Investing

Where to invest money that I need in short/medium term?

  • Last Updated:
  • May 28th, 2020 7:53 pm
[OP]
Deal Addict
User avatar
Dec 27, 2011
3558 posts
1811 upvotes

Where to invest money that I need in short/medium term?

I'm trying to figure out where the best place is to park my money that will be needed in the short and medium term (anywhere from 1-5 years, maybe even less). Basically I thought it would be best to start "savings funds" for my various short/medium terms needs...such as for house repairs, car repairs, pet emergency fund, vacations, eyeglasses, new winter/summer tires, new laptop, etc. But instead of literally setting up a dozen or so separate savings funds for each goal, I would just lump them all into a single "account" just for simplicity sake.

At first I thought about just putting the money into a savings account but those generally don't give much interest. Then I thought about GICs, such as 1 year GICs (e.g. Tangerine is currently at 1.75%). I would wait until I've saved up a certain amount (such as 1k) and then buy a 1 year GIC, then wait until I save up another 1k and buy another 1 year GIC and repeat.

I'm sure there are even better ways of doing this though so I'm hoping to hear some suggestions or what other people here are doing!

Btw I've got my long term investments (for retirement) in low cost index funds but I don't think I would want my short/medium term money tied up in the market.
24 replies
Deal Guru
User avatar
Jan 9, 2011
12923 posts
16487 upvotes
Vancouver
For maximum flexibility you can't beat a HISA, but of course the interest rate isn't going to be great. But there are many that beat Tangerine's 1.75% with no lock-in.
RFD thread: official-rfd-thread-high-interest-savin ... 14-698055/

Also, check your Tangerine insights tab, I have a 2.50% offer until the end of September for new deposits (including to TFSA) that I just took advantage of.
[OP]
Deal Addict
User avatar
Dec 27, 2011
3558 posts
1811 upvotes
Kiraly wrote: For maximum flexibility you can't beat a HISA, but of course the interest rate isn't going to be great. But there are many that beat Tangerine's 1.75% with no lock-in.
RFD thread: official-rfd-thread-high-interest-savin ... 14-698055/

Also, check your Tangerine insights tab, I have a 2.50% offer until the end of September for new deposits (including to TFSA) that I just took advantage of.
Thank! I didn't realize that HISA would give the same or higher interest than GICs. This seems to be a much better option given you can withdraw money at any given time with no penalties. I suppose the downside is that the bank can change the interest rate whenever they want to (and it looks like some do change it quite often). Any other downside compared to GICs?
Jr. Member
Apr 13, 2019
167 posts
48 upvotes
I am in same situation. Recently sold some stocks. Would like to buy Treasury Bills. Never done this before. Anybody out there ever bought treasury bills before? How did you make out?
Member
User avatar
Sep 18, 2016
429 posts
391 upvotes
HISA, done!
"Do not allow yourself to become resentful, deceitful or arrogant"
Jordan B. Peterson
[OP]
Deal Addict
User avatar
Dec 27, 2011
3558 posts
1811 upvotes
Einsteinish wrote: I am in same situation. Recently sold some stocks. Would like to buy Treasury Bills. Never done this before. Anybody out there ever bought treasury bills before? How did you make out?
Don't treasury bills give tiny interest though?
[OP]
Deal Addict
User avatar
Dec 27, 2011
3558 posts
1811 upvotes
1Ogiku2 wrote: HISA, done!
Any downsides to HISA compared to GICs? It seems that HISA provides better growth while also enabling you to not lock in your money, so why would anyone use GICs? Im assuming because HISA could change the interest rate at any time?
Has HISA historically provided better returns than GICs or does it tend to fluctuate?
Member
User avatar
Sep 18, 2016
429 posts
391 upvotes
crystallight wrote: Any downsides to HISA compared to GICs? It seems that HISA provides better growth while also enabling you to not lock in your money, so why would anyone use GICs? Im assuming because HISA could change the interest rate at any time?
Has HISA historically provided better returns than GICs or does it tend to fluctuate?
Ok, I will answer to this. You are looking to stash cash, which you will need to buy everyday articles like, car repair and eyeglasses? You will need access to the money at all times not knowing when and how much. HISA is the way to do this without effort.

