Surviving a bear market

In 1982, one of the best investments you could have made would have been a long-term Government of Canada bond. Aside from the security of owning a fund comprised of investments guaranteed by the Canadian government, you would have benefited from long-term bond yields north of 17 per cent.

In 1982, one of the best investments you could have made would have been a long-term Government of Canada bond. Aside from the security of owning a fund comprised of investments guaranteed by the Canadian government, you would have benefited from long-term bond yields north of 17 per cent. 

These were, of course, historically high yields — the likes of which were unprecedented and haven’t been seen since. 

While there are a number of theories, most attribute the incredible rally in financial markets that began in the early ‘80s to the death of disco.

Had you invested $50,000 in this mutual fund, reinvested the distributions, and held it, you would likely be sitting on over $1 million today. 

If only my dad had listened to me!

Keep in mind that you would have had to pay annual taxes along the way. 

Is the same opportunity there today? Probably not. 

Many believe that the multi-year bull market for Canadian bonds is over. Many feel that interest rates in the near term are more likely to rise than to fall. And if that is the case, Canadian bond funds will struggle. 

Are there alternatives? 

One effective way of managing the fixed income component of your portfolio is through a laddered bond portfolio. For example, invest 20 per cent in a bond that matures in one year, 20 per cent in a two-year, and so on up to five years (or more). Each year, as a bond matures, buy a new five-year bond.

If interest rates continue to rise, you will have the benefit of being able to reinvest at a higher rate annually. If interest rates fall, your longer term bonds will become more valuable, as they will be earning a better return than what is available in the open market.

A laddered bond portfolio can also be customized to match your income and liquidity requirements. A bond portfolio can be set up to provide income on a regular basis. A laddered bond portfolio also provides access to lump sums annually as individual bonds mature.

Most importantly, laddering your bond portfolio reduces risk. By customizing a bond portfolio to your specific needs, you reduce the risk that a bond would need to be sold prior to maturity, which can result in a loss.

For more on fixed income investing, please feel free to call or e-mail.

To receive PDF versions of this or previous articles please e-mail jim.grant@raymondjames.ca.

 

Jim Grant, CFP (Certified Financial Planner) is an Financial Advisor with Raymond James Ltd (RJL). The views of the author do not necessarily reflect those of RJL. This article is for information only. Raymond James Ltd., member CIPF. For more information feel free to call Jim at 752-8184, or e-mail at jim.grant@raymondjames.ca. and/or visit www.raymondjames.ca.

 

Just Posted

Farewell to Parksville Beach Festival for 2019

People’s Choice Awards tallied, organizers report another successful year

Group aims to preserve French Creek tree

Save Estuary Land Society says bald eagles used tree for nest

UPDATE: Nanoose Bay residents miffed as roadwork on Northwest Bay Road causing long delays

‘I sat in traffic for a half-hour and moved approximately 50 feet’

Oceanside RCMP officer makes Alexa’s Team

Munro able to stop and process 15 impaired motorists during the past year

Oceanside Generals boost arsenal for coming VIJHL season

Coach Lemmon gets a good look at players at main camp

VIDEO: RCMP unveil new, state-of-the-art forensics lab in Surrey

The laboratory is expected to handle thousands of forensic services from across Canada annually

Scheer promises EI tax credit for new parents if Conservatives form government

The government currently taxes employment insurance benefits for new parents

B.C. manhunt suspects left cellphone video before they died: family

Family member says Kam McLeod, Bryer Schmegelsky recorded final wishes

Parksville man, 75, goes missing from north Nanaimo home

Police dog services called in to help with search

B.C. seizes 1.5M grams contraband tobacco, down from 5.75M grams the year prior

The 2019-2020 seizures were a sharp drop compared to the 2018-2019 year,

B.C. Speaker tight-lipped about aide’s legislature security tour

B.C. Liberals question Alan Mullen’s drive across Canada, U.S.

B.C. sets rules for ride hailing, same minimum fee as taxis

Larger operating areas seen as threat by cab companies

Most Read