Where should you put your money now that interest rates are falling?
Three interest rate cuts in, the Bank of Canada is now firmly entrenched in an easing cycle that has major implications for where Canadians’ money can earn them the best returns.
The shift from interest rate hikes to cuts warrants a “refresh” of Canadian portfolios, investment experts tell Global News.
“I think any time you see a shift or a potential shift in the cycle, it’s definitely worth taking a look,” says Derek Dedman, vice-president and portfolio manager at WDS Investment Management.
The Bank of Canada’s benchmark interest rate now stands at 4.25 per cent, 75 basis points lower than the peak of recent years. That has a direct impact on any loans Canadians might have with variable rates of interest, but also on certain savings vehicles.
Some of the most immediate impacts of rising and lower interest rates are felt in bond pricing, explains Josh Sheluk, chief investment officer and portfolio manager at Verecan Capital Management.
Bond prices head higher as interest rates drop and vice versa, he explains. Yields on these bonds will also follow the Bank of Canada’s direction on policy rates.
“As you think interest rates peak or interest rates might be coming down, that’s the time when you want to increase the interest rate sensitivity on the bond side of the portfolio,” he explains.
Other conservative income streams are also tied loosely or directly to the Bank of Canada’s policy rate.
Guaranteed investment certificates (GICs) typically allow customers to lock in their cash for a set return over a period of six months, a year, two years or more, sacrificing liquidity for certainty. GICs tend to closely mirror yields in the bond market, with a five-year GIC largely basing its yield on a five-year government bond, for
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