Where to invest significant house-sale funds for 6-18months?

[DiamondEcho]

Situation: A house-sale will after deduction of mortgage+fees release a net sum in the higher 6-figures. That sum will be used to fund a future house purchase. It's unclear when, at least 6 months hence or maybe as long as 18mos.

The Bank Base Rate is 5%, RPI is 11.3%. The conundrum is:
- You already own a share portfolio, but hesitate to put 'family home' funds at material market risk.
- Even if you can do a cash depo at BBR, you're going net backwards at say -6% AND that's pre-tax.
- The FSCS limit of protection is (IIRC) about £120k per account/entity. That could mean dividing the whole sum into protected accounts would require opening multiple accounts = hassle-factor.

DAK what people in these kind of shoes tend to do?

Thx.

[mark88man]

So stating the obvious maybe, but you don't have to beat RPI you have to beat house price inflation - and at the moment that's deflating, so even at post tax NS&I rates you are likely to be gaining relative to the housing market.

I absolutely concur with not dabbling in anything that puts capital at risk. If you haven't already fill up on premium bonds ? Maybe read up on gilts to avoid tax (you will need someone more expert than me to help with that)

All the best

[staffordian]

- The FSCS limit of protection is (IIRC) about £120k per account/entity. That could mean dividing the whole sum into protected accounts would require opening multiple accounts = hassle-factor.

DAK what people in these kind of shoes tend to do?

Thx.

Check on temporary higher FSCS limits. I believe significantly larger amounts are covered in just this type of situation but I don't know if there is a time limit or amount ceiling

[Lootman]

The FSCS limit of protection is (IIRC) about £120k per account/entity. That could mean dividing the whole sum into protected accounts would require opening multiple accounts = hassle-factor.

DAK what people in these kind of shoes tend to do?

Check on temporary higher FSCS limits. I believe significantly larger amounts are covered in just this type of situation but I don't know if there is a time limit or amount ceiling

Or slap it all in a NS&I product which really should not involve any counterparty risk anyway.

[BullDog]

Or a money market fund(s) that targets SONIA as a return. Should be yielding 5% or more over the next 6 to 18 months.

[Spet0789]

Put it all in a short-dated low coupon gilt.

This one for example.

https://www.hl.co.uk/shares/shares-sear ... 12025-gilt

Barely any tax and no need to worry about default.

Easy to sell if you do need the funds before maturity.

[Neutrino]

TREASURY 0.125% 31/01/2024 (TN24) GILT has a yield of about 5.1% based on the mid market price if held to redemption, a bit lower if you consider trading costs. The latest price is Sell:£97.23 Buy:£97.43 but in my experience gilt trades execute at near the mid market price. The yield is mostly capital gain which is UK tax free for gilts.

Longer dated gilts would be subject to volatility if sold before redemption.

https://markets.ft.com/data/bonds

[monabri]

- The FSCS limit of protection is (IIRC) about £120k per account/entity. That could mean dividing the whole sum into protected accounts would require opening multiple accounts = hassle-factor.

DAK what people in these kind of shoes tend to do?

Thx.

Check on temporary higher FSCS limits. I believe significantly larger amounts are covered in just this type of situation but I don't know if there is a time limit or amount ceiling

https://www.fscs.org.uk/making-a-claim/ ... -balances/

"Temporary high balances
FSCS protects temporary high balances in your bank account, building society account or credit union account of up to £1million for 6 months."

[monabri]

FSCS covers LOSSES

up to £85,000 per eligible person, per bank, building society or credit union.

up to £170,000 for joint accounts.

https://www.fscs.org.uk/what-we-cover/

[monabri]

Put it all in a short-dated low coupon gilt.

This one for example.

https://www.hl.co.uk/shares/shares-sear ... 12025-gilt

Barely any tax and no need to worry about default.

Easy to sell if you do need the funds before maturity.

Ah, I see..

The yield on which one might (potentially) be subject to tax is very low (0.27%) ...thus any tax bill will be low.

The "return" comes on maturity and this is a tax free capital gain.

I can't see anyway of obtaining a real positive return without undue risk.

[mark88man]

Is any gain on gilts taxable if you sell it earlier than the redemption date (ie before Jan 25 in this case)

[Spet0789]

Is any gain on gilts taxable if you sell it earlier than the redemption date (ie before Jan 25 in this case)

No.

[Spet0789]

Put it all in a short-dated low coupon gilt.

This one for example.

https://www.hl.co.uk/shares/shares-sear ... 12025-gilt

Barely any tax and no need to worry about default.

Easy to sell if you do need the funds before maturity.

Ah, I see..

The yield on which one might (potentially) be subject to tax is very low (0.27%) ...thus any tax bill will be low.

The "return" comes on maturity and this is a tax free capital gain.

I can't see anyway of obtaining a real positive return without undue risk.

Easy-peasy.

https://www.hl.co.uk/shares/shares-sear ... linked-gil

Returns around inflation + 1.5%.

[1nvest]

Situation: A house-sale will after deduction of mortgage+fees release a net sum in the higher 6-figures. That sum will be used to fund a future house purchase. It's unclear when, at least 6 months hence or maybe as long as 18mos.

The Bank Base Rate is 5%, RPI is 11.3%. The conundrum is:
- You already own a share portfolio, but hesitate to put 'family home' funds at material market risk.
- Even if you can do a cash depo at BBR, you're going net backwards at say -6% AND that's pre-tax.
- The FSCS limit of protection is (IIRC) about £120k per account/entity. That could mean dividing the whole sum into protected accounts would require opening multiple accounts = hassle-factor.

DAK what people in these kind of shoes tend to do?

Thx.

Not really appropriate in your case, but maybe of general interest ....

Near 0% rate days were great, you could hold hard cash. At higher rates and some opt to shift bond/note/bill risk over to the stock side, perhaps hold 15% stock, 85% hard cash for instance. You obviously do have stock downside risks with that, but diluted down (-30% collapse and proportioned to 15% weighting = 4.5% hit). A inclination for those that go down that path is for the hard "cash" to be in currencies that are opined to likely relatively strengthen/fall less, or diversifying across multiple currencies in equal measure (Pounds, dollars, gold) and/or finding places with full protections such as Gilts that have no default risk compared to a bank where only £85K is protected (UK can always increase taxes or print money rather than ever defaulting on it debt/Gilts).

If a bad year does occur when something like 15/15/70 stock/gold/cash does endure a negative year, then waiting another year usually resolves that, tend to be followed by a good outcome year.

US data PV

Even as a longer term asset allocation that can work out OK, better than inflation bonds - where 3.33% 30 year SWR might spend it all, see just the return of your inflation adjusted money via 30 yearly instalments (SWR = start by drawing 3.33% of the portfolio value in the first year, where that £££ amount is increased by inflation as the amount drawn in subsequent years). And instead see the same return of your money via yearly instalments, but also ending with a decent residual amount still available at the end of 30 years. 40% to 120% type lower/upper 10th percentiles (real), 75% middle-ground (50th percentile) PV Monte Carlo

Increasing to 20/20/60 stock/gold/cash sees higher shorter term volatility, potential deeper bad year dips (but still tend to be relatively minor), but becomes more of a have cake and eat it PV MC. Return of your inflation adjusted money via 30 yearly instalments, average case still ending with your inflation adjusted start date portfolio value still available. 50% lower 10th percentile, 200% upper 10th percentile.

[DiamondEcho]

Thanks all for the suggestions and reminders, you've given me several tips that I will be looking into further.