A lot of investors are concerned that the stock market could be set for a pullback in 2026. That’s understandable as major indexes have had a brilliant run this year and valuations now sit at elevated levels in many cases.
Now, I don’t know if we’re going to see a market slump in 2026. But I’ve been taking some precautions just in case, putting a little bit of my ISA capital into a fund that pays 4%+ annually with near-zero risk.
Savings account-like returns
The product I’m talking about is the Fidelity Cash fund. It’s available to consider on Hargreaves Lansdown and many other investment platforms.
This is a money market fund, meaning that it invests in high-quality, short-term bonds and cash equivalents to generate a small but predictable return. Currently, it has a distribution yield of around 4.5%. And because of the types of investments it makes, the overall risk profile of the cash-like portfolio is very low.
However, even a low-risk fund isn’t entirely risk-free. If we saw another event like the 2008/09 Global Financial Crisis and financial liquidity froze, for example, this fund may not deliver the returns investors are expecting. However, for all intents and purposes, it’s similar to a high-interest savings account (there’s no FSCS protection).
Note that on Hargreaves Lansdown there’s a range of these funds. Some other examples include the Vanguard Sterling Short-Term Money Market fund and the Legal & General Cash fund.
Better than a Cash ISA?
Why not just stick my money into a Cash ISA? Well, the beauty of this product is that if stocks were to slump, I could sell out of it and quickly deploy my capital into investments with more potential within my Stocks and Shares ISA.
In other words, it gives me far more optionality than a Cash ISA. With a Cash ISA, I’m stuck in cash for good and that doesn’t appeal to me as earning less than 5% a year over the long run isn’t going to do much for my wealth.
Returns of 15% a year
As an example, let’s say the market pulls back in the second quarter of 2026 and my favourite investment trust Scottish Mortgage (LSE: SMT) falls 10%. In this scenario, I could quickly sell my Fidelity Cash fund and redeploy the capital into the growth-focused investment trust.
Taking a five-year view, I reckon this product is likely to outperform the Fidelity Cash fund and other cash savings products (eg Cash ISAs) by a wide margin. After all, its top holdings include the likes of Amazon, Nvidia, Taiwan Semi, and SpaceX – which all look set for strong growth in today’s digital world.
Note that over the last decade, the share price of this investment trust has risen about 300%. That translates to a return of about 15% a year.
I’ll point out that this trust is volatile at times due to its growth focus. To enjoy those 15%-a-year returns, investors have had to tolerate some wild share price swings.
I think it’s worth a look though, especially if there’s some market weakness. I see a lot of potential in the long run.
