Personal Investor: The tide is turning for long-suffering savers
After a decade-long yield drought, it’s beginning to rain on savers. It’s just a sprinkle for now, but it’s not too early to ensure your catch basin is ready.
The Bank of Canada has raised its benchmark interest rate for the first time in seven years. It’s a signal the economy is growing at a healthy clip and further increases are expected.
That means long-suffering savers lucky to squeeze out three per cent a year in fixed income will finally be rewarded with higher yields.
Any diversified investment portfolio needs a fixed income component but many of those savers have had to venture into riskier equity-linked assets to meet their growth goals. As rates rise, they will be able to return to the relative safety of fixed income.
Decent yields will take time, though. For now, most advisors suggest laddering short-term maturities over several time periods to take advantage of rising yields as often as possible. New cash from contributions, equity sales, or other fixed income maturities can be deployed to ensure an even amount will mature each year.
Deciding how much of your portfolio should be in fixed income is a personal choice based on how soon you will need to draw income and your tolerance for risk. It’s a discussion you might want to have with an investment advisor.