Increased Interest Rates: Should I Change My Asset Mix?
With the hike in interest rates, are you questioning whether you should take action and change your asset mix?
The increased rates may not seem like much right now, but the upward direction could be here for some time. The cost of paying for debt will rise, along with the returns you see for both new bonds issued and Guaranteed Investment Certificates (GICs). Higher rates for savings can be seen as a positive step forward for investors and it is a sign the economy is getting stronger. Unfortunately, when rates go up the value of existing investments with lower rates will drop as their value must compete with higher return options.
So, the question is, should you sell fixed income assets (bonds and GICs)?
Selling may seem like the logical idea, but it isn’t consistent with why you initially bought these types of assets. The purpose of buying fixed income assets was likely to help manage the volatility of your investment portfolio. If you have investments in a balanced fund, asset allocation fund or target date fund then you will be holding fixed income as well as equity.
As always, it comes back to having a diversified portfolio of equities and fixed income investments. Understand what your comfort level with volatility is and periodically speak with a financial advisor to ensure your investment mix is right for you and for the years of investing ahead of you. Remember to focus on the long-term and don’t make rash investment decisions based on short-term economic news or interest rate changes.