Cash Buffer explanation for a noob

HI Guys
I will ask this like a Chatgpt prompt please can you explain as if i am a 16 year old new to investment what the point of having a cash buffer in my ISA portfolio bucket.
I dont see the point if i am earning 5.2% in savings plan why have 5 or 10k sat as a cash buffer earning nothing?
It makes no logical sense to me as a noob and very counterproductive in relation to maximising your cash available. I seen several people think is a good facility but i cannot work out why!

Sorry if i am missing the obvious


It’s about keeping some powder dry to buy the dip I think. That’s all.

Hi, breaking the question down to answer :-
Cash Buffer
I wouldn’t argue for a cash buffer in an ISA, but I would argue for a cash buffer.
Sometimes, life intervenes, so I have cash in a savings account - avoids forced-selling using ISA allowance for unexpected expenses.

Cash in ISA
NOTE FIRST Plenty of analysis shows most are best off investing to their risk tolerance and sticking to it.
MY APPROACH I do have some money in a cash-style ETF in an ISA. The rates are attractive currently. I can redeploy it when equity valuations imply more tempting returns relative to cash.
I flex my equity allocation somewhat, according to valuations and return outlooks. I wouldn’t argue it is the best way though, just suitable for me.

So, I would agree - mine is ‘dry powder’.

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I am still lost what do you mean a cash style ETF!
If its in a ETF how is it a cash buffer still takes you several days to get it out!
I have my emergency fund in a 5.2% easy access account
Having a 5000 in a cash buffer how is that making any money ?

Are you using the Lyxor Smart Cash

Money for an Emergency Buffer = a savings account, like you

Cash-style ETF = low risk fund, ERNS mainly, as it is backed by bonds. CSH2 also, for a lesser amount.
I won’t be withdrawing it, I will be switching it to VWRP or similar when I like the price, this takes a day in IE.

But the return does not look that good IMHO.
Or are you saying if the cash is in the portfolio whe you buy it is quicker to go though i thought it was T+2

You need to look at the Yield to Maturity for a bond fund like ERNS, to get an idea of likely returns. See link, ‘Weighted Average YTM’ at top: 5.69%
ERNS etf

Also, look at total return for 2023 in that link: 4.9%

It is a Distributing ETF - IE is only showing the price change, not the money I received in dividends.

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If selling and buying ETFs in IE, 95% of the proceeds of the sale can be used straight away.
5% is kept back to cover price fluctuations.

Eg. sell £5k of CSH2 and buy £4750 of VWRL. Buy the other £250 a day later.

But if you sell how long does it take to get your cash in reality to be made available to buy VWRL?

Some take many days to sell then you have T+2 minimum to buy so saying you have to buy when its good price your not guaranteed of getting it at a good price could take 5 to 7 days before it goes through !

See answer and example just prior to your question - IE lets you deploy 95% of the proceeds of a sale immediately and the remainder the next day.

Only if you want to withdraw the cash do you have to wait.
To clarify further: I can sell CSH2 and buy VWRP with 95% of the proceeds both on the same day, if I set it all up before 2pm.

Thank you for info still trying to get my head round it.
I have a 12 month fixed 5.2% Easy Access Savings so i will keep it there for now then move across when it finishes . But now you have explained it makes more sense but i have very little knowledge of Cash Style ETF’s plus looking on IE it only shows 2

Do you have any links about Cash Style ETF’s

A general term is ‘money market funds’, but those available as ETFs are not really. There are strict rules in the UK around what a MMF can invest in, but the 2 shown in IE don’t have to conform as they are not UK based.

‘Cash style ETF’ was just my invention to avoid saying MMF. The ETFs are not much more risky though.

JustETF has some information :-
JustETF money market funds

The JustETF screener lets you select those classed as Money Market too. Stick to those in GBP or hedged-to-GBP, to avoid unexpected losses through exchange rate fluctuations (so not the € or $ ones). You will find the 2 IE gives amongst them.
ETF screener for Money Market category

ERNS is not Money Market, as the assets it holds can take a year before they pay out (like your fixed-term account). Money Market Funds generally only choose investments that pay out more quickly than that. ERNS can give better returns, but It can be a little more volatile.

Cheers for that info i will look at them.
FYI mine is not fixed it pays monthly 5.2% and easy access for 12 months then reverts to 0.8% lol.
At which point everybody will ditch it

Nothing wrong with chasing best rates across providers in my book. I look for best return for the risk, not necessarily best return per se.

It does mean you are diversifying your money across platforms too. I don’t have all my eggs in the IE basket.
happy hunting

So are these the only ones

QUID and MIST are relatively expensive and actively managed. The 2 normally go together.

So, for those who like low-cost indexing, there are the 2 that are also available on IE. Only one is ACC - if you look for growth not income, and one is cheaper. From that, you can find which I chose for some of my money.

I think my choice would be CSH2 just the last query
If i dropped 2k in does form part of my ISA portfolio (part of the £20,000) allowance

CSH2 got my vote too, yes. It tracks the SONIA rate, which is paying 5.2% currently.

Any money paid into your IE ISA and used to buy CSH2 is indeed part of your ISA allowance for the year.

Does have to go into the same portfolio box if you want to use it to buy extra EFT stocks?
Or can it be in another Portfolio but still used in another ?