Sitting on cash

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If you were to make a significant (relative to the person..) deposit into your TFSA with no immediate plans to buy stocks with it yet but just to have the cash in your account ready to trade when you see an ideal entry point, are there some particular stocks or ETF’s that you would “dump” this money into (a chunk of it anyways) so it can, hopefully, grow while you wait to sell it back and buy said stock you had your eye on? Or is this just a bad idea and better to let it sit as cash… Looking at timelines of say like 1 week to 1+ month, assuming 0 commission on trades

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Asked on February 23, 2021 4:18 pm
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So in most cases, I would say that if you need the money in this short of time frame, it's best to sit in cash.

However, seems to me like you want exposure to the equity markets with that bulk of cash, and then you're going to sell it off as you see fit when there is an opportunity to buy a stock?

If so, you could have a look at something like XAW. It's a global ETF ex Canada. Which means it contains exposure to the global markets, except Canada. Over 10,000 holdings in the ETF in total, so a single stock doing poorly in the ETF will not have a massive impact on it.

Keep in mind though, that you're opening up your money to potential fluctuations in market prices. For example, during the COVID 19 market crash in March, XAW lost 22% of its value. So if this happened and you were looking to buy something, you'd be forced to sell it at a loss, to buy the stock you want.

Again, XAW is just an example. There are a TON of these ETFs that track the broader markets and provide a little less volatility.

You could look to a money market fund or a bond fund as well over the short term. However, these will provide you with significantly less returns. Although, less volatility as well.

Sitting in cash is not THAT bad of an option as you average in. But if you're willing to accept the market risk that putting money in an investment presents, I'd go with a very broad based ETF.

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Posted by Dan Kent
Answered on February 23, 2021 7:58 pm