Invest the cash in your investment account

Do you have cash sitting in your brokerage account doing nothing at all. Don’t expect your broker to do anything about it. You have to do it yourself.

Don’t let your cash sit idle. Put it to work for you.

Money-market funds used to be a popular place to park the cash in an investment portfolio. That was true whether you invested mostly in mutual funds or individual securities.

Over the years, however, the high management expense ratios (MERs) of these funds led to low returns as interest rates declined. The average annual compound return on the average Canadian money market fund over the past 10 years is just 0.5 per cent.

The rise of money-market ETFs

These days, exchange-traded funds, or ETFs, with lower MERs than managed funds, have become a popular place to put cash in a brokerage account. The CI First Asset High Interest Savings ETF (TSX—CSAV), for example, currently yields an annualized 2.2 per cent based on its November distribution. Note, the fund has been around for less than a year, and its distribution varies from month to month. The ETF has a management fee of 0.14 per cent, but no published figure for its MER.

Purpose High Interest Savings ETF (TSX—PSA) is another popular money-market fund. Its published distribution yield is 2.15 per cent. It’s been around for at least five years, and its compound annual growth rate since inception is 1.36 per cent. It, too, pays a variable monthly distribution. Its management fee is 0.15 per cent, and its MER is 0.16 per cent.

Note that you’ll have to pay brokerage commissions to both buy and sell these funds. So be sure to invest enough to make the brokerage fees worthwhile.

Alternatives to money-market ETFs

What’s more, some discount brokers don’t offer these ETFs to their clients. All is not lost, though, because many brokers now offer high-interest savings accounts packaged as mutual funds. For example, RBC Direct Investing offers the RBC Investment Savings Account (Fund code: RBF2010). It yields 1.6 per cent. There are no fees or expenses, and you don’t have to pay commissions to buy or sell. But you’ll need a minimum initial investment of $500.

Another alternative is CI High Interest Savings Fund (Fund code: CIG2113). This mutual fund invests in the CI First Asset High Interest Savings ETF noted above. Its current yield is 1.9 per cent based on its latest monthly distribution payment, which varies from month to month. The management fee is 0.24 per cent, with no published MER. Your broker may carry this fund.

As for investing directly in money-market securities, most of these instruments offer uncompetitive yields with the alternatives discussed above. Only when you can afford to invest $1 million is such securities do their yields become more competitive.

This is an edited version of an article that was originally published for subscribers in the December 13, 2019, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

Comments are closed.