How to invest shorter-term monies

by | Jul 12, 2021

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By Richard Maitland, Head of Charities at Sarasin  and Partners 


“I am more concerned about the return of my money than the return on my money”. Mark Twain’s historic remark no doubt continues to resonate with many a charity executive trying to build some level of certainty into their financial forecast over the period ahead. And yet, with interest rates sitting stubbornly low (0.1% in this country) and short-term inflation rising rather more quickly than is palatable, many of us are questioning how we might invest shorter-term monies. Is there an alternative to cash? How much risk should we take to squeeze out a little bit more return?



Although we have been living with low rates for several decades, this steady decline in interest rates (and subsequent bond yields) has led to some strong investment returns from the market’s ‘safest’ assets: bonds. Indeed, investors with short- and medium-term liabilities and those who have adopted lower risk, multi-asset strategies, have effectively had their cake and eaten it.  Attractive returns have been achieved with only occasional bouts of volatility.

Not only have government and corporate bonds produced remarkably consistent and positive returns, but the fact that many medium-term strategies often include a small allocation to equities, means their returns have been boosted further. The financial repressive policies in place since the financial crisis and enhanced to combat COVID-19 have ensured that a few sharp and severe drawdowns in capital values have been restored remarkably quickly. So, what’s wrong with that, one might ask?

There is now a real danger that we have been lulled into a false sense of security, whereby we believe that our short- and medium-term (mostly) bond portfolios will keep on delivering.



We often write articles promoting the use of historic returns as an example of how different asset classes might behave in the future. But this is the problem. Human nature will lead investors to extrapolate history, particularly when a trend had been evident for a decade or longer, in the expectation that the trend will continue.  In today’s marketplace, the dangers are heightened for investors with short and medium-term requirements: the ‘pull’ to do something inappropriate is not just driven by the attractive returns that have been achieved with relatively little risk, but also by the ‘push’ of the safer options (cash) being so deeply unattractive.

Against this backdrop, we thought it might be helpful to set out the options available to investors looking to invest their short- and medium-term monies, making clear the risks of each solution and unfortunately, in many instances, concluding that cash is still likely to be the best option even if returns over the next year or two result in negative ‘real’ (after inflation) returns. But there are certainly some alternatives.


We should probably clarify at this point that short-term monies are anything from an immediate cash need to about 18 months out. Medium-term monies are generally 18 months to 3 years, but can extend further out, depending on the degree of certainty built into one’s cashflow projections. It is also important to note that, at the time of writing, the 10-year government bond yield in Europe remains negative, is negligible in Japan, 0.8% in the UK and 1.4% in the US. And that is ten years out!

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