Personally, these days, I’m opting for safety and liquidity when it comes to what happens to the income I have left over — not because I think the market is going to crash or some recession is around the corner, but because after recently buying a house, I realized my emergency fund needs a serious boost!
If you don’t have one, consider this your reminder. Everyone should have an emergency fund. How much is enough? There’s no magic number, but a good rule of thumb is either three to six months’ worth of essential living expenses or 10% to 20% of your annual income set aside in something safe and accessible.
So, for me, the next $12,400 I earn, after taxes, bills, and everything else, isn’t going into stocks. It’s going into stability. One option I’m looking at is TD Cash Management ETF (TSX: TCSH). Here’s why.
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What is TCSH?
TCSH works by investing in high-quality, short-term debt — basically, very safe loans issued by the government, provinces, and major Canadian corporations. These include things like Treasury bills, term deposits, Guaranteed Investment Certificates, and certificates of deposit.
While the names may vary, what they all have in common is that they’re backed by strong credit-rated issuers and typically mature in less than a year, meaning less risk and more predictability.
The exchange-traded fund (ETF) itself trades around $50 per unit and slowly inches up in price as it earns income. Then, once a month on the ex-distribution date, the price drops by the exact amount paid out, which is how you receive your return. This is normal for income-focused ETFs and nothing to be alarmed about.
You’re not going to get rich, but you will earn a steady return. As of now, TCSH has a 2.96% yield to maturity, meaning that’s roughly what you’ll earn annually if rates and holdings stay constant. With a low 0.16% management fee, it’s a cost-effective way to keep your money safe, accessible, and working quietly in the background.
Why TCSH and not something else?
Some investors prefer to keep their emergency funds in a high-interest savings account or a GIC. That’s totally fine, and both are low-risk, conservative options. But personally, I don’t go that route for a few reasons.
HISAs, for example, are insured by the Canada Deposit Insurance Corporation (CDIC), which is great from a safety standpoint. But unless you’re constantly chasing promotional offers or switching institutions every few months, it’s hard to find a HISA today that pays more than what TCSH currently yields.
That’s because the underlying investments in TCSH, which are short-term government and corporate debt, often offer a bit of a yield pickup without sacrificing much in terms of safety.
As for GICs, they’re also ultra-safe and can be a good option if you want to lock in a competitive fixed rate. But that’s the double-edged sword: if you suddenly need the cash before maturity, you’re either out of luck or facing an early withdrawal penalty.
TCSH trades like a regular ETF and gives you daily liquidity. If you need the money, just sell with no penalties or hoops.
