. Obviously a poor place for short term savings though.

T-bills and Gilts are taken as "no risk" in studies, because the researchers can't find anything better. But people have lost money on them and even been defrauded as to the risks and returns in the UK. War bonds anyone?

I confess though that I am seriously troubled by the idea of saving within a pension without pushing the risk/reward ratio. Even if or especially if retired, I would think that you should seek growth of at least 2-4% above inflation. Unless that is you expect to have no need of the pension shortly.

Of course if you plan on dying in a couple of years then a negative real rate of return might be acceptable.

[mc2fool]

T-bills and Gilts are taken as "no risk" in studies, because the researchers can't find anything better.

No, it's because the chances of the US/UK defaulting on them are very very small and because (that very very small chance aside) you know, if held to maturity, exactly what the nominal returns will be right from the outset.

Of course in any absolute sense there is no such thing as "no risk", not in finance, not in life, not in anything. But it's just tedious to pretend not to understand what people mean by it in the common contexts they use it in, like the OP has.

(BTW, all of the suggestions in this thread, and boring savings accounts, are currently giving positive real returns.)

[dealtn]

T-bills and Gilts are taken as "no risk" in studies, because the researchers can't find anything better.

No, it's because the chances of the US/UK defaulting on them are very very small and because (that very very small chance aside) you know, if held to maturity, exactly what the nominal returns will be right from the outset.

Of course in any absolute sense there is no such thing as "no risk", not in finance, not in life, not in anything. But it's just tedious to pretend not to understand what people mean by it in the common contexts they use it in, like the OP has.

(BTW, all of the suggestions in this thread, and boring savings accounts, are currently giving positive real returns.)

No. Because the usual terminology is "risk-free", not "no risk", and in the industry is used to refer to the asset class of government debt at the (extreme) short end of the curve (T-Bills not Gilts) and is inferred as free of the additional credit risk above that.

Anyone who thinks it applies to the entirety of the asset class of gilts along its term structure is wrong (and often dangerous). You wouldn't have to get too far in a Gilt (Bond) text book or finance class to be introduced to the concept of risk premia and term structure. This ridiculous notion of merely holding until maturity and not having been exposed to any risk is an absolute nonsense.

You can yawn that truth off as much as you like but that won't stop it being true.

[Urbandreamer]

T-bills and Gilts are taken as "no risk" in studies, because the researchers can't find anything better.

No, it's because the chances of the US/UK defaulting on them are very very small and because (that very very small chance aside) you know, if held to maturity, exactly what the nominal returns will be right from the outset.

Half right.

Historically neither government has had a "hard" default in a really long time. However serious inflation deliberately caused or not fought by government actions, or for that matter a devaluation of the currency as has happened in the UK can be described as a "soft" default.

If the value of the capital + the accumulated interest at the end of the term, measured in what it will buy is less than at the start, then you have by all viewpoints lost upon your investment. To put it another way, the borrower (Government) got a better deal than you agreed to.

How would you describe the "nominal returns" upon a UK gilt bought in 1960 yielding 6%.
It's quite tough to calculate. Inflation didn't reach 6% until 1970, but there was that small problem of a 14% devaluation in the pound in 1969.

How about a Gilt bought in 1970 yielding 8%? Inflation hit 9.4% the following year. By 75 it was 24.21%. Ah, but you got the capital back at the end, it just wasn't worth anything like what it was at the start.

Risk free? No default? You know the returns, assuming that you know how much the currency will be devalued by, either explicitly or implicitly.

However we are drifting from the OP's question. Gilts are quite a good low risk option. Just not "no risk".

[mc2fool]

This ridiculous notion of merely holding until maturity and not having been exposed to any risk is an absolute nonsense.

Not nonsense at all in respects to the gilts themselves (which is what I was referring to). The very small chance of default aside, with gilts there is no risk that the returns will vary from what you knew at the outset. Even if you buy a gilt at 10% over par and hold to maturity there is no risk, you will have a capital loss, it's a certainty. (There may be exogenous risks of course.)

But going back to the OP, honestly, what do you think he meant in the context of his post by "no risk" and "risk free to capital"?

Do you think he meant no risk of government default and/or FSCS collapse? No opportunity cost risk from not investing in something more risky? No risk to capital when measured in US$ or Euros or Yen? Or maybe he just meant no risk to the nominal amount, right?

Historically neither government has had a "hard" default in a really long time. However serious inflation deliberately caused or not fought by government actions, or for that matter a devaluation of the currency as has happened in the UK can be described as a "soft" default.

True, but I don't believe that's what the OP was referring to when they said "risk free to capital". And BTW, right now pretty much all of the suggestions up-thread are giving positive real returns (vs CPI/RPI at least).

[londoninvestor]

Depending on your platform one point to watch is fund fees. For example Hargreaves Lansdown classifies these as 'funds' and charges 0.45% pa. I don't know if there are equivalents that don't fall foul of that problem.

There are similar products which are structured as ETFs, and so would be cheaper to hold on HL. For example ERNS (iShares Ultrashort Bond UCITS ETF GBP): https://www.ishares.com/uk/individual/e ... -ucits-etf

[Urbandreamer]

True, but I don't believe that's what the OP was referring to when they said "risk free to capital". And BTW, right now pretty much all of the suggestions up-thread are giving positive real returns (vs CPI/RPI at least).

Quite clearly you feel more able than I to claim to know that the OP meant something other than when they wrote " but would like to get a better interest return but with no risk".

If you are right about that then clearly all low risk suggestions are good.
If not?