Do you actually know that you are just looking to stash cash for emergency needs? If not what are we talking about?
"Do not allow yourself to become resentful, deceitful or arrogant"
Jordan B. Peterson
Jr. Member
Apr 13, 2019
167 posts
48 upvotes
crystallight wrote: Don't treasury bills give tiny interest though?
Treasury Bill's don't pay interest. You bid on them knowing what they will be worth on a cetrain date. They are government debt 100% guaranteed.
[OP]
Deal Addict
User avatar
Dec 27, 2011
3558 posts
1811 upvotes
1Ogiku2 wrote: Ok, I will answer to this. You are looking to stash cash, which you will need to buy everyday articles like, car repair and eyeglasses? You will need access to the money at all times not knowing when and how much. HISA is the way to do this without effort.

Do you actually know that you are just looking to stash cash for emergency needs? If not what are we talking about?
Not necessarily just emergency needs but planned needs as well. For example, back when I was going to set up several individual funds this included:
- vacations
- miscellaneous electronics (e.g. laptop, cell phone)
- home maintenance (e.g. roof...but not waiting until the roof is already starting to leak...)
- eyeglasses every X number of years

Etc
[OP]
Deal Addict
User avatar
Dec 27, 2011
3558 posts
1811 upvotes
Einsteinish wrote: Treasury Bill's don't pay interest. You bid on them knowing what they will be worth on a cetrain date. They are government debt 100% guaranteed.
Perhaps saying "interest" was the incorrect term but rather should be "rate of return"? Don't treasury bills provide a lower (possibly even much lower) rate of return compared to GICs or HISA?
Member
User avatar
Sep 18, 2016
429 posts
391 upvotes
I will not farther comment on this farce.
"Do not allow yourself to become resentful, deceitful or arrogant"
Jordan B. Peterson
Deal Fanatic
User avatar
Dec 14, 2010
6515 posts
8070 upvotes
crystallight wrote: Not necessarily just emergency needs but planned needs as well. For example, back when I was going to set up several individual funds this included:
- vacations
- miscellaneous electronics (e.g. laptop, cell phone)
- home maintenance (e.g. roof...but not waiting until the roof is already starting to leak...)
- eyeglasses every X number of years

Etc
My setup is to have 3 buckets for short term: funds for emergency, funds for what I NEED and funds for what i WANT.

The emergency fund should be liquid and easily accessible, like a HISA. Define how many months worth of emergency you need to have. This is to cover absolutely required expenses if you lose your job, to ensure health, food and shelter.

The funds for what I NEED is for things that cannot really wait like dentist, eye exam, house maintenance / repairs. You want a portion in liquid assets like a HISA, and depending on your risk tolerance, a portion in other types of fixed income with a laddered approach.

The funds for what I WANT have a more flexible setup, they can wait, because I don’tneed it, I just want it. Like a new laptop, phone, other eletronics, vacation, etc. Your risk tolerance and time frame will determine the allocation for this.

The point is to let your money to work for you if you have a higher timeframe for certain objectives, while keeping them liquid / available if your timeframe is short / immediate. Consider a mix of HISA and maybe laddered bond funds with fixed maturity. Anything with a more attractive return will likely involve more risks, and therefore, require a longer timeframe.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
Member
Mar 20, 2018
222 posts
124 upvotes
rodbarc wrote: My setup is to have 3 buckets for short term: funds for emergency, funds for what I NEED and funds for what i WANT.

The emergency fund should be liquid and easily accessible, like a HISA. Define how many months worth of emergency you need to have. This is to cover absolutely required expenses if you lose your job, to ensure health, food and shelter.

The funds for what I NEED is for things that cannot really wait like dentist, eye exam, house maintenance / repairs. You want a portion in liquid assets like a HISA, and depending on your risk tolerance, a portion in other types of fixed income with a laddered approach.

The funds for what I WANT have a more flexible setup, they can wait, because I don’tneed it, I just want it. Like a new laptop, phone, other eletronics, vacation, etc. Your risk tolerance and time frame will determine the allocation for this.

