Managing cash: a guide for Killik clients
06 April 2026
Managing Cash: a guide for Killik clients
This article provides a recap of how we encourage clients to plan their cash requirements and highlights the way we manage it on their behalf within portfolios.
Whilst it is important to have enough to be able to meet any immediate funding needs, it is also vital not to keep too much uninvested and being eroded by inflation. We apply the same thought process to cash that may be held within managed portfolios. Here is a snapshot on how we aim for the right balance in both cases.
Creating pots
Clients will be familiar with our "three pot approach".
1. A rainy-day fund
This is an emergency pot designed to cover short-term illness, redundancy or the sudden need to fix a leaky roof. As such, this one should contain a minimum of 3 months’ worth of expenditure in a readily accessible form, with the exact amount dependent on someone’s personal circumstances and attitude to risk.
2. Foreseeable calls on capital
This second pot is designed to hold funds which will meet a commitment further out, where the amount and timing can reasonably be estimated. Examples would be private school fees paid in advance, a major property transaction, or paying for a child’s wedding. Here, the asset base might be a mixture of cash, bonds and equities depending on when these capital calls will materialise.
3. Lifetime savings
Long-term funds can then be left alone, mostly in equities, with the aim of generating the best return on the journey to a “peak savings” target. This is usually reached at the point when someone might want to use up, rather than accumulate, capital as they reduce their working hours or stop altogether.
Tax Treatment
Tax Treatment
The tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
Introducing collars and caps
So, how does a client know that they are getting value for money on cash within pot 3 in particular, when it is being managed behind the scenes by us? To answer that, we need to consider why a portfolio might not always be fully invested. Firstly, there is the fact that we take account of any fees and charges that may have accrued and need to be settled in cash. Next, we ensure there is a safety buffer in place ready to meet potential withdrawals without disturbing any core long-term investments. The third factor is “optionality” – the ability to take advantage of opportunities as they arise quickly. In that context, too little cash risks a liquidity problem, and too much introduces “cash drag.”
We use a "cap and collar" approach, which aims to balance these competing headwinds. The collar element sets a minimum liquidity holding based on the value of a portfolio and the cap places a ceiling on it. The moment a cash holding looks at risk of breaching these watermarks we seek to rebalance to ensure any immediate requirements are met, whilst the underlying capital continues to generate a decent return, rather than sitting on the sidelines.
Entering the “waiting room”
A key element of the process is finding the right home for cash. Rather than just leaving funds on deposit, while they wait to be used or deployed, your Adviser will be happy to discuss two potentially better alternatives:
● A money market fund. Think of this as a high quality, ultra-short-term diversified basket of cashlike investments. The objective is to offer better interest rates than a standard bank account, while retaining accessibility if there is a need to invest.
● Short-term government bonds. When the timing is right, we may also use “gilts”. These represent loans to the government and are considered amongst the safest investments available. They also provide a reliable yield, helping cash to keep pace with inflation before it is fully deployed into the wider market.
Paying interest
As for any pure cash held on a client’s behalf, for example while we wait for an instruction, we offer a range of interest rates, scaled depending on the currency involved. For more information on this, please go to our interest on cash page, or contact your Adviser.
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