Gordon Pape: Find a Better Return While Minimizing Risk
Gordon Pape advises a reader who wants a better return on her investments with minimal risk.
Q – I have a US$40,000 investment account. Right now, 40 per cent is sitting in cash, and I would like to put it into something safer for a couple of years. What would you recommend for an ETF? Bonds, T-bills, high interest account? Thank you for all you do to let the average “Jill” understand investing and money better. – Marjorie B.
A – First, let me point out that there is nothing safer than cash, so I assume your question is really about getting a slightly better return at minimal risk. The first question is to ask your broker if the firm offers U.S. dollar high interest accounts and, if so, what rate they are paying. Compare that with the results of a low-risk U.S.-based ETF, such as the iShares Short Treasury Bond ETF (NDQ: SHV). It invests in U.S. Treasury bonds with a term to maturity of less than one year. That’s about as safe as you can get in an ETF. This fund gained 2.33 per cent in 2019 but that was an outlier year. The average annual gain of 1.03 per cent over the past five years is more in line with what you might expect. There’s a management fee of 0.15 per cent. If your cash is earning nothing now, these options will give you a slightly better return. But your account is not going to increase in value very quickly if you stay with this plan. – G.P.
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