Cash Management Options During Times of Volatility

With interest rates rising and uncertainty on inflation’s future, many investors are seeking ways to preserve and grow their cash reserves.

1. Guaranteed Investment Certificates (GICs)* 

A Guaranteed Investment Certificate is a deposit investment sold by Canadian banks, trust companies and credit unions.   

Pros: 

• GICs offer guaranteed returns, which means investors can be confident about the money they will receive at the end of the term. 
• They are considered low-risk investments, making them a suitable option for risk-averse investors who want to park their money until the market becomes more stable. 
• Can be held in registered accounts such as Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) to take advantage of tax benefits. 
• Eligible for protection by the Canadian Deposit Insurance Corporation (CDIC) up to $100,000.



Cons: 

• Typically offer lower returns compared to other investment options, such as stocks and mutual funds. 
• Regular GICs have a fixed term, which means you cannot access your money until the term ends, without incurring a penalty. This can be disadvantageous if funds are required early due to unexpected expenses or emergencies, or if there is a better investment opportunity. 

2. Money Market Funds

A money market fund is a mutual fund that invests in highly liquid, short-term, high-quality debt securities such as government bonds or commercial paper. 

Pros: 

• Money market funds are considered low-risk investments. 
• They also offer increased liquidity compared to GICs, as investors can withdraw their money at any time without penalty. 
• While not guaranteed, unitholders of mutual funds do have protection under the Canadian Investor Protection Fund.** 



Cons: 

• Money market funds are not guaranteed, unlike GICs. 
• Interest earned can be affected by changes in prevailing interest rates. 
  

3. High Interest Savings Funds 

A high interest savings fund is a low-risk fund which offers a higher rate of interest than a traditional chequing or savings account. It is classified as a traditional mutual fund with the main difference being that it invests in cash deposits at one or more financial institution(s), and not in traditional stocks or bonds. 

Pros: 

• High interest savings funds are considered low-risk investments as they invest in cash deposits at one or more financial institutions or through high-interest securities and are not subject to bond or equity market volatility. 
• They may offer higher interest rates compared to money market funds and savings accounts, making them a suitable option for those looking for a higher return on their cash balances. 
• They offer increased liquidity and easy access to your money with no term commitments. 
• Interest is accrued daily, and distributions are made to unitholders monthly which can be taken in cash or reinvested into additional units of the fund, which increases the value of your holdings. 
• They can be held in registered accounts such as Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) to take advantage of tax benefits. 
• While not guaranteed, unitholders of high interest savings funds do have protection under the Canadian Investor Protection Fund.** 

Cons: 

• The returns can be affected by changes in prevailing interest rates. 
• Will have fees unlike GICs or bank accounts. 
  

4. High Interest Exchange-Traded Funds (ETFs) 

Another place to consider stashing cash would be in a high interest exchange-traded fund (ETF).  A high interest ETF could be thought of as a traditional savings account which trades on a stock market. 

Pros: 

• High interest ETFs invest in high-interest accounts from multiple financial institutions and may provide a higher return compared to other cash alternatives such as GICs and money market funds. 
• The monthly distributions paid out can be taken in cash or reinvested into additional units of the ETF, which can increase the value of your holdings. 
• They can be easily bought and sold on a stock exchange, which makes them convenient for those who want to access their money quickly. 

Cons: 

• High interest ETFs are subject to bid-ask spread risk, which means that their value can fluctuate based on market conditions which may not fully reflect the value of the underlying holdings. 
• Will have fees compared to other cash alternatives such as GICs or bank accounts. 

There are various cash management options to consider during times of equity and bond market volatility. It is important to carefully consider your risk tolerance before deciding which is the best choice. Your Advisor can discuss the best strategy to meet your cash preservation needs, as well as a systematic way to return to the markets when you are ready. One example would be utilizing a dollar cost averaging strategy which allows investors to return to higher risk investments in a measured manner. To learn more about the right cash management strategy for you, give us a call.

*Unlike mutual funds, the returns and principal of GICs are guaranteed.
**The Canadian Investor Protection Fund provides protection within prescribed limits to eligible clients of member firms in the event of an insolvency by the member firm. See www.cipf.ca for more information.