FWIW, my gilt examples were specifically chosen to show that gilts are NOT risk free. The fact that, if the next government manages to control inflation, they are currently a good choice, does not indicate that the future government can or will chose to maintain a inflation rate that can provide positive returns. Or to maintain a decent capital value. Sure, at the end of the term "the pound in your pocket is still the pound in your pocket", it's just not the same capital value hence "risk free to capital" might be a poor description.

Judge the risks how you chose, but don't claim that they don't exist.

As I said in my original post on the thread.

I don't understand the concept of "no risk"

Clearly you dodge that by claiming the equality of "no risk" and "low risk".

[mc2fool]

True, but I don't believe that's what the OP was referring to when they said "risk free to capital". And BTW, right now pretty much all of the suggestions up-thread are giving positive real returns (vs CPI/RPI at least).

Quite clearly you feel more able than I to claim to know that the OP meant something other than when they wrote " but would like to get a better interest return but with no risk".

Something other? No, I see their two statements as expressing the same intent/desire. Of course I may be wrong.

As I said in my original post on the thread.

I don't understand the concept of "no risk"

Clearly you dodge that by claiming the equality of "no risk" and "low risk".

No, I've said that there's no such thing as "no risk" but we have discussions within a context and for some things I do, for all intents and purposes, equate them. E.g. is there "no risk" that the UK govt will default on gilts (nominally)? Obviously not no risk, but IMO the risk is low enough that I just don't consider it; it is, in effect, no risk, IMO.

BTW, my "Yawn" to dealtn wasn't 'cos I disagreed with what he said but rather 'cos I thought it was OTT in the context of this thread.

[dealtn]

But going back to the OP, honestly, what do you think he meant in the context of his post by "no risk" and "risk free to capital"?

I have no issue with the OP, a relatively infrequent poster with less than 50 posts asking if there is something better than cash, and no risk.

I find it troubling that someone with over 8,000 posts that might be interpreted as financially aware and someone from whom advice might be taken sets out a clearly wrong set of statements about Gilts - an asset class with maturities in excess of 50 years - that has recently been hugely volatile, with a label of no risk (even when held to maturity).

Now if you meant a specific subset of that asset class, and a specific limitation on the meaning of risk then you could have chosen to say so. You didn't. Instead you oversimply make a claim of no (not even low) risk to capital. That is wrong.

[Urbandreamer]

Return of capital with a 10 year gilt bought in 1970.

In 1970 £100 of beer tokens would buy you 660 pints.
In 1980 the same beer tokens would buy 200 pints.

Of course we don't have to claim that the £ is a beer token. We could use bread.
1111 loaves in 1970, 270 loaves in 1980.

Nominal return of capital is an oxymoron. The word nominal denies the word capital.
It depends upon your yardstick.

Measure it in pounds and "the pound in your pocket is still the pound in your pocket".

My portfolio is worth about 2/3ed what it was in October, when measured in bitcoin. In "nominal" pounds it's gone up by 12%, but it's mostly in neither, so the term "nominal" is inappropriate. To talk beer tokens, I get a few more pints. But not many, about 2% more.

I'd like to know the yardstick that the OP wishes to use when talking "risk free". Pounds or food? Alternatively if a "risk free" loss is what they actually desire. It can be a perfectly valid stance to take.

[mc2fool]

But going back to the OP, honestly, what do you think he meant in the context of his post by "no risk" and "risk free to capital"?

I have no issue with the OP, a relatively infrequent poster with less than 50 posts asking if there is something better than cash, and no risk.

I find it troubling that someone with over 8,000 posts that might be interpreted as financially aware and someone from whom advice might be taken sets out a clearly wrong set of statements about Gilts - an asset class with maturities in excess of 50 years - that has recently been hugely volatile, with a label of no risk (even when held to maturity).

Now if you meant a specific subset of that asset class, and a specific limitation on the meaning of risk then you could have chosen to say so. You didn't. Instead you oversimply make a claim of no (not even low) risk to capital. That is wrong.

Let's play the ball and not get personal here, eh?

Everything anyone writes here should be, needs to be, taken in the context of the thread. It'd get extremely tedious if one had to write a treatise covering every possible interpretation, angle and variance in case someone wants pick up on some point that's not within the context.

One such point of context would be, for example, that the OP is clearly talking about short term ("at the moment"), and my initial post was within that implicit context. Should I have written "but only short term gilts, not 50 year ones"? Maybe, but yawn...

Now in regards to "a specific limitation on the meaning of risk", I have already given it in the first paragraph of my last response to you. Possibly it's just a matter of semantics, but I find it difficult to, as you seem to want to, ascribe "risk" to something that (held to maturity) does exactly what it says on the tin, i.e. provides its cash flows as known and expected.

Can the returns of traditional gilts (indeed, as with most asset classes) be eroded by inflation? Of course, but what's that to do with the gilt? Traditional gilts aren't designed to protect against inflation, it's not part of their job description. You can't blame the gilt when the gilt has, in fact, performed exactly as it was designed to. Ditto for supposed "FX risk", nothing to do with the gilt. Those are exogenous risks, not of the gilt itself, which just does what it's meant to.

It's like if a young man goes into a car showroom intending to buy a two seater sports car, and the salesman tells him what it's designed to do, 0-60 in n secs, top speed, etc, but his girlfriend pipes up and says the car is risky -- 'cos it's not designed to carry them and the 3 kids they're planning (family inflation!). The "risk" isn't with the car!

[BenValue]

Thank you for all the very useful advice.

I have opened a bit of a can of worms mentioning no risk. I was a bit clumsy in my wording. I simply meant that I wanted to get the same amount of capital out that I put in.