Stock markets continue to hit new highs despite a troubling economic climate at home and abroad.
It’s important to know that equity market performance is not an accurate reflection of the economy we all live in. It is a reflection of how the wealthy are doing, and they always do well.
If your portfolio is modeled on how the wealthy invest, you’re probably doing alright. But the stakes are much higher for investors who need safe, steady returns for retirement.
If you’re feeling nervous, it might be time to lock in gains and lower risk by cashing out a portion of your portfolio to spend, keep as a cushion, or redeploy later.
Here are 3 safe havens that can keep your cash growing while you wait.
High-interest savings account
If you want to be ready to pounce when opportunity knocks, your cash needs to be as liquid as possible. The best, and most common form of near-cash is a high-interest or high-yield savings account.
Most financial institutions offer them and it’s just a matter of transferring the cash within the portfolio when you need it.
According to RateHub, annualized yields range from 1.5 per cent to 2.8 per cent.
Yields tend to be highest for large amounts or short term promotions, so read the fine print.
Some returns are paltry but higher than a regular savings account, which yields nothing.
Money market funds
On the downside, the rates offered on high-yield savings accounts are variable and subject to change daily.
One way to automatically access the best short-term yields is through money market funds. They are a kind of mutual fund that invests in highly liquid, near-term instruments such as cash equivalent securities and short-term debt-based securities with high credit ratings.
In most cases, investments in money market funds can be liquidated within a day.
Returns on money market funds also fluctuate but are currently yielding between 2.5 per cent and 3.5 per cent.
The downside to money market funds are annual fees based on a percentage of the amount invested, which can top a full per cent. That fee, or management expense ratio (MER), is deducted from the yield but it could still top a high-interest savings account depending on how well it is managed.
Guaranteed investment certificates (GICs)
Higher yields require longer commitments. Another way to keep income flowing at a higher rate is through fixed-term guaranteed investment certificates (GICs).
According to RateHub, the best yields currently range from 3.6 per cent to 4 per cent for one to five year maturities
One strategy to keep the income stream flowing and keep your cash liquid is to stagger maturities.
Some risk remains in cash havens
Assuming you are in cash to avoid risk, it’s important to be sure your money is invested through a member financial institution insured by the Canada Deposit Insurance Corporation. CDIC is a crown corporation supported by the Federal Government that covers deposits of up to $100,000.
For that reason it’s a good idea to limit individual deposits to $100,000.
Most Canadian financial institutions pay premiums to be insured with CDIC and members are listed on the CDIC website for anyone to see. Members include banks, federally regulated credit unions, and trust companies. All the big Canadian banks are members along with non-financial businesses with finance arms.
If a CDIC member fails, eligible account holders will be contacted and the principal and interest will be reimbursed within days.
Savings and chequing accounts are covered along with guaranteed investment certificates (GICs), and other term deposits with original terms to maturity of five years or less.
That doesn’t mean they are risk free in the real world. There is no guarantee inflation will not outpace your return.