Personal Finance

HISA v Tangerine Fund for 3-5 years.

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  • May 4th, 2015 2:42 pm
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[OP]
Member
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Oct 9, 2014
397 posts
49 upvotes
Winterpeg

HISA v Tangerine Fund for 3-5 years.

Hoping to be in the market for a house/condo in the next 3-5 years.
Whats my best option for additional savings to try getting more out of my money for a downpayment?

Use a HISA at ~2% or something simple like the Tangerine Investment Fund at a low risk level made up mostly of bonds? It would be in a TFSA form and would be based on regular contributions NOT a lump sum contribution or GIC. Obviously I don't want to lose all of my money, but I'm open to some risk if there is still potential for a worth while return.
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Deal Addict
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Jan 14, 2012
1259 posts
286 upvotes
Woodbridge
First thing you should do for yourself is set some guidelines is it 3 years or 5?
Risk-free rate would be 2.6% for a 5 Yr GIC right now, calculate how much you would have if you threw in all your principle into that and the regular contributions into a savings account at 1.95% (highest HISA available me thinks).

If you are okay with this minuscule return barely above inflation? good! If not take a look at adding some risk.

We can't predict anything so for reference use past data. This is overly simplistic and this is just for reference as obviously no one here is being compensated for advice.

Worst possible return 3 month -7.6%, multiply this by 1.25 (for no reason) then ask yourself, it's closing date and the fund is down this amount are you okay with that? If not go back to abysmal risk-free rate.

With such a small weighting in equities we are not looking at double digit returns, simply not going to happen (Don't bring up the 1 YR return unless you think we are heading to a negative interest rate environment); Are your expectations realistic? What is "worth while" to you? In the majority of good scenarios you are at 2-5% above the risk-free rate, that being said is it worth the risk mentioned above?

70% in the FTSE TMX Cdn bond index, formerly DEX bond universe average weighting around 10 years, any increase in rates will have a significant decline on majority of your portfolio, how much? Depends on how much rates increase and if they increase. Is it a possibility in the next 3-5 years? Very likely. The reason why I bring this up is because you reference low risk, it isn't necessarily the case. Longer bonds will react more adversely to increases in rates so should you look at shorter term bond funds? God no! the rates are crap.

Many people avoid fixed income exposure all together in rate environments like this as coupons are low and risk is high. Others may look at purchasing several individual bonds but you are likely going to pay a premium for anything half decent that isn't junk.

So what should you do? I have no clue, but good luck!
[OP]
Member
User avatar
Oct 9, 2014
397 posts
49 upvotes
Winterpeg
Johnny0c wrote: First thing you should do for yourself is set some guidelines is it 3 years or 5?
Risk-free rate would be 2.6% for a 5 Yr GIC right now, calculate how much you would have if you threw in all your principle into that and the regular contributions into a savings account at 1.95% (highest HISA available me thinks).

If you are okay with this minuscule return barely above inflation? good! If not take a look at adding some risk.

We can't predict anything so for reference use past data. This is overly simplistic and this is just for reference as obviously no one here is being compensated for advice.

Worst possible return 3 month -7.6%, multiply this by 1.25 (for no reason) then ask yourself, it's closing date and the fund is down this amount are you okay with that? If not go back to abysmal risk-free rate.

With such a small weighting in equities we are not looking at double digit returns, simply not going to happen (Don't bring up the 1 YR return unless you think we are heading to a negative interest rate environment); Are your expectations realistic? What is "worth while" to you? In the majority of good scenarios you are at 2-5% above the risk-free rate, that being said is it worth the risk mentioned above?

70% in the FTSE TMX Cdn bond index, formerly DEX bond universe average weighting around 10 years, any increase in rates will have a significant decline on majority of your portfolio, how much? Depends on how much rates increase and if they increase. Is it a possibility in the next 3-5 years? Very likely. The reason why I bring this up is because you reference low risk, it isn't necessarily the case. Longer bonds will react more adversely to increases in rates so should you look at shorter term bond funds? God no! the rates are crap.

Many people avoid fixed income exposure all together in rate environments like this as coupons are low and risk is high. Others may look at purchasing several individual bonds but you are likely going to pay a premium for anything half decent that isn't junk.

So what should you do? I have no clue, but good luck!
Thanks that gives me a good bit to look at and think about. I was simply hoping that getting somewhere in the neighborhood of 5-7% as opposed to <2% as it could provide me with more. I didn't realize the rates going up would have a negative impact on the fund. Gives me something to think about. I think I could handle a bit of a loss, however definitely not in a position to risk a big loss
Deal Addict
Mar 8, 2013
2812 posts
1487 upvotes
One thing to remember is that mutual funds including Tangerine are priced at the end of the day, and you don't know that price in advance. So near the date you cash in, either you make a number of sales on 'up' days or take your chances. For a one time big withdrawal, you are better to own an ETF where you can put in an ask price. For small withdrawals over a period of time, such as retirement, mutual funds are OK.

So in your case, if you are sure you want to buy a house/condo, determine how much you need for a down payment. If you can reach that target with the HISA, then do that because it is risk free. But if you are not sure if you will ever buy a house/condo, you might as well take some risk - equities and bonds both have risks.

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