Interest rates remain at historical lows. This was meant to be a temporary measure to stimulate the economy after the financial crisis of 2008. And the consensus has been that rates will have to rise at some point — first in the United States, where the economy is performing better than in Canada.
On the other side of the interest-rate question, some are now saying that low rates are the new normal, that they may be with us for years. This presents both challenges and opportunities for fixed-income investors.
The challenge: When interest rates rise, prices of bonds and bond funds fall.
The opportunity: Higher interest rates mean investors will be able to earn better yields on their fixed-income holdings. Savers would also benefit from earning more on their money.
Whatever is happening with interest rates, there are two important takeaways for investors:
Takeaway #1. Fixed-income holdings still have a role to play in a diversified investment strategy. They provide stability to a portfolio — especially important during volatile markets — as well as regular income.
Takeaway #2. A growth component, such as equities and equity funds, can help investors get the returns they need to achieve their goals in a low-rate environment.
You can rely on us to monitor your portfolio, in light of your investment objectives, to help ensure you have the appropriate mix of equity and fixed income to reach your goals.
Larry Kleinmintz, R.H.U., T.O.T., M.D.R.T.
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