The cost of being on the sidelines as an investor used to mean a return of pretty much zero on your cash.
Rising interest rates have changed that. A class of investment we’ll call cash alternatives now offers yields from roughly 2.5 to 3.6 per cent. Inflation’s running at 7 per cent, so real returns from these products are negative. But with stocks and bonds tanking this year, even a low single-digit return looks just fine.
Cash alternative exchange-traded funds are an option covered in a previous blog post, which you can read here: shorturl.at/beFLZ. To quickly recap, after-fee yields of up to 3.6 per cent or so are available from these ETFs, which invest their assets in savings accounts from big banks.
There are also high interest savings funds packaged as mutual funds to consider. The TD Investment Savings Account’s 2.9 per cent current rate is pretty typical. You can buy this fund or similar from virtually all online brokers at no cost. Cash alternative ETFs may cost as much as $9.99 to trade, although several brokers offer commission-free purchases at least.
Assets in cash alternative ETFs are not covered by Canada Deposit Insurance Corp., but this protection does typically apply with high interest savings mutual funds.
Old-fashioned money market funds are another option for holding cash in an investment account, but they’re often less forthcoming on their current yields than other products. Yields on the popular big bank money market funds right now appear to be in the mid 2 per cent range.
The Steadyhand Savings Fund, also a money market fund, has a net yield of about 3.5 per cent these days based on a management expense ratio that sits at 0.2 per cent thanks to a temporary fee reduction that remains in place for the time being. The availability of this fund is spotty among digital brokers and Steadyhand requires a minimum $10,000 initial investment, with a $1,000 minimum for subsequent amounts.
Both money market funds and high interest savings mutual funds offer a workaround for clients of a trio of online brokers that do not allow their clients to buy cash alternative ETFs - BMO InvestorLine, RBC Direct Investing and TD Direct Investing. Each of these brokers offers an in-house high interest savings mutual fund, as well as money market mutual funds.
Yields are lower for these products, but you shouldn’t have to pay a fee to buy or sell. If you’re looking to park smaller amounts of cash, a lower yield could be more than offset by not having to pay a commission to buy and sell a cash alternative ETF.
-- Rob Carrick, personal finance columnist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Stocks to ponder
Osisko Gold Royalties Ltd. (OR-T) In September, Osisko’s share price rallied nearly 11 per cent, making it one of the best performing stocks in the S&P/TSX composite index. Montreal-based Osisko is a precious metal royalty company that holds a portfolio of over 165 royalties, streams and precious metal offtakes concentrated in North America. As Jennifer Dowty tells us, the stock features a reliable dividend, a diversified cash flow, and gold exposure without direct production and development costs.
BCE Inc. (BCE-T) The stock, like much of the market, has been wallowing in misery for much of the past six months. But its dividend yield rose above 6 per cent last week week, making the telecom stock hard to ignore. And as David Berman tells us, a high yield for BCE has often marked the start of a rally.
The Rundown
Time to get back in? Canadian stocks appear to offer decent but not exceptional value
In nominal terms, Canadian and U.S. stock prices hover roughly 10 per cent above where they stood on New Year’s Day, 2020, before plague, inflating prices and Vladimir Putin knocked the world for a loop. Adjust for inflation and stocks are actually a hair cheaper in real terms than they were before this lunacy started. But that doesn’t mean investors should start loading up on equities, as Ian McGugan warns us, because they are still not undeniably cheap.
Also see: Investors see no peace in U.S. stocks until bond gyrations subside
‘Deep value’ fund manager with returns of 8% this year sells Tourmaline and buys U.S. large-caps
Money manager Tim McElvaine and his flagship McElvaine Value Fund has seen an annualized return of 17.8 per cent over the past three years, about double that of the S&P/TSX Composite Index. He tells Brenda Bouw what he’s been buying and selling of late (including exiting his position in Tourmaline Oil, one of the hot stocks of this year.)
It’s looking a lot like the 1970s again. And that’s good for dividend stocks
Soaring inflation and rising interest rates have put dividend investors on edge this year. Is there still a compelling reason to stick with dividend stocks in an environment where bond yields have become attractive and beaten-up technology stocks are looking cheap? A new study says yes, as David Berman reports.
Portfolio advice for what’s turning into a grim autumn for investors
Whether or not the U.S. is in a recession, technical or otherwise, its economy, and that of the entire world, is in rough shape. This suggests a grim autumn ahead for investors. But it won’t last forever. Stocks tend to react months before an economic shift occurs. They start to decline long before a recession hits. And they’ll touch bottom long before it ends. As we wait for that day, Gordon Pape has some suggestions on what to focus on in your portfolio.
Also see: Prepared to weather this market storm? Ask yourself these six questions
John Heinzl’s dividend portfolio’s five-year returns are in and they validate the dividend-growth investing strategy
Despite facing myriad challenges over the past few years – a global pandemic, massive supply chain disruptions, rising interest rates, surging inflation, war – John Heinzl’s model dividend growth portfolio delivered solid gains. Here’s his review of the portfolio on its fifth anniversary date. (The full portfolio and its latest performance can be found here.)
The Merge made Ethereum better for the environment – but not so much for investors
The Canadian-founded Ethereum network, the biggest thing in cryptocurrency after bitcoin, recently underwent an upgrade called “the Merge” that made it a lot more environmentally friendly. But what’s good for the environment does not seem to be good for investors, as Ethan Lou tells us.
Others (for subscribers)
The most oversold and overbought stocks on the TSX
Monday’s analyst upgrades and downgrades
Monday’s Insider Report: Chairman invests over $3-million in this oversold REIT with a 68% forecast return
Globe Advisor
How target-date funds providers shift asset allocation amid market volatility
Investors pile into inflation-focused mutual funds to protect portfolios
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.
What’s up in the days ahead
Don’t tell David Rosenberg there’s no recession. He’s convinced we’re in one, and has some advice on how investors can profit in the near future.
Click here to see the Globe Investor earnings and economic news calendar.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by Globe Investor Staff