In general though, as I understand it, cash-like investments – even funds, like money market funds, and short-dated gilt funds – have to be held in cash ISAs.

In practice you can probably sit in cash for a while on the grounds you’re waiting for an investment opportunity to come up (i.e. cheaper shares!) but you’ll be hit by inflation.

I’d probably explore cautious investment trusts like Personal Assets, but that could still halve in value in a crash.

None of the above is personal advice, just my general thoughts, please remember. I don’t know your circumstances and am not qualified to give advice.

I do read his site though when I remember, I think it’s great. That graph of John Lewis bond yields over the past year is depressing. Alas I spent more time writing about the corporate bond opportunity in early 2009 than actually buying them! (Shares did okay, too, though, if not such a historically extreme opportunity).

I don’t see any value in corporate bonds now, though I might end up shifting some money into something like the 5-year RBS royal bond at 5% if equities go much higher. I’m woefully under-diversified.

“For investors starting to build new portfolios, the situation is trickier. Reasonable yields of 5% or more can be locked in medium and long-dated corporate bonds, but pickings are slim in the shorter end. This makes it tricky to build up a balanced “ladder” structure of maturities for the portfolio.

This group of investors may be better off utilising some of the fixed-term deposits offered by several of the major banks for the short-end. These products are currently offering 3-4% and offer reasonable value for the shorter duration aspect of a portfolio. ”

You are Mark Glowery and I claim my £5!!!

(Here is a link to the whole article) http://www.fixedincomeinvestor.co.uk/x/analysis.html?type=Bond%20of%20the%20Week&cat=Analysis%20%26%20Comment

I bought them in a pique with Labour’s profligacy a few years ago, when you still got 40% tax relief and you only had to hold for three years. They’re less attractive now (though there are rumours of a hike up in the relief to come).

Northern are among the best – you could buy some of their VCTs in the secondhand market at 10% tax free yields in the chaos last summer, which gets you an immediate dividend stream but no tax relief. It was tempting but I didn’t want to tie up more of money.

VCTs are insanely illiquid – you can easily move the price selling just £1K of shares. Best to lock in the yield and throw away the key, at the risk of a slowly depreciating NAV.

Remember, I’m not an adviser, do your own research etc!

Re: Falling Sterling, I’ve actually got quite contrary about this and have sold off some of my most obviously dollar related shares in my trading portfolio to reinvest in domestic small caps. As far as I can see my optimism about the UK (relative to the absolute fire and brimstone projections – I’m not saying sunny uplands!) is playing out, and most of the exchange rate related stuff is in the price perhaps?

I think we’re partly having the debate because we’re coming at it from different angles – I think perhaps you mean the normal citizen over-rates/under-rates all those things (even if they don’t know the terminology). I agree most people on the Clapham Omnibus have too much in cash and are underexposed to equities. I’m more talking about sophisticated investors, who I think as I’ve said above have a tendency to over-complicate things and dismiss cash as part of their mix.

Thanks for the follow up!

I do agree with most of what you’ve written. But I think people generally overrate liquidity of cash against other assets classes, overestimate the real return, and vastly underestimate the inflation risk. The “insurance” value of govt bonds still does it for me above all other fixed income assets.