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Portfolio panic? Read on
Investors might be understandably disappointed by their returns on the equity and bond markets this past year, as higher interest rates weigh on returns.
Experts who spoke to Global News this week say the expectations that central bank rates globally would be staying higher for longer put pressure on stocks as businesses face tighter borrowing conditions and expect diminished sales.
“Interest rates have been affecting everything dramatically, and I don’t use that word lightly,” says Michael Currie, senior investment adviser with TD Wealth.
With few indications yet from central bankers that interest rate cuts are imminent, some stocks might still have further to fall, Currie says.
“Are there bargains out there? Definitely,” he says.
“The only caveat I would give you there is if you really thought rates were going to stay high or continue to rise, they’re not bargains yet.”
Global News’s Craig Lord has more on where analysts expect markets and interest rates to head in 2024.
Navigating the mortgage market
Another market facing pressure from higher interest rates are the mortgage and housing sectors.
In this month’s edition of Home School, Global News broke down what goes into qualifying for a mortgage, and how you can get the cheapest rate — both for first-time buyers and those about to renew.
“The mortgage process can be very daunting, but not if it’s well-prepared for an advance,” says Shubha Dasgupta, CEO of Pineapple Mortgage.
The Bank of Canada’s rapid interest rate hikes over the past year and a half have made it more difficult for existing homeowners and prospective buyers alike to qualify for mortgages, limiting their ability to shop around. Dasgupta says talking to a mortgage professional as far in advance as possible to help improve your credit situation could open a borrower up to better options when it comes time to secure a rate.
But with signs the central bank’s policy rate might be at or near peaking, experts are advising some clients to look beyond the traditional five-year, fixed-rate mortgage to save money in the longer run.
Read more here to find out how long and what kind of mortgage might get you the best bang for your buck.
‘Beer tax’ increase looms
A looming cost hike facing brewers might trickle down to the consumer, an industry group is warning.
The so-called “beer tax,” a federal excise duty levied by the government, is set to rise 4.7 per cent in April 2024.
That increase could make beer up to 20 cents more expensive for a case of 24, according to CJ Hélie, president of Beer Canada.
The duty typically rises with inflation, but last year was capped at two per cent after lobbying efforts from the industry, forgoing a planned 6.4-per cent hike.
Beer Canada is hopeful the federal government’s upcoming fall economic statement will include good news for brewers with plans to cap the duty again.
Here’s what to know about the impact on your favourite brews should the hike go through.
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– THE QUESTION –
“We were a bit late opening an RESP for our 10-year-old daughter and we’re hoping to hit the contribution limit by the time she goes to university but are worried the savings won’t have enough time to grow to cover both her tuition and her other living costs. Are there other savings vehicles you’d recommend we contribute to, or even shift to entirely, to maximize the savings we can put aside for her in the next decade or so?“
— A Money123 reader
“I love your goal to create a nest egg for your daughter’s education. I’m making a pretty big assumption that you’ve got enough spare cash to be able to set aside a considerable amount for this purpose.
Yes, there is not a lot of time to get this money growing, but the key is to get started! First off, you should certainly double up on missed contributions to the RESP each year until she turns 18. If you can make up the entire shortfall, the capital contributed will be $35,000. The government grant equates to “growth” of 20 per cent immediately upon making the contribution, which will bring the total capital to $42,200.
Choose an investment product that has a 10-year time horizon for a reasonable expectation of growth on the entire fund. The asset mix can be revised as the target date for spending it comes closer. If you get an average of four per cent return on the account, I’d expect about $48,000 to be available when she starts on her journey.
If you think she’ll need more, then the earlier you can get additional capital invested the better. And you should do this in a tax-effective way. If you have TFSA contribution room, go for it because there is absolutely no tax payable on the growth. Again, your time horizon is about 10 years, so you can use an asset allocation that includes some equity investments.
Another option is to add $15,000 to the RESP – this is IN ADDITION to the annual contributions that attract the government grants. A four-per cent return could grow this extra money to $23,000. The growth will ultimately be taxed in your daughter’s hands when she goes to school.
Don’t go shooting for the stars in terms of expecting big returns. You don’t want to gamble the capital.”
– Lenore Davis, financial planner
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