Investing

Chasing the endless 3 month HISA lottery vs Dividend paying stocks

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  • Jan 5th, 2020 7:52 am
[OP]
Banned
Jan 20, 2017
584 posts
137 upvotes

Chasing the endless 3 month HISA lottery vs Dividend paying stocks

Is there any sense in continuously chasing the HISA rates when one can get 4 to 5% dividend income by buying and holding such well known dividend paying stocks as Canadian banks?
I understand that there is a risk of downside to stocks and ETFs but with time horizon of 5 years, won't one be much better off by investing in latter vs the former category?
or is there any other benefit of HISA/GICs that I am not considering?
6 replies
Jr. Member
Jul 7, 2016
174 posts
242 upvotes
The major benefit of HISA/GICs for many is short-term liquidity needs. For example, if you're making a big purchase in the upcoming year (house, car, etc.), or are expecting significant expenses (child, tuition, medical, etc.), your tolerance for short-term volatility is much lower as you do not want to be in a position where you need to sell the investments at a loss to meet your cash needs. If you are living off your portfolio (e.g. retired), you may not have the luxury of receiving enough income to meet all your living expenses.

Generally, you are correct, a well-balanced equity portfolio will yield better returns in a longer time horizon than cash. You have to balance cash needs and expected returns.
Deal Addict
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Dec 8, 2010
2435 posts
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Yeah you're totally missing it. 5 years is the absolute minimum, not a magical 'stocks held this long won't lose money' line.

If it is money you need for a specific or general reason (emergency fund, buy a house), you are risking a significant loss of capital even with 5 years (and IMHO particularly after 10 years of a bull market). Just go and look how long it takes factoring inflation for the stock market to get back to where it was - can be fifteen years!!
[OP]
Banned
Jan 20, 2017
584 posts
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Thanks all for wonderful replies.
I agree with the emergency fund and immediate requirement thing but what if I don't anticipate to use the funds for next 10 years unless the housing market crashes by 30%.......
In such case, isn't it much better to forget about the HISA hoops
Deal Addict
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May 11, 2014
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jaguaar wrote: Thanks all for wonderful replies.
I agree with the emergency fund and immediate requirement thing but what if I don't anticipate to use the funds for next 10 years unless the housing market crashes by 30%.......
In such case, isn't it much better to forget about the HISA hoops
If your money is for the purposes of growth overtime, then you probably shouldn't be placing your funds in HISA.

Another "problem" is your focus on the dividend yield. While dividends can be a great way to build wealth, that shouldn't be the focus of your funds. In general, your investments should be growth orientated when they are longer term. So instead of focusing on shares that give you dividends, or the largest dividend yielding shares, you probably should just focus on equity funds in general, not necessarily dividend orientated funds. The growth of equity comes in the form of dividends and the increase in the share value.

So unless you are closer to retirement or cannot afford to lose any of your initial investments, I would probably start investing a good chunk of your money in a balanced or growth portfolio.

You can go about this in many ways, either a low cost provider or do your own funds and ETFs.

A focus on dividend yields could be considered for example during retirement when you might want income but don't necessarily want just fixed income/HISAs etc.
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[OP]
Banned
Jan 20, 2017
584 posts
137 upvotes
xgbsSS wrote: If your money is for the purposes of growth overtime, then you probably shouldn't be placing your funds in HISA.

Another "problem" is your focus on the dividend yield. While dividends can be a great way to build wealth, that shouldn't be the focus of your funds. In general, your investments should be growth orientated when they are longer term. So instead of focusing on shares that give you dividends, or the largest dividend yielding shares, you probably should just focus on equity funds in general, not necessarily dividend orientated funds. The growth of equity comes in the form of dividends and the increase in the share value.

So unless you are closer to retirement or cannot afford to lose any of your initial investments, I would probably start investing a good chunk of your money in a balanced or growth portfolio.

You can go about this in many ways, either a low cost provider or do your own funds and ETFs.

A focus on dividend yields could be considered for example during retirement when you might want income but don't necessarily want just fixed income/HISAs etc.
Thank you for sharing your insights. Yes the money is for long term growth but somewhat in a conservative portfolio. This is why I think buying blue chip stocks like those of Canadian banks over 4/5 years or even more will better than "investing" in HISA which seems like a fool's errand. Every time, during starting of year I remember to get max interest but then as years rolls on, I never seem to remember that banks are rolling it in and giving me just 1.1% ;-(
Deal Fanatic
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Sep 8, 2007
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People chasing the HISA promos have allowed Tangerine to maintain their deposit base without having to really offer any viable high interest savings. And they obviously retain some of the funds transferred in given that they don’t usually offer the promo on exiting funds. The promo returns are further eaten away if you leave the cash there and don’t transfer to another promo right away or if there’s any days of not earning interest upon transferring to another promo. Given Tangerines broadened product offering and little in terms of HISA I’ve transferred out John of my funds.

Right now it terms of not having to chase every 3 months I prefer:
B2B/Laurentian Directs 3.3% even with their garbage sign up and website
Motive at 2.8%
Eqbank at 2.3%....low rate but consistent.

I’m even going to comment on the diff between chasing HISA promos and buying dividend stocks as it’s like asking which is better a car or a bike.
"It is in times of great fear or greed that the most opportunity exists."

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