What are the short-term investing strategies available in Canada?

It’s very likely that we will have different savings goals over the course of our financial life. Your investing strategies will be different for each of these goals.

You can save money by investing in a registered stock account if retirement is still a long way off for you, as it is for me. Stock market investments are a good way to achieve most long-term goals due to their increased returns. Also, your timeframe will protect you from any market volatility.

You may prioritize other financial goals, like buying real estate, in the short term over saving for retirement. These goals should be treated differently, as you will be subject to market fluctuations.

It’s also important to keep a fund for emergencies that can cover three to six month of living expenses. It’s not recommended to invest your emergency fund in stocks. You don’t have to put the money in your checking account or under your bed.

Say, for example, that you quit your work at the end 2019 and travel the world in 2020 while living off your savings. Your savings would have been forced to be sold at half the original value if you had invested them in the stock markets when the pandemic dropped the market in March/April.

What is the solution? Your money should be invested in less-risky financial instruments. What other options are there to support your short-term investment strategies if it’s not the stock exchange?

WHAT IS THE LOW-RISK Investing Tool?

This exact question came up repeatedly as I analyzed my current financial goals. I had maxed my TFSA and had nearly $20,000 in uncategorized spending funds. This amount was well above my emergency fund but I decided to not invest in the stock markets for several reasons.

First, I have a lot of stocks. It is important to diversify investments. I wanted to watch the market to see what happened with the pandemic. I knew I could grow my money with low-risk options.

You can invest with low risk using GICs, high-interest saving accounts, and money market funds. It’s easy to ignore 1-2% interest but you should also consider the principle, which is the power of time and interest to grow your money.

If I earn 2% per year on my $20,000 over five years, I will have an extra $2,081.62 to save for my short-term goals. If I don’t want to save for a short-term goal, I can move the money to a higher earning investment.

These tools may not be as glamorous but they are still important to your financial future. They can help you achieve your goals. After spending a large part of my career in the stock market, I was less confident with these tools. I wanted to know more before I invested my money.

WHAT IS a GUARANTEED INVESTOR CERTIFICATE?

This is a Canadian investment instrument that offers a guaranteed return when held for a specified period. These certificates, which are issued by banks and financial institutions, are low-risk because you will get your money back plus more. However, you could be penalized for withdrawing your money too early. GICs have a fixed term that can range from 6 months to five years. The higher the return, however, the longer the money is kept. The returns can range from 0.5% at the low end to 2.0% at the high. This money-sense tool allows you to enter your preferences, such as the time period and amount of investment. It then lists rates offered by different providers.

When should you invest GICs?

Like all the tools we have discussed, GICs are best used for short-term investments. You can earn a little interest, but not much. GICs have a fixed term that can be a benefit or stumbling block for you compared to other low-risk instruments. GICs are a good option if you do not want to be tempted by your money. However, if your return is uncertain, penalties could reduce it. GICs can be a good option if you want something that is easy to setup and requires little maintenance. You can buy them and hold them in an existing account. This means you won’t need to open and monitor accounts at different institutions. You are guaranteed to get the advertised rate once you purchase them, so you don’t need to constantly monitor it.

WHAT ARE MONEY MARKET FUNDS?

Money Market Funds is a type of mutual fund that invests only in low-risk, short-term securities. They are similar to cash. Money market funds are similar to regular mutual funds in that they can be bought the same way. However, their goal is to keep the price of each share at $1. You will rarely lose money, but you may not make any profit some years because they fluctuate with the market. Expect to earn between 0.01% and 0.8% per year. Even if you include the management fee, or MER in your calculations, it is unlikely that you will be able to keep up with inflation. The big banks offer money market funds. You can contact them directly or look online for the ‘Fund Facts document’ that gives you all the details.

What is the best time to invest in Money Market Funds

Money market funds, like GICs are simple to establish and require little maintenance. They can be held in your existing brokerage accounts and do not require any action on your part until you decide to sell them. The other tools listed here are more beneficial for their intended purpose. They have low risk and high liquidity. The high-end returns are very low and not guaranteed, and there is a constant fee for management. I do not think that these are good places to store your money.

WHAT IS TREASURY BILLS?

You are lending money to the federal and provincial governments by purchasing T-bills. T-bills can be purchased at a financial institution in quantities as high as $1000 or as low a $25,000. The T-bills work by issuing a “yield”, or rate of return, based on the difference between what you paid and what the government redeemed. T-bills have a maturity between one month to a year. However, you can sell the bills before they mature for a gain or loss based on their price. If you purchased a Tbill at $975, and then redeemed it at $1000, you would receive a yield of $25, or 2.56%. There are also T-bill fund that combine a number of different maturities. The current yields are around 0.2%, compared to earlier in the year.

Should you invest in T Bills?

With a few exceptions, T-bills look very much like GICs. The lowest-risk T-bills are those backed by the government. They are different from GICs issued by financial institutions where the risk of default is low but there is still a possibility. The 1.7% per year with no fees or transaction.

Should you invest in an High-Interest Savings account?

The accounts are packed with features and their interest rates seem to be hard to beat compared to other low-risk instruments currently available on the market. GICs, T-bills, and other low-risk instruments have all been affected by the pandemic. It’s hard to find rates above 1%. These accounts offer higher rates, but each is unique and should be thoroughly researched. In the fine print, there may be some caveats such as that the advertised rate is only available for a limited time. The banks have the right to modify the account terms at any time. Nothing is guaranteed. These tools require the most maintenance and time, as you need to open a brand new account and monitor it constantly for any changes.

My research on these short-term investing strategies changed my opinion. . I realized quickly that perfection was unattainable. You must always be updating your personal finance knowledge. What have I decided?

I have decided to open a high-interest account outside my current financial institution. It’s essential to know the benefits of keeping your money in an institution. You shouldn’t be afraid to change your relationship. I was surprised to discover that a high interest savings account could be used as a checking account and still earn me interest. I’m likely to close my checking account in order to add to my savings to earn more. It’s not a lot, but over time it can make a big difference. It’s not necessary to spend a lot of money to build a successful financial future.