Should investors even bother with bonds?
Interest rates are very low right now, and have been for a while. The 10 year US Treasury Note yields 1.46% today and the 10 year government of Canada bond yields even less at 1.40%. Shorter term bonds yield even less. Five year GIC rates are a bit higher at around 2% or more from smaller banks and credit unions. Meanwhile, the latest inflation rates (CPI) for end of November was 4.7% for Canada and an astonishing 6.8% in the US – the highest since 1982. So, should investors even bother with bonds now? Here’s my advice:
- Make sure you have set aside enough cash money for emergencies.
- Make sure you have enough income and or cash / short term bonds like T-Bills for your retirement income for the next five years.
- Have the rest of the money invested in places other than traditional bonds:
- real return bonds or TIPS
- mortgage funds
- high quality blue chip dividend paying stocks
For a discussion of this topic by other financial professionals and myself, please see this article on moneysense.ca. For specific advice regarding your own circumstances, please call us.