The point is to let your money to work for you if you have a higher timeframe for certain objectives, while keeping them liquid / available if your timeframe is short / immediate. Consider a mix of HISA and maybe laddered bond funds with fixed maturity. Anything with a more attractive return will likely involve more risks, and therefore, require a longer timeframe.


Rod
IMO, holding bonds makes little sense in the current environment considering their risk/reward. HISA is a much better alternative.
Deal Fanatic
User avatar
Dec 14, 2010
6515 posts
8070 upvotes
stanleyinfrared wrote: IMO, holding bonds makes little sense in the current environment considering their risk/reward. HISA is a much better alternative.
True, my setup started when rates were not so bad. Now it doesn’t make much sense to setup bonds, HISA is a better option.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
Deal Fanatic
User avatar
Sep 1, 2013
6198 posts
759 upvotes
stanleyinfrared wrote: IMO, holding bonds makes little sense in the current environment considering their risk/reward. HISA is a much better alternative.
I would agree insofar as individual bonds don't make sense for most amateur investors (due to the complexity in buying them), but a low cost bond index fund certainly makes sense for someone who is getting closer to retirement and needs to reduce their risk in their portfolio.

But if the OP is saving up for specific big ticket items in the next 1-3 years, yes, HISA is a better option.
Member
Mar 20, 2018
222 posts
124 upvotes
CheapScotch wrote: I would agree insofar as individual bonds don't make sense for most amateur investors (due to the complexity in buying them), but a low cost bond index fund certainly makes sense for someone who is getting closer to retirement and needs to reduce their risk in their portfolio.

But if the OP is saving up for specific big ticket items in the next 1-3 years, yes, HISA is a better option.
Buying individual bonds is not significantly more complicated than bond funds. Call the trading desk and tell them a bond code for a bond you want to buy. Done.

Bond funds are much riskier than HISAs and have similar, if not lower, returns. To prove your point, can you compare returns/yields for HISAs and bond funds and list their risks?
Deal Fanatic
User avatar
Sep 1, 2013
6198 posts
759 upvotes
stanleyinfrared wrote: Buying individual bonds is not significantly more complicated than bond funds. Call the trading desk and tell them a bond code for a bond you want to buy. Done.
What I mean by complexity is the time/effort you need to put into choosing what bond to buy. There is also the question of how to diversify adequately with a portfolio of individual bonds.
stanleyinfrared wrote: Bond funds are much riskier than HISAs and have similar, if not lower, returns. To prove your point, can you compare returns/yields for HISAs and bond funds and list their risks?
Here are the total returns for a typical bond ETF; do you feel a HISA could have done as well over similar periods? If not, then perhaps bond ETF returns justify the additional risk vs HISA.

https://ca.finance.yahoo.com/quote/XBB.TO/performance/
Member
Mar 20, 2018
222 posts
124 upvotes
CheapScotch wrote: Here are the total returns for a typical bond ETF; do you feel a HISA could have done as well over similar periods? If not, then perhaps bond ETF returns justify the additional risk vs HISA.

https://ca.finance.yahoo.com/quote/XBB.TO/performance/
Past returns are not indicative of future returns. I agree that buiying a bond fund would have been a better decision 5 years ago. But this is not true at the moment, taking into consideration all information available to investors.
Deal Fanatic
User avatar
Sep 1, 2013
6198 posts
759 upvotes
stanleyinfrared wrote: Past returns are not indicative of future returns.
If we were talking about an actively managed equity mutual fund, I would completely agree with this statement. But when we are talking about broad asset classes, I am reasonably confident that over the long term, the higher the risk, the more likely that it will result in higher returns.
stanleyinfrared wrote: I agree that buying a bond fund would have been a better decision 5 years ago. But this is not true at the moment, taking into consideration all information available to investors.
It may not be true at the moment, but who knows? Time will tell. I personally think it is very difficult to time the market for broad asset classes, so have very little confidence in any prediction that any asset class is over or under valued at any point in time.

Just to repeat, so we don't get too much off track here, I do believe that an investor needs to keep some of their assets in a HISA - and these days, especially with the uncertainty caused by Covid-19, if you are at any kind of risk of losing your job, you probably should put away more of your spare cash in an HISA than you would under normal times.

Top