Even during the worst stock market sell-off there are usually safe haven investments. But the current economic environment has many people wondering if this one does. Stocks are crumbling, bond prices are tumbling, and cash is being eaten away by inflation.
So far in 2022, the Bank of Canada has raised its key lending rate three times, to 0.5% in March, followed by two more aggressive 0.5% increases, taking it to 1.0% in April and 1.5% in June. The Bank of Canada is just getting started and is expected to raise its key lending rate three more times in 2022 alone.
To tame galloping inflation, the Bank of Canada also said it was open to larger rate increases if needed. This could include a rate hike of 0.75% when it meets again in July. This gives investors even more reason to consider the benefits of a high-interest savings account fund.
As of this writing, the S&P 500 is in correction territory, down 18% from early January highs. A correction is defined as a drop of between 10% and not more than 20% from recent highs. The Nasdaq, meanwhile, is deep in bear market territory, down 27% from November 2021 highs. A bear market is defined as a drop of at least 20% from recent highs.
Will Stocks Continue to Fall?
The stock market sell-off has more room to run, too. Deutsch Bank AG cut its baseline market forecast and said the S&P 500 could drop to 3,000 if there’s a recession. That represents a 23.5% decline from current levels and a 37.7% drop from January 2022 highs. Bank of America Corp sees the S&P 500 closing out 2022 at 3,200—an 18% drop from current levels and a 33.5% fall from January 2022 highs. Credit Suisse sees the S&P going to 4,600.
Typically, when stocks fall, investors can find shelter in bonds. That’s because bond yields increase due to the increased demand for defensive assets. During the first quarter of 2022, all major stock indices were in the red. Despite that, bonds failed to provide any downside protection.
Investors might think that with all the uncertainty it makes sense to sit on the sidelines and wait until the stock market bottoms. Unfortunately, it’s impossible to predict when the stock market will bottom. If anything, analysts are calling for stocks to continue to slide.
How You Could Manage Inflation
Canadian inflation is at a 40-year high and U.S. inflation is at a 41-year high. That means the cost of everything is up. On top of that, inflation is chipping away at the purchasing power of that cash every single day.
Inflation is a kind of hidden tax that most investors don’t think about. They see how inflation hurts them at the grocery store and gas station, but don’t think about it when it comes to their wealth.
The fact is, the spread between income generated in a typical savings account and the income needed to actually beat inflation has never been wider. Sitting on cash means that the money will have less buying power tomorrow than it does today.
As a result, investors are left wrestling with two disparate wants: a safe place to park their money and a way to generate returns.
One popular investment investors are turning to, and a great place to park their money, is high-interest, cash alternative exchange traded funds.
What Are Cash Alternative ETFs?
Exchange traded funds, or ETFs, are an investment fund similar to a mutual fund. ETFs typically invest in a basket of individual stocks or government and corporate bonds all at once. A big benefit of investing in an ETF over a mutual fund is that ETFs trade like stocks.
There are literally thousands of ETFs available, targeting different stocks, assets, markets, investment strategies, and risk tolerances. The goal of a well-diversified ETF is to track the performance of the underlying index or industry it follows.
A high-interest ETF makes deposits in high-interest savings accounts at major financial institutions. This allows investors to profit from the underlying accounts’ return rates. All of which have been steadily increasing alongside rising interest rates.
High-interest savings account ETFs are ideal for investors who are:
- Seeking exposure to high-interest deposit accounts with attractive yields
- Looking for a convenient, liquid, and short-term investment
- Wanting to generate reliable monthly cash flow
- Wanting a low-cost investment
Investors are facing a lot of uncertainty right now and with inflation eating away at consumers’ purchasing power, sitting on the sidelines isn’t an option. One of the best ways to fight inflation and generate income is through an ETF that is tied to a high-interest savings account.
HISA ETF: High Interest Savings Account Fund
Evolve’s High Interest Savings Account Fund (NEO: HISA) seeks to maximize monthly income while preserving capital and liquidity by investing primarily in high interest deposit accounts with four of Canada’s big six banks. It is available in ETF and mutual fund classes (Class A and Class F). To learn more about HISA ETF, please visit our website or go to the HISA ETF fund page.
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