Well today I have two such accounts. Cash is nice - but it's not sweating: how best to put it to work?
My own 'trigger' for buying is having a chunk of cash of around £2,500-3,000 in the account, which seems about the right size of investment to me. You can go smaller but dealing charges will start to become more relevant - and you may end up with too many different small holdings. (But always diversify.)
I may double-up on an investment and buy two 'tranches' bringing it up to around £5k-6k: I don't like to hold more than this in any one share.
Corporate bonds and other fixed-income securities may have to treated a bit differently as some of them have a minimum size purchase (e.g. 10,000 units plus accrued interest), which can bring the bill to well over £10k. To buy something like this I would need to sell something to generate enough cash for an investment.
To think about the options, let's go back to the Income Pyramid approach I advocate (see the rest of the blog for more info). Here's a quick rundown of how it's looking at present.
Level 1) Overall Financial Situation: It is worth taking a little time for a quick review of your overall finances:
- Are you clear about your likely income and expenditure over the next couple of years?
- Do you have enough in your easily accessible emergency fund? What if you lost your job?
- Do you have any debt that you should pay off first?
Levels 2 and 3) Cash savings: Because I have all my investment income is in tax-protected accounts, it would be silly to take any of the cash out if I can possibly avoid it, so I will not be considering a cash bond. However, it is good to bear in mind the cash yield possible (which is risk-free, given UK bank guarantees). My average yield on long-term cash bonds is around 4.7%.
Level 4) ETFs: ETFs are the closest I get to buying a 'fund' - a DIY heresy! In the Income Pyramid ETFs are intended mainly for beginners, as a fairly safe way to experience stock market investing. The two ETFs I hold - iShares Markit iBoxx £ Corporate Bond ex-Financials (ISXF) and iShares FTSE UK Dividend Plus (IUKD) are yielding currently around 5.3%.
Level 5) Government bonds (gilts): They're nice and safe but at present the best yield I can lock into (with perpetuals) is around 4.3%. This is less that the return I can get savings bond returns (with no risk of capital loss), so I'm not buying.
Level 6) Dividend shares: One of my New Year's Resolutions is to rebalance in favour of fixed-return investments - although I am still tempted. Yields over 5% are available from a number of FTSE 100 companies, although I don't see any new holdings that I fancy at present.
Looking at my portfolio I can see the opportunity to 'double-up' my holding on a couple of dividend shares (i.e. buy another £3k tranche, bringing the total holding up to around £6k): the candidates are: Morgan Sindall (MGNS), yielding over 6% and Inmarsat (ISAT), yielding over 5% - and that share price of both has risen since I bought, indicating that the market seems happy with them. I could also 'top up' a little on Resolution (RSL), yielding over 7%.
You should note that these decisions (in particular) are based mainly on the structure of my own portfolio.
Level 7) Corporate Bonds: My highest returns are currently being made on relatively risky corporate bonds and preference shares. These generally - but not always - require a hefty minimum lump sum. The main exceptions are the 'perpetuals', which are all banks: income yields are 7-8% for the 'safer' banks such as Barclays. HSBC and Standard Chartered. The Barclays perpetuals (EB20, EB15) have - unusually - even higher gross redemption yields of over 9%, indicating the possibility of a near-term redemption, at the bank's choice. However, I already hold a bid chunk of Barclays corporate bond, so I will leave that for others. I also already hold HSBC corporate bonds.
So that narrows the field down to 'topping up' my holding in Standard Chartered's perpetual corporate bond (ESC6), currently yielding over 7.5%.
Otherwise, I am also tempted to buy some more of Enterprise Inns 2018 (EE18) corporate bond has a very attractive gross redemption yield of over 10% - but I already have my quota.
It looks like the attractive choices on offer - i.e. those that provide a good yield and present a reasonable risk - will be to do a bit of portfolio in-filling, by 'topping up' some of the dividend shares or the Standard Chartered perpetual corporate bond.
I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.