Finance Key features of cash vehicles/investments Before we discuss some of the places in which you can hold cash, it makes sense to focus on some key features of common cash vehicles and investments. Keep in mind that the relative importance of these features depends largely on your personal financial circumstances, as well as on your emotional “feelings” about holding cash. For example, one person may feel most comfortable with several thousand dollars in a chequing account – they don’t really care about earning interest, as long as their money is accessible with an ATM card wherever they are in the world. On the other hand, other investors may feel strongly that they want to earn as much as they can and, if they have to “lock up” their cash for six months at a time to get a better interest rate, well, so be it. Neither of these is right or wrong – it all depends on you. Access One of the principal differences between cash and other assets is that cash is more easily accessible thanmany other assets. You don’t have to call up a realtor, for example, or wait until the stock market opens onMonday just because you want to get hold of some money. That said, some forms of cash offer easier access than others. Keep your cash in a chequing account, for example, and all you need to do to get your hands on some of it is to find an ATM. On the other hand, if you choose to keep your cash in a Guaranteed Investment Certificate (GIC), you might have to wait for several months until the term finishes before you’re able to use your cash. To determine how important access is for you, ask yourself exactly how often you’re likely to need cash. Thinking about your monthly expenses is a good start – how much cash do you know that you need on a regular basis? Then, think about how access makes you feel. Do you feel safer or more comfortable knowing that you can have your cash whenever, wherever? Interest rate These days, it’s tough to make a living from the returns offered by cash investments – especially after taxes and inflation. While most financial institutions pay you at least a nominal rate of interest for the privilege of holding on to your cash, that payment is likely to pale in comparison to bonds, real estate and other income-oriented investments. So the question becomes: howmuch of a priority do you place on earning a good return on your cash? Of course we all want to make as much money as we can on our assets. But when the rubber hits the road, what are you willing to give up or trade off in order to get a better interest rate? Always remember: higher returns come with higher risk – anyone who tells you differently is either (a) ill-informed or (b) trying to sell you something. And, with cash investments, most of the time the “risk” involves not being able to access your money for a given period. Ultimately, it’ll be up to you to determine whether such tradeoffs are worth it. Complexity/simplicity Generally speaking, cash is a simpler investment than stocks, bonds, real estate and other assets. You put your cash into a given vehicle, an institution pays you interest while it sits there and, inmost cases, that’s about it. However, over the past several years, institutions have introduced several other options for investors looking to wring a few extra dollars out of their cash holdings. GICs are the prime example here – there are now GICs offering returns linked to any one of the world’s major stock markets. Do these different vehicles intrigue you? Are you willing to shop around and learn about these more complex investments? Or, are you looking for a “keep it simple” solution – a low-maintenance “set it and forget it” type of cash account?There are plenty of people in both categories, but it makes sense to know which group you belong to before you start looking for places to stash your cash. 28 | www.snowbirds.org
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