I’m constantly re examining our overall investment portfolio to make sure we keep ourselves adequately diversified. Our portfolio is composed of about 15% bonds (through Vanguard CND Bonds fund VAB.TO). I actually dislike bonds because they are eating up potential bigger gains that we would get by being 100% in equities but I am keeping them around for now. Maybe just for the first few years of FI and until the market doesn’t seem so overvalued as it is now. Bonds are good to have to balance your portfolio and soften the blow of a market crash but if your looking at long term investing, they don’t perform nearly as well as stocks.
Better than Bonds
Anyhow, we recently got a lot of money from filing our taxes because we invested a lot into RRSPs (registered retirement savings plan) last year. We have a few projects that we may use this money for in the coming 6-12 months. We wanted to find a better way to keep this money liquid instead of tying it up into ETFs. With having to pay a fee to sell ETFs and it taking sometimes a few days to get it in our personal bank account, it wasn’t ideal in this situation. So I came up with a great “better than bonds” alternative.
We would like to keep $12,000 as flexible as possible but don’t want to have it sitting in a regular bank account. I want this money to form part of my overall portfolio. So I decided to allocate this $12,000 as part of our bond position. I lowered our bond holdings by $12,000 and invested that into equities. Our bonds have been yielding between 2-3% per year. So I decided that I would set 3% as my benchmark.
How will my $12,000 make 3% guaranteed and remain flexible?
I signed up for a Tangerine High Interest Savings account with a referral code. With a referral code you get $50 for opening an account and deposit at least $100 (before April 30th). You can use my referral code: 52418718S1 *
Also, all new accounts before May 31st get a promotional savings rate of 2.5% for 6 months. After 6 months your interest rate goes down to 1.1%.
I’m going to deposit $6,000 into this account.
*Note: I will also get $50 for the referral. You can also sign up for a Tangerine account with Great Canadian Rebates (GCR) and you will get $24 cash back however that offer will only give you $25 for opening the account. So almost the same but you have to wait for it for 3 months through GCR. With an referral key (such as mine) you will get $50 into your Tangerine account (promotion until April 30th). If you’re reading this after April 30th, I would recommend using GCR.
I used my referral code to refer D (my spouse). She will get $50 and I will get $50. She is going to deposit $6,000 into her account.
Tangerine has no minimum balance and doesn’t charge any fees for email money transfers. So this money will be extremely flexible because we can move it to our regular bank account at any time.
Calculation for year 1
$12,000 earning 2.5% for 6 months = $150
$12,000 earning 1.1% for 6 months = $66
$50 sign up bonus X 2 + $50 referral bonus = $150
Total return for year 1 = $366
ROE (on $12,000) = 3.05%
At the end of 12 months (or even 9 or 10 months) I will search the market again and sign up for another savings account that offers $0 fees and very good promotional rates. A couple examples that I have found so far are DUCA Bank which is offering a promotional rate of 3.15% and $50 sign up bonus for opening an account. Also EQ Bank is offering 2.3% with no time limitation. All these banks are insured with either the Canada Deposit Insurance Corporation or the Deposit Insurance Corporation of Ontario so very safe places to put money.
With this strategy I’m pretty confident that I can keep this $12,000 generating a return of 3%+ every year. It will likely require moving the money once per year but I found opening my first accounts with Tangerine to be super easy. It took us 10 minutes total to open 2 account and transfer the money. So in return for a small time commitment, we get to keep a good flexible cash floater that will constantly generate better than bonds returns.