Finance One final thing to keep in mind about cash: you don’t have to make an “all-or-nothing” allocation. Feel free to portion it up into as many different vehicles as makes sense. For example, keeping your chequing account for day-to-day needs, while using a high-interest savings account to save up for next year’s stop in the sun belt, while parking your emergency fund in a one-year GIC is a perfectly viable strategy. If you’re wondering what to do with your cash, or you’re not sure about how much cash you should have on hand, make sure to talk to a qualified financial professional. It makes sense to consider these kinds of allocation decisions from a big-picture perspective – a perspective that a professional advisor is well-trained to provide. Money market mutual funds These are mutual funds that invest in a pool of cash investments – typically certificates of deposit, government-backed securities such as Treasury Bills, and short-term corporate debt. The interest rates that they offer are frequently higher than many other cash investments. Depending on the type which you invest in, and what account they’re held in, you may even be able to access your money with a cheque or a debit-type card that you can use at your ATM. Some years ago, money market mutual funds were one of the preferred vehicles for earning interest on the cash that you held within your investment accounts. However, that popularity has waned as the current low-interest-rate environment has continued, and as investors have become increasingly unwilling to pay the fees which fund companies charge. (In fact, there are several funds in which the cost of ownership is actually higher than the return that they generate.) Still, money market funds have a lot going for them. Because they invest in highly liquid securities issued by extremely well-financed entities (including your government), you can usually be pretty sure that your money is safe. Worth looking into, but chances are that there are other options which offer much the same rates at a lower cost. Short-term bonds (and bond ETFs) In any other time, bonds wouldn’t really be considered a place to put your cash. But in the current low-interest-rate environment, many investors have been tempted to eke out higher returns by looking beyond GICs, savings accounts and similar vehicles. It’s easy to see why: bonds (particularly short-term government bonds) are often considered to be “safer” (i.e. less volatile) than stocks. And, with the rise of bond ETFs, it’s never been easier (or less expensive) to buy into a well-diversified portfolio of bonds that offer returns which are, in some cases, several percentage points higher than cash vehicles. But there’s a downside: even though government bonds are far less volatile than stocks, you can still lose money on them, particularly in a time of rising interest rates (as we are entering right now). As for corporate bonds, because their value is ultimately tied to the financial health of an individual company, they can actually be just as volatile as equities. Neither of these is really what you’re looking for in a cash investment. For this reason, it’s probably best not to consider bonds as a true alternative to the cash investments discussed above. Sure, if you need income, bonds are the place to be. But for cash, there are likely other alternatives that can provide more security and easier access without the added worry of wondering whether the value of your holdings will drop overnight. CSANews | SUMMER 2017 | 31
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