Fixed income investing — When you have a short-term horizon

Saving for short-term goals can sometimes feel like not saving at all, since the money may leave your hands almost as soon as you have a hold of it. Of course, not all short-term goals are so immediate, and many will require some planning — whether it’s the monthly rent, unexpected emergencies, saving for an upcoming vacation or a down payment on a big purchase. This time frame can also come into play when you’re moving money from one investment to another and need to park it temporarily.

Short-term horizons range from needing the money today to 3 years from now, so it makes sense that several different fixed-income choices could be considered suitable for short-term money. Keep in mind that you can switch your money to a product that allows you quick access as you get closer to spending it or moving it into a new investment.

When your time horizon is short but still several years away, you might want to consider putting your cash in a slightly longer-term investment for a bit more return. Short-term GICs or Short-Term Bond ETFs could be worth checking out, as both give you a little more return without tying up your money for extended periods. You might consider individual bonds — both Government of Canada and Provincial bonds with shorter maturities around 3 years or less could be suitable choices. Provincial bonds offer slightly higher yields than Federal government bonds in the same maturity range, potentially providing a bit more return for a similar level of risk. If you’re considering a Provincial bond, look at both the yield and the Provincial credit rating, which can vary based on economic conditions, fiscal management and other factors specific to that Province. All these investment choices are available on the Investor’s Edge platform.

For the fixed-income choices in this group, it’s smart to build in some leeway between the maturity date of the investment and the date you’ll need the money. This leaves some room to account for settlement dates and any unforeseen delay in receiving the investment proceeds. You can then hold the funds in one of the products mentioned below.

It’s better to play it safe when your spending date approaches — you want to protect your cash rather than chasing higher returns. Shifting towards safer, shorter-duration options will help keep your money safe from the ups and downs of the market. It’s all about making sure your cash is there for you when you need it, without risking it for extra gains. Keep an eye on your investments, maturity dates if applicable, and your spending calendar, and make the appropriate tweaks as you get closer to your spending date.

There are a number of short-term options available at Investor’s Edge, including a variety of Money Market or High Interest funds. You might look at Money Market ETFs or High Interest Savings ETFs. Some investors consider short-term commercial paper, where you’re lending to a company for a short period of time. Keep in mind that this option carries some credit risk in the case of company default. While a money market mutual fund or ETF will hold a range of money market instruments, you can invest in individual money market instruments yourself. These include short-term government bonds, commercial paper, short-term mortgages and asset- backed securities.