Short-term investment (Canada)?

[Kenoryn]

Hi all! My partner and I have about $35K available to invest, and expect to add another $14K or so between now and April, at which point my partner will be quitting his job, and I will be covering all our expenses and won't have a lot of savings to set aside.

Our plan is this: we are both working full-time now for the government, and as the government is looking to lay off a ton of people, we have the option of applying for a buyout package to leave voluntarily (6 months' salary). That has to be done by March 31st next year though (end of fiscal year). So my partner is hoping to take the buyout package, leave March 31st, and then spend a year renovating my house while I continue to work and cover our expenses. Then we hope to buy a piece of land and build a workshop on it using our current savings + buyout package, then either sell or rent my house and live in the workshop while we build our house. 

So, the question here is: what to do with the $35K between now and then? I have been going through the very annoying process of opening an e-series account with TD but have been re-thinking this and wondering if 1.5 years is too short-term to invest in index funds. There's also the possibility that we'll find the perfect property between now and then and want to use this money to buy earlier than planned. Anyone have advice on short-term investment options for Canadians?

[grmagne]

If your funds grow by a modest 4% annually, then after 18 months your $35,000 would grow to $37,120. That's definitely worth the effort of setting up investment funds for the short-term.

Your concern is probably whether short-term volatility is too high and whether your principal will decrease? If so, I'd still recommend going ahead with the investment because taking small short-term risks is part of the life of an investor. As long as you're confident in the long-term benefit of investing aggressively, then why not take the plunge?  Saving money month after month and continuously investing your savings will get you ahead in life.  Whether you lose a few thousand here or there during a market downturn won't affect you too much over the long haul.

However, if you're likely to withdraw the money in a few months and you can't afford to lose any of it, then look at a worst-case/best-case scenario of short-term investing. If the worst-case risks are too high then look for a safer investment option, like a balanced or dividend fund.  You won't get much from a short-term GIC if you're looking for something with no risk.

[arrow1963]

High interest savings account, preferably through your TFSA if you haven't used up the contribution room already.  I've seen 'People's Trust' come up a couple times in these kinds of discussions.  From a quick look at their website, they appear to be CDIC insured up to $100K, and offer a 3% interest rate on their TFSA accounts.

Why not stocks or a balanced fund (like a the previous poster suggested)? 

1.  18 months is a crapshoot in terms of stock values.  Maybe they're up 4%, or 20%.  Maybe they're down 20%.  It sounds like you have a specific use for the money, and a short time frame in which you want to use it.  It doesn't sound like you're well suited to ride out any short term market cycles.

2.  Are we really talking about 18 months?  Might you need any of the money to renovate your house?  What are the chances you're going to want to buy early?

3.  (Not clear to me)  How important is the specific size of this savings account?  If what you have is just over 5% (or 20%) of the property you want to buy, then any losses could be especially meaningful.  On the other hand, if you're a little short of some important dollar amount, then taking targeted risks could have more meaningful payoffs.

[Kenoryn]

Thanks both for the replies!

grmagne, I'm not sure I agree with that approach; essentially the purpose of index fund investing is long-term growth. You never have to face a loss, because if you see a temporary decrease in value in your stocks, all you have to do is wait and ultimately the value will increase again. An investor in the long-term never has to worry about short-term risks, and to invest in something with high volatility for the short-term is to gamble.  I can't be confident about the long-term benefit of the investment because I may be forced to withdraw the money at an inopportune time, and have no benefit or a loss instead.

Arrow, I actually have it in RRSP already. My partner will have no income in a year and I will have no income in the following year while we're building a house, so we'll withdraw it then and pay very little tax.

I agree stock values seem too volatile, but I wasn't sure if maybe a heavily bond-weighted portfolio would be fairly safe over an 18-month term?

We are really talking about 18 months for at least a portion of the money. We hope to have about $90K and use a max of $60 to buy property - that portion may be spent early if we happen to find a perfect property - and the remainder to build the workshop & live on for the time we're building. I don't really know what our chances are of finding a property early. It's possible we won't find something within that timeframe and it will be longer, but I couldn't really guess either way.
I've already factored upcoming costs for renovating my house into my savings for the next two years, so don't expect to need any of the money for that.

The specific size is unknown - we plan to buy property outright, so it will be 100% of the purchase price, whatever that is - under $60K. Anything we're short on the property price would come out of the workshop price, which  might mean we have to do some other work to generate more income and delay our house-building plans. Good point though about the importance of losses vs. gains. At this point I'm interested in maximizing gains without risking principal. My other option is to put the money into my mortgage, which is a guaranteed 2.5%, but would mean we would have to hold a loan to buy the property until I sold my house.

I'll look into the People's Trust thing - thanks!

[MorningCoffee]

If it was my money I wouldn't do index funds with such a short timeline. I'm not a fan of leaving money in a savings account  but 18 months isn't a very long time. It would be your safest bet while allowing easy access to your money.

[daverobev]

If you have TFSA room, People's Trust is offering 3%

If you do not, Achieva is at 1.9% or something - I can give you a referral code if you want, or just google.

Investing in anything not guaranteed is 5 years *minimum*. You want the best high interest account you can find.