In Search of Bond Yields and Safe Haven

In my previous post, I discussed the role of Bonds in mitigating risk in your investment portfolio. In the era of low interest rates, purchasing a Canada 10-year government bond yielding 2.1% is not going to generate the necessary income to survive unless you have several million dollars to invest. Corporate bonds probably pays 1% or more than  government bonds. I then search for other countries government bonds to see what they yield.

Interest Rates and the role of Bonds/Fixed Income in your portfolio

With global interest rates beginning to rise due to central bank unwinding their balance sheet and low interest rates policies, this is indeed positive news for retirees, prospective retirees or investors seeking a safe haven from the volatility in investing in equities. Mind you, I think we are still in the early stages of a rising interest rate environment. Based on historical evidence, equities will continue to do well in the initial stages of rising interest rates (due to indication of economic growth).

How to identify the FI in you?

How do you know that you are not already a Financial Independence Retire Early)(FIRE) or aspire to be one?  If you answer "YES" to most of the following questions based on my observations and my personal traits, then I congratulate you for joining the bandwagon.

Retirement Planning beyond just Investment

As a practicing Certified Financial Planner (CFP^®), I always advise my clients to look at retirement planning on beyond just the numbers. I can always input different assumptions, i.e. return on investments, allocation between equity and fixed income, longevity and inflation rate to arrive at the desired outcome. Since these are just assumptions used to project outcome for 25 years or more, there could be adverse deviations that could drastically impact the final outcome. A significant and prolonged market correction, and we are certainly due for one, can significantly lower the investment balances.

Investing in ETFs

The cost of investing in Exchange Traded Funds (ETF) is continuing to decrease has become FREE. National Bank of Canada recently announced that investors will no longer have to pay commissions on all Canadian or US ETFs.  Prior to this, Questrade offers no commissions on ETF purchases only, while  Scotiabank’s ITrade also offers no commissions on selected ETFs.   Sooner or later, all major brokerages will follow suit.