Although financial advisors strive to create the most appropriate asset mix for clients based on their risk tolerance and other factors, it’s a safe bet that today’s wild markets have some of those clients looking for safe havens.

In most cases, the best advice is to stay the course. Making abrupt asset changes in the face of volatility, by moving out of equities and into cash or fixed income, is usually not the best strategy. But for uneasy clients, slightly tweaking the mix to increase the cash or fixed-income components can bring peace of mind. Your client can then re-enter equity markets when the time is right for him or her.

Moreover, this is an opportunity to assess your client’s existing short-term fixed-income/cash strategy to ensure that he or she is in suitable investments.

Fortunately, and in large part a function of demand from the ageing baby-boomer generation, there has been huge growth in safe havens for short-term money. The gamut ranges from newish high- interest savings accounts and government-issued Treasury bills, to market-following GICs and bankers’ acceptances.

> Savings Accounts. Clients who want the ultimate in liquidity and a relatively good rate of return should look into high-interest or premium savings accounts, territory first carved out by ING Bank of Canada.

In the high-interest savings realm, rates range from the 2% offered by traditional accounts at the major banks to as high as 4% for mainly online-based banks.

The high-water mark was established in September with the launch of Vancouver-based Peoples Trust’s 4% Peoples Choice account. That puts it at the head of the list that includes Citizens Bank of Canada, ICICI Bank Canada and State Bank of India (Canada) , all offering 3.4 %.

Most others are grouped around the 3 % mark, including President’s Choice Financial (3.05%) and ING Bank (3%).

These accounts are covered by insurance provided by the Canada Deposit Insurance Corp. (CDIC insures each qualifying account at a member institution to a maximum of $100,000. The limit was increased from $60,000 in 2005.)

> Canada Savings Bonds. Venerable CSBs, which went off the radar for many investors during the heady days of the equity boom, may be just the thing for anxious clients. Sold from October to April each year, they are available in two versions: Canada Premium Bonds and Canada Savings Bond.

The CPB offers a higher interest rate but can only be redeemed once a year, on the anniversary of the issue date and 30 days thereafter. Regular CSBs, however, can be cashed at any time.

Both are backed by the Government of Canada, offer regular or compound interest and can be held in registered plans such as RRSPs and RIFFs.

The April issue of CPBs offered guaranteed rates of return of 2.75% for one year, 2.9% for two years and 3.05% for three years. That works out to an average annual return of 2.9%. The minimum rate of CSBs was 2.45% for one year, but CSB rates can increase if market conditions warrant such a move.

> GICs. Traditional GICs — which have maturities ranging from one to five years and pay fixed interest rates — play a low-key but important role in stabilizing many investment accounts. But the product menu has expanded to include a raft of “enhanced” GICs.

“At Bank of Montreal we call them ‘progressive’ GICs,” says Judy Thomson, director of retail sales at BMO Retail Investment in Toronto. “The basic concept is it is like a GIC, but it has additional opportunities.”

With an product range similar to the other big banks, BMO offers 10 progressive GICs, with terms of two to five years that provide potential upside for investors by tracking either a basket of stocks, stock or bond indices, or a parcel of mutual funds. Investment minimum is $1,000 and the principal is CDIC-insured.

BMO’s popular three-year Select GIC, for example, tracks bank stocks in the S&P/TSX composite index, and offers investors a return ranging from zero to a maximum of 35%, depending on the bank index performance over the three-year time frame.

Although it’s one of BMO’s top sellers, it probably will not prove a winner for its first group of buyers. “The bank [stocks haven’t] done well,” says Thomson. “That is for sure.”

@page_break@One tried and true strategy involving GICs is to split the client’s capital into several equal portions and put the chunks into GICs with varying maturity dates. The advantage of this strategy is that it provides some protection from big swings — up or down— in interest rates.

> Treasury Bills. Among safe havens, a popular choice is Government of Canada treasury bills, which carry terms ranging from one month to one year and are fully guaranteed by the federal government. T-bills also have the advantage of being highly liquid — they can be sold at any time, can be denominated in Canadian or U.S. dollars, and are eligible for inclusion in RRSPs and RRIFs.

Typically, financial institutions require a minimum investment of $5,000 for three months to a year, and higher amounts for one- to two-month terms. The downside is that T-bills offer the lowest interest rates among money market investments. Currently, wholesale rates are 2% for one month T-bills and slightly higher for longer terms.

“You are talking 2% on the T-bill and 3% on the banker’s acceptance today,” says Adrian Mastracci, a fee-only portfolio manager and president of Vancouver-based KCM Wealth Management Inc.

> Banker’s Acceptances. Short-term promissory notes issued by corporations with the unconditional guarantee of a major Canadian chartered bank, bankers’ acceptances offer many of the advantages of T-bills. They carry terms from one month to a year, can be sold at any time and offer higher returns than T-bills.

They are also in high demand in times like these. “You have to get off the mark pretty quickly,” says Mastracci. “There were a few days when I called up and there weren’t any [banker’s acceptance notes available] and I had to settle for T-bills with lesser returns but higher quality.” The portfolio manager only buys banker’s acceptances from the top five banks.

> Money Market Mutual Funds. Money market funds, which invest in high-quality short-term securities, have long been considered a solid place for short-term cash. They provide good liquidity with steady if unexciting returns. For instance, the $701-million Investors Canadian Money Market Fund, sponsored by Winnipeg-based Investors Group Inc., posted a return of 2.9% for the 12 months ended Aug. 31. But the dramatic September market swoon may test money market funds’ popularity.

As is the case with all mutual funds, money market funds are not principal-protected, although fund managers try to maintain a constant $1 net asset value. But recently U.S.-based money fund stalwart Reserve Fund was caught with Lehman Brothers’ short-term debt and “broke the buck” — meaning the value of fund assets fell below the amount of money put in by investors, exposing them to losses.

Some advisors suggest that a weakness of money market funds is that it can be difficult it to find out what is held in their portfolios. “I do not use money markets of any sort,” says Mastracci. “I made some inquiries about what was inside some of [them] and didn’t get the answers that I wanted.”

Nonetheless, recent Investment Funds Institute of Canada statistics show a big movement of dollars into money market funds over the past year, as investors try to deal with the heightened volatility in capital markets. Assets in money market funds totalled $72.9 billion as of Aug. 31, up $24.5 billion from the prior year, IFIC says. IE