“We’re in a transition period to a world where interest rates are going to be higher than what many people have gotten used to.” Governor of the Bank of Canada, Tiff Macklem. May 18th, 2023
As we move into a new normal of higher interest rates, a much different economy from the one we experienced during the 2010s and early 2020s, it is important to consider the investment opportunities that thrive in these economic conditions.
Short-Term Bonds
• Bonds perform better in an environment of higher, but not increasing, interest rates.
• Short-term investment grade bonds from blue-chip companies can be owned with a coupon rate of 5% or greater as of today.
• Short-term government bonds can be owned with a rate of 4% or greater as of today.
• Bonds can be used to invest any personal or corporate cash that isn’t required immediately or to offset risk and provide income in your portfolio.
GICs
• GICs provide secure returns guaranteed by the issuer making them low risk
• GICs have been above 4% for most of the last year.
• GICs can be used for any short-term investments or as a place to invest personal or corporate cash that isn’t required immediately.
Savings Accounts
• Savings Accounts offer immediate access to cash, with no risk and the potential of some interest.
• Due to higher interest rates, personal and corporate savings accounts are available with interest rates of 2.5% and greater, with some promotional offerings far exceeding this amount.
• These accounts can be used for any cash that is not currently required for day-to-day expenses or business operations.
Blue-Chip Stocks
• Some industry sectors tend to do better in higher interest rate environments rather than the historic low-rate environment of the past few years. Notably for Canadian investors, the financial sector is one that tends to outperform.
• There are many blue-chip stocks with strong, predictable profits that are trading at attractive valuations. Many of these stocks also pay out consistent dividends.
• These stocks can be used to achieve long-term growth in your RRSP, TFSA, personal non-registered, and corporate investment accounts
It is best to discuss your specific financial situation and how these investment opportunities can be utilized with your PROTECT financial advisor before deciding how to proceed. Contact us today!