The “Near Cash” element of your portfolio is designed to provide the income that you know you require. As such, it is absolutely unavailable for risk-based investment and instead needs to be placed into either cash accounts – term deposits or money-market accounts – or UK conventional gilts offering a known return and interest rate.
As an example of how this might work, if you know that you need £10,000 of income at the end of January 2025, you might buy the Treasury 0.25% 31/01/2025 gilt. This is currently available to buy at around £96.09 with a guaranteed redemption price of £100. For the remaining year (as at the date this article is being written) the yield is negligible, but the capital uplift represents a simple return of 4.1% tax free, which is very favourable compared to savings accounts for anyone that is likely to pay tax on their savings interest (gilts are exempt from capital gains tax).
Please note that the near cash part of your portfolio is NOT intended to replace the emergency cash that you hold. Emergency cash needs to be both guaranteed in terms of value and instantly accessible. While near-cash holdings are guaranteed in value, they are often not available for some months, therefore they are not suitable for emergency cash holdings.
This part of your portfolio is not intended to generate strong long-term returns. This is because higher returns mean higher risk, and this proportion of your portfolio is deliberately kept as low risk as possible.
