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Where Do You Park Your Cash?


Viking

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I am now carrying a pretty sizable cash balance. Where do investors park their cash? I am in Canada and have both CAN$ and US$ accounts.

 

I am going to leave most of my cash in US$. I have very little confidence in the Canadian economy outperforming the US over the next 3-5 years. I also think Canada is in a housing bubble; if it pops i would expect the CAN$ to weaken (versus the US$).

 

One benefit of central banks raising rates is investors are now able to earn a small return on cash. RBC has Investment Savings Accounts and currently pays 1.6% CAN$ account and 1.7% US$ account. The rates are for their self serve customers; they pay slighly more in other accounts for customers that pay more in fees. The CAN$ account is CDIC covered; US$ account is not. I think these are technically mutual funds; i can access the funds same day (although they technically clear over night).

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Thanks for the reminder.  I have some new cash recently and now have parked it in my bmo investorline account... 1.6% CAD and 1.45% USD.

 

I also used to park some CAD$ in the dream preferred shares (DRM.PR.A).  NOT risk-free of course, but it yields about 6.8% and is supposed to be retractable by the shareholder at any time.  Now that the Canadian RE market has turned south, i no longer hold these shares although I still think it has a good risk-adjusted return.

bmo.JPG.9e6e3c3bc2930b5291cf9b0fb4589106.JPG

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Since the USD is currently overvalued by around 20% against the major other currencies (EUR,CAD,JPY) i would keep it in your home currency. Even if the next recession in Canada is harder than the one in the US, this is probably already priced into the currency. According to my currency system the CAD is currently the best currency to own, but as always this is just based on statistics (relative purchasing power, term spread, carry and momentum) and can change next week/month.

Personally i just wait for the next small pullback (maybe to ~1.335) in the USD/CAD to open a hedge to the CAD. Currently i am hedged into the EUR, but the hedge is much more expensive than the one into CAD, so i will move 50% of the hedged exposure over to CAD.

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Since the USD is currently overvalued by around 20% against the major other currencies (EUR,CAD,JPY) i would keep it in your home currency. Even if the next recession in Canada is harder than the one in the US, this is probably already priced into the currency. According to my currency system the CAD is currently the best currency to own, but as always this is just based on statistics (relative purchasing power, term spread, carry and momentum) and can change next week/month.

Personally i just wait for the next small pullback (maybe to ~1.335) in the USD/CAD to open a hedge to the CAD. Currently i am hedged into the EUR, but the hedge is much more expensive than the one into CAD, so i will move 50% of the hedged exposure over to CAD.

 

Thanks for the thoughts on the CAN$ VS US$. If the CAN$ appreciates 10% or more versus the US$ The Canadian economy will be in more trouble. Interesting times...

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Look at Canada's provincial crown corp bonds (Ontario, Newfoundland, etc.)

Yields are much higher, it's sovereign risk, you can typically margin at up to an 85%+ LTV as/when you need the funds, and the interest paid creates a tax shield.

 

We typically put all new funds into these bonds, then deliberatly borrow against them to fund whatever equity we have deceided to purchase. Imposing a 'cost' concentrates the mind, forces loan repayment sooner vs later, and allows for some FI strategies. Ideally buying a longer duration discount bond, in a high rate environment, at issuance - & just holding it through to maturity. We also hold some sterling denominated bonds, maturing a little before 'Brexit', and will benefit from a hard 'exit'. 

 

Equities purchased do not have to be marginable and once the loan is paid off, all the remaining equity is 'house money'. Time continuously works for you, and hopefully the remaining equity will be sold for full value at some later date. When it is, proceeds are withdrawn and capital returned - to pay off mortgages, buy houses, fund new ventures, etc.

 

SD

 

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I am now carrying a pretty sizable cash balance. Where do investors park their cash? I am in Canada and have both CAN$ and US$ accounts.

 

I am going to leave most of my cash in US$. I have very little confidence in the Canadian economy outperforming the US over the next 3-5 years. I also think Canada is in a housing bubble; if it pops i would expect the CAN$ to weaken (versus the US$).

 

One benefit of central banks raising rates is investors are now able to earn a small return on cash. RBC has Investment Savings Accounts and currently pays 1.6% CAN$ account and 1.7% US$ account. The rates are for their self serve customers; they pay slighly more in other accounts for customers that pay more in fees. The CAN$ account is CDIC covered; US$ account is not. I think these are technically mutual funds; i can access the funds same day (although they technically clear over night).

 

So, looks like you are serious about raising cash. Nothing wrong with this as I have been doing likewise. I try to have 10-20% cash available to take advantage of correction and I am getting closer to 20% now.

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I am now carrying a pretty sizable cash balance. Where do investors park their cash? I am in Canada and have both CAN$ and US$ accounts.

 

I am going to leave most of my cash in US$. I have very little confidence in the Canadian economy outperforming the US over the next 3-5 years. I also think Canada is in a housing bubble; if it pops i would expect the CAN$ to weaken (versus the US$).

 

One benefit of central banks raising rates is investors are now able to earn a small return on cash. RBC has Investment Savings Accounts and currently pays 1.6% CAN$ account and 1.7% US$ account. The rates are for their self serve customers; they pay slighly more in other accounts for customers that pay more in fees. The CAN$ account is CDIC covered; US$ account is not. I think these are technically mutual funds; i can access the funds same day (although they technically clear over night).

 

So, looks like you are serious about raising cash. Nothing wrong with this as I have been doing likewise. I try to have 10-20% cash available to take advantage of correction and I am getting closer to 20% now.

 

Spekulatius, my two key learnings from 2018 was:

1.) i need higher cash balances (to weather and be able to take advantage of volatility)

2.) to be more diversified moving forward

I expect volatility (like we have seen in 2018) to be a key them for the next few years :-)

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IBKR pays 1.9% interest on cash. Is that not good enough?

If you are with Fido, give them a call to put your cash into their government obligations money market sweep vehicle. That pays nearly 2%.

This would be far better than some mutual fund or even a savings account in another institution. Cash sweep vehicle means you need no extra operations, and 100% of your idle cash is earning interest all the time.

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mostly 6 month to 1 year t bills (about 70% of cash totals), the other 30% in BSV (Vanguard Short Term Bond etf), which is mostly treasury securities with a few better quality corporates thrown in. It has a 2.65 duration which actually gives it a short/intermediate bond exposure. Together, they are a pretty good & safe place to park cash.

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