Investing

ETF for better interest than HISA in a TFSA but still low risk?

  • Last Updated:
  • May 19th, 2019 8:52 pm
[OP]
Newbie
Jul 17, 2018
5 posts

ETF for better interest than HISA in a TFSA but still low risk?

For this particular purpose, instead of just putting it all into something like VBAL, I want something much closer to a savings account for 3 years. Yes, this is a short time horizon for stocks, but would a bond ETF not be considered low risk still? 4% net of fees would be great and anything above would be a bonus. Any recommendations? XLB has been doing really well lately but rising rates?
3 replies
Deal Expert
Feb 29, 2008
26012 posts
3278 upvotes
Montreal
Look at something like ZPR maybe?
Deal Addict
User avatar
May 11, 2014
4482 posts
5255 upvotes
Iqaluit, NU
Low risk for 3 years is a tough order unless it is just a HISA or GIC. The problem is we don't know what happens in 3 years and your investment might be underwater by the time you get to 3 years. Moreso how you look at it will depend on how much you actually need in 3 years time.

GIC you will yield around 2.8-3%
HISAs will be 2.0-2.8%ish at the top rates
Any other investment like Bond or Preferred stock funds are quite risky or interest-rate senstive. This meaning any movement up or down of interest rates will affect your outcome.

ZPR is a preferred ETF I personally like for lOng term portfolios. it yields around 5% which is amazing. However looking at the recent history, you will see it has dropped in the last few months due to lowering interest rates. To me ZPR is better as a long term holding as a interest-rate sensitivity buffer from bonds. ZPR in generally acts oppositely to bonds. So when interest rates rise, ZPR overtime increases in value due to rate-resets In the portfolio adjusting their payout. One could make a bet and say interest rates will likely not drop from here, but that is no guarantee and we don't know that.

Bond are seen as safer investments, but what people tend to mistake is that while they are "safer"than equity, they should still be seen as longer term investments in general. Aggregate Bond funds contain multiple maturities which have different interest rate sensitivities. VAB is a very popular one yielding 2.79%. You will notice it has done well over the last few months due to interest rates dropping. Compared to ZPR, the price goes up when interest rates drop. So the problem here is if interest rates were to go up, you could have the prices drop and you end up.losing money. This is the problem when using "safer investment" funds/etfs as short term.
You could mitigate this by buying a short term bond fund such as ZSB, except you will notice the yield Is much lower at 2.3isj %

You could combine the risk. For example 50% bond fund, 50% preferred. This could help mitigate interest rate sensitivity in your portolio, however this is not perfect. Additionally for taking on that risk, you get an effective yield around 3.8%. You have to ask yourself ,is paying commissions to buy/sell the etf funds and take on additional risk on money I need in 3 years worth the time, money and effort? Honestly if you need the money in 3 years, I wouldnt bother, unless you can afford not having the money at the 3 year mark.
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