[bean438]

Just looking for some ideas for cash sitting in my RSP/TFSA.
This is cash from monthly contributions, dividends, etc awaiting deployment.

I have always just left it as cash @ Credential Direct's interest.
Sadly I admit I dont even know what they pay, and I have never looked into money market funds.

This is one area I would like to get knowledgeable. Granted rates are so low, but hey every bit helps.

Preliminary research has me looking at the Claymore Premium Money Market ETF.

Where do you hold your short term cash?

 

[Rickson9]

Ladder some GICs. We keep our cash in a "high-interest" account, because it will be used fairly soon.

 

[Max]

Excellent question and something I am interested in too. I would prefer something a little more liquid than ladder GICs, but it is a good idea.

1) Can money market funds generally be invested in and withdrawn next day, or is there some minimum period of time funds must be invested.

2) How does the interest component normally work on money market funds? Is it in regular distributions (semi-annual, monthly, etc.)?

3) What are the risks of money market funds? Does the value of the fund rise as interest accrues and fall as interest is distributed? Is there any other reason the value might fall?

4) If I sell the fund at a gain due to accrued interest which has not yet been distributed, do I get to claim a capital gain (seems unlikely), or does my share of the accrued interest get distributed to me after I sell.

5) Any other differences from using a discount brokerage to buy money market mutual funds compared with buying shares of a company?

6) Any other suggestions for maximizing returns (1-2%) while maintaining liquidity, and security of principal?

Thanks!

 

[humble_pie]

1) depends on fund. But at today's rates who'd "invest" for a day unless you were a bank w $ millions. Some funds or brokerages may have imposed amount or time restrictions due to cost of enrolling a new fund-owner.

2) most distribute monthly, usually in form of additional units.

3) there are risks in extreme circumstances. Last year value of some US MMFs fell below par. Because of bankruptcies or total illiquidity in a significant portion of the short-term paper in which such a negative-value fund had invested. Don't believe this happened in canada. Most MMFs have sufficient diversification that this would not happen, ordinarily speaking.

4) almost impossible to sell at a gain. MMFs remain at a fixed price - usually $10 - & pay interest once a month. They're designed to never rise above such fixed price. If you happen to cash out in middle of a month, fund will usually pay pro-rated amount.

5) oh oh. There are gigantic differences between stashing cash in a MMF & "buying shares of a company." Not even apples & oranges. More like apples & locomotives. Libraries are full of books about common shares, preferred shares, bonds, mutual funds, etc. Speed thee to em.

6) i have really not heard of any MMF paying 1-2% most are paying much less. You can easily obtain 1-2% from an online bank such as ING or ICICI and you'd have 100% insurance from the CDIC to boot, which a MMF does not have. There's an old hobo now on the block all dressed up as a pink-cheeked fresh-faced new kid. He's old GMAC, but he's now capering around as Ally and offering cash-ready accounts at 2% that are said to be CDIC insured. How they got that insurance beats me, but i think maybe they latched onto it when they bought another trust company few months ago. I don't have an Ally account and i'm not against them ... really ... but i'd look exceptionally hard at their recent history & at their financial structure before dumping any cash their way. That extra fractional % is not worth potential grief imo.

 

[humble_pie]

re cash in tfsa's & rsp's.

most tfsa's are still so small that any cash arising from distributions or dividends is bound to be small stuff. What i try to do is go for the DRIPs, so i receive additional units instead of a few dollars.

some rsp's on the other hand can generate respectable amounts in divs & distribs. What i find the online brokers doing is offering various types of higher-interest liquid investments, but only if you ask them by phone. Thus recently i heard of something called Reliance, although did not buy. I have noticed that reps at the discounters have excellent up-to-date knowledge of what's available. Don't know why this info is never posted on their websites; but what it boils down to is that client has to ask.

 

[Bupp]

Ladder some GICs. We keep our cash in a "high-interest" account, because it will be used fairly soon.

Why would he ladder GICs? That would just tie up cash that he wants access to in the near future.

 

[Rickson9]

Why would he ladder GICs? That would just tie up cash that he wants access to in the near future.

Because GICs can be used as short term cash and we don't know what the OP's definition of 'short term' is.

 

[bean438]

My definition of short term is for however long it takes for something on my watch list to go on sale, or with any luck another fire sale like March/09.

Since I do not know when this is, I need something liquid.

I realize we are not talking huge amount of cash , but I just wanted to know what others are doing other than straight cash in the broker account (mmf,etc).

If I can squeak out a bit more in interestan then why not?

 

[ssimps]

Bond ETFs, higher risk than owning the bonds themselves, but you get $ every 3 months and can sell any time you want if the markets are open.

There are also monthly paid income ETFs like FIE.A that give you .04 / share / month. Again, more risk than just letting you money sit in an account, but you get much higher monthly $ payments (about 5% after high MER) and can sell when you want.

Really depends where on the various scales you want to be for this.