MTTM Podcast Episode 496 – Investing correlations, cash ISA raid & Moneyhub alternatives

Listen to Episode 496

On this week's episode I discuss the importance of understanding the correlation between different asset classes when building a diversified investment or pension portfolio. I then reveal which assets have been the best portfolio diversifiers and performers over the last 5 years. I then look at the best Moneyhub alternatives following the news that the budgeting app is set to close. Finally, we discuss the rumours that the UK government is about to slash the cash ISA allowance.

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Episode 496 Podcast Summary

Investing corelations

Summary:

In the first section of the podcast, I explain how different asset classes can behave in relation to each other.

Key Insights:

• Correlation coefficients measure the statistical relationship between the price movements of two assets, ranging from -1 (perfectly negatively correlated) to +1 (perfectly positively correlated).
• Over the past 5 years, gold has been negatively correlated or uncorrelated to many other asset classes, making it a potentially useful diversifier in a portfolio.
• Cash has also been largely uncorrelated to other asset classes, providing another potential diversification tool.
• Diversifying beyond just bonds and equities, into assets like gold and global markets, may help smooth out portfolio returns.

Moneyhub is closing - What are the best alternatives?

Summary:

In the second section of the podcast, I discussed the upcoming closure of the Moneyhub budgeting app, which I had been using since Money Dashboard closed in October 2023. I provided a detailed breakdown of the best alternative budgeting apps, including which options are likely to suit certain types of consumers.

Key Insights:

• Monzo Extra, Snoop, and Emma are among the top alternative budgeting apps
• Not all apps offer every feature as standard. The ability to manually add accounts and the function to split transactions may only be available on higher-tier plans.
• While Emma is a comprehensive and well-designed app, the higher monthly cost may be a deterrent for those used to Moneyhub's more affordable pricing.
• Snoop's Plus plan, at £4.99 per month, may be a more cost-effective alternative that still provides the core budgeting features that most people require.
• Some users may simply opt to use a budgeting spreadsheet (see the resources section below) alongside a more straightforward free app, rather than paying for a premium service.

Will Rachel Reeves cut the Cash ISA allowance?

Summary:

In the final section of the podcast, Andy and I discussed the speculation surrounding the government potentially reducing the annual cash ISA allowance.

Key Insights:

• There are reports that the Chancellor, Rachel Reeves, is considering lowering the cash ISA allowance from the current £20,000 per year to as little as £4,000.
• The rationale behind this proposed change is to encourage people to move their savings into investments rather than keeping the money in cash.
• However, there is scepticism about whether this would actually boost the UK economy, as there is no guarantee the invested money would flow into British businesses.
• Many savers prefer the stability and security of cash ISAs, and forcing them to invest may not be well-received, especially by those with shorter investment horizons.
• Reducing the cash ISA allowance could also impact the availability of mortgage lending, as banks currently rely on cash ISA balances for their lending activities.
• While this is still speculation, it serves as a reminder to utilise your current ISA allowance before any potential changes are implemented.

Episode quiz 

1. What type of analysis did Damien conduct on different asset classes?

a) Risk analysis
b) Correlation analysis
c) Performance analysis
d) Diversification analysis

2. Which asset class stood out as being negatively correlated or uncorrelated to many other asset classes?

a) Gold
b) Equities
c) Bonds
d) Cash

3. What was the annualised return of cash over the last 5 years, according to the research carried out?

a) 0.5%
b) 1.5%
c) 2.2%
d) 3.0%

4. Which budgeting app is due to close its consumer-facing app within 18 months?

a) Money Dashboard
b) MoneyHub
c) Emma
d) Snoop

5. In the upcoming Spring Budget, there has been speculation that the Cash ISA allowance could...

a) Increase to £30,000
b) Decrease to £10,000
c) Decrease to £7,500
d) Decrease to £4,000

Answers

1. b) Correlation analysis
2. a) Gold
3. c) 2.2%
4. b) MoneyHub
5. d) Decrease to £4,000

Resources

Links referred to in the podcast:

• Best Moneyhub alternatives
• Try out the Money to the Masses budgeting spreadsheet
• Chancellor considers cutting Cash ISA limit to £4,000
• Take out a free trial of 80 20 investor